Financial Management for all

The Age of America comes to an end, finally.......

2011-04-28T11:33:00.000+05:00

American dollar is losing to Canadian, Australian and even to Singaporean dollar and losing so fast that its parity changes before the flight originating from Los Angeles lands at Sydney. This rings alarms bells but nobody seems to be listening. Does the losing American dollar signal America’s loss of its economic hegemony? Will China be crowned as economic power much ahead of the estimates? Does it have anything to do with steady rise in the price of gold? The events are unfolding at pretty faster pace. The economic gurus had predicted China to be Number One economic power of the world by 2050. Some more ambitious had set this date somewhere closer to 2030. But the International Monetary Fund has rejected all those estimates and has just dropped a bombshell. For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China. And it’s a lot closer than you may think. According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.

According to Market Watch, the IMF assessment provides a painful context for the budget wrangling taking place in Washington right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power. According to the IMF forecast, which was quietly posted on the Fund’s website just two weeks ago, whoever is elected U.S. president next year will be the last to preside over the world’s largest economy.

Most people aren’t prepared for this because they were looking at GDP to make comparison between China and the USA using current exchange rates. IMF analysis also looked to the true, real-terms picture of the economies using “purchasing power parities.” That compares what people earn and spend in real terms in their domestic economies. Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and rising. Just 10 years ago, the U.S. economy was three times the size of China’s.

The report says that this is more than a statistical story. It is the end of the Age of America or its economic hegemony. We have lived in a world dominated by the U.S. for so long that there is no longer anyone alive who remembers anything else. America overtook Great Britain as the world’s leading economic power in the 1890s and never looked back.

China’s neighbors in Asia are already waking up to the new reality. The rise of China, and the relative decline of America, is the biggest story of our time. You can see its implications everywhere, from shuttered factories in the Midwest to soaring costs of oil and other commodities. Last fall, when I attended a conference in London about agricultural investment, I was struck by the number of people there who told stories about Chinese interests snapping up farmland and foodstuff supplies — from South America to China and elsewhere.

This is the result of decades during which China has successfully pursued economic policies aimed at national expansion and power, while the U.S. has embraced either free trade or, for want of a better term, economic appeasement.

“There are two systems in collision,” said Ralph Gomory, research professor at NYU’s Stern business school. “They have a state-guided form of capitalism, and we have a much freer former of capitalism.” What we have seen, he said, is “a massive shift in capability from the U.S. to China. What we have done is traded jobs for profit. The jobs have moved to China. The capability erodes in the U.S. and grows in China. That’s very destructive. That is a big reason why the U.S. is becoming more and more polarized between a small, very rich class and an eroding middle class. The people who get the profits are very different from the people who lost the wages.”

What the rise of China means for defense, and international affairs, has barely been touched on. The U.S. is now spending gigantic sums — from a beleaguered economy — to try to maintain its place in the sun. It’s a lesson we could learn more cheaply from the sad story of the British, Spanish and other empires. It doesn’t work. You can’t stay on top if your economy doesn’t. Equally to the point, here is what this means economically, and for investors.

The U.S. Treasury market continues to operate on the assumption that it will always remain the global benchmark of money. Business schools still teach students, for example, that the interest rate on the 10-year Treasury bond is the “risk-free rate” on money. And so it has been for more than a century. But that’s all based on the Age of America. No wonder so many have been buying gold. If the U.S. dollar ceases to be the world’s sole reserve currency, what will be? The euro would be fine if it acts like the old Deutschmark. If it’s just the Greek drachma in drag … not so much.

Related link:

Will China be the world's largest economy in next five years?

Who is the real beneficiary of POL price decision, ruling party or the masses?

2011-01-12T22:17:00.001+05:00

The government has reversed the decision of increase in the petroleum prices. It is said that this has been done under the pressure of opposition parties and the allies in order to provide relief to inflation-hit people. Those who know the fact think that this is not a correct statement. As a matter of fact, the decision has been taken to save the government because the ruling party had lost the majority in the house and a moral right to continue in power. But will this decision provide any relief to the poor masses?

The answer is no. Any decision which is taken to sail through the current of present crisis will not help, rather it will have devastating effects on the economy and the people. The shortfall created by POL subsidy will be met through deficit financing i.e. printing of currency which will be more harmful for the economy as the governor of the central bank has already been saying very loudly. There is only one way to provide relief to the masses; mobilization of resources and making the rich to pay their share now. Eminent economist Dr Ashfaque H Khan, in his article which appeared in the News International says that by backtracking on the fuel prices, the government has attracted severe criticism from all those who have interest in Pakistan’s economy. In so doing, the government has exposed itself as being a lame-duck government, desiring to stick to power at any cost and willing to be driven by the opposition’s agenda. It has also lost its credibility in the eyes of the international financial institutions.

The article accuses the economic team of having failed to draw the line between profligacy and discipline, between bad and good economics, between reforms and status quo, and between expenditures of political and economic priorities. The economic team did not take any stand when the cabinet approved a 50-per-cent increase in the salaries of government servants, at a time when the country was facing severe financial difficulties. They just kept quiet and became party to this profligacy.

The also accuses the economic team of actively accommodating the Multan and Larkana Packages in the PSDP, but took no time in cutting the budget of higher education. In the process, they lost respect in the eyes of most educated members of the society. Despite the bad financial health of the Banks of Punjab and Khyber before us, the economic team, including the governor of the State Bank of Pakistan, gave the license to the government of Sindh to set up Sindh Bank, with Rs10 billion’s capital. At a time when bank mergers are taking place in Pakistan, the setting up of yet another public-sector bank was a bad decision. The new bank’s fate will not be different from the fates of the banks mentioned above. A bailout from budgetary resources cannot be ruled out.

The article has enumerated the following economic consequences of withdrawing the fuel price hike:

At the current international price of oil, the revenue shortfall will be Rs5 billion per month. The government has a collection target of Rs110 billion on this account in the 2010-11 budget. The government has thus far collected Rs35 billion and the remaining Rs75 billion is to be collected in the next six months. Under the assumption that the international price of oil remains at the current level, there would be a Rs30 billion shortfall in PDL.
The slippages on both the revenue and expenditure side are likely to take the current year’s budget deficit in the range of 7.5-8.0 per cent of GDP. In other words, Pakistan would need at least Rs1,300 billion to finance its fiscal deficit this year. With dwindling external inflows, the reliance for financing of deficit would be on the domestic side—more so on direct borrowing from the SBP. Thus, the printing machine of the SBP will keep on pumping money into the economy, with all the inflationary consequences of such an action.
The government thought that by withdrawing the fuel price hike it provided relief to the people. But through printing more money it will fuel inflationary pressure with serious consequences for the same people.
There are indications that oil prices are likely to rise further in 2011 on account of the stronger than anticipated recovery of the world economy, including the United States’. The lame-duck government will not be able to pass on the high cost of energy to domestic consumers. This will be a replay of 2007-08, when the-then government, including the caretakers, did not pass on the high price of oil, and the country had to pay a high price for its inaction. The nation should therefore be ready for action replay.
The agenda of tax reform, including the RGST, is dead, and as such, Pakistan’s relations with the international financial institutions, including the IMF, appear to have become strained. In such an environment, external inflows to keep the economy afloat are likely to be affected. A lame-duck government and its economic team are very damaging for the economy. They have lost the capacity to take difficult decisions. Time is not on our side.

Money can buy anything, even the weather of your choice…

2011-01-04T09:04:00.000+05:00

Money can buy anything, even the weather of your choice. If you are fed up with hot and dry weather of the deserts, you can put science to your service and bring a nice change through artificially induced rain showers and even the hailstorms like the Chinese created snowfall sometimes back. It is like controlling the Mother Nature. Time has reported that as part of a secret program to control the weather in the Middle East, scientists working for the United Arab Emirates government artificially created rain where rain is generally nowhere to be found. The $11 million project, which began in July, put steel lampshade-looking ionizers in the desert to produce charged particles. The negatively charged ions rose with the hot air, attracting dust. Moisture then condensed around the dust and eventually produced a rain cloud. A bunch of rain clouds. On the 52 days it rained in the region throughout July and August, defeating the weather forecasters who did not predict rain once.

While fascinating, this is not the first time scientists have attempted to mess with Mother Nature. The idea that countries in the Middle East could actually create rain in this water-poor region could go a long way to solving the area's problems with drought and is considered to be cheaper than desalination. But how controllable the weather can be is still in doubt, and the consequences of meddling with nature at this level are yet to be seen.

China did this a year ago. A Nov. 1, 2009 snowfall in Beijing — the city's earliest since 1987 — was due to a campaign of "cloud-seeding" to encourage precipitation. If true, it's the wettest success yet in a long-standing effort to bring moisture artificially to the parched northern regions of China. The same magazine in a separate story explains the phenomenon; colder air encourages precipitation, so when the temperature drops at high altitude, water naturally condenses out of the air. Clouds are formed when this moisture, suspended in tiny droplets or crystals, meets a condensation nuclei — small particles of dust or ice that are blown about the upper atmosphere. Without these small particles, clouds can't form. The method of cloud-seeding used by the Chinese involves dosing the atmosphere with silver iodide, a chemical solution either dropped from planes or shot up from the ground.

The silver iodide particles supercharge cloud formation, as they act as excellent condensation nuclei. Once clouds form, they also start a positive feedback effect. As droplets freeze and are added to the cloud, they release their heat, creating an updraft which draws additional moisture from the ground into the atmosphere. That's the theory, anyway. The effectiveness of cloud-seeding is still disputed, because it's difficult to say with any certainty that cloud-seeding is responsible for a storm rather than Mother Nature. But if you choose to believe in cloud-seeding, the Chinese scientists may have even overdone it. The snowstorm lasted for 11 hours, disrupting flights in and out of Beijing and hampering shipping off the Chinese coast. Still, expect few complaints from the generally dry region; it's the most accumulation the city's seen in a decade, and further proof the Chinese may be becoming the world's best at managing weather. In a 2008 experiment, scientists seeded clouds in advance of the Beijing Olympics, successfully ensuring clear skies for the opening ceremony.

