Patience is Key for 2009

By M H Ahssan

Although markets will likely spend much of the coming year wallowing in a broad trading range, a few macro themes will still dictate underlying trends.

As the New Year approaches, investors across the world are feeling like locusts in a dessert. After getting used to picking off a feast, there are currently no asset classes that offer any obvious appeal.

In many parts of the marketplace valuations and sentiment do seem quite depressed. But that largely pertains to risky assets and with the global economy entering its worst growth spell since the Great Depression, it’s hard to make a universal case for being long risk. On the flip side, government bonds and companies with a relatively steady earnings stream — mainly in the consumer staples and healthcare sectors — offer greater safety but valuations in this space have been stretched to the extent that there’s talk of ‘risk averse’ assets falling victim to the next bubble.

Not surprisingly, then, markets are stuck in a tight trading range. And this tug of war between deteriorating economic fundamentals on the one side and oversold markets with low valuations and hyperactive policy action on the other will likely continue for much of 2009. Patience is the key in such an environment as there could be many false dawns and misleading breakdowns.

A major takeaway from the 1930s’ experience is that there is nothing wrong in husbanding cash in a deflationary world. In a piece of telling research, Birinyi Associates estimates that a dollar invested in the US stock market in 1966 would be worth only $1.11 today if you missed the best five trading days during the entire period. But if you avoided the worst five days, the dollar would be worth $2,696 — emphasising the point that the first rule of investing is not to lose money. Still, even in a broadly sideways market, it’s important to have a fix on the few themes that will prove to be enduring and serve as the fundamental backdrop for making investment decisions in the year ahead:

Japan in the 1990s is currently the playbook for the US: Policymakers in the US will probably succeed in preventing a Great Depression redux, but they cannot engineer a new growth cycle. There is a certain inevitability about what follows a debt binge: total credit as a share of the US economy is at a record 350%, similar to the levels in the Japanese economy preceding the end of its boom in 1990. After having borrowed growth from the future, the US economy will now have to sacrifice growth for a long time to come.

Much the same as Japan over the past two decades, US economic growth is likely to average a meagre 1% for the foreseeable future. That implies some sort of a growth recovery in the US as policy action will arrest the current sharp pace of economic contraction. The Japanese economy has witnessed several mini-growth cycles within an era of stagnation and those recoveries have led to sharp market rallies. At some point in 2009, the US economy too will start to turn around providing the stimulus for a more meaningful rally in the stock market. Typically, the market bottoms 3-6 months ahead of the low in an economic cycle.

However, any rally will be capped by the feebleness of the economic recovery given the underlying economic problems related to over-indebtedness. A very firm long-term top for the benchmark S&P 500 index is most likely 1200 — the level that prevailed just before the world changed in mid-September when Lehman Brothers went bankrupt. The episode marked the definitive end of the 2003-07 credit bubble and the hard reality is that the world is not going back to the pre-Lehman days. In technical terms too, support levels from a bull-market era often end up being resistance points in the ensuing bear market regime.

Emerging markets are still the place to be on a relative basis: The acceleration in the growth of developing countries from an average 3.6% prior to 2003 to more than 7% over the following five years was an aberration largely rooted in the global credit bubble. However, emerging markets are nowhere near as leveraged as the US and most other developed countries and should, therefore, be able to expand at their 1980-2002 average economic growth rate of 3.5-4.0%. That is not too bad an outcome at a time when the US and much of the developed world face an extended period of sub-par growth.

The sluggishness in the west will increase the relative appeal of investing in emerging markets. This is in contrast to the 1980s and ’90s when the US was growing at a robust 3% — nearly as fast as the developing world — and looked much less risky. Furthermore, emerging markets are currently trading at a 25% discount to the developed world on most valuation metrics. While it will be hard for emerging markets to completely free themselves of the US market’s ball-and-chain, this asset class should over time deliver higher returns as has been the case over the past five to 10 years despite the high daily and weekly correlations.

A secular bear market in commodities: It’s amazing to see how many financial analysts are still consumed by the myth that commodity prices are in a secular uptrend due to the continued industrialisation of emerging market economies such as China and India. They are forgetting lessons from history. Commodity prices decline over the long-term as the cost of production falls with better technology, increased automation and greater economies of scale. Although they oscillate wildly around their long-term trend line, the broad direction is unmistakably down.

