Expert Zone

News Flash: Pakistan is NOT a U.S. ally

(The views expressed in this column are the author’s own and do not represent those of Reuters)

U.S. media commentators acted with surprise about reports that Pakistani officials may have given the Chinese access to the downed helicopter left behind in Pakistan following the May 2 bin Laden raid.

What is more surprising is that some media outlets still refer to Pakistan as a U.S. “ally” in the fight against terrorism. Pakistan is neither an ally nor an enemy to the U.S.

Rather, Pakistan has entirely different security objectives from the U.S. in Afghanistan and in fighting terrorists more broadly. The sooner U.S. policymakers come to grips with this reality, the better chance we stand of achieving U.S. objectives in the region.

There was always a great deal of concern that the Pakistanis would allow the Chinese access to the downed helicopter. China has been Pakistan’s “all-weather” friend for the last 50 years, and Islamabad would likely relish an opportunity to help the Chinese by providing them information on sensitive U.S. military technology.

China, after all, was willing to break international rules for Pakistan by providing it ballistic missile technology and nuclear know-how during the 1980s – 1990s. More recently, China has agreed to provide Pakistan with two new civilian nuclear reactors, despite that such transfers would violate the rules of the Nuclear Supplier’s Group, an organisation China joined in 2004.

The Pakistanis had even hinted to the U.S. shortly after the bin Laden raid that that they would consider showing the Chinese the downed helicopter. So, if Pakistani officials did indeed give the Chinese access to the aircraft, it should hardly come as a surprise to anyone.

Life after the U.S. rating downgrade

(Nipun Mehta is a veteran private banker with many years of experience across Asia. The views expressed in the column are his own and not those of Reuters)

The unthinkable (for some) happened last week when the U.S. economy was downgraded from ‘AAA’ to ‘AA+’ with a negative outlook by Standard & Poor’s, one of the three large global rating agencies.

That led to an interesting situation where European economies like France and the UK are rated higher than the U.S., despite huge concerns about their financial condition. The event would undoubtedly have hurt the American ego, particularly since S&P announced that there could be more downgrades in the offing.

That this was an event that was imminent is accepted by many, but what is in store for the global economy and the Indian economy going forward?

There are several concerns that will keep haunting the central banks, the equity markets and governments around the world. These include:

-         What if the UK and France are downgraded too?

-         Will the other two rating agencies also downgrade U.S. in a few weeks’ time?

U.S. drops from AAA to AA+

(The views expressed in this column are the author’s own and do not represent those of Reuters)

It was S&P that took the lead and downgraded the U.S. with a ‘negative outlook’. The other rating agencies are not comfortable either with the current debt and fiscal status of the U.S. government and may only confirm later what S&P has already done now.

The reason for the downgrade is that the U.S. deficit reduction plan did not go far enough to stabilise the country’s debt situation. Presently, the U.S. fiscal deficit is over 9 percent of GDP, well beyond the generally accepted 3 percent limit which was a pre-condition for European countries to join the EU.

The increase in deficit and consequently debt was not so much the outcome of fiscal policies to counter the 2008 recession as the excessive defence expenditure by President George W. Bush. The latter pushed up debt by $6.1 trillion to $12 trillion. Obviously, increasing the debt limit is not a permanent solution. It is the increase in revenue or reduction in expenditure that can stabilise debt. The first option was ruled out; the second did not go far enough. The expected downgrading became inevitable.

That will have serious fallout not only on the U.S. but the rest of the world as well. First, the U.S. fiscal deficit is not wholly funded by U.S. public — it’s also funded by central banks of other countries. Foreign money in U.S. debt is about 28 percent of total debt. With a lower rating, there will be hesitation on the part of foreign central banks to buy U.S. treasuries which had been looked upon as the safest investment.

If the U.S. deficit is not reduced, the funding will have to come from internal sources, principally the Federal Reserve. That will expand money supply and generate inflation.