Despite sanctions, American companies can do business with Iran….

2010-12-25T18:50:00.000+05:00

US government is continuously pressurizing Iran to give up its nuclear program. This pressure is being exerted through various means one of which is isolating the target country through sanctions. Only a couple of days ago, the Obama administration imposed new sanctions on Iran, serving notice that it will not ease the pressure on Tehran just because it has begun talking again with the West about its nuclear program. According to a New York Times report, the measures announced by the Treasury Department — aimed at three companies linked to the Islamic Revolutionary Guards Corps and at Iran’s national shipping line — are less important than the timing. They come two weeks after Iran held chilly talks in Geneva with the United States and other countries, which accomplished little beyond an agreement to meet again in Istanbul in late January.

The tightening of the economic vise reflects the administration’s conviction that its pressure tactics are inflicting genuine pain on Iran. It said five Iranian ships had been seized in Singapore and other ports after the Islamic Republic of Iran Shipping Lines defaulted on more than $500 million in debt.

Notwithstanding these fresh sanctions and decades old embargoes, over the past decade the United States government has allowed American companies to do billions of dollars in business with Iran and other countries blacklisted as state sponsors of terrorism, an examination by The New York Times has found. In a separate report carried by New York Times, at the behest of a host of companies — from Kraft Food and Pepsi to some of the nation’s largest banks — a little-known office of the Treasury Department has granted nearly 10,000 licenses for deals involving countries that have been cast into economic purgatory, beyond the reach of American business.

Most of the licenses were approved under a decade-old law mandating that agricultural and medical humanitarian aid be exempted from sanctions. But the law, pushed by the farm lobby and other industry groups, was written so broadly that allowable humanitarian aid has included cigarettes, Wrigley’s gum, Louisiana hot sauce, weight-loss remedies, body-building supplements and sports rehabilitation equipment sold to the institute that trains Iran’s Olympic athletes.

Hundreds of other licenses were approved because they passed a litmus test: They were deemed to serve American foreign policy goals. And many clearly do, among them deals to provide famine relief in North Korea or to improve Internet connections — and nurture democracy — in Iran. But the examination also found cases in which the foreign-policy benefits were considerably less clear.

In one instance, an American company was permitted to bid on a pipeline job that would have helped Iran sell natural gas to Europe, even though the United States opposes such projects. Several other American businesses were permitted to deal with foreign companies believed to be involved in terrorism or weapons proliferation. In one such case, involving equipment bought by a medical waste disposal plant in Hawaii, the government was preparing to deny the license until an influential politician intervened.

In an interview, the Obama administration’s point man on sanctions, Stuart A. Levey, said that focusing on the exceptions “misses the forest for the trees.” Indeed, the exceptions represent only a small counterweight to the overall force of America’s trade sanctions, which are among the toughest in the world. Now they are particularly focused on Iran, where on top of a broad embargo that prohibits most trade, the United States and its allies this year adopted a new round of sanctions that have effectively shut Iran off from much of the international financial system.

Trade relations are the only way to ease tension ....

2010-12-16T20:11:00.001+05:00

India and China are worst of the enemies with border disputes and arms race intensifying the tensions. But both the countries have mutual trade worth $60 billion a year which they plan to boost to $100 billion. The Chinese PM Wen’s charm offensive during his current India visit aims at capturing, not the territory, but maximum slice of its market. Indian aims are no different.

Why is it important to have trade relations between the adversaries? It eases the tension, it raises the stake in each other’s stability and well-being and it is the first step for a tension-free relations. India and China have bitter memories of the past, their disputes are of the nature and scale that they should have fought many wars in the last twenty five years or so but they have put their disputes on the back-burner, only to be resolved with the passage of time. They have focused on boosting economic ties in which they seem to be making progress. Both are trying to become economic and military power, they have developed their military machines to advance their hegemonic agenda in the region but they have not lost sight of the importance of smooth economic ties.

According to media reports, Wen’s visit, the first by a Chinese premier to India in five years, has looked carefully choreographed to improve ties between two countries which, between them, are home to more than a third of the world’s population. Arriving with more than 300 business leaders on Wednesday, Wen said that India and China were not rivals and there was room in the world for both powers to develop. The two sides said they were aiming to raise bilateral trade to $100 billion by 2015 from $60 billion in 2010, partly driven by greater access for Indian firms to Chinese markets. “The two sides agreed to take measure to promote greater Indian exports to China with a view to reduce India’s trade deficit,” the joint statement said.

India and China are the world’s fastest-growing major economies. But India fears China wants to curtail its rise as a global power, and is concerned about Beijing’s close security ties with Pakistan where Wen arrives on Friday on the second part of his trip. The joint statement outlined Beijing’s support for United Nations Security Council Resolution 1267, which calls for sanctions against the Lakshar-e-Taiba militant group that New Delhi blames for the attack and accuses Pakistan of harbouring. India also fears China wants to restrict its global reach by possibly opposing its bid for a permanent U.N. Security Council seat or encircling the Indian Ocean region with massive projects from Pakistan to Myanmar.

China reiterated its support for India’s aspirations to play a greater role in the Security Council, but it stopped short of expressing full backing for India. Long wary of Washington’s influence in South Asia, Beijing’s overtures toward New Delhi come just a little over a month after U.S. President Barack Obama’s trip to India, during which he endorsed India’s long-held demand for a permanent seat. Wen’s avuncular style contrasts sharply with that of Singh, who is seen as shy and lacking charisma. Singh is also engulfed in what may be India’s biggest corruption scandal, threatening the stability of the Congress party-led coalition government. Wen announced on Wednesday that Chinese companies would sign deals with Indian firms worth more than $16 billion ranging from power equipment to telecoms gear, underscoring business was driving the relationship, for now.

Chinese banks will provide the bulk of lending for these deals. Although both India and China have said they are exploring a possible free-trade agreement, no real progress is expected on that front as there is some skepticism in New Delhi that Beijing may only want to dump cheap manufactured goods on India’s booming $1.3 trillion economy. China is now India’s largest trade partner and two-way trade is expected to reach $60 billion in 2010/11 compared with a target of $40 billion. Trade was $13.6 billion in 2004/05 and $3 billion in 2001/02, illustrating the phenomenal growth rate. Still, total investment by China in India is small, amounting to only $221 million in 2009, representing about 0.1 percent of China’s total outward foreign direct investment in that year. That figure is seven times less than what China has invested in Pakistan, according to official data.

While the two are often lumped together as emerging world powers, China’s GDP is four times bigger than India’s and its infrastructure outshines India’s dilapidated roads and ports, a factor that makes New Delhi wary of Beijing’s growing might.

Can India and Pakistan, in spite of tensions, boost their trade ties. They have to fight a common enemy killing them day in and day out; and that is poverty?

BRIC all set to have a second eye….

2010-12-11T22:15:00.002+05:00

The world is changing so swiftly that sometimes something very obvious gets blurred and something out of blue catches your sight. Today, we are sitting with our fingers crossed deeply thinking who is going to be the economic power of tomorrow. People are betting their nickels on either China or India. The quick and smart calculations conclude no different outcome.

Does the next decade of economic development really belong to Asia? Absolutely. Is it China or India? Well, neither, and some people are ready to bet on this. They think it is neither China nor India, not even Malaysia and South Korea. Some people, in 2004-07 had this misplaced illusion that future belongs to Pakistan's fast growing economy. Perhaps they got carried away by short-term economic growth during Musharraf era. No more, Pakistan is not only out of the race, it is struggling for its economic survival.

People are now talking about a country which was relatively unscathed by the global financial crisis, its economy was projected to grow at a healthy 6.1 percent clip in 2010 and 6.3 percent next year, one of the fastest rates in Asia (and the world). What's more, its per capita GDP is projected to increase almost 20 percent in the next two years. Since 2009, this country has had Asia's second-best-performing stock market. A number of analysts are now suggesting that the BRIC (Brazil Russia, China, India) grouping might soon need to add another I.

Yes, this is Indonesia. According to The Stories You Missed in 2010, part of Indonesia’s growth is driven by the country's abundant natural resources. The country is a major exporter of timber, coal, and silver and its manufacturing sector is growing as well. Chinese clothing and furniture companies, which prospered by making goods for the American market, are now increasingly moving production to Indonesia, taking advantage of a free trade agreement between the two countries, which is just now coming into effect.

A peaceful and orderly presidential election last year reassured international markets of the country's political stability, and Indonesia's foreign direct investment increased 34 percent this year to $3.7 billion in the second quarter. Some obstacles remain, of course. The country's banking sector is still fairly undeveloped. This helped Indonesia avoid the worst of the market crash. Poor infrastructure and official corruption also continue to hamper development in many parts of the country, though arguably this is the case in China and India as well. Indonesia also has one of the world's highest deforestation rates, though it pledged a two-year moratorium on logging in May.

The country still has a poverty rate of around 14 percent, which increased slightly this year due to the financial crisis, but Deutsche Bank projects that 52 million Indonesians will enter the middle class in the next five years, a development with potentially monumental consequences. And it's not just an economic story: Indonesia stands a good chance of becoming the world's first Muslim and democratic superpower.

Agosta-famed Sarkozy seeks business, this time with corruption-ridden India….

2010-12-05T16:17:00.003+05:00

World leader seem to have queued up to do business with India. After President Obama, the Agosta-famed French President Nicolas Sarkozy has also arrived in India which is rocked by powerful corruption scandals in G2 license cases. He landed saying that nuclear energy will now be the focus of Indo-French cooperation as the south Asian country aims to increase its power generation capacity to sustain brisk economic growth.

"We all know how critical it is for India to ensure its energy security," Mr. Sarkozy said in a speech at the Indian Space Research Organization. "India and France share the belief that nuclear energy can provide an unparalleled response to this challenge," he added. India aims to increase its nuclear power capacity to 63,000 megawatts by 2032 from 4,560 MW now, less than 3% of its total energy needs.

