Indian Prime Minister Manmohan Singh has blamed a group with "external linkages" for coordinated attacks which killed more than 100 people in Mumbai. The language was reminiscent of the darker days of India-Pakistan relations when India always saw a Pakistan hand in militant attacks, blaming groups it said were set up by Pakistan's spy agency, the Inter-Services Intelligence, or ISI, to seek revenge for Pakistan's defeat by India in the 1971 war.

An attack on India's parliament in December 2001 triggered a mass mobilisation along the two countries' borders and brought them close to a fourth war.  That attack was blamed by India on the Pakistan-based Kashmiri militant groups Lashkar-e-Taiba and Jaish-e-Mohammed - hardline Islamist groups with links to al Qaeda.  Both have been associated with the kind of "fedayeen" attacks -- in which the attackers, while not necessarily suicide bombers, are willing to fight to the death -- seen in Mumbai.

So does the assault on Mumbai spell the death-knell for what had been gradually warming ties between Pakistan and India?

Pakistan has condemned the attack, just as it did when gunmen attacked the Indian parliament in 2001. And the Pakistani context today is quite different from that of 2001. Then a military ruler, former president Pervez Musharraf was in power, whereas Pakistan is now run by a new civilian president, Asif Ali Zardari, who has made clear he wants peace with India over Kashmir.

But Singh's comments, made in a televised address to the nation, were remarkably strong for the usually mild-mannered prime minister:

“It is evident that the group which carried out these attacks, based outside the country, had come with single-minded determination to create havoc in the commercial capital of the country," he said. “We will take the strongest possible measures to ensure that there is no repetition of such terrorist acts. We are determined to take whatever measures are necessary to ensure the safety and security of our citizens."

The strength of the language may have been fuelled by the scale of the Mumbai attacks, and could refer to either Pakistan or Bangladesh, which has also been accused by India of harbouring militant groups. But it sounded similar in tone to that of Singh's  predecessor, Atal Behari Vajpayee, who following the 2001 parliament attack warned Pakistan that India's patience was wearing thin. And they also contrasted with India's reaction to bombings which killed at least 63 people in the western city of Jaipur earlier this year, when the Indian government notably refrained from pointing a finger at Pakistan.

So was this a deliberate attempt to undermine India-Pakistan relations?  And if so, what will that mean for Pakistan's fragile civilian democracy? Zardari has staked his reputation on making peace with India to improve trade and help lift Pakistan's struggling economy.

Much will depend on how Singh, under pressure to show a firm hand ahead of a national election due in India by May 2009, reacts.

(Rueters photo of Taj Mahal hotel in Mumbai/Punit Paranjpe)

–Paul Taylor is a Reuters columnist, the views expressed are his own–

Anyone who expected the major emerging economies to write fat checks in exchange for being invited to the first G20 leaders’ summit on rescuing the world economy will have been disappointed.

But that should only have surprised the naive.

Despite intensive lobbying by British Prime Minister Gordon Brown of Saudi Arabia and China, the rising powers were never likely to make a cash down-payment to the International Monetary Fund before getting more seats and votes at the top table.

IMF Managing Director Dominique Strauss-Kahn said after Saturday’s Washington summit that his organization will need at least another $100 billion in the next six months to bail out countries stricken by the credit crisis.

Among the world’s major reserve holders, only Japan, an established member of the Group of Seven most industrialized nations, offered the IMF a $100 billion unilateral loan.

The Saudis, Chinese, Russians and Indians want to be sure of winning a permanent say as equal partners in the management of the global economy, and of locking incoming U.S. President Barack Obama into a new world financial order, before they open their wallets.

Even then, they face serious constraints due to domestic development priorities, nationalist public opinion and uncertain energy prices that will limit any contribution.

Here is some of their thinking:

SAUDI ARABIA - Saudi Finance Minister Ibrahim al-Assaf was most outspoken in explaining, in a Reuters interview, why the oil-rich kingdom was not about to pick up the bill for the financial crisis.

“We (Saudis) have been playing our role responsibly and we will continue to play our role responsibly but we are not going to finance the institutions just because we have large reserves. These reserves are for the development of the kingdom of Saudi Arabia,” he said.