Second, to compensate for a lower rating, the U.S. will have to raise the interest rate on U.S. treasuries with consequent reduction in capital value. As the largest investor, China will suffer a huge loss on its $1.2 trillion investment in U.S. treasuries. The increase in rate will not stop with the treasuries but will extend to all other securities, including securities issued by private agencies. There can be an increase in interest rates all over the world and a fall in share prices.

Laden link to HuM shows Pakistan must do more to fight terrorism

(The views expressed in this column are the author’s own and do not represent those of Reuters)

New information revealing a Kashmir-focused militant group with links to Pakistani intelligence helped shield Osama bin Laden demonstrates the U.S. must press Pakistani authorities to take a more comprehensive approach to fighting terrorism.

Pakistan has long sought to distinguish between Kashmir-focused groups it allows to openly function in Pakistani society and al-Qaeda. However, the revelations about contacts between members of Harakat-ul-Mujahideen (HuM) and Osama bin Laden show Pakistan’s segmented approach to terrorism has failed miserably and contributed to the ability of the world’s most wanted terrorist to live undetected in a military town in the heart of Pakistan.

The U.S. must insist that Pakistan detain the leader of HuM, Fazlur Rehman Khalil, and any of his colleagues that have had contact with al-Qaeda and provide U.S. officials access to these individuals for questioning.

It is clear that Kashmir-focused militant groups like HuM and Lashkar-e-Tayyiba, responsible for the 2008 Mumbai attacks, are part of al-Qaeda’s broader militant network and thus facilitate al-Qaeda’s targeting of the U.S. and other countries.

It is time the Pakistan leadership pursue these terrorists and demonstrate they will no longer be able to operate freely within Pakistani society.

After bin Laden: Do not retreat from Afghanistan

(The views expressed in this column are the author’s own and do not represent those of Reuters)

The killing of Osama bin Laden should strengthen U.S. resolve to stabilise Afghanistan and ensure that it does not return to serving as a safe haven for terrorists intent on attacking the U.S. homeland.

While the death of bin Laden marks a turning point in the fight against global terrorism, al-Qaeda and its affiliate organisations will not dissolve immediately.

U.S. troop withdrawals from Afghanistan beyond that which may be justified by conditions on the ground would squander the gain of eliminating bin Laden, who appears to have played a major role in directing attacks against the U.S. up until his death two weeks ago.

Instead, the U.S. should build on bin Laden’s death to advance its Afghanistan strategy by seeking to convince the Taliban leadership to finally break ties to al-Qaeda and join a legitimate peace process in Afghanistan.

AL-QAEDA VS THE TALIBAN

The Taliban’s initial public reaction to the killing of bin Laden shows no sign of compromise. Indeed, the Taliban said bin Laden’s death would provide new impetus for its “jihad against the invaders.”

After bin Laden: Bringing change to Pakistan’s counterterrorism policies

(The views expressed in this column are the author’s own and do not represent those of Reuters)

The U.S. unilateral operation to track and kill Osama bin Laden deep inside Pakistan has raised several questions about the sustainability of the U.S.- Pakistan partnership in the fight against global terrorism.

Relations between Islamabad and Washington were already strained, and the bin Laden operation has deepened the rift. It laid bare the enduring mistrust between the two nations and demonstrated that each side is willing to edge closer to the other’s red lines in pursuit of its own goals.

The killing of bin Laden marks not only a watershed in the U.S. global fight against terrorism, but also a turning point in U.S. relations with Pakistan. Americans and Pakistanis alike are asking the crucial question of how bin Laden could have lived in a large, conspicuous compound in a military cantonment town — swarming with security officials — undetected for nearly six years.

After years of denying bin Laden’s presence in Pakistan and complaining that Pakistan was unfairly labelled the “epicentre of terrorism,” Pakistani military officials must now accept the reality that the world’s most wanted terrorist was found in their backyard.

U.S. Director of Central Intelligence Leon Panetta admitted that the U.S. had conducted the operation unilaterally because Washington decided that any effort to work with the Pakistanis could jeopardise its success.

The onus is now on Pakistan to demonstrate that it is willing to work more closely with the U.S. to target other terrorists sheltered within its borders and to cooperate more fully with the U.S. goal of stabilising Afghanistan.