The so-called auto company bailout debate has turned into a piece of cynical posturing by Republicans eager to reclaim their fiscal responsibility/small government/right to work credentials by sneering at a bridge loan for the Big Three and the UAW—even as the transplant operations they champion so enthusiastically send billions in profits to Japan.
As Paul Krugman pointed out, even if the Detroit automakers deserve some tough love, pushing them into bankruptcy in the middle of a severe economic downturn and exacerbating the recession is not the way to do it.
Assume that a bridge loan to help the Big Three weather the downturn is going to happen, perhaps when the current crop of congresscritters has left Washington and the bailout can be hung around the neck of the Democrats and the Obama administration.
Maybe in February, we can have a serious discussion about fundamental problems and systemic solutions.
And the whole debate might not hinge on greedy unions, electric cars, CAFÉ standards, on brain transplants for auto executives.
It should be about national health care.
A key difference between GM and Toyota isn’t unions.
It’s national health care in their home markets.
When they go overseas, both corporations are global and have done a pretty good job of wringing regulatory concessions out of local governments, keeping unions either toothless or out of their plants, and limiting responsibility for retiree incomes and health insurance to the bare minimum.
In the homeland, it’s a different story.
In the United States, GM paid $4.6 billion in 2006 in health care costs for 350,000 retirees. A lot of those retirees were employees who were downsized in a series of restructurings.
In an effort to whittle away at this number, GM changed its policies so white collar retirees have lost their lifetime GM health insurance and will be pushed into Medicare upon reaching 65, saving GM $1.5 billion. Health care for union retirees will be pushed into a UAW-administered trust—a Voluntary Employee Benefits Association or VEBA—into which GM will pour $33 billion.
Even with these changes, GM has a hefty, multi-billion dollar yearly bill in retiree health care costs it has to work through.
If GM doesn’t go bankrupt first.
The story’s different for Toyota in its home base in Japan.
In Japan, Toyota pays health care for its retirees for two years after they leave the company. That’s less than 3,000 workers per year. The health care costs are so small they don’t show up on Toyota’s balance sheet.
Then the Japanese National Health Insurance—the government-operated facility that covers the retiree and non-worker end of Japan’s universal insurance system--picks up the tab.
That’s important.
The interesting little secret about Toyota is that, like GM, its home base operations are not especially profitable, even with the health care subsidy.
Japan is an expensive place to have a factory. When bonuses are factored in, Toyota and GM workers both make yearly incomes in the $60,000 range.
Even with massive exports of Japan-built cars, the Japanese operations account for about 1/3 of global profits while posting 50% of worldwide sales.
In the first quarter of FY 2006, Toyota’s home operations brought in about US$1 billion of its total profits of $3.23 billion.
That’s roughly what GM was paying per quarter on retirees’ health care.
Both Toyota and GM suffer from high-cost manufacturing facilities in their big home bases. GM bears the additional burdens of a) no national health insurance and b) apparently having done quite a thorough job of bungling the fiscal consequences of its promises to the UAW retirees since the 1950s concerning their health care.
For both countries, the primary money-making action is overseas.
Toyota North America brought in $2 billion on almost half the sales. In other words, 50% of worldwide profits on 30% of global sales.
GM made $2 billion in its strategic Latin American and Asia/Pacific sales while struggling in Europe.
So you have two companies almost identical in size and scope of operations, and equivalent in profitability outside the homeland.
But Toyota has, by a combination of skill, luck, and circumstance, successfully navigated the hazards of running an enormous industrial operation in a high-cost homeland with a tradition of labor militancy while successfully globalizing.
GM, on the other hand has been less successful in working through its challenges in the homeland, even though it has done a pretty good job overseas, and now is getting flattened by the truck of a brutal recession.
National health care plays not insignificant role in keeping Toyota profitable and its absence plays an important role in keeping GM unprofitable.
As Gina Hamilton argued in a thoughtful piece in the Coastal Journal:
Toyota and its Japanese cousins started out with a benefit package that GM, Ford and Chrysler had to purchase themselves. In short, Toyota, Honda and Nissan had a government 'bailout' from day one in terms of health care and retirement pensions.
It could also be argued that GM’s financial woes have distorted its behavior in the North American market.
In a bow to the laws of comparative advantage, GM’s cost disadvantage forced it to surrender the field in North America to Toyota in the particular market that Japan was interested in—sedans and compacts—and concentrate on the heavy iron instead. When high gas prices and a recession materialized, GM was in the worst position possible.
It may turn out that the secret to restoring rationality and competitiveness to the global auto manufacturing industry is extending to the retirees of the Big Three in the United States the same privilege that their brethren at Toyota, Honda, and Nissan enjoy in Japan—national health care.
The personal blog of Peter Lee a.k.a. "China Hand"... Life is a comedy to those who think, a tragedy to those who feel, and an open book to those who read. Now an archive for my older stuff. For current content, subscribe to my patreon "Peter Lee's China Threat Report" and follow me on twitter @chinahand.
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Thursday, November 20, 2008
Wednesday, November 19, 2008
“Buying a Sick Horse and Turning It Into a Dead Horse”
Correction: I misidentified the industry website that posted the "Breaking News--Chinese May Buy GM and Chrysler" story. It's "The Truth About Cars", not "All About Cars". My bad. CH
That’s the basic Chinese take on the idea of a Chinese automaker taking over GM.
The tubes of the Internet have been abuzz concerning a report on the auto industry website www.allaboutcars.com headlined “Breaking News—Chinese May Buy GM and Chrysler”.
I took interest in this report because it contradicted my take on Chinese interest in GM—that it was too big and problematic a meal for China to swallow.
I think I'm still on the correct side of this argument. The Chinese appear to have no plans to acquire GM. And perhaps Allaboutcars was getting vigorously massaged by Deloitte-Touche, which has a vested interest in all things M&A, China-wise.
The source for the Allaboutcars post is an article in the 21st Century Business Herald which, as AAC points out, is a respected Chinese language economic newspaper.
And 21st Century Business Herald did run a report quoting an official in the Chinese Ministry of Machinery and Information Technology stating that GM’s troubles might inspire the Chinese automakers to try to acquire some of its assets.
Assets.
Not the company.
And the Chinese version of the article title is上汽与东风有意接盘并购通用汽车等巨头资产 “SAIC [Shanghai Automotive Industry Corporation] and Aeolus are interested in taking over major assets of GM and others”
A truncated form of the article—highlighting the statement that China might purchase some GM assets--was posted on China’s governmental automotive industry website, Autoinfo, which is where AAC might have picked it up through some industry newsletter.
The full text of the article, China’s respect for intellectual property being what it is, has already been posted on about a thousand bulletin boards. It has a different thrust and makes clear that the Chinese government a) sees that China’s machinery industry is headed for restructuring and tough times b) efficient and well-capitalized enterprises might strengthen themselves by acquiring selected assets of GM and c) making a bid to take over GM is virtually inconceivable.
China has swooped in before to purchase valuable assets from beleaguered U.S. auto and steelmakers for decades--entire steel mills, engine plants, etc.. So I don’t see much new happening.
If China decides to make a big move on GM operations, it will start by buying a bigger share or all of the GM joint ventures in China, not trying to take over the whole company.
I suspect that Deloitte-Touche—which is quoted in the article—is interested in goosing its China-related M&A business and may be spreading loose talk of a Chinese bid for GM in order to inspire some rain-making action.
AAC’s man in China, Bertel Schmitt, did run a follow-up post admitting that nobody was confirming the story as he reported it—of a purchase of the company--so perhaps some walkback is in the offing.
Anything can happen. But I don’t think SAIC is going to buy GM. And the article that’s at the bottom of the fuss doesn’t really support it.
I’ve translated some choice excerpts from the article below.
A few points to consider:
1) The article reports that GM wants to sell some assets to Toyota, but Toyota is hesitating. In fact, the lede of the Business Herald article is that Toyota is the most likely beneficiary of GM woes. I haven’t seen anything about this in the U.S. press, however.
2) It’s acknowledged that GM is doing pretty well in China and outside the U.S. And the car business is a world business. It’s a perspective that an obsession with GM’s troubled North America operations obscures.
3) China’s disbursement of its large foreign-exchange reserves will be on a businesslike basis. The Chinese government remembers how Japan pissed away its reserves and clout through its reckless overseas acquisition binge in the 1970s.
If SAIC wants to buy GM, they’ll have to put together an iron-clad business case for the acquisition. I find it difficult to imagine that SAIC or any other Chinese automaker--all of whom manufacture primarily in China--can make a convincing case to a skeptical government that they are ready to take over one of the planet's largest, most complex--and troubled--globalized industrial enterprises.
China’s facing a slowdown of growth of its own and the need to stimulate and restructure its own economy to prevent social unrest. Big strategic expenditures (i.e. money put out without a clear and realistic return on investment) will be domestic and infrastructure/employment-related and probably not for immense, politically sensitive, foreign acquisitions of unprecedented scope and difficulty.
Here are the quotes from the 21st Century Business Herald article:
With the continual worsening of the world financial crisis, GM and Chrysler face the danger of global bankruptcy. As to who will take over their operations in the end, currently the loudest voices are on Toyota's behalf. At the same time, some Chinese car builders are also making proposals to take over operations.
On November 15, Industry and Information Technology Ministry Equipment Industry Division Chief Zhang Xiangmu revealed to correspondents that SAIC and Eastern Motors have interest in taking over some assets. [emph. added--CH]
…
Asian Manufacturer’s Association Secretary Luo Jun also stated that the world economic crisis may bring an opportunity for China’s equipment manufacturing industry to upgrade. There’s going to be a shakeout of lower value added enterprises and a group of innovative and financially strong enterprises will emerge. When European and American manufacturers are in difficulty, the resistance to globalization by Chinese enterprises is reduced. Over the next two years it is possible that some Chinese manufacturers will successfully internationalize.
…
During the consolidation, Chinese enterprises could begin by purchasing GM suppliers and GM’s China joint ventures, Deloitte Touche China believes.
…
GM wants to ask Toyota to purchase some assets…but Toyota’s management is taking a cautious attitude.
With GM’s helplessness and Toyota’s hesitation, there would seem to be an opportunity for China’s automakers to get their foot in the door.
…
“…this is an opportunity for Chinese capital to get into the U.S. auto industry ‘on the cheap’”, specialists of the China Automative Association stated. “We already have the precedent of Chang Feng Automotive announcing it will compete to buy GM’s Hummer brand”.
[Note: Apparently GM has been shopping Hummer to India, Russia, and China since August of this year, considering the brand without a future in the age of high gas costs.—CH]
China Academy of Social Sciences Deputy Chief and Chairman of the Asian Manufacturers’ Association Cheng Jiagui believes that the chance to buy entire manufacturing lines is “an unattainable dream”. With China’s limited capability and experience in globalization, it could be a case “taking a sick horse and turning it into a dead horse”.
…
Jin Jian [of Deloitte Touche] points out, China could begin by buying GM’s China’s joint venture companies or component manufacturers. GM is unwilling to go into bankruptcy, so it’s realistic to sell some assets in order to get operating capital. Looking at the capabilities of China’s automakers, it’s realistic to begin by buying some assets and buying out GM’s interest in the China joint ventures. It’s just too big a risk to try to take over the entire enterprise and the chance of this happening look slim.
金建指出，可以从并购通用在中国的合资公司或者配套产业开始。而通用方面也不愿意破产，出卖部分资 产换取流动资金是其现实的考虑。从中国装备制造业企业的能力来看，从并购部分资产开始，并购在中国的合资工厂是现实的选择。选择整体性的全面并购，因为整 合的风险将加大，从既有案例来看，也鲜有成功。
That’s the basic Chinese take on the idea of a Chinese automaker taking over GM.
The tubes of the Internet have been abuzz concerning a report on the auto industry website www.allaboutcars.com headlined “Breaking News—Chinese May Buy GM and Chrysler”.
I took interest in this report because it contradicted my take on Chinese interest in GM—that it was too big and problematic a meal for China to swallow.
I think I'm still on the correct side of this argument. The Chinese appear to have no plans to acquire GM. And perhaps Allaboutcars was getting vigorously massaged by Deloitte-Touche, which has a vested interest in all things M&A, China-wise.
The source for the Allaboutcars post is an article in the 21st Century Business Herald which, as AAC points out, is a respected Chinese language economic newspaper.
And 21st Century Business Herald did run a report quoting an official in the Chinese Ministry of Machinery and Information Technology stating that GM’s troubles might inspire the Chinese automakers to try to acquire some of its assets.
Assets.
Not the company.
And the Chinese version of the article title is上汽与东风有意接盘并购通用汽车等巨头资产 “SAIC [Shanghai Automotive Industry Corporation] and Aeolus are interested in taking over major assets of GM and others”
A truncated form of the article—highlighting the statement that China might purchase some GM assets--was posted on China’s governmental automotive industry website, Autoinfo, which is where AAC might have picked it up through some industry newsletter.
The full text of the article, China’s respect for intellectual property being what it is, has already been posted on about a thousand bulletin boards. It has a different thrust and makes clear that the Chinese government a) sees that China’s machinery industry is headed for restructuring and tough times b) efficient and well-capitalized enterprises might strengthen themselves by acquiring selected assets of GM and c) making a bid to take over GM is virtually inconceivable.