Economists say Riyadh has taken a bigger hit from the crisis than it has publicly acknowledged. Its ambitious industrialization plans, as well as its largesse to domestic interest groups, may require a higher oil price than today’s.

Oil has tumbled from a record $147 a barrel in July to just $55 today, which is likely to prompt deeper production cuts. So producer nations face a double revenue hit on price and volume.

At this price, Saudi Arabia and all other Gulf Cooperation Council states except Kuwait can expect to post a fiscal deficit next year, according to economist Mushtaq Khan of Citigroup Global Markets.

Politically, it would be hard to justify helping bail out the widely hated West at a time when Saudi investors have seen their stock market plunge and their foreign investments tank.

The Saudi government may also wait to see whether Obama takes up a King Abdullah’s Arab League peace initiative with Israel and gives priority to Israeli-Palestinian and Israeli- Syrian peace, in contrast to outgoing President George W. Bush.

CHINA - Chinese President Hu Jintao made clear Beijing’s main contribution to stabilizing the world economy was a massive domestic investment program that should help cushion growth at a time when exports may shrink due to recession in the West.

The $586 billion two-year economic stimulus, much of it to be spent on modernizing the creaking infrastructure of the world’s most populous nation, was a bold move by the cautious standards of China’s collective leadership.

The Chinese, sitting on almost $2 trillion in foreign currency reserves, are waiting to see if Obama will share real power with emerging nations. They also want guarantees against protectionism by a Democratic administration and Congress.

“The question is whether developed countries are ready to accept China as a major player. If you want China to take out money when the crisis happens, but give China little power when voting, nobody is going to play with you,” a senior official in the country’s $200 billion wealth fund said.
Jin Liqun, supervisory board chairman of China Investment Corp. and a former vice finance minister, said industrialized powers “should address developing countries with humility”.

Although China is not a Western-style democracy, public opinion still matters.

Most media commentary has resolutely opposed any “bailout” of the West by succumbing to pressure to buy more U.S. Treasury bonds, Standard Chartered China analyst Stephen Green notes. But he said China could transfer some of its dollar reserves from U.S. Treasuries to IMF Special Drawing Rights, especially if it is given more voting rights in the IMF.

RUSSIA - Russian leaders have been dismissive of the IMF as a tool of U.S. dominance of the global economy. Although it still has $500 billion in reserves, Moscow is fast burning through its foreign currency pile as it tries to stabilize its own markets and bail out oligarchs in financial trouble.

A lower oil price also threatens future Russian state revenues and investment plans.
President Dmitry Medvedev and Prime Minister Vladimir Putin think in terms of power rather than economics.

Any Russian cash for the IMF would probably have to be part of a wider bargain with Obama covering missile defense, NATO enlargement, nuclear and conventional arms control, non-proliferation and perhaps Georgia and Kosovo as well.

The Russians don’t rule out such a deal but intend to talk with Obama from a position of strength. That is why they have blown hot and cold in the last two weeks, threatening to deploy missiles in Kaliningrad, on Poland’s border, but also voicing hopes of better ties with the new U.S. president.

INDIA - India, which still sees itself as a developing nation and has less IMF voting power than Belgium, is waiting to see whether Obama accepts a new distribution of world economic and political power before making commitments.

Finance Minister Palaniappan Chidambaram told a World Economic Forum event that the G20 had come to stay as the single most important forum to address global financial and economic issues, and much better than the G7.

But he said: “It is not clear to us whether the new (Obama) administration is fully on board with what the outgoing administration has put on the table.”

India too will be looking for guarantees against U.S. protectionism while demanding the right to protect its own millions of subsistence farmers.

All these countries say they are willing to become “responsible stakeholders” in a new world financial system. Just don’t expect them to pay up before they see the reality of power.

Will Israel and India -- the first the United States' closest ally and the second fast becoming one of the closest -- emerge as the trickiest adversaries in any attempt by the United States to seek a regional solution to Afghanistan?

The Washington Post reported earlier this week that the incoming administration of President-elect Barack Obama plans to explore a more regional strategy to the war in Afghanistan — including possible talks with Iran.