"This is more than a change of scale. It's a change of attitude and I'm proud that France is supporting India in this historic process," Mr. Sarkozy said.

Last February, France's Areva SA signed a deal that could top US$12.3 billion with India's Nuclear Power Corp. to supply between two and six 1,650 MW reactors to generate nuclear power. French President Nicolas Sarkozy arrived Saturday on a four-day visit to India, seeking to drum up business for French firms, with a deal expected on building nuclear plants to feed the Asian giant's burgeoning energy needs.

India Real-time Blog on the Wall Street Journal says that despite some striking similarities, Mr. Sarkozy’s itinerary shows that his priorities are somewhat different from those of President Obama.His India agenda is also shaped by his new role as chairman of the Group of 20 major economies—this is his first visit to a foreign country in this role. Mr. Sarkozy will be focusing on the very big picture, like international governance and the future of the global economy.

Mr. Sarkozy and his wife will kick off their trip in Bangalore, India’s information technology capital. He will visit the Indian Space Research Organization, where Indo-French satellite projects are currently underway. Bangalore didn’t make it in Mr. Obama’s itinerary. That saved him from having to discuss at length the uncomfortable topic of outsourcing U.S. jobs to India, a thorny topic in the U.S. In France, outsourcing is not a politically sensitive issue. So Mr. Sarkozy will be free to praise India’s IT industry. On Saturday night the Sarkozys will leave for Agra, to wake the next morning in the shadow of the Taj Mahal.

Mr. Sarkozy is also likely to seek India’s endorsement of France’s key G20 policy goals: reforming the international monetary system, addressing the volatility in commodity prices and restructuring global governance. As a quid pro quo, he may back India’s permanent membership to the United Nations Security Council, and for sure he will criticize Pakistan only to be taken seriously by his hosts. He has already lost face at home and abroad due to corruption charges. Same is the case with Dr Manmohan Singh and his Congress government.Let us see how does he fare in India.

India, where even the bankers can not be banked upon....

2010-11-25T16:46:00.002+05:00

Bankers all around the world are icons of integrity. "To bank on" means to have complete trust in someone in money matters but this has been falsified in India where bankers are writing history in the vast magnitude of corruption. India's reputation as a place to do business took another hit after the scandal-tainted government charged top public sector bankers with accepting bribes worth hundreds of millions of dollars. Reuters has reported that the scandal is one of the biggest to taint India, potentially harming the image of Asia's third-largest economy as destination for foreign investors, especially as it comes a few days after Prime Minister Manmohan Singh has had to defend his government in another graft scandal involving telecoms licenses sold at rock-bottom prices. This has led Indian Finance Minister Pranab Mukherjee to ask all banks, financial institutions and insurance firms to look into their exposures to firms named by federal investigators in the case.

The scandals are unlikely to deter investors from India, one of the four key BRIC emerging markets in the world and a hot investment destination, analysts say. "Anyone who has been an investor in India, has to be familiar with issues like these," Vikas Pershad, Chief Executive of Veda Investments in Chicago. "So, if someone is pulling out of India based on the recent events, he or she is really mistaken. The long-term growth story is intact."

Investors are keen to tap into a country with a young and fast-urbanizing population of 1.2 billion. Economic growth is forecast at 8.5 percent in 2010-11, and then between 9 and 10 percent every year after that, levels rivaled only by China. India was ranked 87th in Transparency International's 2010 ranking of nations based on the perceived level of corruption. India lies behind rival China, which is in 78th place. Shares in companies affected fell sharply since the scandal broke, underperforming the Mumbai stock index. "The gratifications are huge, more than thousands of crores (hundreds of millions of dollars)," CBI Joint Director P. Kandaswamy told reporters on Wednesday. The arrests are the culmination of a year-long investigation across five cities in India, the CBI said. The Delhi government, however, sought to play down the scandal, saying it was an isolated incident.

The CBI said those arrested included senior officials at state-run Central Bank of India, Punjab National Bank and Bank of India -- all major banks with operations across the country. The executives in custody have yet to comment on the charges, but the companies involved have all denied any knowledge of wrongdoing and said they would review their internal regulations.

This is the fourth big Indian corruption scandal to blow up involving the Congress party in the past month and a half. India's government has been jolted by controversy over licenses and radio airwaves that a state auditor says were given out too cheaply, and often to companies not eligible , depriving the government of up to $39 billion in revenues. The telecoms minister was forced to resign and the prime minister has been asked to explain himself to the Supreme Court. Opposition parties want a full parliamentary probe and have blocked proceedings until the government relents.

Before that, the Commonwealth Games that India hosted were also riddled with corruption allegations. A large housing scam has also rocked the government where party officials, bureaucrats and military personnel are accused of taking land belonging to war veterans and building luxury flats. The government has resisted additional probes into the telecoms scandal, saying a CBI investigation is under way.

That has weakened the government's ability to move key economic measures and delayed legislation in areas such as banking and mining , although the government is not at risk of collapsing.

Blind-folded TI cannot see India's massive corruption in telecom sector alone.....

2010-11-21T00:44:00.006+05:00

Transparency International seems to have special love for Pakistan but it looks the other way when stories of mass corruption in India are unearthed. One instance of corruption of $ 39 billion in telecom sector alone is enough to cost Indian Congress its government. It was of such a huge proportion that Indian Supreme Court had to take a notice of it leading to embarrassment of the ruling party and of Prime Minister Manmohan Singh. Mr. Singh stands out among Indian politicians for his impeccable reputation for probity. And no-one is suggesting that he in any way benefited from the tainted 2008 second-generation spectrum allotment that has led to dramatic revelations in the past few weeks and forced the resignation last weekend of the telecommunications minister, Andimuthu Raja.

But the Supreme Court's direct criticism of the prime minister for failing to take quicker action over a request for a probe into the allotment process has brought a whiff of scandal to Mr. Singh's doorstep for the first time since he assumed power in 2004. Although he is a noted economist famous for introducing India's market-led reforms in 1991, much of Mr. Singh's political support rests on the perception that he is above reproach in administrative matters and abhors any suggestion of corruption in his ministerial ranks.

This shows how misleading are Transparency International corruption perception indices pertaining to Pakistan. TI seems to have special love for Pakistan which is reflected in the light TI keeps Pakistan in on perennial basis. TI seems to have no clue to the volume of ill-gotten wealth in India. Putting a number on corruption in India may be tough, but a new report by a U.S.-based non-profit group tries to do just that. So, how much has India lost from corruption since independence? Well, Global Financial Integrity says $213 billion, or at least $462 billion at today’s prices, was illegally transferred overseas between 1948 and 2008.

The figure is unlikely to account for all money from corruption as some is kept onshore, reports Wall Street Journal quoting GFI source. But the number is likely to feed debate in India, where the media and ordinary citizens are getting angrier than usual about graft. Graft is as old as the hills, but alleged corruption scandals surrounding the Commonwealth Games in October appear to have given a focus to citizens’ wrath in recent weeks.

The Congress Party’s leadership has responded by pushing for the resignations of a number of top lieutenants. These include Telecoms Minister Andimuthu Raja, who stood down at the weekend amid allegations of improprieties in his handling of a mobile phone spectrum auction. Mr. Raja denies wrongdoing. GFI’s report finds that illegal capital flight accelerated after India’s financial deregulation and trade liberalization in the early 1990s and was aided by the expansion of secretive offshore financial centers in the Caribbean and elsewhere. It also claims a statistically significant link between this uptick in capital flight and an increase in income inequality in India, which is fueling the public’s discontent. Measuring malfeasance is by necessity an inexact science. But here’s how Dev Kar, a GFI economist who wrote the report, went about it.

Rich individuals, criminal bosses and corrupt government officials in India prefer to stash their ill-gotten gains offshore, where it’s safer from the prying eyes of local authorities. To estimate the size of these outflows, Mr. Kar looked at India’s recorded source of funds and its use of funds. Sources of funds include money coming into the country through net foreign direct investment and additions to the public sector’s stock of borrowing from overseas. A country can use these funds to finance its current account deficit (when total imports of goods services and transfers is greater than exports) and to build up its foreign reserves.

In a case where the recorded sources of funds is greater than recorded use of funds there must be illicit outflows of capital.(Conversely, when use of funds exceeds sources of funds there must be illicit inflows.) Mr. Kar makes a number of complicated adjustments to this model, but those are the basics. He arrives at $213 billion in illicit outflows between 1948 and 2008. He then uses the rate of return on a short-term U.S. Treasury bill as a proxy for a return on this capital over the years. The present value of the outflows, or the current value of India’s illicit assets held abroad, is $462 billion, Mr. Kar surmises.

Another study cited by Mr. Kar forecast India’s underground economy to be worth about $640 billion at the end of 2008, or half of India’s recorded Gross Domestic Product. So, India’s stock of assets held illegally overseas may account for almost three-quarters of the country’s underground economy. As Mr. Kar says, “the desire to amass wealth illegally without attracting government attention is one of the primary motivations behind the cross-border transfer of illicit capital.”

The biggest democracy spends billions to spy on its citizens ….

2010-11-17T22:15:00.000+05:00

India’s telecom sector is mired with scandals costing telecom minister his job. He is accused of awarding licenses in a non-transparent manner to those who did not qualify. According to the report of CAG of India, the scandal could cost $39 billion to the Indian taxpayers. As if this was not enough, India's department of telecom (DoT) has proposed to build a 5.4 billion rupee ($122.3m) centralized surveillance system for all the nation's telecom platforms. It shows how a security state has to throw away taxpayers money on spying on their telephone calls. So much for the so-called largest democracy. The DoT has prepared a detailed proposal for the centralized monitoring system (CMS), consisting of a national hub coordinating with regional monitoring centers throughout the nation.

The proposal, seen by the Economic Times, states that the system would be responsible for lawful interception, monitoring and analysis of telecom signals, as well as detection of grey market telecom operations. Capabilities would include crypto-analysis, voice recognition, grid surveillance and decryption. Under the present system, interception and surveillance requests are first cleared by a court, and then sent to operators to handle. But the data collected is susceptible to leaks, and some operators do not have the required systems in place to effectively collect data.