China has swooped in before to purchase valuable assets from beleaguered U.S. auto and steelmakers for decades--entire steel mills, engine plants, etc.. So I don’t see much new happening.
If China decides to make a big move on GM operations, it will start by buying a bigger share or all of the GM joint ventures in China, not trying to take over the whole company.
I suspect that Deloitte-Touche—which is quoted in the article—is interested in goosing its China-related M&A business and may be spreading loose talk of a Chinese bid for GM in order to inspire some rain-making action.
AAC’s man in China, Bertel Schmitt, did run a follow-up post admitting that nobody was confirming the story as he reported it—of a purchase of the company--so perhaps some walkback is in the offing.
Anything can happen. But I don’t think SAIC is going to buy GM. And the article that’s at the bottom of the fuss doesn’t really support it.
I’ve translated some choice excerpts from the article below.
A few points to consider:
1) The article reports that GM wants to sell some assets to Toyota, but Toyota is hesitating. In fact, the lede of the Business Herald article is that Toyota is the most likely beneficiary of GM woes. I haven’t seen anything about this in the U.S. press, however.
2) It’s acknowledged that GM is doing pretty well in China and outside the U.S. And the car business is a world business. It’s a perspective that an obsession with GM’s troubled North America operations obscures.
3) China’s disbursement of its large foreign-exchange reserves will be on a businesslike basis. The Chinese government remembers how Japan pissed away its reserves and clout through its reckless overseas acquisition binge in the 1970s.
If SAIC wants to buy GM, they’ll have to put together an iron-clad business case for the acquisition. I find it difficult to imagine that SAIC or any other Chinese automaker--all of whom manufacture primarily in China--can make a convincing case to a skeptical government that they are ready to take over one of the planet's largest, most complex--and troubled--globalized industrial enterprises.
China’s facing a slowdown of growth of its own and the need to stimulate and restructure its own economy to prevent social unrest. Big strategic expenditures (i.e. money put out without a clear and realistic return on investment) will be domestic and infrastructure/employment-related and probably not for immense, politically sensitive, foreign acquisitions of unprecedented scope and difficulty.
Here are the quotes from the 21st Century Business Herald article:
With the continual worsening of the world financial crisis, GM and Chrysler face the danger of global bankruptcy. As to who will take over their operations in the end, currently the loudest voices are on Toyota's behalf. At the same time, some Chinese car builders are also making proposals to take over operations.
随着全球金融危机日益恶化，通用汽车、克莱斯勒面临全球倒闭危险。而究竟谁来接盘，之前日本丰田呼声很高，同时，部分中国装备制造业企业也打起了接盘主意。
On November 15, Industry and Information Technology Ministry Equipment Industry Division Chief Zhang Xiangmu revealed to correspondents that SAIC and Eastern Motors have interest in taking over some assets. [emph. added--CH]
11月15日，工业和信息化部装备工业司司长张相木向记者透露，国内上汽、东汽等国内大型装备企业有意接手部分资产。
…
Asian Manufacturer’s Association Secretary Luo Jun also stated that the world economic crisis may bring an opportunity for China’s equipment manufacturing industry to upgrade. There’s going to be a shakeout of lower value added enterprises and a group of innovative and financially strong enterprises will emerge. When European and American manufacturers are in difficulty, the resistance to globalization by Chinese enterprises is reduced. Over the next two years it is possible that some Chinese manufacturers will successfully internationalize.
…
亚洲制造业协会秘书长罗军也指出，金融危机对中国装备制造业的产业升级形成了倒逼。大量低附加值企 业在产业洗牌中淘汰出局是一种必然，经过这轮洗牌，国内装备制造业将出现一批自主创新能力强、资金实力雄厚的企业。而在欧美制造企业出现问题的时候，中国 企业进行跨国并购的阻力更小，未来一两年可能出现一批中国装备制造业企业进行国际化并购的成功案例。
During the consolidation, Chinese enterprises could begin by purchasing GM suppliers and GM’s China joint ventures, Deloitte Touche China believes.
“在并购路径上，中国企业可以从并购通用的配套产业和在华合资公司开始。”德勤会计师事务所中国业务发展执行总监金建认为。
…
GM wants to ask Toyota to purchase some assets…but Toyota’s management is taking a cautious attitude.
面对通用的无助和丰田的徘徊，中国装备制造企业似乎有了插一脚的机会。
With GM’s helplessness and Toyota’s hesitation, there would seem to be an opportunity for China’s automakers to get their foot in the door.
“目前美国汽车制造业正处在极度困境之中，这正是中国资本‘抄底’美国汽车制造业的时机。”中国汽车工业协会有关专家表示，“之前已有长丰汽车宣布参与竞购通用汽车旗下悍马品牌的先例。”
…
“…this is an opportunity for Chinese capital to get into the U.S. auto industry ‘on the cheap’”, specialists of the China Automative Association stated. “We already have the precedent of Chang Feng Automotive announcing it will compete to buy GM’s Hummer brand”.
[Note: Apparently GM has been shopping Hummer to India, Russia, and China since August of this year, considering the brand without a future in the age of high gas costs.—CH]
“目前美国汽车制造业正处在极度困境之中，这正是中国资本‘抄底’美国汽车制造业的时机。”中国汽车工业协会有关专家表示，“之前已有长丰汽车宣布参与竞购通用汽车旗下悍马品牌的先例。”
China Academy of Social Sciences Deputy Chief and Chairman of the Asian Manufacturers’ Association Cheng Jiagui believes that the chance to buy entire manufacturing lines is “an unattainable dream”. With China’s limited capability and experience in globalization, it could be a case “taking a sick horse and turning it into a dead horse”.
中国社会科学院副院长、亚洲制造业协会会长陈佳贵亦认为，整体并购美国装置制造的工厂生产“对于中国企业还是一个遥不可及的梦”。中国企业的全球化运营能力和经验不足的情况下，可能把“一匹病马医成死马”。
…
Jin Jian [of Deloitte Touche] points out, China could begin by buying GM’s China’s joint venture companies or component manufacturers. GM is unwilling to go into bankruptcy, so it’s realistic to sell some assets in order to get operating capital. Looking at the capabilities of China’s automakers, it’s realistic to begin by buying some assets and buying out GM’s interest in the China joint ventures. It’s just too big a risk to try to take over the entire enterprise and the chance of this happening look slim.
金建指出，可以从并购通用在中国的合资公司或者配套产业开始。而通用方面也不愿意破产，出卖部分资 产换取流动资金是其现实的考虑。从中国装备制造业企业的能力来看，从并购部分资产开始，并购在中国的合资工厂是现实的选择。选择整体性的全面并购，因为整 合的风险将加大，从既有案例来看，也鲜有成功。
Monday, November 17, 2008
China and the American Automotive Follies
Liberated by Barack Obama’s election from the full-time job of belaboring the Bush administration, progressive blogger emptywheel has a very interesting and knowledgeable discussion of China’s possible role in a General Motors bankruptcy.
She floats the possibility that GM’s main Chinese partner, Shanghai Automotive Industry Corp. or SAIC, might scoop up GM brands and technology at a bankruptcy auction and sell cars into the U.S., eventually migrating the production of virtually a full slate of GM vehicles to China, and exploiting and licensing GM’s Volt electric car technology.
But I think that the Chinese are probably hoping that GM will get its bailout and stagger on into the next decade. Picking over the bones of GM might turn out to be an indigestible meal for the Chinese auto industry.
And bankruptcy would be a disaster both for the American economy and GM’s workers and retirees. Especially GM retirees, who are facing the evaporation of the $33 billioin health care benefit package that the UAW had negotiated for them.
Right now, the Chinese automotive industry is anxiously waiting to see if GM funnels profits out of its Chinese ventures back to the beleaguered headquarters, instead of reinvesting them as it has done for the last eleven years.
Today, GM sold its stake in Suzuki for $230 million dollars. The transaction was seen primarily as a symbolic distress signal meant to elicit action from Washington, and not a measure that would offer meaningful help to GM, now hemorrhaging money at a rate of about $250 million a week.
And if GM really goes tits up, I suppose the Chinese will show up to sift through the wreckage.
However, the mantra in the auto industry is “world car”, which presumes large plants selling a few platforms globally to maximize economies of scale.
Currently, SAIC is partners with GM in a world-car production base in Shenyang to produce the Chevrolet Cruze, GM’s belated effort to get the compact car right and save the company with a vehicle that can compete with the Honda Accords of this world.
Daewoo is already making and selling the car in South Korea. India’s supposed to make it, too. GM will try to take a bite out of the European market, especially Russia and the eastern countries by assembling it in St. Petersburg. And then, if GM is still around in 2010, the Cruze comes home to North America, to be made in Lordstown, OH.
China + South Korea + India + Russia is a good recipe for World War III but not a global automotive consortium. GM, for all its faults, is in a better position to handle these myriad bilateral relations than SAIC would be.
The Chinese auto industry also faces plenty of opportunities and challenges on the domestic market.
AFP reports that sales are forecasted to hit a relative trough of 3.8% in 2009 and recover somewhat to 6.4% in 2010. Car dealers are dealing with excess inventory (the highest in four years) and one-third of China’s car dealers might be forced out of business in the coming months.
The slowdown will probably serve as an excellent opportunity for the Chinese government to reduce overcapacity and streamline the inefficient automotive sector, which has over 100 companies, many of which are small enterprises propped up by local governments.
China’s economy runs on a boom and bust cycle. In flush times, local producers pump out cheap, dirty, and profitable vehicles to meet insatiable demand and disregard government handwringing about inefficiency, pollution, and entrenching a technology based on import of a feedstock whose price has seen fluctuations of 50% in the last few months.
Now, in a bust period, local money and credit are relatively scarce, government money is needed and the central government has more levers to channel demand and influence supply.
Fact is, a bailout is probably on the way for the Chinese automotive industry—especially its big, technologically advanced, and well-capitalized sector--and I suspect the government will focus on the infrastructure and environmental constraints of China’s domestic situation, while cutting off the smaller producers and giving lower priority to integrating with an international market that’s falling off a cliff.
China Daily reports:
Speaking at the 2008 International Forum on Chinese Automotive Industry Development held in Tianjin between November 7 and 9, Chen Jianguo, an official from the National Development and Reform Commission (NDRC), China's top economic planning body, said the NDRC has met high-level management from over 10 major automakers to discuss support policies.
"It is possible the government may announce policies" to help revive the industry, Chen said. “China's auto industry is facing severe challenges, and stock market and housing market boosting policies have been launched, but there are still no policies to save the auto industry," he added.
Chinese carmakers have been forced to slash prices, even as steel costs have risen, to compete among the 52 brands on sale, the most in any country.
SAIC Motor Corp, China's biggest automaker, had a 78 percent drop in third-quarter profit. Chongqing Chang'an Automobile Co, the Chinese partner of Ford Motor Co, had a third-quarter loss of 107 million yuan ($15.67 million), compared with a 68.4 million yuan profit a year earlier.
China's auto sales rose 11.11 percent in the first 10 months, compared with a more than 20 percent increase for the whole of last year.
Part of that national restructuring will perhaps involve China’s auto industry taking a step back from globalization as it responds to government demands for more fuel-efficient hybrids and, eventually electric cars.
China’s Minister of Science & Technology, Wan Gang, recently announced that China would promote the development of hybrids and electric cars. Specifically, the Chinese government has abandoned the alternative route of clean diesel, since it would a) involve the expensive retooling of Chinese refineries and b) threaten the supply and price stability of diesel to China’s farmer.
It will be interesting to see if the government’s stated priorities provoke a change in the attitude and investments of China’s big auto manufacturers, the joint ventures with GM, Toyota, Volkswagen, and Ford.
Bonus for American readers:
If GM does go bankrupt, I imagine the courts will have to deal with a hefty $33 billion claim from an aggrieved creditor before any remaining goodies can be divied up.
The debate over whether or not to bail out the U.S. auto manufacturers will probably include an acrid argument over funding GM’s obligations to the VEBA (Voluntary Employee Beneficiary Association) health care trust fund established in an agreement with the United Auto Workers.
A relentless talking point for the automotive industry has been that “legacy health care costs”—their obligations under union contracts to pay the medical expenses of their retired workers—have eroded their competitiveness.
The UAW in its wisdom agreed to accept a payout of $50 billion from the Big Three over the next few years—about half of the anticipated health care expenses over the next few decades—and grow its tax-exempt endowment with the right combination of skill, probity, and luck to meet the needs of perhaps 1,000,000 retired workers.
In return, the UAW agreed to one of those enlightened two-tier systems where the newer employees are treated like dirt wages-and-benefits-wise compared to the older fellas but still recognize that the true enemy is those non-union Japanese transplant operations down south.
Only problem is, GM hasn’t anted up yet—and now it says it’s going bankrupt.
That’s something that the UAW might have thought about when they marketed the VEBA to the rank-and-file as…bankruptcy protection.