After overshooting in the late 1970s, commodity prices steadily fell through the 1980s and ‘90s even though global growth remained robust through those two decades. As the 2003-07 credit bubble artificially inflated growth across the world to well above trend levels, commodity prices surged but are now quickly reverting to their longterm mean. They have no justification for trading above their marginal cost of production and in times of distress, the prices fall well below the cash cost of production. All of this suggests that prices of commodities from oil to copper are going back to levels that prevailed prior to the 2003-07 boom. One clear implication is that the price of oil over the next couple of years is more likely to average closer to $30 a barrel rather than the consensus price of $60/bbl factored into estimated future earnings for oil-related companies.

A mix of value and quality at a reasonable price should outperform: The dispersion in valuations — defined as the gap between the highest- and lowest-priced stocks — is currently at near record levels. Ordinarily that would suggest it is time to blindly buy the lowly valued equities and sell the relatively richly priced stocks, typically in the defensive stocks. But the problem is that the cheap stuff is mostly in troubled sectors such as financials. It’s hard to see such stocks outperforming unless the bear market regime comes to an end.

But the valuation gap is too extreme to ignore. Therefore, it’s time to overweight that part of the equity universe where valuations are cheap even after normalising earnings and stripping away the abnormal profits of the past few years. However, a premium still needs to be paid for companies with high management quality as survival of the fittest is still an issue and when corporate governance standards are on the decline.

The dollar is most likely confined to a trading range: It’s intellectually easy and fashionable to be bearish on the dollar. But as has been the case for so many years now, reports of the dollar’s demise are greatly exaggerated. To be sure, the dollar is currently on a declining trend and with US adopting a quantitative easing approach to monetary policy, the image of too many dollars flooding the market readily springs to mind.

However, there will be a limit to the dollar’s decline. The deflation of the credit bubble is a global phenomenon and almost all countries around the world are in an aggressive easing mode. It’s just that the US is ahead of the curve. But expect other central banks to soon enough engage in a similar accommodative policy framework as the US, which in turn should limit any downside for the dollar. The dollar is unlikely to make fresh record lows against major currencies in 2009.

Tackling E-Waste

By Sheena Shafia

With drastic changes in weather patterns across continents, rise in sea level, melting of polar icecaps and ever-increasing levels of all forms of pollution; conservation of environment is a major concern for nations. Initially disbanded as the task of the 'green brigade', the corporate world has woken up from its deep slumber. Embedded as an important postulate of social responsibility among most organisations across sectors, adherence to environmental sustainability has emerged as a major consideration for them.

Expansive IT infrastructure is a cardinal component of most business processes and has improved productivity exponentially. But it is one of the major reasons for consumption of energy, water, emission of greenhouse gases and generation of electronic or e-waste. Hence, the transition towards the idea of 'green IT' has caught up. Tangible and visible efforts like data centre energy cost reduction, virtualization leading to server consolidation, remote management leading to CO 2 footprint reduction, reducing software footprint of applications by consolidation form the backbone of Green IT culture.

However the scale of the problem is simply immense. About 3.3 lakh tonnes of e-waste generated last year was dumped into the rivers, land fills and sewage drains. While the chemicals used to corrode e-waste seep into the ground, e-waste junk like refrigerator bodies, compressors from air conditioners and waste plastic used to make phones just keep on piling up. Only 19,000 tonnes of the annual e-waste is recycled. This is due to high refurbishing and reuse of electronics products in the country and also due to poor recycling infrastructure.

E-waste is of concern largely due to the toxicity and carcinogenicity of some of the substances. Toxic substances may include lead, mercury and cadmium. Carcinogenic substances in electronic goods include polychlorinated biphenyls (PCBs). A typical computer monitor may contain more than 6% lead by weight, much of which is in the lead glass of the CRT. Capacitors, transformers, PVC insulated wires, PVC coated components often contain dangerous amounts of polychlorinated biphenyls. "E-waste is going to be one the major problems facing the world after climate change and poverty," says Nokia India managing director D Shivakumar.

According to a report by hardware body Manufacturers Association of Information Technology (MAIT), e-waste from discarded computers, TVs and mobile phones is projected to grow to more than 800,000 tonnes by 2012 with a growth rate of 15% in the country. "If the situation is not controlled, we may see large land fills of junk e-waste around our cities 10 years down the line," says MAIT executive director Vinnie Mehta.