The government has desired for years to implement an improved monitoring system, after terrorists used international phone lines, that India lacked the capacity to intercept, to plan the 2008 attacks in Mumbai. The desire to improve lawful interception capabilities led the government to threaten to ban BlackBerry services in India, until RIM came up with a partial solution that has now been implemented by the nation's mobile operators. But security officials are said to be less than satisfied with the solution, so a centralized, high-tech system could help finally resolve the issue.

Corruption in Pakistan remains the major cause of donors’ discomfort….

2010-11-12T15:48:00.000+05:00

Under pressure from IMF and other donors, Pakistan has imposed new taxes on the existing taxpayers. These are reformed GST, which reformed only the exemptions on certain items, and 10% flood surcharge on income tax already being paid. The government has very smartly ignored the mightier and wealthier segments of the society while thinking about new tax measures. There is some cosmetic resistance from the political parties but in the end, they will reconcile to these new taxes because their members are the actual beneficiaries of this policy of “reconciliation”. For the present, they are playing to the galleries for the benefit of poor who make them reach the Parliament. The government has, thus, very successfully managed the pressure for tax reforms.

However, a new kind of pressure is building up which the government will find quite difficult to manage; this pressure is not of the kind which could be passed on to the poor. Wall Street Journal has reported that Pakistan is embroiled in a row with foreign donors over plans to disburse billions of dollars in funding to rebuild infrastructure following this summer's deadly flooding. The disagreements focus on Western countries' efforts to tie aid to demands that Pakistan ensure the second phase of flood-recovery money isn't used corruptly and that the country raise more of its own rebuilding funds through local taxes.

There is no way that the donors could be assured of transparency of the process of using these funds. In the past, a certificate from the supreme audit institution of the country was considered enough assurance by the multilateral donors but it seems it would no longer be acceptable to them. These issues will be at the center of a gathering next week of foreign governments, multilateral lenders and Pakistani officials, international donors say.

The Pakistan Development Forum, which meets Sunday and Monday in Islamabad, will discuss the country's massive funding needs in the current budget year to June 30, which have ballooned after the floods. Even before the floods, foreign donors were worried about Pakistan's economic stability. The country called in the International Monetary Fund in 2008 amid a balance of payments crisis. Since then, it has borrowed $11 billion from the IMF but made scant progress to reduce its enormous budget deficit, including failing to raise taxes and cut losses from state-owned enterprises, donors say.

So far, funding for recovery from the flooding, which the World Bank estimates caused $10 billion in economic losses, has been slow in arriving. Almost 2,000 people died, and 20 million others lost their homes, food stores or were affected in other ways. The United Nations, which is handling the emergency phase of the recovery, says it has received only 40% of its campaign to raise $2 billion, its largest-ever call for emergency relief. More than a third of those donations have come from the U.S.

In part, the sluggish response reflects concerns over Pakistan's reputation for graft and the state's failure to force its own wealthiest citizens to pay taxes. As donors turn to the longer-term work of rebuilding roads, schools and homes—to be funded and funneled through Pakistan's own government budget and not the U.N. or foreign donor agencies—they have pushed for transparency mechanisms to ensure foreign funding cannot be misused. The U.S. has been vocal about the Pakistan government's need to end corruption. Secretary of State Hillary Clinton last month at an international aid conference for Pakistan in Brussels publicly berated the nation's wealthiest citizens for failing to pay taxes.

Pakistan's ratio of tax to gross domestic product is less than 10%, among the lowest ratios outside of Africa. Many sectors, such as agriculture which is a source of unexplained wealth and political power, are exempt from taxes.

Please also read: Please wake up, this system alone can trigger a public revolt

America’s “salesman-in-chief” takes aim at his real customers…..

2010-11-08T20:24:00.000+05:00

President Obama’s “sales trip” to India has exhibited many moods keeping in view the niche he was aiming at. His speech at Mumbai's Taj Mahal Hotel commemorating the victims of the Nov. 26, 2008, terrorist attacks on India's financial capital neglected to mention the most expected "P-word" disappointing his hosts. This is because Mumbai was not his target customers and he did not want to reveal his sales strategy beforehand. His target customers who had some clout to decide on doing business with him were in Indian parliament. This is where he struck the right note for Indians, saying "We will continue to insist to Pakistan's leaders that terrorist safe havens within their borders are unacceptable, and that the terrorists behind the Mumbai attacks be brought to justice."

Meanwhile, his advocacy of a permanent seat for India on the United Nations Security Council was probably not aggressive enough for Indian leaders, saying only, "In the years ahead, I look forward to a reformed United Nations Security Council that includes India as a permanent member."

According to Global Post, the economic achievements of the so-called "salesman-in-chief" may wind up meaning more for U.S.-India relations than tough talk or a host of promises of strategic partnerships. The reason: This time it's America asking India for help, and that may change the dynamic between the two countries. Calling India "indispensable to addressing the challenges of our time," in a joint press conference with Prime Minister Manmohan Singh in New Delhi today, the U.S. president outlined a raft of political moves intended to complement the business deals his delegation cemented in Mumbai. Yet even the biggest agreements — such as the removal of barriers preventing the sale of sensitive technologies to Indian space and defense organizations — appeared to be at least partially concessions to facilitate trade.

According to the paper, Obama will take home about $10 billion in deals ranging from $1 million to $4 billion in size that are estimated to create more than 50,000 jobs in the United States. And according to the Confederation of Indian Industry, that's just the tip of the iceberg. India's buying of U.S. military and nuclear hardware and civilian aircraft could create more than 700,000 jobs in the U.S. over the next 10 years, the business lobby claims in a recent report.

And what is the U.S. giving? Apart from the lifting of export controls and supporting India's membership in the Nuclear Suppliers' Group, Obama and Singh announced that the two countries had agreed to expand cooperation in space exploration, clean energy research, health, agriculture and higher education. Among the concrete steps to emerge from the bilateral talks will be a new joint research center in India focused on alternative energy, a joint disease detection center and agricultural initiatives designed to rejuvenate the fading gains of India's "green revolution" — which was fueled in part by American scientists.

At the same time, it's clearer than ever that U.S. policy on Pakistan is not going to change, "despite the evidence of Pakistan's duplicity," said former Indian Foreign Secretary Kanwal Sibal, who was not persuaded by Obama's statements to the Indian parliament about pushing Pakistan to dismantle terrorist camps and prosecute the perpetrators of the attacks on Mumbai. In that context, building "win-win" business ties with America may be India's best shot at changing U.S. foreign policy, even as its increasing power makes the relationship more and more complex. As Obama pointed out in his address to parliament, "with increased power comes increased responsibility," and the U.S. will in the future be looking to India for support on issues like enforcing U.N. sanctions and criticizing corrupt dictatorships like Burma.

To keep IMF out, go for creative financing.....

2010-11-05T23:00:00.001+05:00

As expected, the Government of Pakistan has given in under IMF pressure and has agreed to impose the Reformed General Sales Tax (RGST) before November 14, 2010, in a meeting with the International Monetary Fund (IMF). The talks focused on the RGST as well as Income tax. The government also agreed to impose a 10 per cent surcharge on income tax. However, no deadline was suggested for the imposition. Additionally, the government decided to withdraw subsidy on machinery, heavy machinery and tractors. Subsidy will also be withdrawn from the textile and leather industries.

The government is suffering from deficit of all kinds; fiscal deficit, revenue deficit, budgetary deficit and now the worst of all is deficit of ideas. It is in the economy of imagination that Pakistani government has gone bankrupt. It needs creative ideas to cope with the problem of liquidity and credibility. It needs to go for Creative Financing. But alas! It is not running its own business, it is (mis)managing others’ money and it has run out of creativity which, in fact, is key when you own your own business. If you are a small company you might be the owner, marketing department, sales, accountant, cashier and even the janitor all rolled into one. And each new challenge requires a creative new solution. Even if you are larger you probably still have a hand in everything that goes on in the company.

The government should create fiscal space in the same manner a business owner would do when required. There are basically two ways you can approach the problem of creatively financing a business. You can try to bring in money from an outside resource to help you meet expenses, or you can try to cut expenses in the first place. Fortunately, there are plenty of creative businesses financing techniques one can use for both. If cutting costs wasn't enough, it may be to time to look for some creative business financing from outside sources. Unfortunately the government has exhausted one option seeking financing from friends and family. Friends like Saudi Arabia and USA would ask for their pound of flesh if you keep on asking for their assistance. Family, the citizens, is already fatigued and may have no faith in the economic acumen of the managers. Moreover, it can also be dangerous for the relationship. Unlike a typical creditor, you will need to spend time with this lender. They may also feel that because they gave you money they have a right to interfere with how you do business. 

The best form of creative financing would be to get the rich pay the taxes. This could be done through persuasion or coercion. A government can legitimately make use of all the resources and state power to meet its legitimate objectives. But those who are at the helm, if they do not pay taxes and evade and avoid them, will it be ethical for them to ask others for taxes?

See how the burden of tax is shifted from rich on the poor....

2010-10-30T04:26:00.003+05:00

Pakistan has always been in the eye of the storm but this time is a lot different; it is in such a grave crisis that its solidarity and integrity are in danger. It has the crisis of confidence abroad, it has the crisis of confidence at home but what is worrying for those who can see in the future is the fact that its rulers are bent upon destroying whatever is left of the institutions. No great effort is needed to achieve that objective. Put a wrong person in the right place and there you are. Pakistan’s public sector corporations were destroyed with putting cronies to head these cash cows and you can see that where is the economy heading. Similarly, if the qualification for running the institution like FBR is the experience of running a district and presiding over land revenue system, then you forget about a vision. And who needs vision when mediocrity is the order of the day?