A November 10 article with the matter-of-fact title UAW's VEBA Board: Autoworkers’ Health Care Benefits in Peril in Workforce magazine relates:
[I]n July, GM deferred paying $1.7 billion into the VEBA, angering GM retirees.
“What we were promised in the last contract in 2007 in exchange for very deep concessions was that our health care would be guaranteed in the event of bankruptcy,” says Gregg Shotwell, 58, a former GM plant worker and union member who retired last month. “That was a lie. Because no money actually changed hands. Here we are today on the verge of bankruptcy and the VEBA is not funded. I’ve already been at the back of the line with [former GM subsidiary] Delphi. I don’t want to be at the back of the line in my retirement.”
On the one hand, holding back on its VEBA obligations is perhaps a tactic to make sure that labor is pounding down the doors of the soon-to-be overwhelmingly Democratic Congress to make sure that GM is kept afloat.
On the other hand, the UAW is making a politically problematic attempt to piggyback a VEBA bailout on top of the $25 billion or so bridge loan that the auto makers say is needed to keep the doors open until the good times start rolling again.
From the perspective of the Left and Right, there is potential hay to be made.
From the Left’s perspective, the UAW apparently entertained hope that the actuarial illogic of a risk pool composed entirely of aging and dying auto workers that it had agreed to set up would encourage the government to Do Something in the national health care line in order to save the retirees’ bacon and UAW president Gettlefinger’s posterior.
However, I’m afraid that the UAW may have shot itself in the foot by decoupling the health care obligation from the automakers’ political fortunes. With GM’s enthusiastic backing, health care stood a chance in the Clinton administration. With the UAW holding sole, unfunded custody of the auto workers’ health care obligations, the alignment of political forces even in an Obama administration isn’t all that rosy.
Elements of the Right, disregarding the fact that GM is reneging a second time on the health care promises it made to the people who built their cars, and are trying to cast the entire bailout, including both the industry and VEBA elements, as a payday for a gang of undeserving union loafers.
In fact, I read an analysis by the Center for Labor Renewal that the Republicans are gunning for the VEBAs to fail in a spectacular fashion, so that the UAW is pushed into the politically disastrous position of forcing the victims of the underfunded VEBAs to take what’s left of their interest to buy health insurance in the private market..
If even unionized factory workers with negotiated benefits can be sent into retirement with a personal health insurance purchase credit and a farewell kick in the ass, then the dragon of fully-funded healthcare may be slain once and for all
She floats the possibility that GM’s main Chinese partner, Shanghai Automotive Industry Corp. or SAIC, might scoop up GM brands and technology at a bankruptcy auction and sell cars into the U.S., eventually migrating the production of virtually a full slate of GM vehicles to China, and exploiting and licensing GM’s Volt electric car technology.
But I think that the Chinese are probably hoping that GM will get its bailout and stagger on into the next decade. Picking over the bones of GM might turn out to be an indigestible meal for the Chinese auto industry.
And bankruptcy would be a disaster both for the American economy and GM’s workers and retirees. Especially GM retirees, who are facing the evaporation of the $33 billioin health care benefit package that the UAW had negotiated for them.
Right now, the Chinese automotive industry is anxiously waiting to see if GM funnels profits out of its Chinese ventures back to the beleaguered headquarters, instead of reinvesting them as it has done for the last eleven years.
Today, GM sold its stake in Suzuki for $230 million dollars. The transaction was seen primarily as a symbolic distress signal meant to elicit action from Washington, and not a measure that would offer meaningful help to GM, now hemorrhaging money at a rate of about $250 million a week.
And if GM really goes tits up, I suppose the Chinese will show up to sift through the wreckage.
However, the mantra in the auto industry is “world car”, which presumes large plants selling a few platforms globally to maximize economies of scale.
Currently, SAIC is partners with GM in a world-car production base in Shenyang to produce the Chevrolet Cruze, GM’s belated effort to get the compact car right and save the company with a vehicle that can compete with the Honda Accords of this world.
Daewoo is already making and selling the car in South Korea. India’s supposed to make it, too. GM will try to take a bite out of the European market, especially Russia and the eastern countries by assembling it in St. Petersburg. And then, if GM is still around in 2010, the Cruze comes home to North America, to be made in Lordstown, OH.
China + South Korea + India + Russia is a good recipe for World War III but not a global automotive consortium. GM, for all its faults, is in a better position to handle these myriad bilateral relations than SAIC would be.
The Chinese auto industry also faces plenty of opportunities and challenges on the domestic market.
AFP reports that sales are forecasted to hit a relative trough of 3.8% in 2009 and recover somewhat to 6.4% in 2010. Car dealers are dealing with excess inventory (the highest in four years) and one-third of China’s car dealers might be forced out of business in the coming months.
The slowdown will probably serve as an excellent opportunity for the Chinese government to reduce overcapacity and streamline the inefficient automotive sector, which has over 100 companies, many of which are small enterprises propped up by local governments.
China’s economy runs on a boom and bust cycle. In flush times, local producers pump out cheap, dirty, and profitable vehicles to meet insatiable demand and disregard government handwringing about inefficiency, pollution, and entrenching a technology based on import of a feedstock whose price has seen fluctuations of 50% in the last few months.
Now, in a bust period, local money and credit are relatively scarce, government money is needed and the central government has more levers to channel demand and influence supply.
Fact is, a bailout is probably on the way for the Chinese automotive industry—especially its big, technologically advanced, and well-capitalized sector--and I suspect the government will focus on the infrastructure and environmental constraints of China’s domestic situation, while cutting off the smaller producers and giving lower priority to integrating with an international market that’s falling off a cliff.
China Daily reports:
Speaking at the 2008 International Forum on Chinese Automotive Industry Development held in Tianjin between November 7 and 9, Chen Jianguo, an official from the National Development and Reform Commission (NDRC), China's top economic planning body, said the NDRC has met high-level management from over 10 major automakers to discuss support policies.
"It is possible the government may announce policies" to help revive the industry, Chen said. “China's auto industry is facing severe challenges, and stock market and housing market boosting policies have been launched, but there are still no policies to save the auto industry," he added.
Chinese carmakers have been forced to slash prices, even as steel costs have risen, to compete among the 52 brands on sale, the most in any country.
SAIC Motor Corp, China's biggest automaker, had a 78 percent drop in third-quarter profit. Chongqing Chang'an Automobile Co, the Chinese partner of Ford Motor Co, had a third-quarter loss of 107 million yuan ($15.67 million), compared with a 68.4 million yuan profit a year earlier.
China's auto sales rose 11.11 percent in the first 10 months, compared with a more than 20 percent increase for the whole of last year.
Part of that national restructuring will perhaps involve China’s auto industry taking a step back from globalization as it responds to government demands for more fuel-efficient hybrids and, eventually electric cars.
China’s Minister of Science & Technology, Wan Gang, recently announced that China would promote the development of hybrids and electric cars. Specifically, the Chinese government has abandoned the alternative route of clean diesel, since it would a) involve the expensive retooling of Chinese refineries and b) threaten the supply and price stability of diesel to China’s farmer.
It will be interesting to see if the government’s stated priorities provoke a change in the attitude and investments of China’s big auto manufacturers, the joint ventures with GM, Toyota, Volkswagen, and Ford.
Bonus for American readers:
If GM does go bankrupt, I imagine the courts will have to deal with a hefty $33 billion claim from an aggrieved creditor before any remaining goodies can be divied up.
The debate over whether or not to bail out the U.S. auto manufacturers will probably include an acrid argument over funding GM’s obligations to the VEBA (Voluntary Employee Beneficiary Association) health care trust fund established in an agreement with the United Auto Workers.
A relentless talking point for the automotive industry has been that “legacy health care costs”—their obligations under union contracts to pay the medical expenses of their retired workers—have eroded their competitiveness.
The UAW in its wisdom agreed to accept a payout of $50 billion from the Big Three over the next few years—about half of the anticipated health care expenses over the next few decades—and grow its tax-exempt endowment with the right combination of skill, probity, and luck to meet the needs of perhaps 1,000,000 retired workers.
In return, the UAW agreed to one of those enlightened two-tier systems where the newer employees are treated like dirt wages-and-benefits-wise compared to the older fellas but still recognize that the true enemy is those non-union Japanese transplant operations down south.
Only problem is, GM hasn’t anted up yet—and now it says it’s going bankrupt.
That’s something that the UAW might have thought about when they marketed the VEBA to the rank-and-file as…bankruptcy protection.
A November 10 article with the matter-of-fact title UAW's VEBA Board: Autoworkers’ Health Care Benefits in Peril in Workforce magazine relates:
[I]n July, GM deferred paying $1.7 billion into the VEBA, angering GM retirees.
“What we were promised in the last contract in 2007 in exchange for very deep concessions was that our health care would be guaranteed in the event of bankruptcy,” says Gregg Shotwell, 58, a former GM plant worker and union member who retired last month. “That was a lie. Because no money actually changed hands. Here we are today on the verge of bankruptcy and the VEBA is not funded. I’ve already been at the back of the line with [former GM subsidiary] Delphi. I don’t want to be at the back of the line in my retirement.”
On the one hand, holding back on its VEBA obligations is perhaps a tactic to make sure that labor is pounding down the doors of the soon-to-be overwhelmingly Democratic Congress to make sure that GM is kept afloat.
On the other hand, the UAW is making a politically problematic attempt to piggyback a VEBA bailout on top of the $25 billion or so bridge loan that the auto makers say is needed to keep the doors open until the good times start rolling again.
From the perspective of the Left and Right, there is potential hay to be made.
From the Left’s perspective, the UAW apparently entertained hope that the actuarial illogic of a risk pool composed entirely of aging and dying auto workers that it had agreed to set up would encourage the government to Do Something in the national health care line in order to save the retirees’ bacon and UAW president Gettlefinger’s posterior.
However, I’m afraid that the UAW may have shot itself in the foot by decoupling the health care obligation from the automakers’ political fortunes. With GM’s enthusiastic backing, health care stood a chance in the Clinton administration. With the UAW holding sole, unfunded custody of the auto workers’ health care obligations, the alignment of political forces even in an Obama administration isn’t all that rosy.
Elements of the Right, disregarding the fact that GM is reneging a second time on the health care promises it made to the people who built their cars, and are trying to cast the entire bailout, including both the industry and VEBA elements, as a payday for a gang of undeserving union loafers.
In fact, I read an analysis by the Center for Labor Renewal that the Republicans are gunning for the VEBAs to fail in a spectacular fashion, so that the UAW is pushed into the politically disastrous position of forcing the victims of the underfunded VEBAs to take what’s left of their interest to buy health insurance in the private market..
If even unionized factory workers with negotiated benefits can be sent into retirement with a personal health insurance purchase credit and a farewell kick in the ass, then the dragon of fully-funded healthcare may be slain once and for all
Thursday, November 13, 2008
Better Get Used to the Idea of Negotiating with Mullah Omar
The report about Patrick Moon announcing that the State Department intends to take Mullah Omar off the terrorist blacklist seemed to originate the Iran media—not a paragon of accuracy--and quickly ran around the world.
The piece said:
WASHINGTON: The US agrees to drop the name of the Taliban leader, Mullah Omar from the terror list ahead of talks with the insurgents, an official says.
“US intends to remove Mullah Omar from the black list in a bid to provide a suitable seedbed for holding contacts with the Taliban,” said, the US Deputy Assistant Secretary of State in the Bureau of South and Central Asian Affairs Patrick S Moon. Moon added that during his upcoming visit to Kabul, he will fully support the idea of negotiated settlement with the Taliban militants to end the violence in the region. He also reiterated that the talks with the Taliban insurgents were possible within the Afghan Constitution, Press TV reported.
Press TV is the Iranian English-language media outlet.
But there is some basis. Possibly, Iranian journalists engaged in some imaginative embroidery of a report from AFP covering Moon’s remarks on October 23:
Asked if talks could encompass Taliban leader Mullah Mohamed Omar and Gulbuddin Hekmatyar, head of another radical faction, who are both on a US blacklist, Moon said such men would be dealt with on a “case by case basis”.
“Mullah Omar has been a very outspoken, very violent opponent of the people of Afghanistan,” he said.
On October 30, the Pentagon poured cold water over the possibility of Mullah Omar joining the negotiation process (emphasis added):
Q Would U.S. support for these types of contacts initiated by the Afghans hold even if it was Mullah Omar?
MR. MORRELL: This question's been asked and answered a thousand times. No, we are not talking about reconciling with Mullah Omar. I don't think we -- listen, but ultimately this is the Afghan government who has to make determinations of these things.
We as a government do not believe that Mullah Omar is somebody you reconcile with. Mullah Omar has the blood of thousands of Americans on his hands, based upon the support that he provided Osama bin Laden. So we do not reconcile with al Qaeda.
We are talking about reconciling with insurgents within Afghanistan, not foreign fighters, but insurgents within Afghanistan.
…
Q I wanted to follow up on Jim's question about Mullah Omar. What part of Taliban do you think you can do reconciliation with?
MR. MORRELL: I'm not going to go through a list of who you can reconcile and who you can't reconcile.
I think Mullah Omar, who provided a safe haven and a base from which Osama bin Laden could train terrorists, who eventually killed thousands of Americans, is not somebody we're prepared to reconcile with.