The idea has been fashionable among foreign policy analysts for a while, as I have discussed in previous posts here and here. The aim would be to capitalise on Shi'ite Iran's traditional hostility to the hardline brand of Sunni Islam espoused by the Taliban and al Qaeda to seek its help in neighbouring Afghanistan. At the same time India would be encouraged to make peace with Pakistan over Kashmir to end a cause of tension that has underpinned the rise of Islamist militancy in Pakistan and left both countries vying for influence in Afghanistan.

But Israel has already cautioned Obama against talking to Iran, which it said would be a seen as a sign of weakness in efforts to persuade Tehran to curb its nuclear programme. And Obama's suggestion that the United States should try to help resolve the Kashmir dispute has raised hackles in India, which resents any outside interference in what it sees as a bilateral dispute. That could make the two countries important allies in combating -- or at least reshaping -- any attempt to remould U.S. strategy. 

India and Israel have already built close defence ties, as underlined by this Times of India article.  And according to this Asia Times article by former Indian diplomat M K Bhadrakumar, India's growing relationship with Israel, combined with U.S. pressure, is pushing Delhi to break off what was once a strategic partnership with Tehran. "At the root of it lies unprecedented US-Israeli interference in India's Iran policy," he writes.

Are we going to see more signs of Israel and India working together -- if necessary to resist rather than support U.S. policy? And in an increasingly multi-polar world, will Obama discover that he needs to watch the United States' friends as closely as its enemies to drive through his plans for change?

World leaders vowed to work together in overhauling the global financial system as they headed to Washington for a summit on wresting the global economy from recession and avoiding future meltdowns.

Far from the confines of Washington, Reuters readers launched into a lively debate, sparked by Reuters columnists and experts, on what this means for the global financial crisis.

One of the more lively discussions arose from a column theorizing the financial crisis is the greatest threat to international security. Paul Rogers, Professor of Peace Studies at Bradford University and Global Security Consultant to Oxford Research Group argues:

Unless global responses are made to the current economic crisis, the biggest threat to international security will be the impoverishment of hundreds of millions of people, leading to radical and violent social movements that will be met with force, resulting in still greater conflict.

Reader Jonathan Cole contends:

When the “me” impulse overcomes the “we” impulse to the point that it creates a dysfunctional, unjust concentration of wealth and comfort in the hands of a minority, while consigning the rest to poverty, bad health, and early death, it is only a matter of time before the anger bubbles up from the masses.

Reader James Harris counters:

Maybe it is time for better thinking and not these emotional reactions, that are ultimately an innate desire for finger pointing at U.S. Leadership in causing the financial crisis.

While reader Michael Anderson comments:

I think it would be very beneficial if we had leadership which could promote a mindset whereby we didn’t think of it as us versus them. When underdeveloped nations begin sharing in the wealth to a larger degree we all win.

“Move over America! Make space Europe!”

Reuters columnist Paul Taylor writes that this summit of 20 nations sets a precedent for a new international order. Emerging economies such as China, India, Brazil, South Africa and Mexico are invited to share responsibility for the economic fate of the planet with the established Group of Eight industrialized nations.

No longer mere appendages invited for lunch at the end of the annual G8 summit, the rising powers are in demand because they have either mountains of cash, vital natural resources, fast-growing economies or regional security responsibilities.

Reader RC comments:

India constitutes around 17% of the world population whereas the whole of Europe constitutes only around 5% of the world population. Europe have 3 permanent UN security council members with veto power, which India does not have. What kind of democratic world is this?

“Risk-taking is the engine of economic innovation”

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor puts forth the argument that the U.S. won’t stomach a new Bretton Woods. She writes:

Whatever the wisdom of more far-reaching international financial regulations, many Americans don’t want binding rules administered by a bureaucracy unaccountable to the public. They prefer to do the job themselves. They want sovereignty over their own affairs, and are suspicious of international organizations.

What are your thoughts on the issues world leaders face as they tackle the financial crisis?

Paul Rogers is Professor of Peace Studies at Bradford University and Global Security Consultant to Oxford Research Group. Any views expressed are his own.

Unless global responses are made to the current economic crisis, the biggest threat to international security will be the impoverishment of hundreds of millions of people, leading to radical and violent social movements that will be met with force, resulting in still greater conflict.