It was reported in these pages that Pakistan’s tax system can trigger a public revolt and just taxation system can make the country a lot richer without fleecing the poor. Unfortunately the government has not paid any attention to saner voices and the country has almost drowned in the debt which is quite unsustainable. An article by Huzaima Bukhari and Dr Ikramul Haq has appeared in daily Business Recorder which says that the Federal Board of Revenue symbolizes an institution wrought with sleaze, wastefulness, inefficiency and corruption.

The continuous episodes of fake tax refunds, flying sales tax invoices, excessive payments of export rebates, smuggling of goods, tax evasion and revenue leakages, confirm the existence of an unholy alliance between corrupt tax officials and unscrupulous businessmen that is depriving the nation of billions of rupees and criminally shifting the incidence of taxes on the poor.

It is typical of the FBR to shift the blame on others for its own wrongdoing. The latest attempt in this direction is to target the Supreme Court and the high courts for "delays" in deciding tax cases. The Chairman of the FBR, while briefing the Public Accounts Committee (PAC) of the National Assembly on the Audit Report of the FBR for the year 2008-09, claimed that 617 cases involving tax disputes of over Rs 100 billion were pending in different courts including Rs 37 billion in the Supreme Court of Pakistan, for which the apex court had been requested to constitute special benches for early disposal of cases.

Chairman FBR, however, did not disclose the veracity of demands in these disputed cases. Everybody knows how excessive-rather fictitious-demands are created and taxpayers are forced into unnecessary and long drawn litigation. They are dragged for years in the courts and finally 90 percent of the cases are decided against the FBR. But no action is taken against the negligent officers for their highhandedness and arbitrary orders. A law should be passed to award costs and compensation to taxpayers, where the orders of the tax officials are found to be capricious and arbitrary. Complete article makes and interesting reading and can be accessed at the website of the newspaper by clicking Business Recorder.

Reckless speed, low altitude....fasten your seat belts, we are about to crash....

2010-10-23T23:43:00.005+05:00

American airlines have turned around or have turned just a corner, only time will tell but one thing is certain that those who were running into losses have started showing big profits. What are the reasons for their excellent performance? They have turned mean…. Yes, they have started making money on such things which were just common courtesies. Ancillary fees such as bag charges and change fees combined with higher fares and more passengers have combined to boost the industry's results, even with higher costs. The latest record-setters Thursday included Southwest Airlines Co., Alaska Air Group Inc. and JetBlue Airways Corp., all of which said their third-quarter earnings establish new highs for them, excluding special items.

The puzzling question is; why Pakistani flag-carrier, PIA is sinking in spite of all these tricks? It has no dearth of customers as passengers have to wait to get booking on PIA flights, it is relatively more expensive even on sectors where it has to face competition, it would charge you for virtually everything, it is unable to provide basic amenities like pillows and blankets to all passengers, its food is no better than road-side food cart, yet it is not only sinking itself, it is sinking the entire economy along with it. If with higher fares and overcrowded booking offices, this airline is sinking, it will never cruise.

Imagine, if each aircraft in the fleet has to carry 450 employees most of which are managers, how it can fly. And this is the highest employees-to-aircraft ratio. Is the airline flying at a low altitude and is heading towards a crash?

The Dallas Morning News has narrated the story of American Airlines. According to the papers, U.S. airlines were beaten down and losing billions of dollars, just a year ago. This year, most are posting record profits. Southwest Airlines announced Thursday that it had earned $205 million on operating revenue of $3.19 billion during the third quarter. A year ago during the same period, the airline lost $16 million on revenue of $2.67 billion. The reason for the turnaround, in a nutshell: revenue. United Airlines Inc. and Continental Airlines Inc., which merged Oct. 1 into United Continental Holdings Inc., combined for net income of $741 million in the third quarter, or $840 million excluding items.

As a group, the eight large carriers that have reported so far boasted net income of $1.87 billion in the three months ending Sept. 30. A year earlier, they lost $588 million. Through nine months, the same carriers have earned $2.3 billion. Last year? A loss of $3.1 billion. That's a $5.4 billion turnaround from 2009. "Oh, my," Southwest Airlines chairman and chief executive Gary Kelly told analysts Thursday, "what a difference a year makes."

Normally, such a boost in an industry's earnings is driven by a combination of cost cuts and revenue increases. That's not the case in 2010. Airlines aggressively reduced their expenses and slashed their capacity and head counts beginning in 2008 as they struggled first with high fuel prices and then with a worsening economy. With little more to cut in 2010, most airlines have seen their expenses creep upward. But the same carriers saw their operating revenue jump $4.95 billion year over year, led by United Continental's $1.6 billion increase and Delta Air Lines Inc.'s $1.4 billion climb in revenue.

A continuing worry for Wall Street is that airlines emboldened by their higher passenger loads and climbing revenue, will be tempted to boost capacity by buying more airplanes or taking parked ones out of the desert. Southwest raised some eyebrows Thursday when Wright said the carrier's capacity in available seat miles will be up 5.3 percent in the fourth quarter, 8 percent in first quarter 2011 and 5 percent in the second quarter.

India is not arming without aiming...

2010-10-18T22:26:00.000+05:00

The United States is all set to enter another phase of economic relations with India early next month on the eve of visit of US President to New Delhi. And these are a lot more than the economic relations. US is equipping and arming India to contain China and brow-beat Pakistan in order to prevent China from expanding its sphere of influence and keep Pakistan on leash. This is realist politics. India is a former ally of an erstwhile adversary of USA, USSR, and has always opposed USA’s hegemonic initiatives in order to prove its loyalty with USSR. However, it has now switched its loyalty for the sole super power. USSR assigned it the role to contain American influence; USA has assigned it to keep an eye on China and Pakistan. Pakistan has the dubious distinction of being a perpetual US ally in all thick and thin.

It is no longer true to say that India is arming without aiming; it has a clear aim in mind as to how and where to use the newly acquired arms and equipment.

And India is not only trading off the yoke of USSR alliance with US friendship, it is also replacing Russian-made military equipment with top-of-the-line American equipment and platforms. It has been reported in The Wall Street Journal that the U.S. is aiming to sell up to $5.8 billion of military-transport aircraft to India and secure other major deals when President Barrack Obama travels to New Delhi early next month, a visit that will seek to alter the tenor of an increasingly tense commercial relationship between the world's largest democracies. India is set to buy 10 Boeing Co. C-17 transport aircraft in the country's largest military transaction yet with the U.S., people familiar with the matter said. The exact price is still to be determined. The total value of deals agreed to during the trip could reach $10 billion to $12 billion, including pacts for India to buy military jet engines from General Electric Co., freight locomotives and reconnaissance aircraft.

Mr. Obama's trip from Nov. 5 to 9 is meant to deepen America's ties with an Asian ally whose economic and military rise has made it a strategic counterweight to China. The U.S. also must balance relations between India and Pakistan, traditional enemies, both of which hold significant regional influence as the U.S. plans for a post-war Afghanistan. India has been warming to American defense suppliers in the past several years. It is planning to spend tens of billions of dollars over the next several years to modernize its military and replace aging Russian-made equipment. Seeking the most advanced military technology, India is turning to American contractors and also those from France, the U.K. and elsewhere. Boeing and Lockheed Martin Corp. are among the bidders for a planned $10 billion purchase of 126 multi-role combat aircraft.

The visit comes as some Western companies that have made big bets in India—or plan to—are growing increasingly frustrated with restrictive regulations in sectors such as energy, technology, retail, health care and banking. The government also hasn't enacted long-planned reforms such as allowing greater foreign participation in the insurance and retail industries. Mr. Obama is likely to raise concerns about market access—among other issues—during his visit, a White House spokesman said Sunday. He declined to provide further details.

India's stock market is sizzling, attracting billions in foreign funds. Bilateral trade with the U.S. has risen in recent years and now stands at $37.6 billion annually. Yet there is a growing perception among U.S. and other foreign businesses that India isn't living up to its hype as a destination for foreign direct investment and that India is using the attraction of its close-to-9% annual economic growth to dictate the terms of entry. "India's pretty cocky right now," said Charles Maddox, a professor of corporate law at the Jindal Global Law School outside New Delhi, who studies foreign direct investment in India. "They're playing a brinksmanship game with the United States."

Topping the list of U.S. concerns ahead of Mr. Obama's trip is the countries' teetering civil nuclear-energy partnership, people familiar with the matter say. Though a 2008 deal ended U.S. sanctions against India imposed after its past nuclear-weapons tests, U.S. firms including GE aren't selling nuclear technology here yet. They are worried about a recently passed Indian law that exposes them to accident liability, deviating from the practice in most countries, where nuclear plant operators assume all liability. "We will not be able to support nuclear programs in countries where the nuclear liability regime is not consistent with international norms," said Michael Tetuan, a spokesman for GE.

High-level discussions within the Indian government and between the U.S. and India are continuing, people familiar with the matter say. India is hoping to assuage U.S. firms through the regulations it writes to implement the law, but U.S. officials and companies want the law revised and the liability provision stripped—a political nonstarter in New Delhi, where it would be seen as caving to U.S. pressure.

India's Commerce Department also is weighing a plan to give greater scrutiny to foreign investments in health care, a sector now open to 100% foreign ownership. The department is debating rules that would force foreign drug makers to license patents to generics makers.

"They're saying, 'Whenever we're unhappy with the price, we can issue a compulsory license and expropriate the technology,'" said Greg Kalbaugh, director and counsel at the U.S. India Business Council, which lobbies for American firms in India. "That has created vast uncertainty among investors. A lot of people are uncomfortable."

Some of India's recent moves in other sectors also have worried U.S. officials. Technology firms including Google Inc. and Canada's Research in Motion Ltd., maker of the BlackBerry, face new and confusing demands to comply with government surveillance and censorship requests. GE Chief Executive Jeff Immelt has complained in recent months that leaders of France, Germany and Russia lobby for their nation's corporate interests abroad, suggesting the Obama administration hasn't done as much as it could to stoke sales for American firms abroad in businesses such as nuclear equipment, energy turbines and health care.