Yeah.
Clearly, the United States has no appetite for Mullah Omar. But the argument that Mullah Omar—who actually ran the country as the Commander of the Faithful when it was Islamic Emirate of Afghanistan—is a “foreign fighter” (or, in Mr. Moon's words, "an opponent of the people of Afghanistan") and therefore not a suitable interlocutor in Afghan affairs simply isn’t going to hold water.
Note that the denunciation is couched grudgingly in the terms that it’s up to the Afghan government. And Hamed Karzai has already guaranteed Mullah Omar’s safety if he joins the talks.
Pakistan’s top media outlet, Dawn, reported on October 4:
In an exclusive interview to Geo television channel, Karzai said, “Through Pakistan television channel Geo I propose Mullah Omar to get back to Afghanistan as I will be wholly and solely responsible for his security and I shall be answerable to the whole of the world on his behalf.”
Indeed, the Karzai government has been inviting Mullah Omar to join talks as far back as 2005—and the DoD has been slapping them down just as long.
So, I would imagine the situation is that the DoD doesn’t want Mullah Omar involved, never wanted him involved, and in the past, when military victory and the destruction of the Taliban were the order of the day, the awkward fact of Karzai wanting to negotiate with Mullah Omar could be swept under the rug--and dutifully ignored by the Western media.
But now that the negotiation track is opening up, what DoD wants doesn’t automatically go.
The State Department, with the task of dealing with the Karzai government, understands that if the Afghans insist that Mullah Omar be involved in the reconciliation process it is difficult for the United States to refuse to provide its support—which would presumably involve an undertaking by the United States not to bundle Mullah Omar onto a helicopter for trial at Guantanamo or the United States if he came out of hiding i.e. taking him off the blacklist.
To give an idea of the gathering strength of the negotiation track, Pakistan’s hardline nationalist newspaper, The Pakistan Daily, provided this account of incendiary remarks by the guy who runs the North West Frontier Provinces, Pakistan's front line in dealing with the Pashtun insurgency and Taliban safe havens. Note the rather pointed observation that, if there's any Pakistan leader who has a weak local base and relies on foreign power for his clout, it's Karzai and not Mullah Omar.
Owais Ghani, who governs the North West Frontier Province and its adjoining tribal areas, is the most prominent figure to date to publicly advocate holding talks with militant commanders leading the insurgency against coalition forces in Afghanistan.
"They have to talk to Mullah Omar, certainly – not maybe, and Gulbuddin Hekmatyar and the Haqqani group," Mr Ghani told The Daily Telegraph in an interview in Peshawar.
"The solution, the bottom line, is that political stability will only come to Afghanistan when all political power groups, irrespective of the length of their beard, are given their just due share in the political dispensation in Afghanistan."
…
Mr. Ghani said that all three militant commanders (Mullah Omar, Hekmatyar, and Haqqani—ed). were in Afghanistan.
"They are a power group that has to be preserved to seek political solutions. We would not destroy them because then you are contributing to further instability," he said. He denied that Pakistan "wants the Taliban back". He added: "No sir, we have no favorites in Afghanistan."
Mr. Ghani said that West must accept that the "Mullah is a political reality".
…
Mr Ghani said: "You are headed for failure. I think Afghanistan is practically lost. It is compounding our problems."
The governor added that the West must hold talks with the Taliban as al-Qaeda was regrouping from Iraq to Afghanistan. Russia had begun to supply weapons to militants and that the Afghans were intolerant of foreigners on their soil and so were staging "a national uprising".
"To eliminate the Taliban you have to slaughter half the Afghan nation," said Mr Ghani.
…
Mr. Ghani said that Mr. Karzai "does not represent any power group – tribal, religious or political and therefore like the people in his government he is dependant on foreign power. He is therefore an obstacle to dialogue and peace."
He described Pakistan's military strategy as one of containment. "We are not looking for quick fixes. We want to hold it to a level where we can just tolerate it until Afghanistan settles down," said Mr. Ghani.
When asked about allegations that Pakistan has used the Taliban to retain its influence in Afghanistan, Mr. Ghani replied: "We could counter that by saying India uses the Northern Alliance."
Well! Ghani, by the way, is apparently not a random blowhard. He’s Pakistan’s man for integrated management of intractable political, diplomatic, and military problems on the borderlands, having come to the NWFP from success in Balochistan, Pakistan’s other wild and angry western province that harbors a serious separatist movement and prickly relations with neighboring Iran.
So it looks like pretty much everybody thinks its necessary to talk with Mullah Omar. It will be interesting to see if the Department of Defense, even under the direction of arch-realist Secretary Gates, is willing to field that hot potato.
The piece said:
WASHINGTON: The US agrees to drop the name of the Taliban leader, Mullah Omar from the terror list ahead of talks with the insurgents, an official says.
“US intends to remove Mullah Omar from the black list in a bid to provide a suitable seedbed for holding contacts with the Taliban,” said, the US Deputy Assistant Secretary of State in the Bureau of South and Central Asian Affairs Patrick S Moon. Moon added that during his upcoming visit to Kabul, he will fully support the idea of negotiated settlement with the Taliban militants to end the violence in the region. He also reiterated that the talks with the Taliban insurgents were possible within the Afghan Constitution, Press TV reported.
Press TV is the Iranian English-language media outlet.
But there is some basis. Possibly, Iranian journalists engaged in some imaginative embroidery of a report from AFP covering Moon’s remarks on October 23:
Asked if talks could encompass Taliban leader Mullah Mohamed Omar and Gulbuddin Hekmatyar, head of another radical faction, who are both on a US blacklist, Moon said such men would be dealt with on a “case by case basis”.
“Mullah Omar has been a very outspoken, very violent opponent of the people of Afghanistan,” he said.
On October 30, the Pentagon poured cold water over the possibility of Mullah Omar joining the negotiation process (emphasis added):
Q Would U.S. support for these types of contacts initiated by the Afghans hold even if it was Mullah Omar?
MR. MORRELL: This question's been asked and answered a thousand times. No, we are not talking about reconciling with Mullah Omar. I don't think we -- listen, but ultimately this is the Afghan government who has to make determinations of these things.
We as a government do not believe that Mullah Omar is somebody you reconcile with. Mullah Omar has the blood of thousands of Americans on his hands, based upon the support that he provided Osama bin Laden. So we do not reconcile with al Qaeda.
We are talking about reconciling with insurgents within Afghanistan, not foreign fighters, but insurgents within Afghanistan.
…
Q I wanted to follow up on Jim's question about Mullah Omar. What part of Taliban do you think you can do reconciliation with?
MR. MORRELL: I'm not going to go through a list of who you can reconcile and who you can't reconcile.
I think Mullah Omar, who provided a safe haven and a base from which Osama bin Laden could train terrorists, who eventually killed thousands of Americans, is not somebody we're prepared to reconcile with.
Yeah.
Clearly, the United States has no appetite for Mullah Omar. But the argument that Mullah Omar—who actually ran the country as the Commander of the Faithful when it was Islamic Emirate of Afghanistan—is a “foreign fighter” (or, in Mr. Moon's words, "an opponent of the people of Afghanistan") and therefore not a suitable interlocutor in Afghan affairs simply isn’t going to hold water.
Note that the denunciation is couched grudgingly in the terms that it’s up to the Afghan government. And Hamed Karzai has already guaranteed Mullah Omar’s safety if he joins the talks.
Pakistan’s top media outlet, Dawn, reported on October 4:
In an exclusive interview to Geo television channel, Karzai said, “Through Pakistan television channel Geo I propose Mullah Omar to get back to Afghanistan as I will be wholly and solely responsible for his security and I shall be answerable to the whole of the world on his behalf.”
Indeed, the Karzai government has been inviting Mullah Omar to join talks as far back as 2005—and the DoD has been slapping them down just as long.
So, I would imagine the situation is that the DoD doesn’t want Mullah Omar involved, never wanted him involved, and in the past, when military victory and the destruction of the Taliban were the order of the day, the awkward fact of Karzai wanting to negotiate with Mullah Omar could be swept under the rug--and dutifully ignored by the Western media.
But now that the negotiation track is opening up, what DoD wants doesn’t automatically go.
The State Department, with the task of dealing with the Karzai government, understands that if the Afghans insist that Mullah Omar be involved in the reconciliation process it is difficult for the United States to refuse to provide its support—which would presumably involve an undertaking by the United States not to bundle Mullah Omar onto a helicopter for trial at Guantanamo or the United States if he came out of hiding i.e. taking him off the blacklist.
To give an idea of the gathering strength of the negotiation track, Pakistan’s hardline nationalist newspaper, The Pakistan Daily, provided this account of incendiary remarks by the guy who runs the North West Frontier Provinces, Pakistan's front line in dealing with the Pashtun insurgency and Taliban safe havens. Note the rather pointed observation that, if there's any Pakistan leader who has a weak local base and relies on foreign power for his clout, it's Karzai and not Mullah Omar.
Owais Ghani, who governs the North West Frontier Province and its adjoining tribal areas, is the most prominent figure to date to publicly advocate holding talks with militant commanders leading the insurgency against coalition forces in Afghanistan.
"They have to talk to Mullah Omar, certainly – not maybe, and Gulbuddin Hekmatyar and the Haqqani group," Mr Ghani told The Daily Telegraph in an interview in Peshawar.
"The solution, the bottom line, is that political stability will only come to Afghanistan when all political power groups, irrespective of the length of their beard, are given their just due share in the political dispensation in Afghanistan."
…
Mr. Ghani said that all three militant commanders (Mullah Omar, Hekmatyar, and Haqqani—ed). were in Afghanistan.
"They are a power group that has to be preserved to seek political solutions. We would not destroy them because then you are contributing to further instability," he said. He denied that Pakistan "wants the Taliban back". He added: "No sir, we have no favorites in Afghanistan."
Mr. Ghani said that West must accept that the "Mullah is a political reality".
…
Mr Ghani said: "You are headed for failure. I think Afghanistan is practically lost. It is compounding our problems."
The governor added that the West must hold talks with the Taliban as al-Qaeda was regrouping from Iraq to Afghanistan. Russia had begun to supply weapons to militants and that the Afghans were intolerant of foreigners on their soil and so were staging "a national uprising".
"To eliminate the Taliban you have to slaughter half the Afghan nation," said Mr Ghani.
…
Mr. Ghani said that Mr. Karzai "does not represent any power group – tribal, religious or political and therefore like the people in his government he is dependant on foreign power. He is therefore an obstacle to dialogue and peace."
He described Pakistan's military strategy as one of containment. "We are not looking for quick fixes. We want to hold it to a level where we can just tolerate it until Afghanistan settles down," said Mr. Ghani.
When asked about allegations that Pakistan has used the Taliban to retain its influence in Afghanistan, Mr. Ghani replied: "We could counter that by saying India uses the Northern Alliance."
Well! Ghani, by the way, is apparently not a random blowhard. He’s Pakistan’s man for integrated management of intractable political, diplomatic, and military problems on the borderlands, having come to the NWFP from success in Balochistan, Pakistan’s other wild and angry western province that harbors a serious separatist movement and prickly relations with neighboring Iran.
So it looks like pretty much everybody thinks its necessary to talk with Mullah Omar. It will be interesting to see if the Department of Defense, even under the direction of arch-realist Secretary Gates, is willing to field that hot potato.
Wednesday, November 12, 2008
The Enemy of the Enemy of My Enemy…Oh, Forget It
Via Juan Cole comes the rather jaw-dropping news that Mullah Omar will be dropped from the U.S. State Department terrorist list.
By U.S. standards, they don’t get much more terroristy than Mullah Omar, head of the Taliban and onetime leader of the hard-core Islamic fundamentalist Islamic Emirate of Afghanistan, who blew up Buddhas, burka’d the female population, instituted sharia law, and harbored bin Laden until he was deposed by the 2002 U.S.-led invasion.
Recognizing him as a political actor in good standing makes the whole deadly, six-year, multi-billion dollar effort to bring freedom and democracy to Afghanistan look like some kind of bad joke.
Of course, rehabilitating Mullah Omar is all about the reopening of the negotiation track with the Taliban that has been brewing for the last few months and is being executed by our new CENTCOM chief, David Petraeus.
However, Omar should not start measuring the presidential office in Kabul for new drapes just yet. I don’t think the United States is sincere about bringing him into the big tent unless he brings the head of Osama bin Laden with him—and that’s not likely.
If events in Iraq are any guide, the invite to Mullah Omar is part of the U.S. strategy to get various Taliban groupings to start talking to the United States instead of conspiring between themselves and wedge one of the weaker commanders away from the rest with the promise that the U.S. will give him a better deal than he’ll get as part of a Taliban reconquest. It’s a stretch, but I’m voting for the terminally vicious Gulbuddin Hekmatyar (interesting point that Mullah Omar’s coming off the State Department’s terrorist black list but Hekmatyar’s apparently still on; wonder if the U.S. is trying to get into Hekmatyar’s head with that one) as Afghanistan’s Maliki.