Oxford Research Group’s 2008 International Security Report, The Tipping Point?, published on 13 November, points to some improvements in security in Iraq in the past year as well as the potential for major changes in US policy in South West Asia with an incoming Obama administration.  It also finds that the recent deterioration in East West relations after the Russian intervention in Georgia in August can be reversed, but its main conclusion is that it is the global financial crisis that is now the most dangerous threat to international security.

With the G20 meeting due in Washington on 15 November, all the indications are that the response to the crisis of the most powerful states will be to focus narrowly on immediate issues, with calls for improvements in international financial cooperation involving:

•    An effective early warning system.

•    A more effective framework for transnational responses.

•    An independent “college of supervisors” to provide systematic monitoring of the world’s major companies and financial institutions.

These may well be useful responses to the immediate crisis but they have little or no relevance to the wider global predicament.  Instead, the opportunity should be taken to introduce fundamental economic reforms which reverse the wealth-poverty divisions that have got so much worse in the past three decades.

Most of the benefits of these decades of economic growth have been concentrated in the hands of a trans-global elite community of about 1.2 billion people, mainly in the countries of the Atlantic community and the West Pacific, but with elite communities in the tens of millions in countries such as China, India and Brazil.   At the same time, improvements in education, literacy and communications in recent decades have increased the awareness of many marginalised people of this unjust distribution of wealth.

On present trends many hundreds of millions of people among the poorest communities across the world will suffer most.  This is likely to lead to the rise of radical and violent social movements, which will be controlled by force, further increasing the violence.   The intensifying Naxalite rebellion in India and the substantial problems of social unrest in China are early indicators.  Responding to the crisis in a manner which places emphasis on improving emancipation and reversing the widening of the global socio-economic divide is therefore the most important task for the next twelve months.

Trade reform aimed at improving the economies of third world states, coupled with debt cancellation and substantial aid for sustainable development are all required as a matter of urgency if we are to avoid a much more divided global system in which the majority of the world’s population is marginalised, and increasingly resentful and bitter.

We can either respond as a global community or as a narrow group of rich and powerful countries.  The choice we make in the next few months will do much decide whether the world becomes more or less peaceful over the next ten years.

– Paul Taylor is a Reuters columnist, the views expressed are his own –

LONDON (Reuters) - Move over America! Make space Europe! The world’s top leadership table is expanding to bring in emerging powers from Asia, Africa and Latin America to help rescue the global economy.

This week’s Washington summit of 20 nations, called to discuss reforming the international financial system and avert a further worsening of the credit crisis that began in the United States, sets a precedent for a new international order.

Emerging economies such as China, India, Brazil, South Africa and Mexico are invited to share responsibility for the economic fate of the planet with the established Group of Eight industrialized nations — the United States, Japan, Germany, Britain, France, Italy, Canada and Russia.

Saudi Arabia is urged to disgorge its petrodollars and China to tap its $1.9 trillion reserves to underwrite rescue packages and buttress a Western-dominated financial system the collapse of which would wreak even worse devastation around the world.

No longer mere appendages invited for lunch at the end of the annual G8 summit, the rising powers are in demand because they have either mountains of cash, vital natural resources, fast-growing economies or regional security responsibilities.

Will they cooperate, and what do they want in exchange?

“A voice is the most important thing,” said a former senior U.S. financial policymaker, who spoke on condition of anonymity.

“As they look out at global economic prospects, they will also want to see that their money is going to be safe. They will want to see a plan that gives them confidence,” he said.

Beyond that, some of the key holders of dollars and oil may seek security guarantees and assurances that the West will not discriminate against investments by their sovereign wealth funds or their exports during the coming recession.

In a joint statement, the so-called BRIC countries — Brazil, Russia, India and China — called last week for “reform of multilateral institutions in order that they reflect the structural changes in the world economy and the increasingly central role that emerging markets now play”. They also sought assurances against protectionism in the financial crisis.

INTERESTS AT STAKE

Here are some of the interests at stake for key players:

CHINA - The world’s most populous nation, a nuclear power and member of the U.N. Security Council, still regards itself as a developing country. Its communist rulers have just announced a huge domestic stimulus package of public investment but they are deeply cautious about opening up further to the world economy.