Making tax-free acquisitions in India also will be tougher after the government's fight with the U.K.'s Vodafone Group PLC over its $11.2 billion acquisition of India's second-largest cellphone company in 2007. India says Vodafone owes as much as $2.6 billion in taxes that it should have withheld as part of that deal. Vodafone says the transaction was between two overseas legal entities that aren't subject to India's jurisdiction. "It would be a very bad signal for all multinationals if you start using whatever method you can to get money out of people who actually have invested in the country," Vodafone Chief Executive Vittorio Colao said in a recent interview.

Foreign companies that want to invest in Indian roads and other infrastructure complain the government's bidding rules are too complex and that land acquisition takes too much time. Financial-services companies like Citigroup Inc. and HSBC Holdings PLC are limited by regulators to opening no more than a few new bank branches each year. Citigroup's Citibank unit attempted to get around the restriction by entering the less regulated consumer-finance business, but found more Indians than it had expected defaulted on credit-card payments and consumer loans. Foreign direct investment into India has expanded significantly in recent years, though growth has decelerated from 146% in 2006 to 6% in the year ended March 31, when inflows were $37.2 billion.

U.S. officials acknowledge they would like to see market-opening changes faster. Still, they note, measured over the long term, commercial relations have improved dramatically.

"In any relationship where you have growing commercial activity, you're going to have challenges and disagreements," said Francisco Sanchez, U.S. undersecretary of commerce for international trade, in a recent interview in New Delhi. "But the advancement over the last 20 years has been significant. We need to keep plugging away."

If Hillary can see it coming, then it is coming, for sure ….

2010-10-14T19:37:00.004+05:00

If nothing else, Pakistan’s existing system of taxation alone can trigger a public revolt or set the stage for a revolution which is being echoed in political circles. This system is based on maximum benefits to the elite at the cost of poor and middle class taxpayers. The echoes of the coming revolution seem to have disturbed those who have their stakes in the status quo in Pakistan. AFP has reported from Brussels that US Secretary of State Hillary Clinton on Thursday said Pakistan's wealthy needed to follow in the footsteps of the international community in helping the ravaged nation's long-term recovery.

It is believed that she carries no Crystal Ball, yet she may have seen horrifying picture of Pakistan’s public revolt which is just around the corner. And trust me, if she can see it then it is coming, for sure...Let us see what she says.

"It's absolutely unacceptable for those with means in Pakistan not to be doing their fair share to help their own people while taxpayers in Europe, the United States and other contributing countries are all chipping in," Clinton said. "The most important step Pakistan can take is to pass meaningful reforms to expand its tax base," Clinton said in a public statement as she joined the European Union's foreign policy chief Catherine Ashton in pledging continued assistance.

"The government must require that the economically affluent and elite support the government and people of Pakistan," she added. The call came on the eve of a key meeting in Brussels on Friday co-hosted by Ashton and Pakistani Foreign Minister Shah Mahmood Qureshi. The ministerial session of the "Friends of Democratic Pakistan" -- grouping 26 nations and international bodies -- will be looking at the impact of this summer's floods on Pakistan's long-term recovery efforts.

Efforts towards "a safe, secure and prosperous Pakistan" aim to help the country battle extremism, both Clinton and Ashton said. Clinton, in Brussels to attend a one-day NATO summit, said that as Pakistan shifted from relief to recovery from the floods that hit 20 million people, more help would be needed from the international community. To date the US and the EU have provided around 450 million dollars each in aid. Europe for its part this month offered a major trade boost, proposing to lift duties on 75 of its imports as part of an aid-linked package designed to help recovery from the catastrophe. The unilateral suspension of duties, available for the next three years, concerns goods accounting for 27 percent of Pakistan's current imports to the EU.

Iran or the USA, India has to make a tough choice between its strategic allies…..

2010-10-12T19:58:00.002+05:00

With India all set to get elected unopposed to the UN Security Council, all members of the powerful economic bloc of Brazil, Russia, India and China (BRIC) will sit on this important and august forum of the UN body which has the power to veto any initiative of the world community. While China and Russia are permanent members having veto power, India will be elected to the United Nations Security Council for the first time in 20 years, joining Brazil and South Africa in a bloc of emerging economic powers that may resist U.S. pressure on Iran.

But will India be able to actually resist any pressure regarding Iran? India and Iran have a common future through a strategic agreement. India and the USA also have similar arrangement. In that case, USA and India have commonality of interests. In this blog, it was discussed that Iran and the USA are in effect natural allied, their public posture notwithstanding. Similar views were also expressed elsewhere wondering if USA and Iran have already tied the knot in a secret marriage.

Notwithstanding the fact that India and Brazil will not have a strong say in the UNSC, their expanding economies will give them political clout on the UN’s principal policy-making body. According to the Businessweek, India signaled possible opposition to sanctions on Iran before the Security Council’s vote in June. India’s government released a statement saying it “conveyed to the U.S. that sanctions on Iran have proved to be counterproductive and that all differences with Iran should be resolved peacefully through dialogue and negotiations.”

Since the Security Council passed tougher sanctions on Iran, the U.S. has stepped up pressure on Iran’s banks and the country’s national security leadership, and on companies that invest in Iran’s energy industry. India is one of Iran’s largest crude oil customers. The Security Council’s elected members, lacking a veto, can block needed consensus on bringing issues before the body and obstruct proposed statements condemning governments including Sudan, Myanmar and Zimbabwe.

Iran and the USA are in effect natural allies, their public posture notwithstanding.

2010-10-10T14:38:00.004+05:00

Iran’s nuclear weapons programs did not provide comfort to anyone, including Iranians themselves. And those in the region have started feeling unsafe for a variety of reasons; if Iran sails through this program without any incident, it will have the power to bully not only the neighbors but the whole of the Middle East. And if its nuclear installations are attacked by USA or Israel, the entire region will be destabilized, in fact Pakistan and Turkey will face the threat of break-up.

It seems that the Arabs do not feel threatened by Israeli nuclear weapons as much as they are threatened by the Iranian bomb. They’d be happy if Iran’s installations are destroyed but they are wary of other consequences, of the collateral variety. There was news in the London Times that Saudi Arabia would allow Israel to use a narrow corridor of its airspace in the north of the country to shorten the distance for a bombing run on Iran's nuclear facilities. This arrangement is awaiting US consent.

But will the USA actually attack Iran, or give its consent to any such arrangement, to totally eliminate Iran’s nuclear program, the way Israel attacked Iraqi installations in 1981? This is a trillion dollars questions. It seems that Iran and USA have some common strategic interests through India and Afghanistan. These interests raise certain interesting issues which perplex the analysts. These issues are:

USA is a deadly enemy of Iran ever since Iran’s 1979 revolution. It wants to eliminate Iran and its nuclear program.
India, a strategic ally of the USA is also a strategic ally of Iran.
India has built Chabahar Port on the Makran Coast to keep a watchful eye on Pakistan’s Gwadar Port on the same coast. To the extent of the utility of this port to check China and Pakistan, USA’s and Indian interests converge.
Iran is pursuing a multi billion dollar railways project which was named "Iran's eastern corridor". It will connect Chabahar port to Central Asia, Afghanistan and Central Iran. This project would have three branches including Chabahar-Iranshahr Fahraj County, Chabahar-Iranshahre-Zahedan-Mashahd and Chabahar-Iranshahr-Zahedan-Milak. India is helping develop the Chabahar port, which will give it access to the oil and gas resources in Iran and the Central Asian states. This is done by India to compete with the Chinese, who are building Gwadar Port, in Pakistani Balochistan.
Iran plans to use Chabahar for transshipment to Afghanistan and Central Asia, while keeping the port of Bandar Abbas as a major hub mainly for trade with Russia and Europe. India, Iran and Afghanistan have signed an agreement to give Indian goods, heading for Central Asia and Afghanistan, preferential treatment and tariff reductions at Chabahar,
Work on the Chabahar - Milak - Zaranj - Dilaram route from Iran to Afghanistan is in progress. Iran is with Indian aid upgrading the Chabahar-Milak road and constructing a bridge on the route to Zaranj. India's BRO is laying the 213-kilometer Zaranj-Dilaram road. It is a part of its USD 750 million aid package to Afghanistan by India. India and Iran are discussing building a gas pipeline between the two countries along the bed of the Arabian Sea to bypass Pakistan, using the Chabahar port.
Iran is closer to India than its neighbor Pakistan. India is USA’s long-term ally and a great hope to serve America’s global interests. Pakistan is only a front-line state which will be abandoned after NATO forces leave Afghanistan.

In view of the above, does it really make any sense to say that USA and Iran are sworn enemies? Is this public posture of adversity some sort of smoke screen for yet another bigger game? Let’s see what analysts have to say about it.

Americans start winning hearts and minds of Pakistanis....

2010-10-08T06:24:00.000+05:00

Pakistan is recipient of American aid and so are many other countries. But no country is serving American interests, like Pakistan, at the cost of its sovereignty. Pakistan’s reaction to helicopter attack on its military post came as a shock even to Americans who would hardly expect that Pakistan’s military will take this attack so seriously. USA is now trying to save its relationship with Pakistan damaged as a result of this attack. Public apologies and sweet talks apart, some other elements of American administration and establishment have assumed an offensive posture which can at best be called blackmail. It is like saving marriage at gunpoint.

Critics of Washington's largesse to Pakistan -- totaling roughly $18 billion dollars in civilian and military aid since 9/11 -- are quick to point out that Pakistanis still have a worryingly low opinion of the United States. How very keen to have quicker returns? Then is it a bad business case? USA has invested in humanitarian aid in Pakistan and it would not be prudent to expect normal returns or the desired returns from philanthropy as humanitarian aid is not Valentine gift. A recent Pew Research Center poll found that 64 percent of Pakistanis regard the United States as an enemy. Over the past five years, Pakistan has been labeled the "front line" of the war on terror, and many media reports and polls have painted a portrait of a Pakistani public hostile to the West. Reports of Pakistan's alleged "trust deficit" seem to have had a dual effect. Some Western officials have wanted to reverse the tide by extending largesse to Pakistan, but others have been discouraged from trying to shovel additional billions of dollars just to earn the good graces of the Pakistani public.