"For Green IT initiatives to achieve a sustainable impact, firms have to transform their approach from obligation to opportunity. As IT adoption increases in India, we also need to ensure that incorporation of green IT infrastructure is inculcated right from the beginning," says Nasscom vice-president Rajdeep Sahrawat.

Wipro, HCL, Cisco and IBM have ensured green data centres within their organisations and provide consultancy services to set them up for clients. "We have been helping companies actively in developing a complete road map on green IT including the non-IT elements like infrastructure design, hardware used, et all. The effective management of IT infrastructure helps in reducing of carbon footprint of an organisation. We all need to contribute," said vice-president of professional services division in Wipro Infotech Deepak Jain.

British Telecommunication (BT) has designed a carbon impact assessment mechanism that enables organisations to accurately calculate the amount of CO 2 emissions produced with the use of networked IT services. It allows a number of business scenarios to be tested and an assessment made of the associated energy and carbon reductions.

"The link between sustainability and commercial success is, without doubt, becoming clearer all the time. India is rapidly becoming a global centre for information and communications technology development and its economic growth rate is high. It is vital that this commercial success is matched by a commitment towards social responsibility," says BT India chairman Arun Seth.

Many companies are trying to adopt a more macro-level approach by constructing green buildings. According to Indian Green Building Council, green buildings use less energy, water and natural resources and create less e-waste. So it's healthier for the people living inside compared to a standard building.

Eventually, the government has to define roles of each stakeholder including the vendors, the users, the recyclers and regulator for environment friendly recycling. Also, companies must realise that going green actually results in money saved and hence focus their efforts on eco-friendly products that reduce carbon and other harmful emissions. Products sold must be backed by efficient disposal strategies to effectively tackle the problem of e-waste.

Mumbai Still a Ashok Chavan’s Vulnerable City

By Seema Kamdar

Private entities ramp up security but govt yet to devise foolproof plan to protect city

A month after the Mumbai carnage, you can still enter the city’s municipal corporation building without having your bag checked and walk right into the mayor’s office.

You can even enter Mantralaya without being asked about the large plastic bag in your purse, or walk into JJ Hospital and no one will stop you for your identification.

The scars of November 26- 28 are visible. The hurt remains but Mumbai has typically bounced back. Yet the lessons from the three horrific days in November may not have been fully learnt. The gaps in the city’s security cover have not been plugged.

Look around you, and you will find there are more policemen around now. On the ground, though, real change has not come about – where intelligence gathering and sharing are concerned, where coordination among security agencies is concerned.

Taking no chances, private entities have stepped in to secure areas under their control. Even as most government buildings and other installations still have poor security, many hotels in Mumbai have initiated steps to

prevent a repeat of the November 26 events.

The Taj Mahal hotel, for instance, is using private security companies to build an elaborate security wall around its premises. Armed guards are strategically positioned on the fourth floor balcony on all sides. At least five private security personnel guard the two main roads leading up to the hotel.

The hotel’s main entrance has two armed Black Cat commandos. At the Gateway of India entrance is a police van with eight police officers.

Inside the hotel, 70 CCTV security cameras monitor the public spaces. More will be installed soon. The live feed directly goes to the Anti- Terrorism Squad ( ATS) control room.

The Trident has a similar set- up. Hotel staff and private security guards man the barricaded entrance where no cars are allowed unless you have reservation. There are beat policemen stationed at all times, but they have no weapons.

At the Taj Land’s End in Bandra, which is close to actor Shah Rukh Khan’s bungalow Mannat, the security is extremely tight. All public and private transport vehicles are told stop at a distance from the hotel. Private security guards are stationed along the way.

The hotel itself has multiple layers of security operated by both hotel staff and private security agencies. This contrasts with what the state government has done for the common man. At the first meeting of his cabinet, chief minister Ashok Chavan approved a 127- crore plan for security that was hailed as a step in the right direction. Insiders, however, punctured this claim as an eyewash because this was a routine outlay for this year in a five- year plan already in place.

According to the plan to beef up the police force, 11,000 policemen should be added to the state police every year. This implies that around 110 crore out of Rs 127 crore will towards the salaries of the new recruits this year. How then will the government fund the setting up of a crack security system to make India’s financial capital secure? Another lesson that has not been learnt from the November attacks: intelligence intercepts continue to be ignored at the respective action stations.