With Hekmatyar ensconced in the presidential palace, the Pashtun insurgency split, and the Tajiks and other ethnic group buddying up to the only Taliban who isn’t going to cut their heads off, at least for the time being, the U.S. military hopes to be presiding over an uneasy peace or, from another perspective, another billion-dollar Mexican stand-off that gives the United States the decisive role of power broker in Afghanistan.
And Mullah Omar comes away from the talks empty-handed as the U.S. tries to grind him down through direct military operations, assassinations, and the assistance of Afghan and Pakistani forces.
As I’ve argued elsewhere, the factor that militates against this rosy scenario is the fact that Pakistan isn’t Iran.
Iran is a force for stability in Iraq, reining in the Dawa Party and al-Sadr, since it has the confidence that its propinquity and political and economic reach guarantee that Maliki, a sometime U.S. client, will be a full-time ally of Iran.
Pakistan, on the other hand, weak, divided, teetering on the edge of political and economic collapse, beset with a Pashtun insurgency it is more interested in accommodating than destroying, and precious little power to project will see little profit if Kabul is in control of a renegade Taliban with a pro-U.S. and Iranian tilt.
Pakistan—and, for that matter, Saudi Arabia—have too little stake in a stable Pakistan and little interest in eliminating or marginalizing Mullah Omar. It’s likely that the Pashtun insurgency will keep the pot boiling some time to come despite the negotiation initiatives.
By U.S. standards, they don’t get much more terroristy than Mullah Omar, head of the Taliban and onetime leader of the hard-core Islamic fundamentalist Islamic Emirate of Afghanistan, who blew up Buddhas, burka’d the female population, instituted sharia law, and harbored bin Laden until he was deposed by the 2002 U.S.-led invasion.
Recognizing him as a political actor in good standing makes the whole deadly, six-year, multi-billion dollar effort to bring freedom and democracy to Afghanistan look like some kind of bad joke.
Of course, rehabilitating Mullah Omar is all about the reopening of the negotiation track with the Taliban that has been brewing for the last few months and is being executed by our new CENTCOM chief, David Petraeus.
However, Omar should not start measuring the presidential office in Kabul for new drapes just yet. I don’t think the United States is sincere about bringing him into the big tent unless he brings the head of Osama bin Laden with him—and that’s not likely.
If events in Iraq are any guide, the invite to Mullah Omar is part of the U.S. strategy to get various Taliban groupings to start talking to the United States instead of conspiring between themselves and wedge one of the weaker commanders away from the rest with the promise that the U.S. will give him a better deal than he’ll get as part of a Taliban reconquest. It’s a stretch, but I’m voting for the terminally vicious Gulbuddin Hekmatyar (interesting point that Mullah Omar’s coming off the State Department’s terrorist black list but Hekmatyar’s apparently still on; wonder if the U.S. is trying to get into Hekmatyar’s head with that one) as Afghanistan’s Maliki.
With Hekmatyar ensconced in the presidential palace, the Pashtun insurgency split, and the Tajiks and other ethnic group buddying up to the only Taliban who isn’t going to cut their heads off, at least for the time being, the U.S. military hopes to be presiding over an uneasy peace or, from another perspective, another billion-dollar Mexican stand-off that gives the United States the decisive role of power broker in Afghanistan.
And Mullah Omar comes away from the talks empty-handed as the U.S. tries to grind him down through direct military operations, assassinations, and the assistance of Afghan and Pakistani forces.
As I’ve argued elsewhere, the factor that militates against this rosy scenario is the fact that Pakistan isn’t Iran.
Iran is a force for stability in Iraq, reining in the Dawa Party and al-Sadr, since it has the confidence that its propinquity and political and economic reach guarantee that Maliki, a sometime U.S. client, will be a full-time ally of Iran.
Pakistan, on the other hand, weak, divided, teetering on the edge of political and economic collapse, beset with a Pashtun insurgency it is more interested in accommodating than destroying, and precious little power to project will see little profit if Kabul is in control of a renegade Taliban with a pro-U.S. and Iranian tilt.
Pakistan—and, for that matter, Saudi Arabia—have too little stake in a stable Pakistan and little interest in eliminating or marginalizing Mullah Omar. It’s likely that the Pashtun insurgency will keep the pot boiling some time to come despite the negotiation initiatives.
Friday, November 07, 2008
There Will Be Blood
Democracy and Its Death Squads
To civilian liberals of a hawkish bent, General Petraeus projects the reassuring image of the thinking person’s general. It’s kind of hard to wrap one’s head around the idea that operating death squads might be an integral—and perhaps the vital—component of the vaunted Petraeus doctrine of counterinsurgency. Or that death squads will probably continue to play a central role in Iraq, Afghanistan, and Pakistan under an Obama administration.
As his adoring Wikipedia biography relates, General Petraeus is quite the intellectual:
Petraeus was the General George C. Marshall Award winner as the top graduate of the U.S. Army Command and General Staff College—class of 1983. He subsequently earned a M.P.A. degree (1985) and a Ph.D. degree (1987) in International Relations from the Woodrow Wilson School of Public and International Affairs at Princeton University. He later served as Assistant Professor of International Relations at the U.S. Military Academy and also completed a fellowship at Georgetown University. He has a BS from the U.S. Military Academy—class of 1974—from which he graduated as a distinguished cadet (top 5% of his class).
For twenty years, Petraeus climbed the ladder with a series of staff assignments. From 1991 to 1993, a lieutenant colonel, he got his command ticket punched by leading a regiment and later a battalion of the 101st Airborne, before returning to staff work.
In an indication of the indignities that prolonged peace can inflict on military biography, Wikipedia had to make do with this example of courage and tenacity under fire:
As battalion commander of the Iron Rakkasans [nickname for the 187th Infantry Regiment of the 101st’s 3rd Battalion; comes from a mangling of the Japanese word for “paratrooper”—ed], he suffered one of the more dramatic incidents in his career when, in 1991, he was accidentally shot in the chest during a live-fire exercise when a soldier tripped and his rifle discharged. He was taken to Vanderbilt University Medical Center, Nashville, Tennessee, where he was operated on by future U.S. Senator Bill Frist. The hospital released him early after he did fifty push ups without resting, just a few days after the accident.
Combat experience finally came in 2003 when, as Major General, Petraeus commanded the 101st Airborne during the invasion of Iraq and settled in to occupy the Ninawa Governate and its chief city, Mosul, in northwest Iraq.
Petraeus treasured his credentials as the enlightened counterinsurgency expert—and the rational, astute military man culturally at ease with civilians and civilian leadership--and assiduously cultivated the mainstream media. His diligence was rewarded:
An often-repeated story of Petraeus's time with the 101st is his asking of embedded Washington Post reporter Rick Atkinson to "Tell me how this ends," an anecdote he and other journalists have used to portray Petraeus as an early recognizer of the difficulties that would follow the fall of Baghdad…[Petraeus] was "prepared to act while the civilian authority in Baghdad was still getting organized," according to Michael Gordon of The New York Times. Some Iraqis gave Petraeus the nickname 'King David', which was later adopted by some of his colleagues. Newsweek has stated that "It's widely accepted that no force worked harder to win Iraqi hearts and minds than the 101st Air Assault Division led by Petraeus."
Before we bid adieu to General Petraeus’ Wikipedia entry, we should unpack the description of his signature success—the pacification of Mosul during the occupation:
In Mosul, a city of nearly two million people, Petraeus and the 101st employed classic counterinsurgency methods to build security and stability, including conducting targeted kinetic operations and using force judiciously, jump-starting the economy, building local security forces, staging elections for the city council within weeks of their arrival, overseeing a program of public works, reinvigorating the political process, and launching 4,500 reconstruction projects.
The traditional preoccupation of the military—killing people and blowing stuff up—is recast as “targeted kinetic operations and using force judiciously”. It makes military operations sound more like policework than fighting, and only one of six equally important ingredients in the appetizing and nutritionally well-balanced COIN salad.
This sort of verbiage is important.
In the United States, there is a powerful compulsion to shoehorn warmaking into the ranks of admirable activities conducted by good people with fine minds. General Petraeus fulfills an important need, especially for the responsible-liberal quadrant of the commentariat and the incoming Obama administration which, I imagine, will be staffed by Ivy League intellectuals and not be chock-a-block with blood and thunder military types.
For the United States to put up with occupations and COIN/pacification operations in Iraq and Afghanistan that may go on for more than a decade, the public needs to believe that the occupation is some kind of combination of FDR’s New Deal and the superhero Justice League, using American know-how and values to continually improve the economic and security well-being of the peoples in our care.
However, in real life, occupation and counter-insurgency are a nasty, degrading, and bloody business. Commanders in a hostile land far from home, intent on protecting their own forces, aren’t always using a surgical scalpel to extract the tumor of insurgency. Sometimes the meat axe is swung indiscriminately, slaughtering patient and bystanders alike.
And the proper description of “targeted kinetic activity” is, perhaps, “death squad”.
According to Bob Woodward’s most recent book, The War Within, the activities of death squads in Iraq was one of the key factors in the reduction of violence under General Petraeus’s watch as commander of the Multi-National Force-Iraq:
Beginning in the late spring of 2007, the U.S. military and intelligence agencies launched a series of top-secret operations that enabled them to locate, target and kill key individuals in groups such as al-Qaeda in Iraq, the Sunni insurgency and renegade Shia militias, or so-called special groups. The operations incorporated some of the most highly classified techniques and information in the U.S. government.
Senior military officers and officials at the White House urged against publishing details or code names associated with the groundbreaking programs, arguing that publication of the names alone might harm the operations that have been so beneficial in Iraq. As a result, specific operational details have been omitted in this report and in "The War Within."
But a number of authoritative sources say the covert activities had a far-reaching effect on the violence and were very possibly the biggest factor in reducing it. Several said that 85 to 90 percent of the successful operations and "actionable intelligence" had come from the new sources, methods and operations. Several others said that figure was exaggerated but acknowledged their significance.
Lt. Gen. Stanley McChrystal, the commander of the Joint Special Operations Command (JSOC) responsible for hunting al-Qaeda in Iraq, employed what he called "collaborative warfare," using every tool available simultaneously, from signal intercepts to human intelligence and other methods, that allowed lightning-quick and sometimes concurrent operations.
Asked in an interview about the intelligence breakthroughs in Iraq, President Bush offered a simple answer: "JSOC is awesome."
It would seem to me that “the most highly classified techniques and information in the U.S. government” had been deployed in Iraq to battle the insurgency from the beginning, and the U.S. military have been eavesdropping, bribing, and strongarming the locals in order to improve its tactical position in raids from Day One.
What probably made special operations so “awesome” in 2007 was the employment, coordination, and organization of these “techniques and information” in the service of a unified, strategic, and pro-active policy of targeted killings to decapitate and disrupt the opposition to the occupation.
In other words, death squads. Calling them “targeted killings” looks like a distinction without much of a difference. And “special operations” is just a euphemism.
And I guess we’ll just have to take General Petraeus’s word for it that there was some kind of vetting and due process, that people were not improperly killed because of those death squad doppelgangers, greedy and grudge-holding informants, that non-violent opponents of the occupation weren’t targeted as a matter of COIN doctrine, and that “collateral damage” was accidental, avoided when at all possible, and not used as a tool to intimidate the local populace into turning against the insurgents.
We’ll have to take his word for it as far as Iraq goes, anyway.
In Afghanistan, things are a little different. We’re not doing too well there, and the Karzai government is often willing to present its own version of U.S. operations.
Yesterday President Karzai went on record deploring an incompetently targeted tactical kinetic operation that apparently killed 40 people--including two dozen children--when U.S. warplanes accidentally bombed a wedding party while trying to put paid to some fleeing Taliban militants nearby.
And in Pakistan, things are a lot different. Everybody there hates what we’re doing, the independent media aggressively reports U.S. operations, and the government leaks like a sieve. And in the middle of this we’re trying to mount a successful death squad campaign 1) across borders and 2) remotely, using drones and 3) trying not to kill so many civilians that the Pakistan government moves beyond toothless protests to actual opposition to the incursions.
Perhaps not a recipe for success. But we’re certainly trying. And General Petraeus is on board.
In recent weeks, Pakistan’s western tribal areas have been subjected to a flurry of U.S. Predator drone attacks targeting al-Qaeda and Taliban leaders. According to the Washington Post, since August there have been 18 attacks, which have killed over 100 people.
The Washington Post article further reported on an interesting development, one that maybe puts some flesh on those “most highly classified techniques and information in the U.S. government,” in the context of the most recent strike, which killed up to 19 people in North Waziristan:
Brig. Gen. Mahmood Shah, former longtime head of government security in the tribal areas, said the missile attacks have become notably more precise, leading some to believe that local tribesman in the border areas are supplying the U.S. military with better information about potential targets.
Shah said rumors about so-called U.S. spies among the tribes have fed paranoia about potential small-scale spying devices being deployed in local villages. Called "patri" by the locals in the dominant language of Pashto, tribesmen have lately made a habit of constantly sweeping the areas around their homes for any signaling devices, he said.
"They're not sitting outside in their compounds anymore because they are afraid that they will be struck by these missiles," Shah said. "These people have their own enmity between each other so there is a fear that they could just throw one of these chips or devices into their enemy's house."