Foreign Policy Magazine has commented that both influences were evident in the response to yet another natural disaster, the unprecedented flooding this year that affected nearly 18 million Pakistanis. The world did organize millions of dollars in aid, but efforts to muster a grander gesture were undermined by a nagging question: Why bother with humanitarian aid if you have no chance of winning the hearts and minds of the recipients? Encouragingly, new research shows that assistance indeed makes a difference in swaying public opinion in Pakistan -- overwhelmingly so, in fact. One need only consider the aftermath of the devastating earthquake that struck Pakistani Kashmir on Oct. 8, 2005.

More than 70,000 people died, and 2.4 million people lost their homes in that tragedy. The forecast was grim: The impending winter threatened another round of illness and death for households without shelter. Fortunately, the world responded. Within hours, the United States offered unconditional assistance, and volunteer groups and multilateral organizations rushed to the affected regions. By December, the world had committed a record $5 billion to help Pakistan recover from this catastrophe. Thanks in part to an unusually mild winter, the death toll, enormous as it was, was lower than it might otherwise have been. Today, as the earthquake's fifth anniversary approaches, most people in the affected regions -- mainly in Pakistani Kashmir -- live in new homes, the children are back at school, and infrastructure has been repaired and improved.

Clearly, the aid saved lives and helped the region recover. But did it really change hearts and minds? To answer that question, I went to the earthquake-affected region with Tahir Andrabi of Pomona College in the summer of 2009 to study how households had coped. With our research team, we visited 28,000 families in 126 mountain villages selected at random from among the districts hardest hit by the earthquake.

The survey was guided by several simple questions: Could the earthquake victims name the organizations and groups that helped them in the first three critical months after the earthquake? Had their trust and their belief in the kindness and helpfulness of foreigners and locals changed since the earthquake? How about their belief in the ability of people from different countries and religions to work together?

The results unequivocally show that the humanitarian assistance these households received during those crucial first three months had a lasting impact on their attitude toward foreigners. We documented that households that lived close to the earthquake's fault line -- and were therefore more affected by it -- are far more likely to trust foreigners today. The numbers could hardly be clearer: 24 percent of households reported receiving help from foreigners or foreign organizations -- the second-largest group of aid providers after the Pakistani Army (by contrast, only 1 percent reported receiving assistance from a militant group). Seventy percent of households living next to the fault line trust foreigners, but the numbers go down sharply to less than 30 percent just 40 kilometers away from the fault line. The results suggest Pakistan's "trust deficit" is less caused by deep-rooted beliefs and preferences, non-local events such as drone attacks on the Afghan border, or U.S. policy toward Israel. It's human interactions that change attitudes, and their effects are long term.

It would certainly be difficult to interpret our data in any other way. Could it be that the increase in trust reflected a generic increase in trust after a disaster? If so, we should have found an increase in trust toward all groups, not just toward foreigners. But we found that there was no increase in trust in local populations, which remained very low regardless how far households lived from the earthquake fault line. Could it be that the increase in trust reflected greater aid in general, rather than foreign assistance? But we found that assistance from local organizations didn't correlate with greater trust toward foreigners -- it was only foreign assistance that made a difference in that respect.

What do these results mean for policy today? On the one hand, we can be sure that humanitarian assistance can change the Pakistani population's attitude toward foreigners. Indeed, the gains are large and long lasting and remain robust despite the drone attacks and numerous other controversies that have heightened tensions between the governments of Pakistan and the United States. On the other hand, our survey also shows that the manner in which assistance is delivered matters greatly. The Pakistanis who received aid didn't believe there were any strategic motives at play: People overwhelmingly believed that this was assistance offered in the spirit of humanity, rather than a transaction intended to buy hearts and minds. Had the recipients sensed more cynical motives, their positive opinions of foreigners might have been dampened -- if not reversed.

Perhaps, then, the truth about the West's relationship to the Pakistani people is at root paradoxical: Namely, that it's easiest for Westerners to win hearts and minds only when that's not what they're explicitly setting out to do. [Article courtesy: Foreign Policy]

Killing for a cause or in sheer frustration?

2010-10-03T16:46:00.007+05:00

The drone attacks have become a way of life [read: death] not only for civilians but now also for military men. Pakistan’s sovereignty is under threat, in fact being shredded into pieces and trashed, by no else but a super-power who occasionally claims to be a partner of the country now the target of its deadly attacks through unmanned aerial vehicles. And it attacks the target of its fury, not only on militants’ hideouts, it also rockets its military posts. The military which is sacrificing so that Toms, Dicks and Harries and their offspring in the land of milk and honey remain safe, is now target of the fury of all these Toms, Dicks and Harries. And still they ask; why Pakistanis hate us in spite of our aid?

It seems that the world, and particularly Afghanistan, is slipping out of its grip like sand. No wonder, the frustration and decisions taken in a fit of rage are enough to strip you of the title of superiority and being the sole super-power. It is not losing one’s cool, it is losing one’s values which make one the laughing stock of history. Sometimes it looks rather unbelievable that USA is following the foot-prints of USSR. Is this fit of rage and frustration a part of some Great Game being played by some divine invisible forces to write yet another chapter in the history of mankind?

If it is so, then it is rather swift. Nations and their power do not evaporate in decades; it takes them centuries to become of part of history’s graveyard. But someone somewhere is accelerating the turn of events. A new world order, yet again....published in these pages discussed in detail the prospects of a bi-polar world, script of which is being written in the national accounts of China. The article predicted that by 2050, China will be able to challenge the superiority of the USA but the way events are taking place, that eventuality may take place in the near future, not for our coming generations to witness, but for a sorry spectacle of our own eyes.

An analysis appearing in the current issue of Foreign Policy titled “Addicted to Drones” was rather disturbing. The journal said that these recent drone strikes epitomize an important trend: When confronted with a foreign-policy problem that threatens U.S. national interests, civilian policymakers routinely call on limited military force such as drone strikes, cruise missile attacks, and special-operations raids. Many experts -- from pundits to anonymous U.S. officials -- laud such drone strikes as a low-cost, highly responsive, and effective military tactic. In practice, however, drones -- like other uses of limited force -- have substantial downsides that deserve attention given their increasingly prominent role.

The paper also says that under pressure to act in response to a threat and seduced by the allure and responsiveness of limited force, presidents elevate military options above other instruments of statecraft. Inevitably, after the missiles are launched, they announce their intention to keep the pressure on targeted adversaries with a follow-on campaign using all elements of national power. Once the bombs have been dropped, however, and the politically necessary "do something" box has been ticked, complex, robust secondary measures rarely come to fruition. How very realist….and very unscrupulous….

It is apparent that the American public is largely unaware of the easy-going attitude of American establishment which causes death and destruction elsewhere. But those who know do not like it. The question, however, remains; will the establishment of the US care unless the people of Pakistan practically demonstrate how much they dislike foreign elements threatening their security, and these foreign element include not only Arab, Uzbek and African fighters, these also include Americans of the Black-water variety and those sitting in Washington DC ordering drone attacks.

A new world order yet again....

2010-09-29T22:02:00.004+05:00

The fast-growing Chinese economy is staring the world in the eyes. The ever-strong Yuan is a pain in the neck for many heretofore strong currencies. It is for this reason that China is under tremendous pressure to devalue its currency. It is said that China is the lender of the last resort to the most powerful country on earth. It has the second largest economy. According to the latest projections, China’s economy will be the largest and the strongest economy by 2050. It has the largest army in the world with 2.26 million active troops but its military spending is just 2% of its GDP which explains the enormous size of its economy. Its formidable military machine is a force to reckon with. It has export-oriented defense industry and it is capable to produce anything that you can imagine. The quality of its high-tech defense equipment is improving at a fast pace.

Is this Asian country on its way to challenge the sole super power and re-write the world order? We will see that but the first thing first.

Foreign Policy in its recent issue, has quoted the worst nightmare from Super Sad True Love Story, which imagines a not-very-remote future in which the United States, having giddily spent itself into bankruptcy, falls into the hands of Chinese bankers, who call in their T-bills, precipitating armed warfare and state collapse. Is that not, in fact, what lies ahead? In a recent column titled "Too Many Hamburgers?" the New York Times' Thomas Friedman offered a particularly stomach-wrenching version of the nightmare, in which America is personified by an overweight and overconfident boy who loses a footrace to a fiercely competitive Chinese kid. Nothing is foretold, of course.

The United States remains unmatched in economic and military might. It leads because no other country -- and certainly not China -- aspires to the job, much less has the capacity for it. But the United States no longer enjoys the deference paid it only a decade or two ago. And the country has begun to run up against the limits of its resources as international commitments become increasingly mismatched with capacities. American hegemony has thus slipped both in relative and in absolute terms.

The scholar Michael Mandelbaum has been first out of the gate with The Frugal Superpower: America's Global Leadership in a Cash-Strapped Age. Mandelbaum argues that the United States suffers not from "imperial overstretch" but from "entitlement overstretch" -- too many promised hamburgers without the ability to pay for them. Leaders will have to impose a foreign-policy diet, cutting out the gratifications of the past couple of decades of reckless abundance. The humanitarian interventions of Somalia and the Balkans "will not be repeated." The same is true of interventions designed to bring democracy to authoritarian states. Even peaceful intervention will come to be seen as an unaffordable luxury: "The enterprise of state-building ... will disappear from the foreign-policy agenda of the United States." The complete article may be read in the latest issue of Foreign Policy.

Now the economic and military situation is very interesting. In the bi-polar days of the Cold War, USSR was another super-power. Its economic resources were bled by design in the Afghan War causing its demise. President George Bush Sr embarked on the mission of re-writing the world order in which he was the President of the only super power capable to change the world at will. Now the US is facing a similar situation where it is being bled profusely in Iraq and Afghanistan war. It is trying hard to contain Chinese expanding influence in the way it used to contain the USSR with only one difference; it has switched its partners. It will now have India as a junior partner to challenge China which has a considerable influence in the region.