The reason, argues a state government official, is that “ nine out of ten inputs are routine or redundant”. But just such an approach caused the specific intelligence inputs on Leopold Cafe, the Chhatrapati Shivaji Terminus, the Taj Mahal Hotel and the Oberoi to be ignored, allowing the terrorists to attack the city.

If there are gaps in inland security, there is a lot to be firmed up in coastal security. Had anyone asked, they would have learnt one shocking detail: Mumbai’s coastline is manned by only five patrol boats.

Chief minister Chavan has announced his government will acquire 40 speedboats for patrolling.

Like the Rs 127 crore plan to beef up the security apparatus, this too is a dusted- up scheme which was part a larger central coastal security plan that had been neglected for two years.

From the look of it, the government would rather go ahead with plans that have been in cold storage for years — such as a fresh move to issue smart cards to 50,000 fishermen.

This long- pending scheme, again, doesn’t address the lacunae, like giving permission to fishermen to take outsiders on their trawlers without identification.

Sources said at present a pass is issued in a fisherman’s name and then the number of people being ferried by him is added on the pass. No names were given or identification sought. “ As it is, in the absence of proper regulation, all kinds of people drift into the city’s waters for fishing, some even from Bangladesh,” a coastal defence officer said.

The string of private ports and jetties coming up along the 720- km coastline of the state have no security.

One view is they are a security concern. But, the earlier Vilasrao Deshmukh government wooed them against the advice of security agencies. In fact, Deshmukh is believed to have once brushed aside the warnings of a naval officer that the small stretches of Maharashtra’s coastline should not be marketed to private parties.

Now, about 1,740 m of the waterfront at Dharamtar is to be given to Ispat Industries for “ development of a self- controlled jetty”. Initial approval has been given to another company for setting up a captive jetty at Dehra creek in Sindhudurg district, sources said.

Unlike Nhava Sheva port, Mumbai Port — which controls a vast network of roads in south Mumbai, apart from sensitive rigs and installations — refuses to hand over its security to the Central Industrial Security Force ( CISF) after years of debate. Intelligence agencies have found its internal security system to be inadequate.

Living With Terror

By Dipesh Chakrabarty

Only security won’t do; we need better governance too

The most recent Mumbai tragedy points to a general way some of the negative effects of globalisation are bringing us to the threshold of a post-democratic age in the 21st century. Given the diverse global tensions in the world — with terrorism, economic-environmental crises, and civil wars dislocating populations — democratic states will increasingly tend to develop a strong security aspect in the coming decades.

The violence in Mumbai was perceptibly different from terrorist violence that India has seen before. This time the terrorists themselves wanted to create a “global” event. Their targets included many “ordinary” Indians but also the transnational elite that patronises the most well-known hotels of Mumbai, itself the most global city in India. Their technology and targets were global — witness their use of Voice over Internet Protocol system to keep in touch with their masters in Pakistan or their deliberate targeting of a small Jewish community from overseas. Indian democracy has now, sadly, been ushered into a debate of the 21st century: Should democratic states become security-states as well? Security measures are, of course, no substitute for the political processes needed to heal rifts between countries and communities. But they cannot be ignored either.

This immediately raises two challenges. One is related to questions of democracy in general. The prospect of a security-state understandably and rightly concerns rights activists. Yet it is clear that the “security of populations” is itself emerging as a powerful right. In the developed countries today, it is hard to distinguish measures adopted to fend off terrorist attacks from the politics of refugees and “illegal” immigration. Of course, the balance between security and other rights cannot be decided in any a priori fashion, which is why it always should be open to debates with reference to specific contexts. There is, besides, the very important question of ensuring that the pursuit of security does not become a tool for oppression of and discrimination against minorities or immigrants. But the globalisation of this debate is what marks our times.

The second challenge arises from deep within the history of Indian politics. To have an effective cordon sanitaire against terror would require India to inject a degree of efficiency, alertness, and performance into an administrative apparatus that simply has not delivered on these scores for decades. Since the 1970s, government or public institutions in India have gradually ceased to be effective deliverers of goods and services. There is much that democracy in India has achieved by way of giving many low-caste and marginalised communities a sense of participation in the country’s governmental institutions.

The growth of this politics of identity, however, has made elections into the mainstay of Indian democracy. It has distanced politics from issues of governance, and has gone hand in hand with a deepening of corruption, financial and otherwise, on the part of politicians and officials. A large number of the elected members of Parliament have criminal cases pending against them. Media reports and everyday experience suggest an elephantine, unaccountable, inefficient bureaucracy mired in selfindulgent use of resources with corruption and inefficiency often going together.