The take in yesterday’s attack, according to an unnamed Pakistan intelligence officer: four foreign fighters killed out of a total of up to 19 dead (the Washington Post headline led with the more comforting but unsourced statement that only 12 people had died in the attack, giving a more acceptable collateral damage to bad guy ratio of 3:1).
And Pakistan can expect more of the same, according to newly minted CENTCOM chief General Petraeus, who was just in Islamabad (also from the Washington Post article):
U.S. Gen. David H. Petraeus said during a visit to the Pakistani capital of Islamabad this week that he would heed the Pakistani government's concerns about the U.S.-led, cross-border strikes. But during a subsequent visit to Afghanistan this week, Petraeus touted the success of such attacks in eliminating top Taliban commanders. He has made no express promise to end the missile strikes.
During an interview with AP in Afghanistan reported by Pakistan’s Daily Times, General Petraeus’ irony detector was perhaps off-line when he talked about:
[C]onfronting the extremists who have turned what used to be fairly peaceful areas into strongholds for individuals who . . . believe that they have the right to blow up other people who do not see the world the way they do.”
Death squads are inseparable from counter-insurgency. If we’re going to stay in Iraq and Afghanistan (and take the battle to Pakistan) we should get used to them. And we shouldn’t let General Petraeus—or his willingness to pander to our desire to distract ourselves with hearts and minds fables of counterinsurgency --shield us from the truth.
To civilian liberals of a hawkish bent, General Petraeus projects the reassuring image of the thinking person’s general. It’s kind of hard to wrap one’s head around the idea that operating death squads might be an integral—and perhaps the vital—component of the vaunted Petraeus doctrine of counterinsurgency. Or that death squads will probably continue to play a central role in Iraq, Afghanistan, and Pakistan under an Obama administration.
As his adoring Wikipedia biography relates, General Petraeus is quite the intellectual:
Petraeus was the General George C. Marshall Award winner as the top graduate of the U.S. Army Command and General Staff College—class of 1983. He subsequently earned a M.P.A. degree (1985) and a Ph.D. degree (1987) in International Relations from the Woodrow Wilson School of Public and International Affairs at Princeton University. He later served as Assistant Professor of International Relations at the U.S. Military Academy and also completed a fellowship at Georgetown University. He has a BS from the U.S. Military Academy—class of 1974—from which he graduated as a distinguished cadet (top 5% of his class).
For twenty years, Petraeus climbed the ladder with a series of staff assignments. From 1991 to 1993, a lieutenant colonel, he got his command ticket punched by leading a regiment and later a battalion of the 101st Airborne, before returning to staff work.
In an indication of the indignities that prolonged peace can inflict on military biography, Wikipedia had to make do with this example of courage and tenacity under fire:
As battalion commander of the Iron Rakkasans [nickname for the 187th Infantry Regiment of the 101st’s 3rd Battalion; comes from a mangling of the Japanese word for “paratrooper”—ed], he suffered one of the more dramatic incidents in his career when, in 1991, he was accidentally shot in the chest during a live-fire exercise when a soldier tripped and his rifle discharged. He was taken to Vanderbilt University Medical Center, Nashville, Tennessee, where he was operated on by future U.S. Senator Bill Frist. The hospital released him early after he did fifty push ups without resting, just a few days after the accident.
Combat experience finally came in 2003 when, as Major General, Petraeus commanded the 101st Airborne during the invasion of Iraq and settled in to occupy the Ninawa Governate and its chief city, Mosul, in northwest Iraq.
Petraeus treasured his credentials as the enlightened counterinsurgency expert—and the rational, astute military man culturally at ease with civilians and civilian leadership--and assiduously cultivated the mainstream media. His diligence was rewarded:
An often-repeated story of Petraeus's time with the 101st is his asking of embedded Washington Post reporter Rick Atkinson to "Tell me how this ends," an anecdote he and other journalists have used to portray Petraeus as an early recognizer of the difficulties that would follow the fall of Baghdad…[Petraeus] was "prepared to act while the civilian authority in Baghdad was still getting organized," according to Michael Gordon of The New York Times. Some Iraqis gave Petraeus the nickname 'King David', which was later adopted by some of his colleagues. Newsweek has stated that "It's widely accepted that no force worked harder to win Iraqi hearts and minds than the 101st Air Assault Division led by Petraeus."
Before we bid adieu to General Petraeus’ Wikipedia entry, we should unpack the description of his signature success—the pacification of Mosul during the occupation:
In Mosul, a city of nearly two million people, Petraeus and the 101st employed classic counterinsurgency methods to build security and stability, including conducting targeted kinetic operations and using force judiciously, jump-starting the economy, building local security forces, staging elections for the city council within weeks of their arrival, overseeing a program of public works, reinvigorating the political process, and launching 4,500 reconstruction projects.
The traditional preoccupation of the military—killing people and blowing stuff up—is recast as “targeted kinetic operations and using force judiciously”. It makes military operations sound more like policework than fighting, and only one of six equally important ingredients in the appetizing and nutritionally well-balanced COIN salad.
This sort of verbiage is important.
In the United States, there is a powerful compulsion to shoehorn warmaking into the ranks of admirable activities conducted by good people with fine minds. General Petraeus fulfills an important need, especially for the responsible-liberal quadrant of the commentariat and the incoming Obama administration which, I imagine, will be staffed by Ivy League intellectuals and not be chock-a-block with blood and thunder military types.
For the United States to put up with occupations and COIN/pacification operations in Iraq and Afghanistan that may go on for more than a decade, the public needs to believe that the occupation is some kind of combination of FDR’s New Deal and the superhero Justice League, using American know-how and values to continually improve the economic and security well-being of the peoples in our care.
However, in real life, occupation and counter-insurgency are a nasty, degrading, and bloody business. Commanders in a hostile land far from home, intent on protecting their own forces, aren’t always using a surgical scalpel to extract the tumor of insurgency. Sometimes the meat axe is swung indiscriminately, slaughtering patient and bystanders alike.
And the proper description of “targeted kinetic activity” is, perhaps, “death squad”.
According to Bob Woodward’s most recent book, The War Within, the activities of death squads in Iraq was one of the key factors in the reduction of violence under General Petraeus’s watch as commander of the Multi-National Force-Iraq:
Beginning in the late spring of 2007, the U.S. military and intelligence agencies launched a series of top-secret operations that enabled them to locate, target and kill key individuals in groups such as al-Qaeda in Iraq, the Sunni insurgency and renegade Shia militias, or so-called special groups. The operations incorporated some of the most highly classified techniques and information in the U.S. government.
Senior military officers and officials at the White House urged against publishing details or code names associated with the groundbreaking programs, arguing that publication of the names alone might harm the operations that have been so beneficial in Iraq. As a result, specific operational details have been omitted in this report and in "The War Within."
But a number of authoritative sources say the covert activities had a far-reaching effect on the violence and were very possibly the biggest factor in reducing it. Several said that 85 to 90 percent of the successful operations and "actionable intelligence" had come from the new sources, methods and operations. Several others said that figure was exaggerated but acknowledged their significance.
Lt. Gen. Stanley McChrystal, the commander of the Joint Special Operations Command (JSOC) responsible for hunting al-Qaeda in Iraq, employed what he called "collaborative warfare," using every tool available simultaneously, from signal intercepts to human intelligence and other methods, that allowed lightning-quick and sometimes concurrent operations.
Asked in an interview about the intelligence breakthroughs in Iraq, President Bush offered a simple answer: "JSOC is awesome."
It would seem to me that “the most highly classified techniques and information in the U.S. government” had been deployed in Iraq to battle the insurgency from the beginning, and the U.S. military have been eavesdropping, bribing, and strongarming the locals in order to improve its tactical position in raids from Day One.
What probably made special operations so “awesome” in 2007 was the employment, coordination, and organization of these “techniques and information” in the service of a unified, strategic, and pro-active policy of targeted killings to decapitate and disrupt the opposition to the occupation.
In other words, death squads. Calling them “targeted killings” looks like a distinction without much of a difference. And “special operations” is just a euphemism.
And I guess we’ll just have to take General Petraeus’s word for it that there was some kind of vetting and due process, that people were not improperly killed because of those death squad doppelgangers, greedy and grudge-holding informants, that non-violent opponents of the occupation weren’t targeted as a matter of COIN doctrine, and that “collateral damage” was accidental, avoided when at all possible, and not used as a tool to intimidate the local populace into turning against the insurgents.
We’ll have to take his word for it as far as Iraq goes, anyway.
In Afghanistan, things are a little different. We’re not doing too well there, and the Karzai government is often willing to present its own version of U.S. operations.
Yesterday President Karzai went on record deploring an incompetently targeted tactical kinetic operation that apparently killed 40 people--including two dozen children--when U.S. warplanes accidentally bombed a wedding party while trying to put paid to some fleeing Taliban militants nearby.
And in Pakistan, things are a lot different. Everybody there hates what we’re doing, the independent media aggressively reports U.S. operations, and the government leaks like a sieve. And in the middle of this we’re trying to mount a successful death squad campaign 1) across borders and 2) remotely, using drones and 3) trying not to kill so many civilians that the Pakistan government moves beyond toothless protests to actual opposition to the incursions.
Perhaps not a recipe for success. But we’re certainly trying. And General Petraeus is on board.
In recent weeks, Pakistan’s western tribal areas have been subjected to a flurry of U.S. Predator drone attacks targeting al-Qaeda and Taliban leaders. According to the Washington Post, since August there have been 18 attacks, which have killed over 100 people.
The Washington Post article further reported on an interesting development, one that maybe puts some flesh on those “most highly classified techniques and information in the U.S. government,” in the context of the most recent strike, which killed up to 19 people in North Waziristan:
Brig. Gen. Mahmood Shah, former longtime head of government security in the tribal areas, said the missile attacks have become notably more precise, leading some to believe that local tribesman in the border areas are supplying the U.S. military with better information about potential targets.
Shah said rumors about so-called U.S. spies among the tribes have fed paranoia about potential small-scale spying devices being deployed in local villages. Called "patri" by the locals in the dominant language of Pashto, tribesmen have lately made a habit of constantly sweeping the areas around their homes for any signaling devices, he said.
"They're not sitting outside in their compounds anymore because they are afraid that they will be struck by these missiles," Shah said. "These people have their own enmity between each other so there is a fear that they could just throw one of these chips or devices into their enemy's house."
The take in yesterday’s attack, according to an unnamed Pakistan intelligence officer: four foreign fighters killed out of a total of up to 19 dead (the Washington Post headline led with the more comforting but unsourced statement that only 12 people had died in the attack, giving a more acceptable collateral damage to bad guy ratio of 3:1).
And Pakistan can expect more of the same, according to newly minted CENTCOM chief General Petraeus, who was just in Islamabad (also from the Washington Post article):
U.S. Gen. David H. Petraeus said during a visit to the Pakistani capital of Islamabad this week that he would heed the Pakistani government's concerns about the U.S.-led, cross-border strikes. But during a subsequent visit to Afghanistan this week, Petraeus touted the success of such attacks in eliminating top Taliban commanders. He has made no express promise to end the missile strikes.
During an interview with AP in Afghanistan reported by Pakistan’s Daily Times, General Petraeus’ irony detector was perhaps off-line when he talked about:
[C]onfronting the extremists who have turned what used to be fairly peaceful areas into strongholds for individuals who . . . believe that they have the right to blow up other people who do not see the world the way they do.”
Death squads are inseparable from counter-insurgency. If we’re going to stay in Iraq and Afghanistan (and take the battle to Pakistan) we should get used to them. And we shouldn’t let General Petraeus—or his willingness to pander to our desire to distract ourselves with hearts and minds fables of counterinsurgency --shield us from the truth.
Monday, November 03, 2008
America's Raw Deal for Pakistan
One might wonder why the world community seems intent on torturing Pakistan’s civilian government over the terms of a bailout to cover its current account deficit.
Musharraf got blank checks.
Asif Zardari gets a brusque push into the unwelcome embrace of the International Monetary Fund.
The answer seems to be that the PPP-led government’s bargaining position is so weak there’s only one kind of deal it can make—a raw deal.
A little background.
For years, Pakistan, exporting food products and textiles and importing petroleum products and equipment for its industry and military, has run a chronic current account deficit of about S$4 billion per annum.
A combination of worker’s remittances, foreign investment, foreign aid, and foreign loans has made up the shortfall.
Last year, before the subprime meltdown was even a gleam in Wall Street’s eye, Standard & Poor’s downgraded Pakistan’s sovereign foreign currency debt to CCC+ with a negative long-term outlook because of the unrest and uncertainty surrounding Musharraf’s divisive and ultimately unsuccessful efforts to short-circuit civilian rule and give himself a third term as president.
S&P considered Pakistan especially vulnerable because “the political turmoil exposes the sovereign to external pressures if foreign direct investments and other equity inflows, which have funded about two-thirds of the country’s large current account deficit (estimated at just under 20% of current account receipts in fiscal 2006-2007), diminish significantly.”
Things did not get better in 2008.