Chinese investment has not always been welcome in the United States, where many in Congress accuse Beijing of keeping its currency artificially cheap and want to curb imports from China.
Beijing has said nothing about its terms for helping bail out the capitalist West, but it is likely to want a bigger voice in global economic governance and some guarantees against protectionist steps by Washington and Brussels.

It may also want to ease Western pressure on it to curb greenhouse gas emissions in the fight against global warming.

INDIA - The world’s second most populous country has long sought a larger role in global leadership and sees itself as a spokesman for the developing world.

Prime Minister Manmohan Singh has called for reform of the United Nations Security Council and the G8, implicitly to give India a permanent seat in both.

“Our voice on how to manage this crisis in a way that does not jeopardize our development priorities needs to be heard in international councils,” he told a summit with fellow emerging powers Brazil and South Africa last month.

India seeks both assurances against Western protectionism and the right to continue protecting its subsistence farmers. It too wants to deflect Western pressure to curb emissions which it says would deny its right to economic development.

SAUDI ARABIA - The world’s biggest oil exporter is the only Middle Eastern state in the G20, frustrating Egypt, which lacks resources but sees itself as the leader of the Arab world.
Arab specialists say Riyadh seeks above all U.S. protection against Iran’s growing regional power and nuclear ambitions and from the ascendancy of Shi’ite Muslims in Iraq, which it fears will embolden Shi’ite minorities around the Gulf.

It also wants the next U.S. administration to take up an Arab League plan for peace with Israel and pressure the Jewish state to reach accommodations with Syria and the Palestinians and to stop discrimination against Arab investments, such as the blocking of Dubai Ports World’s purchase of six U.S. ports.

The Saudi monarchy also wants an end to what it regards as destabilizing U.S. pressure for democracy in the Middle East.

INCUMBENT POWERS UNEASY

The first-ever G20 leaders summit, for which the European Union has made all the running, comes in the lame-duck period when President George W. Bush is preparing to hand over to President- elect Barack Obama, putting Washington on the defensive.

“It is outrageous that the Europeans would take advantage of the moment of maximum U.S. weakness to call such a meeting,” the former U.S. financial policymaker said.

The G20 was created in 1999 but until now has been limited to broad-brush discussions among finance and monetary officials.

The world’s only superpower prefers bilateral financial diplomacy, in which it has the upper hand, and tried-and-tested smaller formats such as the G7 grouping of finance ministers and central bankers, which does not include Russia.

Washington is trying to deflect a battery of ideas from hyper-active French President Nicolas Sarkozy for supranational regulation or supervision of financial markets, hedge funds, private equity, mortgage lenders and sovereign wealth funds.

The EU has led pressure to expand the G8 to incorporate the emerging nations, whose cooperation the Europeans see as vital not only to help restore financial stability but also on issues such as trade liberalization and fighting climate change.

Despite anomalies in its make-up, such as the inclusion of Argentina, the G20 summit is well placed to become a key forum on financial reform because it already exists, and there are plans to hold a series of such meetings.

This might prove more practical than British Prime Minister Gordon Brown’s proposal for a sweeping review of the post-World War Two financial order, known as Bretton Woods.

But the G20 may be too unwieldy to be effective, and smaller leadership forums seem bound to emerge. One favorite is a G13 or G14 — a forum that would expand the G8 to include China, India, Brazil, Mexico and South Africa. Some see an Arab or Muslim member, either Egypt or Saudi Arabia, as essential.

Spain, Europe’s fifth largest economy and the world’s ninth but not a G20 member, announced at the weekend that it had won a last-minute invitation to the summit.

However many policymakers, both in the United States and in the developing world, see the over-representation of Europe at the world’s top tables as part of the problem.

The Europeans only reluctantly yielded a little of their voting powers to China in the International Monetary Fund this year. The big EU member states remain unwilling to pool their seats into a single EU delegation in global institutions, with the notable exception of the World Trade Organization.

But a further redistribution of European and U.S. votes at the IMF and some consolidation of Europe’s seats at the world’s top tables may be the price to pay for the emerging world’s help in resolving this financial crisis.

(Pictured above: Brazil’s Finance Minister Guido Mantega, South Africa’s Finance Minister Trevor Manuel (R) and British Treasury Financial Secretary Stephen Timms (L) attend a news conference in Sao Paulo November 9, 2008.)