There was, for example, no effective coast guard force to intercept the Mumbai terrorists. It took the first lot of firefighters hours to respond to the fire at the Taj. It took nine hours to mobilise the commando force many of whom are usually kept busy providing “security” to politicians who often see such security as a matter of prestige. It has also been reported that a very large grant recently given to the Mumbai police for their modernisation was mostly spent on buying luxury cars and other expensive items for the use of senior officers and their ministers!

Creating a security system that will provide effective protection to the population from terrorist attacks will not be easy. Corruption follows public money in India as it does, unfortunately, in many countries, and undermines performance. Secondly, the effective functioning of any institution in India in a non-partisan manner would require that institution to be insulated from political interference. The second condition is not easily met. The required reforms thus call for a certain kind of political will that the political class in India has not quite shown in recent times.

Yet India cannot any longer avoid debates over security and other rights. The government has already announced certain measures making anti-terror laws more stringent. Some other reforms will also certainly follow on paper and perhaps in action as well. Many members of the Indian educated middle classes are angry at the inability of their government to protect them.

We do not know how effective that anger will be. If the nature of the political class remains the same, Indians will probably have to get used to living with a degree of terror the exact quantum of which is difficult to predict. One hopes though that the nation will address both the long-term and short-term problems together so that, important as security considerations are, this tragedy will initiate not just a rethink but also a revitalisation of democratic institutions in India as they cope with the challenges of this global century.

It Ain’t Working

By M H Ahssan

US should stop propping up the Pakistani military

US aid to Islamabad is now close to $2 billion a year, putting Pakistan on par with Israel and Egypt as the top recipients of American assistance. And on the eve of the Mumbai terrorist assaults, the US persuaded the IMF to hand a near-bankrupt Pakistan an economic lifeline in the form of a $7.6 billion aid package, with no strings attached. Despite such largesse, Pakistan is host to the world’s most wanted men and the main al-Qaeda sanctuary. Recent polling shows that Osama bin Laden is more popular in Pakistan than ever, even as America’s negative rating there has soared.

Let’s be clear: US policy on Pakistan isn’t working, and unless Washington fundamentally reverses course, it risks losing the war in Afghanistan and making the West an increasing jihadi target, including the scene of Mumbaistyle murderous rampages. After all, as the history of terrorism since the 1980s attests, innovative terrorist strikes carried out against Indian targets have later been replicated in the West. That includes attacks on symbols of state authority, the mid-air bombing of a commercial jetliner and coordinated strikes on a city transportation system.

The jihadis’ logic in employing softstate India as their laboratory has been that if they can bleed the world’s largest democracy through novel and recurrent attacks, they perfect techniques for application against the tougher free societies in the West. If the terrorists can bring the developing world’s most successful democratic experiment under siege, with the intent to unravel its secular and pluralistic character, it is only a matter of time before western societies get similarly besieged. That the tourism ad’s “incredible India” is, in reality, little more than a miserable India — which presents itself as an easy target by merely craving international sympathy as a constant victim — does not detract from the danger that the Mumbai attack masterminds have set up a model for use elsewhere.

Yet the US response, however positive in the diplomatic realm, has failed to recognise that the Mumbai attacks mark a potent new threat to free societies and that unless the masterminds are brought to justice, such cold-blooded rampages are likely to be carried out in the West. The alacrity with which the American media returned to the India-Pakistan hyphenation in covering the Mumbai assaults betrayed superficiality and old mindsets — a failing compounded by media organisations calling the attackers not terrorists but “militants” (like the ‘New York Times’) or “gunmen” (including the ‘Washington Post’). Diplomatically, it has been deja vu — the US exerting pressure and Islamabad staging yet another anti-terrorist charade to deflect that pressure and pre-empt Indian retaliation.

Given the easy manner outlawed terrorist outfits in Pakistan resurface under new names, the US knows well that a ban on any group or temporary detention of a terrorist figure is of little enduring value. More Mumbai-type attacks can be prevented only if the masterminds are identified and put on trial and their sponsors in the Pakistani military-intelligence establishment are, with the help of Europeans, indicted in The Hague for war crimes. Yet, despite a broken Pakistan policy, the US seems reluctant to fix its approach. The reason for that is not hard to seek: US policy remains wedded to the Pakistani institution that reared the forces of jihad — the military.