Asif Zardari’s PPP government squandered the goodwill of the parliamentary elections that returned Pakistan to civilian rule by leaning on the United States for political backing, playing footsie with Musharraf, and alienating the lawyers and PML-N party leaders who were the PPP’s electoral allies. As a result, virtually all of Pakistan’s political players are happy to watch a not-particularly-capable Zardari flounder ineffectually as the country’s political and economic rot intensifies.
Participation in the aggressive US strategy against Taliban on both sides of the Afghan border exposed Pakistan to a harrowing series of terrorist attacks and discouraged foreign investment.
Then the oil and food bubbles ruinously increased the cost of Pakistan’s imports and added high inflation to the economic mix.
Finally, the world financial crisis guaranteed that there would be no excess supply of foolishly optimistic capital for the Karachi Stock Exchange, which slumped 35%.
So Pakistan has a simple but pressing problem.
With imports chugging along and its sources of capital inflows dwindling, the central bank has only enough cash on hand to finance imports for about six weeks.
Pakistan has declared it needs about $4-$6 billion to make it through the next two years while it gets its house in better order and waits for an improvement in the world economy that should boost exports and increase capital inflows.
US$6 billion is not an awful lot of money.
It’s about the cost of two weeks’ operations in Iraq.
It’s about 1/3 of 1% of China’s forex reserves.
It’s about 4% of Saudi Arabia’s annual net oil export revenues.
But nobody has stepped up to the plate.
Saudi Arabia has so far declined to provide a deferral of payments on oil sales—a facility it had extended to Pakistan in the past.
Zardari went hat in hand to China, Pakistan’s close ally and “all weather friend” who had deposited $500 million into Pakistan’s central bank last year at President Musharraf’s request to help with a similar problem.
But all he came back with was a rather opportunistic proposal that the Chinese would send a team to research the purchase of a 26% share in the National Bank of Pakistan, Pakistan’s biggest commercial bank. Back of the envelope guesstimating indicates that the Chinese are talking about putting in less than $300 million for a stake that would have been valued at about $1 billion back in 2005. Ouch!
As for the West, the U.S. and Great Britain corralled the world community into an ad hoc “Friends of Pakistan” talking shop, with the pressing objective of…well, not doing very much, apparently, except to keep Pakistan twisting in the wind.
At a press conference in Islamabad on October 20, Richard Boucher, Assistant Secretary of State for South Asia, squelched any idea that Pakistan would be seeing a quick and easy answer to its forex problems (emphasis added):
The Friends of Pakistan group -- how can I say it? It’s a group that’s a strategic group. It’s a way of combining the Pakistani Government efforts and the Western -- not Western -- and the Friends efforts: government like Saudi Arabia, the United Arab Emirates, the United States, China, the United Kingdom. And you saw, you know, in New York there were at least a dozen countries there and we’re always hearing from more who would like to be part of this.
So the goal is not…I mean, it’s not to throw money on the table. The goal is to put money where it belongs to support really concrete and positive goals. So it’s going to be a systematic process. It’s going to be a strategic process that looks at problems, looks at what the Pakistani Government is doing, looks at their approach and what effort that they’re making, and then looks at how we need to support and supplement those efforts, so that we really cover some of these problems comprehensively and we don’t leave things undone or leave holes.
You know, is that going to produce more money? Yes, it probably will in the long run. But it’s not a…it’s not a cash advance. There are other steps being taken, you might say, somewhat parallel on the fiscal and monetary problems. Those things are coordinated with treasuries, finance ministries, international institutions. And…but Friends is more devoted to making sure that on the strategic level that we understand Pakistan’s plans and that we’re putting our programs to support them.
With “Friends” like this, one might say…
The unmistakable intention of the United States and its allies is to force the Pakistan government to endure the shame of “Plan C”—the humiliating and politically dangerous recourse of turning to the International Monetary Fund.
Today, the IMF, according to accounts leaked to the Pakistan media (H/T to Reuters' Pakistan blog) is insisting on some astounding conditions:
Pakistan’s The News, citing an internal document, sets out what it said were extremely tough conditions.
1) a 30 percent cut in the defence budget between 2009 and 2020
2) reduce government pensionable jobs from 350,000 to 120,000
3) a new taxation structure to raise revenues including tax on wheat production and other crops
4) Revenue collection reports/analyses to be submitted each quarter to the IMF down to the provincial level
5) Six IMF directors and two from the World Bank to monitor preparation of the federal budget
One might wonder why, with Pakistan tottering on the brink of collapse, the IMF is adding onerous terms that will a) antagonize the military by slashing its budget and b) infuriate its hardpressed citizens—especially in the PPP’s political base, the agri-intensive province of Sindh--by increasing taxes while the economy is flat on its back and c) increase political unrest and make the PPP government even more unpopular by throwing tens of thousands of bureaucrats out of work.
Actually, it is quite possible that the IMF never made these extreme demands, and the Zardari government—which has never been shy or particularly subtle in shading the truth—prepared this monstrous list to demonstrate its fearsome negotiating prowess to the Pakistani public and lessen the shock when it reveals the actual, lesser concessions that the IMF has demanded in return for granting the loan.
Nevertheless, it’s puzzling that the United States is pushing the IMF on Pakistan at this particular juncture.
Pakistan’s economy, though not an exemplar of transparency or efficiency, is in this case the victim of many unfavorable external events and a worldwide financial crisis precipitated by the same kind of overpaid, overreaching financial bureaucrats that oversee the IMF.
So it seems rather unfair that the IMF is taking advantage of Pakistan’s difficulties to impose some of that notorious IMF meddling medicine that has made it despised throughout the developing world.
And, considering that the U.S.-led adventure in Afghanistan is tottering despite uncounted and unaccountable billions of dollars of expenditures and thousands of lives, and Pakistan is standing on the abyss of anarchy, now is an odd time for the U.S. to insist that the IMF be allowed to peddle its deeply unpopular and destabilizing free-market nostrums to Zardari’s government in return for a bridge loan.
Not surprisingly, the Pakistanis see the IMF working as a tool of the U.S. government and Western security priorities for Pakistan.
Quoting unnamed analysts, Syed Fazl-e-Haider wrote in Asia Times:
The United States is using the Washington-based and largely US-financed IMF as a tool to impose its own terms and conditions related to the "war on terror", in which Pakistan has been declared by the US as a major theater of war, the analysts said.
Much to its chagrin, Pakistan has been negotiating with the IMF in Dubai and, according to an October 31 report in Pakistan’s The Nation has apparently reached agreement on a $9 billion loan.
The first disbursement of money from the IMF, which is likely to be for $3 billion to $4 billion, will only come after Pakistan has filed a formal request and the IMF has approved the aid. Shaukat Tarin, Adviser to the Prime Minister on Finance, told Daily Telegraph that the money was needed urgently as confidence levels in Pakistan’s nosediving economy was ‘fast deteriorating’.
Tarin said that first payment was needed in 20 days. He added that the IMF should finalise the agreement by November 15 ahead of a fund raising conference to be held two days later by the Friends of Pakistan, a forum which includes the US, UK, China and Saudi Arabia, in Abu Dhabi.
He said that Pakistan’s allies were “looking for an endorsement from the IMF” of the country’s economic plan before they committed to offering more money.
Pakistan is loathe to confirm that it has struck a deal with the IMF and is still holding out hope that a face-saving offer of assistance from Saudi Arabia and/or China will emerge.
Zardari is making a swing to Saudi Arabia for oil aid, the AP reported:
Economist Muzammil Aslam predicted Zardari would ask for $3 billion in deferred oil payments from the Saudis, but warned that Pakistan should prepare for IMF assistance.
"If you miss the IMF now, you will need it again some months later, and that time you will have to accept more tough conditions," he said.
Pakistan hopes that its front-line role in the war on terrorism will nudge its allies to prevent its economic downfall. But Saudi Arabia, the U.S. and other nations may condition any aid they give on Pakistan submitting to an IMF package, which would come with strict spending rules, said Shahid Hasan Siddiqui, a top economist.
Pakistan Finance Ministry chief Shaukat Tareen has said that if he does not get indications of a forthcoming bailout from allies by Nov. 10 "there is no other option but to go to the IMF."
A meeting of the “Friends of Pakistan” is scheduled for November 17 in Abu Dhabi. That’s a little late for a rescue mission for a government that’s running on fumes, financially--though the timing is just right to force Pakistan to deal with the IMF. In fact, it’s assumed that the Zardari government will have already knuckled under to the IMF come November 17.
"I assume that by the date of the (Friends of Pakistan) conference the negotiations with the IMF will have been concluded," [German Foreign Minister] Steinmeier said. "This assumes that there is agreement on the conditions. We are both confident that this will happen in the next few days."
Even if Saudi Arabia and China show up at the “Friends of Pakistan” conference with public announcements of funding, the damage, as far as the PPP is concerned, is already done.
Being forced to resort to the IMF is a conspicuous failure for the Zardari government. Three years ago, when Pakistan got out from under the IMF’s thumb, Pervez Musharraf triumphantly announced, “We have broken the begging bowl.” Now Zardari, the man who drove him from office, has to highlight his growing political isolation inside and outside the country and his reliance on the United States by playing the role of mendicant to the West.
With understandable frustration, Pakistan’s Prime Minister Gilani is wondering why Pakistan’s deep-pocketed foreign friends are unwilling to come up with the money to help his country, ostensibly the keystone of the world struggle against Islamic extremism.
It’s a rather telling fact that India is more enthusiastic about the IMF bailout (see the Times of India report India may help Pakistan get bailout) than Pakistan, especially since the United States would make sure that any defense cuts (which Pakistan’s defense minister has already defiantly declared to be off the table) would come at the expense of Pakistani forces on the Pakistan-India border, while maintaining or increasing military efforts against America’s bete noire, the Pakistani Taliban, on the Afghan border.
Mr. Gilani, I would characterize your situation as a perfect storm of unfavorable events.
First, it’s quite likely that the U.S. government is trying to control the provision of financial aid to Pakistan in order to exert pressure on your government to support and implement pro-U.S. policies more enthusiastically. And don’t be surprised if the United States is close to giving up on Pakistan’s civilian government and wouldn’t mind fomenting a national crisis that forces Army Chief of Staff Kiyani or some other military savior to step up and take over for the good of the nation.
At the very least, by ostentatiously distancing itself from financial aid to Pakistan through the dual cut-outs of the “Friends of Pakistan” and the IMF, the United States is publicly declaring that, post-Musharraf, the special relationship with the civilian government is not really all that special—especially if Nawaz Sharif takes over-- and is taking this opportunity to yank the leash of a wayward and not particularly capable client.
Second, the reason that neither China nor Saudi Arabia have stepped up to help out is because they feel that the Zardari government’s policy of acting as a U.S. client and signing on to the whole counter-insurgency package in Pashtun areas of Pakistan is catastrophically wrong-headed and contrary to their best interests and they wouldn’t mind your government falling either, to be replaced either by a new government headed by Nawaz Sharif and the PML-N, or some general.
I suspect that the Saudis and the Chinese will hold the winning hand here.
Zardari’s government is tottering because his pro-U.S./aggressive anti-Taliban policies are extremely unpopular within Pakistan. Propping him up with an IMF loan is going to accelerate the political rot.
If the PPP government falls—especially if it collapses because of U.S. manipulation of its current account deficit crisis—any new civilian government will be headed by Nawaz Sharif and the PML-N, a prospect that gives Washington the collywobbles because of Sharif’s extremely popular pro-Saudi/Taliban-accommodating stance.
But even if a general can be found to rescue Pakistan from the catastrophe of Nawaz Sharif and a civilian government attuned to the popular will, America’s problems will be far from over.
The Pakistani populace is now politically energized, and any new military regime will have to take into account its vocal desire for a security policy decoupled from U.S. strategy and emphasizing negotiation and reconciliation with the Pakistani Taliban.
Furthermore, the United States has terminally fouled up its relations with Pakistan’s armed forces by its overt tilt toward India as its preferred South Asian partner and counterweight to emerging superpower (and Pakistan best buddy) China—both by concluding a concessionary bilateral nuclear agreement with New Delhi and shepherding it through the international non-proliferation process, and by providing cover for India to establish a strategic alliance with the Karzai government in Afghanistan, Pakistan’s traditional back yard.
Pakistan’s PPP government is caught in the middle. It can’t deliver unstinting support to the United States in its struggle in Afghanistan, and it can’t deliver a non-aligned policy that reduces U.S. influence and boosts Saudi and Chinese presence in the region.
That’s why nobody is willing to offer Pakistan anything—except a raw deal.
Musharraf got blank checks.
Asif Zardari gets a brusque push into the unwelcome embrace of the International Monetary Fund.
The answer seems to be that the PPP-led government’s bargaining position is so weak there’s only one kind of deal it can make—a raw deal.
A little background.
For years, Pakistan, exporting food products and textiles and importing petroleum products and equipment for its industry and military, has run a chronic current account deficit of about S$4 billion per annum.
A combination of worker’s remittances, foreign investment, foreign aid, and foreign loans has made up the shortfall.