The US panic suggests that China has all the pre-requisites of challenging the leadership of the US. Is the world going back to the era of bi-polarity? Is the new world order being made? How does Sam Huntington view this situation? Let us sit back and watch the events unfold.

Iran and Saudi Arabia bring good news for American defense industry....

2010-09-23T09:36:00.000+05:00

Wars going on in various parts of the world are generally detested by people due to their sheer destruction power. Wars are often more catastrophic than natural disasters. Those who are not engaged in active conflict keep themselves ready for the war. Some make preparations to avert the wars. It is estimated that the capital investment in either of the conditions does not exceed each other. This effectively means that from the standpoint of the Realist School of Thought, nations will always remain engaged in balancing their destructive powers vis-à-vis their adversaries. The ultimate beneficiary of the conflict or the efforts to avert these conflicts is the American economy. It will always have customers like rich oil countries which will keep its economy work overtime. For the United States, countries like Saudi Arabia are not only pliant allies; their oil wealth also represents a lot of business for the American defense industry, irrespective of the requirement or the capacity.

Saudi Arabia is one of those Arab countries who are wary of Iran’s rising power and its nuclear ambitions and assesses Iran-related developments very carefully because in its opinion, the rising power of an ajami regime can be destabilizing for the Arab countries in the region. It may have its roots in history but after 1979 Iran revolution, it is feared that Iran will export its shia-Islamic revolution to other countries. It is often said that Arabs are not as afraid of Israel nuclear bomb as they are of Iran bomb. A militarily strong Iran is perceived as a threat by Arabs ruled by monarchies.

The USA is trying to exploit the Iran-phobia of Arabs led by Saudi Arabia and as per a report published in Foreign Policy magazine, the Obama administration is about to propose the sale of more than $60 billion worth of advanced weapons to Saudi Arabia. Apart from providing an obvious boost to the U.S. defense industry, the clear purpose here is to send a message to Iran. As an unnamed U.S. official stated a few days ago, "We want Iran to understand that its nuclear program is not getting them leverage over their neighbors, that they are not getting an advantage. We want the Iranians to know that every time they think they will gain, they will actually lose." In short, the sale is "mainly intended as a building block for Middle East regional defenses to box in Iran."

It seems like an awful lot of weaponry to "contain" a country whose entire defense budget, according to the International Institute for Strategic Studies, is only $10 billion. But the real question, according to the magazine, is this: if USA’s primary goal is to discourage Iran from developing nuclear weapons, then might this new initiative be counter-productive? Doesn't it just give Iran an even bigger incentive to get a nuclear deterrent of its own? Think about it: if you had a bad relationship with the world's most powerful country, if you knew (or just suspected) that it was still backing anti-government forces in your country, if its president kept telling people that "all options were still on the table," and if that same powerful country were now about to sell billions of dollars of weapons to your neighbors, wouldn't you think seriously about obtaining some way to enhance your own security? And that's hard to do with purely conventional means, because your economy is a lot smaller and is already constrained by economic sanctions. Hmmm....so what are your other options?

Of course, it's possible that Iran's leaders have already made that decision, and if so then these moves won't have much effect on their calculations. And I'm all for maintaining a favorable balance of power in the Gulf. But if we are still hoping to convince Iran that it would be better off without some sort of nuclear weapons capability (even if only of a "latent" sort), this move strikes me as a step in the wrong direction.

In addition to Iran, the USA is also trying to contain China through India. Dawn has reported that

India

and the

United States

are likely to sign a 3.5-billion-dollar defense deal, the biggest ever between the two countries. The agreement will see the Indian Air Force buy 10 C-17 Globemaster transport aircraft that are expected to replace the ageing fleet of Russian Ilyushin IL-76, the The Economic Times newspaper said, without citing sources. The deal, which is in its final stages, is likely to be signed in November when US President Barack Obama visits India.

In February, New Delhi announced a 32-billion-dollar defense budget, a four per cent increase on 2009, when spending was hiked by a quarter as the country seeks to modernize its armed forces. A top air force official earlier stated that India's air force is just a third the size of rival China's and far short of the aircraft required to meet the security challenges facing the country. The USA is serving twin purposes of containing the influence of its two challengers but not at its own cost.

One of the 7 Deadly Scenarios.....Un-justifiable support to Israel will land the USA in trouble.

2010-09-20T22:50:00.004+05:00

Prophets of doom are working overtime these days; and their prophecies center around Pakistan. They either predict Pakistan’s collapse or suggest its break-up or “balkanization” as an option to sort out its problems. The reason Pakistan is increasingly becoming a favorite topic of these debates is its frail economy and dwindling popularity of the democratic dispensation cobbled together by the US and its allies. The situation has developed into this over a period of three years and is God-gifted for them. The country was happy and prosperous as it was not in the clutches of IMF a few years ago and was stable attracting foreign and domestic investment with a sustainable portfolio of external debts. Oil prices, energy crisis, inflation and floods have played havoc of such a scale with its economy that every Tom, Dick and Harry has started foretelling what he likes, completely ignoring the fact that Pakistan is a force to reckon with; having nuclear assets and one of the best military machines of the world.

Notwithstanding the fact that their prophecies are at best the most laughable, these prophets of dooms, unwittingly, predict deadly scenarios for the USA including its annihilation in nuclear attacks to its total economic melt-down a la USSR due to un-sustainable military spending and unscrupulous support for Israel. Dr. Andrew Krepinevich, a military futurist prophesizes in his book, 7 Deadly Scenarios that America’s biggest threat are rogue nuclear states like North Korea and possibly Iran, China's rise to a great power status, the still powerful remains of the Soviet Union, and terrorists in Afghanistan and elsewhere.

His first scenario in the book centers on a possible collapse of Pakistan's government which in his view has a recent history of numerous attempted assassinations, an inability to govern all its territory, a military and intelligence service divided between loyalist and Islamic factions, a largely young, undereducated and unemployed population, and now widespread dissatisfaction with its government's inability to satisfactorily respond to a recent flood disaster. Finding Pakistan's 80-120 nuclear weapons spread among several sites would be very difficult, and they could end up exploding in India or the U.S.

Possibly insecure nuclear arms of Russia constitute a second deadly scenario with a loose Russian nuke exploding in an American city. Another scenario is based on China attacking nearby American naval assets with mines, submarines, and its anti-ship supersonic cruise and ballistic missiles, as well as destroying or disabling our communication satellite and Internet capabilities as part of its 'reunification' effort with Taiwan. Yet another scenarios include Iran and/or terrorists closing narrow straits used to transport Mid-East oil, a man-made plague causing pandemonium in North America, and Iran launching a nuclear attack on Israel.

The author also unwittingly creates more of the same scenarios as deadly as those he is trying to avoid. The first of these is sovietizing the USA; economically bleeding it the way USSR was made to bleed in Afghan war. Now USA is exposed to the risk of economic collapse through tipping it into economic bankruptcy via excessive military spending. US military and Homeland Security together already spend as much as the rest of the world combined, and would undoubtedly further increase both this spending and existing $72 trillion in government debt and unfunded liabilities.

USA is also exposed to the risk of troubles due to its failure to recognize that its international meddling has unintended consequences. For example, defending Israel vs. Iran risks gravely challenging both Iran's major allies - Russia and China. Basil & Spice in its review of the book say that USA needs to recognize that Israel has already brought it the Arab Oil Embargo of the 1970s and 9/11, and repeatedly embarrassed the U.S. by its abuse of the Palestinians. Similarly, USA’s nuclear support for India to 'balance' China and Pakistan creates new trip-wire risks of serious military conflict.

If you have a positive mindset, there is no dearth of good news....even in Pakistan.

2010-09-19T08:41:00.002+05:00

It has repeatedly been discussed in these pages that Pakistan’s tax-to-GDP ratio is extremely low as if the entire country is thriving on the income tax collected from a very few people. It was also feared that the unjust system of taxation in Pakistan was enough to trigger a public revolt. The answer to this question undoubtedly lies in the expansion of tax base and bring those into the tax net who have only looted and plundered but have failed to pay back. This was more important in the current crisis when even the US had informed that there was a limit to their generosity. The American taxpayers were naturally asking a question as to why they should sacrifice for Pakistan’s flood victims when Pakistani fat cats are indifferent to the plight of their fellow countrymen. In this connection, read more at a blog post titled, why should American taxpayers sacrifice for Pakistan flood victims?

It seems that Pakistani government has realized the problem and has decided to broaden the tax net. Online has reported that Pakistan has assured US and other donor agencies that it will broaden its tax base and enhance the number of tax payers to come out of the current economic situation besides implementing new GST system. It was agreed upon in the meeting between US special envoy for Pakistan and Afghanistan, Richard Holbrook and finance minister Abdul Hafiz Sheikh and his economic team on Saturday that Pakistan would extend its tax net and enhance the number of tax payers. How this proposal will be implemented and which powerful segments of society manage to escape tax-net is yet to unfold. But the fact is that Pakistani taxpayers should be grateful to USA on whose pressure their number will increase leading to lessening of burden on the existing taxpayer. Let us sincerely hope that the decision is taken and implemented without political considerations. If you have a positive frame of mind, there in no dearth of good news....even in Pakistan.

According to finance ministry, the agency reports, it has also been finally decided that meeting of Pakistan Development Forum will be convened in November wherein Pakistan will present before its economic stake holders the details about reconstruction of flood affected areas. The countries which had made aid pledges for Pakistan during Tokyo conference but had not delivered them so far would be contacted and urged to release the pledged aid soon for reconstruction of flood affected areas in Pakistan, US assured. Finance ministry sources told US had also assured to provide more relief assistance for flood victims. However Richard Holbrook has still his reservations over utilization of relief aid. US have also welcomed the constitution of National Council to ensure distribution of foreign relief aid for flood stricken people in transparent manner.