Indeed, US policy is still governed by a consideration that dates back to the 1950s — treating the Pakistani military as central to the pursuit of American geopolitical objectives. As American scholars Lloyd and Susanne Rudolph have put it, “For roughly 50 years, the US destabilised the South Asia region by acting as an offshore balancer. Its actions allowed Pakistan to realise its goal of ‘parity’ with its much-bigger neighbour and to try to best that neighbour in several wars”. The more recent “de-hyphenation” of India and Pakistan was not a calculated US policy shift but the product of Pakistan’s descent into shambles and India’s notable rise after 1998. Under George Bush, US policy simply went from hyphenation to parallelism. That has involved building strategic partnerships with and selling arms to both. For the first time ever, the US is building parallel intelligence-sharing and defence-cooperation arrangements with both.

The war in Afghanistan and the containment strategy against Iran have only reinforced the US dependence on the Pakistani military, despite mountains of intelligence indicating the latter is playing both sides — bolstering the Taliban and other terror groups while pretending to be a counterterror ally. Instead of helping empower Pakistan’s civilian government to gain full control over the national security system, including the nuclear establishment and the ISI, US policy acts as a stumbling block by continuing to prop up the Pakistani military through generous aid and weapon transfers, including bombers and submarines of relevance only against India. For its own sake, Washington has to stop pampering and building up the military as Pakistan’s pivot.

By fattening the Pakistani military, America has, however inadvertently, allowed that institution to maintain cosy ties with terror groups. A break from this policy approach would be for the Barack Obama administration to embrace the idea currently being discussed in Washington — condition further aid to the reconfiguration of the Pakistani military to effectively fight terror and to concrete actions to end institutional support to extremism. If not, the US is bound to lose two wars — the one in Afghanistan and the other on transnational terror — while staying mired in Iraq.

Plug The Security Holes

By Radha Kumar

For the federal investigating agency, look at US example

The government has finally put security reforms on a fast track. They have announced a Bill to set up a National Investigating Agency, a new coastal command, amending the CISF Act to protect private facilities and a slew of other measures. How far will these help to prevent the security lapses Mumbai made so painfully clear?

The three key areas for reform are: intelligence gathering and communication, specialist training and equipment and coordination between the federal and state ministries concerned. The first of these areas has received the greatest attention. In September, the Moily commission on administrative reforms suggested the creation of a federal investigative authority which could be set up by ordinance or through a constitutional amendment to the National Security Act of 1980. A similar proposal was made by the Subrahmanyam committee on security reforms set up by the NDA government. Neither proposal was acted upon, in part, according to Moily, because the states are concerned that this might infringe upon their rights in the federation. While this is an important concern, it ought to be possible to accommodate it, for example, through state consultation in an advisory capacity, so that national security, which is a federal responsibility, is not jeopardised as it has so often been.

According to the Moily and Subrahmanyam committees’ recommendations, the authority would be responsible for coordinating tasks that are divided amongst different intelligence agencies, such as RAW, IB and CBI. Additionally, it has been suggested that the authority coordinate between state police forces through the appointment of special police commissioners. Though the coordination of intelligence inputs is under the purview of the national security adviser and the coordination of police forces is under the home ministry,having a dedicated authority will at least make a sole agency responsible. To this extent it may succeed in plugging some of the existing gaps, especially in information communication to prevent or minimise terrorist attacks.

But an authority whose mandate is restricted to intelligence would not be able to deal with the national security challenge of how to effectively protect us from terrorism. While some of the other measures announced, such as setting up a coastal command, are intended to remedy glaring problems such as the navy lapses, coast guard breaches and police inadequacies that the Mumbai attacks pinpointed, it is not clear that a slew of complementary measures will work unless they are integrated with each other. As the failure to implement the Dharma Vira and Soli Sorabjee committees’ recommendations for police reforms shows, leaving this job to the respective ministries or service branches is chancing our luck.

In the past 15 years of terrorist attacks, our security forces have progressively weakened rather than strengthened in their capacity to protect us, and successive ministers and chiefs of services appear to bicker amongst themselves rather than attempt to reverse the trend. Who will tackle this problem? The federal authority would have been ideally positioned to build consensus on reforms and their implementation in the security forces, but many fear that such a comprehensive mandate might concentrate too much power in the hands of a very few.