Last year, before the subprime meltdown was even a gleam in Wall Street’s eye, Standard & Poor’s downgraded Pakistan’s sovereign foreign currency debt to CCC+ with a negative long-term outlook because of the unrest and uncertainty surrounding Musharraf’s divisive and ultimately unsuccessful efforts to short-circuit civilian rule and give himself a third term as president.
S&P considered Pakistan especially vulnerable because “the political turmoil exposes the sovereign to external pressures if foreign direct investments and other equity inflows, which have funded about two-thirds of the country’s large current account deficit (estimated at just under 20% of current account receipts in fiscal 2006-2007), diminish significantly.”
Things did not get better in 2008.
Asif Zardari’s PPP government squandered the goodwill of the parliamentary elections that returned Pakistan to civilian rule by leaning on the United States for political backing, playing footsie with Musharraf, and alienating the lawyers and PML-N party leaders who were the PPP’s electoral allies. As a result, virtually all of Pakistan’s political players are happy to watch a not-particularly-capable Zardari flounder ineffectually as the country’s political and economic rot intensifies.
Participation in the aggressive US strategy against Taliban on both sides of the Afghan border exposed Pakistan to a harrowing series of terrorist attacks and discouraged foreign investment.
Then the oil and food bubbles ruinously increased the cost of Pakistan’s imports and added high inflation to the economic mix.
Finally, the world financial crisis guaranteed that there would be no excess supply of foolishly optimistic capital for the Karachi Stock Exchange, which slumped 35%.
So Pakistan has a simple but pressing problem.
With imports chugging along and its sources of capital inflows dwindling, the central bank has only enough cash on hand to finance imports for about six weeks.
Pakistan has declared it needs about $4-$6 billion to make it through the next two years while it gets its house in better order and waits for an improvement in the world economy that should boost exports and increase capital inflows.
US$6 billion is not an awful lot of money.
It’s about the cost of two weeks’ operations in Iraq.
It’s about 1/3 of 1% of China’s forex reserves.
It’s about 4% of Saudi Arabia’s annual net oil export revenues.
But nobody has stepped up to the plate.
Saudi Arabia has so far declined to provide a deferral of payments on oil sales—a facility it had extended to Pakistan in the past.
Zardari went hat in hand to China, Pakistan’s close ally and “all weather friend” who had deposited $500 million into Pakistan’s central bank last year at President Musharraf’s request to help with a similar problem.
But all he came back with was a rather opportunistic proposal that the Chinese would send a team to research the purchase of a 26% share in the National Bank of Pakistan, Pakistan’s biggest commercial bank. Back of the envelope guesstimating indicates that the Chinese are talking about putting in less than $300 million for a stake that would have been valued at about $1 billion back in 2005. Ouch!
As for the West, the U.S. and Great Britain corralled the world community into an ad hoc “Friends of Pakistan” talking shop, with the pressing objective of…well, not doing very much, apparently, except to keep Pakistan twisting in the wind.
At a press conference in Islamabad on October 20, Richard Boucher, Assistant Secretary of State for South Asia, squelched any idea that Pakistan would be seeing a quick and easy answer to its forex problems (emphasis added):
The Friends of Pakistan group -- how can I say it? It’s a group that’s a strategic group. It’s a way of combining the Pakistani Government efforts and the Western -- not Western -- and the Friends efforts: government like Saudi Arabia, the United Arab Emirates, the United States, China, the United Kingdom. And you saw, you know, in New York there were at least a dozen countries there and we’re always hearing from more who would like to be part of this.
So the goal is not…I mean, it’s not to throw money on the table. The goal is to put money where it belongs to support really concrete and positive goals. So it’s going to be a systematic process. It’s going to be a strategic process that looks at problems, looks at what the Pakistani Government is doing, looks at their approach and what effort that they’re making, and then looks at how we need to support and supplement those efforts, so that we really cover some of these problems comprehensively and we don’t leave things undone or leave holes.
You know, is that going to produce more money? Yes, it probably will in the long run. But it’s not a…it’s not a cash advance. There are other steps being taken, you might say, somewhat parallel on the fiscal and monetary problems. Those things are coordinated with treasuries, finance ministries, international institutions. And…but Friends is more devoted to making sure that on the strategic level that we understand Pakistan’s plans and that we’re putting our programs to support them.
With “Friends” like this, one might say…
The unmistakable intention of the United States and its allies is to force the Pakistan government to endure the shame of “Plan C”—the humiliating and politically dangerous recourse of turning to the International Monetary Fund.
Today, the IMF, according to accounts leaked to the Pakistan media (H/T to Reuters' Pakistan blog) is insisting on some astounding conditions:
Pakistan’s The News, citing an internal document, sets out what it said were extremely tough conditions.
1) a 30 percent cut in the defence budget between 2009 and 2020
2) reduce government pensionable jobs from 350,000 to 120,000
3) a new taxation structure to raise revenues including tax on wheat production and other crops
4) Revenue collection reports/analyses to be submitted each quarter to the IMF down to the provincial level
5) Six IMF directors and two from the World Bank to monitor preparation of the federal budget
One might wonder why, with Pakistan tottering on the brink of collapse, the IMF is adding onerous terms that will a) antagonize the military by slashing its budget and b) infuriate its hardpressed citizens—especially in the PPP’s political base, the agri-intensive province of Sindh--by increasing taxes while the economy is flat on its back and c) increase political unrest and make the PPP government even more unpopular by throwing tens of thousands of bureaucrats out of work.
Actually, it is quite possible that the IMF never made these extreme demands, and the Zardari government—which has never been shy or particularly subtle in shading the truth—prepared this monstrous list to demonstrate its fearsome negotiating prowess to the Pakistani public and lessen the shock when it reveals the actual, lesser concessions that the IMF has demanded in return for granting the loan.
Nevertheless, it’s puzzling that the United States is pushing the IMF on Pakistan at this particular juncture.
Pakistan’s economy, though not an exemplar of transparency or efficiency, is in this case the victim of many unfavorable external events and a worldwide financial crisis precipitated by the same kind of overpaid, overreaching financial bureaucrats that oversee the IMF.
So it seems rather unfair that the IMF is taking advantage of Pakistan’s difficulties to impose some of that notorious IMF meddling medicine that has made it despised throughout the developing world.
And, considering that the U.S.-led adventure in Afghanistan is tottering despite uncounted and unaccountable billions of dollars of expenditures and thousands of lives, and Pakistan is standing on the abyss of anarchy, now is an odd time for the U.S. to insist that the IMF be allowed to peddle its deeply unpopular and destabilizing free-market nostrums to Zardari’s government in return for a bridge loan.
Not surprisingly, the Pakistanis see the IMF working as a tool of the U.S. government and Western security priorities for Pakistan.
Quoting unnamed analysts, Syed Fazl-e-Haider wrote in Asia Times:
The United States is using the Washington-based and largely US-financed IMF as a tool to impose its own terms and conditions related to the "war on terror", in which Pakistan has been declared by the US as a major theater of war, the analysts said.
Much to its chagrin, Pakistan has been negotiating with the IMF in Dubai and, according to an October 31 report in Pakistan’s The Nation has apparently reached agreement on a $9 billion loan.
The first disbursement of money from the IMF, which is likely to be for $3 billion to $4 billion, will only come after Pakistan has filed a formal request and the IMF has approved the aid. Shaukat Tarin, Adviser to the Prime Minister on Finance, told Daily Telegraph that the money was needed urgently as confidence levels in Pakistan’s nosediving economy was ‘fast deteriorating’.
Tarin said that first payment was needed in 20 days. He added that the IMF should finalise the agreement by November 15 ahead of a fund raising conference to be held two days later by the Friends of Pakistan, a forum which includes the US, UK, China and Saudi Arabia, in Abu Dhabi.
He said that Pakistan’s allies were “looking for an endorsement from the IMF” of the country’s economic plan before they committed to offering more money.
Pakistan is loathe to confirm that it has struck a deal with the IMF and is still holding out hope that a face-saving offer of assistance from Saudi Arabia and/or China will emerge.
Zardari is making a swing to Saudi Arabia for oil aid, the AP reported:
Economist Muzammil Aslam predicted Zardari would ask for $3 billion in deferred oil payments from the Saudis, but warned that Pakistan should prepare for IMF assistance.
"If you miss the IMF now, you will need it again some months later, and that time you will have to accept more tough conditions," he said.
Pakistan hopes that its front-line role in the war on terrorism will nudge its allies to prevent its economic downfall. But Saudi Arabia, the U.S. and other nations may condition any aid they give on Pakistan submitting to an IMF package, which would come with strict spending rules, said Shahid Hasan Siddiqui, a top economist.
Pakistan Finance Ministry chief Shaukat Tareen has said that if he does not get indications of a forthcoming bailout from allies by Nov. 10 "there is no other option but to go to the IMF."
A meeting of the “Friends of Pakistan” is scheduled for November 17 in Abu Dhabi. That’s a little late for a rescue mission for a government that’s running on fumes, financially--though the timing is just right to force Pakistan to deal with the IMF. In fact, it’s assumed that the Zardari government will have already knuckled under to the IMF come November 17.
"I assume that by the date of the (Friends of Pakistan) conference the negotiations with the IMF will have been concluded," [German Foreign Minister] Steinmeier said. "This assumes that there is agreement on the conditions. We are both confident that this will happen in the next few days."
Even if Saudi Arabia and China show up at the “Friends of Pakistan” conference with public announcements of funding, the damage, as far as the PPP is concerned, is already done.
Being forced to resort to the IMF is a conspicuous failure for the Zardari government. Three years ago, when Pakistan got out from under the IMF’s thumb, Pervez Musharraf triumphantly announced, “We have broken the begging bowl.” Now Zardari, the man who drove him from office, has to highlight his growing political isolation inside and outside the country and his reliance on the United States by playing the role of mendicant to the West.
With understandable frustration, Pakistan’s Prime Minister Gilani is wondering why Pakistan’s deep-pocketed foreign friends are unwilling to come up with the money to help his country, ostensibly the keystone of the world struggle against Islamic extremism.
It’s a rather telling fact that India is more enthusiastic about the IMF bailout (see the Times of India report India may help Pakistan get bailout) than Pakistan, especially since the United States would make sure that any defense cuts (which Pakistan’s defense minister has already defiantly declared to be off the table) would come at the expense of Pakistani forces on the Pakistan-India border, while maintaining or increasing military efforts against America’s bete noire, the Pakistani Taliban, on the Afghan border.
Mr. Gilani, I would characterize your situation as a perfect storm of unfavorable events.
First, it’s quite likely that the U.S. government is trying to control the provision of financial aid to Pakistan in order to exert pressure on your government to support and implement pro-U.S. policies more enthusiastically. And don’t be surprised if the United States is close to giving up on Pakistan’s civilian government and wouldn’t mind fomenting a national crisis that forces Army Chief of Staff Kiyani or some other military savior to step up and take over for the good of the nation.
At the very least, by ostentatiously distancing itself from financial aid to Pakistan through the dual cut-outs of the “Friends of Pakistan” and the IMF, the United States is publicly declaring that, post-Musharraf, the special relationship with the civilian government is not really all that special—especially if Nawaz Sharif takes over-- and is taking this opportunity to yank the leash of a wayward and not particularly capable client.
Second, the reason that neither China nor Saudi Arabia have stepped up to help out is because they feel that the Zardari government’s policy of acting as a U.S. client and signing on to the whole counter-insurgency package in Pashtun areas of Pakistan is catastrophically wrong-headed and contrary to their best interests and they wouldn’t mind your government falling either, to be replaced either by a new government headed by Nawaz Sharif and the PML-N, or some general.
I suspect that the Saudis and the Chinese will hold the winning hand here.
Zardari’s government is tottering because his pro-U.S./aggressive anti-Taliban policies are extremely unpopular within Pakistan. Propping him up with an IMF loan is going to accelerate the political rot.
If the PPP government falls—especially if it collapses because of U.S. manipulation of its current account deficit crisis—any new civilian government will be headed by Nawaz Sharif and the PML-N, a prospect that gives Washington the collywobbles because of Sharif’s extremely popular pro-Saudi/Taliban-accommodating stance.
But even if a general can be found to rescue Pakistan from the catastrophe of Nawaz Sharif and a civilian government attuned to the popular will, America’s problems will be far from over.
The Pakistani populace is now politically energized, and any new military regime will have to take into account its vocal desire for a security policy decoupled from U.S. strategy and emphasizing negotiation and reconciliation with the Pakistani Taliban.
Furthermore, the United States has terminally fouled up its relations with Pakistan’s armed forces by its overt tilt toward India as its preferred South Asian partner and counterweight to emerging superpower (and Pakistan best buddy) China—both by concluding a concessionary bilateral nuclear agreement with New Delhi and shepherding it through the international non-proliferation process, and by providing cover for India to establish a strategic alliance with the Karzai government in Afghanistan, Pakistan’s traditional back yard.
Pakistan’s PPP government is caught in the middle. It can’t deliver unstinting support to the United States in its struggle in Afghanistan, and it can’t deliver a non-aligned policy that reduces U.S. influence and boosts Saudi and Chinese presence in the region.
That’s why nobody is willing to offer Pakistan anything—except a raw deal.