In the US, the Department of Homeland Security faced similar problems. It was given too many and far too wide-ranging executive powers to counter terrorism, and it ran into stiff resistance in implementing recommendations that required reform in powerful departments and agencies. Nevertheless, it did have important success in coordinating between the border forces, coast guard, customs, transport, immigration and citizenship officials, and in acting as a conduit between them and the intelligence agencies. This success was generated only after the department won the right to choose its personnel rather than have them nominated.

While in actual practice the Department of Homeland Security infringed human rights, especially at immigration points, these violations diminished over time as it appointed special advisory and monitoring bodies. Its activities include training in emergency response and disaster preparedness. And it comprises not one but a series of coordinating councils, between services, departments and states. Most of its advisory bodies constitute a public-private partnership: they include members of industry, academia and think tanks, and their job is to propose innovative and practical measures for improving national security as well as to monitor performance for efficiency and human rights protection. In our case, for example, a first aim should be to regulate our financial and cellular services.

Most of the lessons to be learned from the US are those that we know. Our intelligence agencies and security services have to work together if they are to be effective; we need to combine training, materials and fair working conditions if we want our forces to be alert; and we have to develop a publicprivate partnership, with a focus on human rights protection and community outreach, if we are to give our security the deep roots that it needs.

A federal investigative authority alone may not be sufficient to reform our security. We need an authority which can, at the least, oversee the reforms that are required in our armed forces, coast guard, police and intelligence agencies as well as in our financial and cellular services. If those reforms are to be separately undertaken by the concerned ministries, then we need to hear what they will be and on what time frame. Logically, they should be simultaneous and the reforms should be integrated in order to facilitate interoperability in times of crisis. Otherwise it will be impossible to coordinate between intelligence and action, a scenario that we are all too familiar with.

High Risk Games

By M H Ahssan

Taliban attempt to choke NATO supplies offers India diplomatic opportunity

In the aftermath of 26/11, Taliban forces have attacked NATO military vehicles and supplies passing through Pakistan’s North-West Frontier Province (NWFP) five times over the last week. This is the route through which 70 per cent of NATO supplies for troops in Afghanistan pass. But close to 250 NATO vehicles have been blown up over the past week alone. Given the international nature of the outcry following 26/11 and the Security Council’s ban on the Jamaat-ud-Dawa (JuD), this could be the Taliban’s way of warning the US not to put too much pressure on Pakistan.

Despite repeated Taliban attacks security at NATO’s shipping terminals appears to have been left to overstretched local police. Taliban violence against members of the secular Awami National Party now ruling NWFP has also been spiralling, unchecked by security forces. Meanwhile, President Asif Zardari has demonstrated the shakiness of civilian control by acting on the basis of a hoax call supposedly made to him by Indian foreign minister Pranab Mukherjee, which resulted in the redeployment of troops from the Afghan to the Indian border. The lack of security for NATO supplies suggests that somebody is sending the message that Pakistan controls a critical route for supplying NATO troops in Afghanistan, and too much pressure on Pakistan could lead to this route being choked.

This, however, is a high-risk strategy as it will end up alienating the world. Even a minimal definition of the Pakistani military’s responsibilities would require it to protect NATO’s supply lines. Consistent failure to do so would expose unwillingness to assume any responsibility. At the same time, failure to protect NWFP’s elected government would end up ceding the province to the Taliban, in which case the army would have demonstrated its incapacity to defend Pakistan’s sovereignty. Neither will choking what is currently NATO’s main supply route into Afghanistan work, as NATO is already working on two alternative supply routes, one through Russia, Kazakhstan and Uzbekistan and the other through Georgia, Azerbaijan and Turkmenistan.

German interior minister Wolfgang Schaeuble said in New Delhi on Friday that Pakistan needs to do more than just banning the JuD. The Taliban attacks offer a diplomatic opportunity to New Delhi to build an international coalition to pressure Pakistan to curb jihadi militias, as everybody’s interests — including Pakistan’s — are affected by Islamabad’s inability to rein them in. India suffered 26/11 and would like to prevent further terrorist attacks. President-elect Barack Obama plans to increase US troop presence in Afghanistan, which would require enhanced rather than degraded supply lines, not to mention the denial of Pakistani territory as a safe haven to launch attacks on NATO troops. Pakistan itself can undergo true democratic consolidation only when religious extremists and their sympathisers in the security services are taken out of the equation.