tag:blogger.com,1999:blog-47447026332533694872024-02-08T04:46:51.690+00:00Geopolitics & MacroeconomicsAmithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-4744702633253369487.post-21639924554498575852013-12-28T10:18:00.001+00:002013-12-28T10:24:07.419+00:00Anaemia in Laywoman Terms - Last Post for 2013<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: Times, Times New Roman, serif; font-size: large;">2013 is coming to a close. You would probably know that my writings mostly touch on matters that do not impact the immediate. A complementation is therefore in order as I look forward to 2014.</span></div>
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<span style="font-family: Times, Times New Roman, serif; font-size: large;">Anaemia is age-biased - the highest incidence rate is in the little kids population segment. It is gender-biased - women are at a much greater risk than men. About 25% of the global population is anaemic. Therefore there is a high chance that someone we know or care about is anaemic. Non-life threatening direct effects of anaemia include fatigue, shortness of breath, headache, difficulty in concentration, mood swings and brittle nails. In acute cases the impact can be a lot worse. I think therefore a write-up on anaemia would be a perfect way to close 2013 and wish you and the world </span><span style="font-family: Times, 'Times New Roman', serif; font-size: large; text-align: justify;">a healthier 2014.</span></div>
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<span style="font-family: Times, Times New Roman, serif; font-size: large;">I have tried to keep medical terminology to the minimal, used a 'matter-of-fact' language. My idea was to explain anaemia in simple terms in the hope that it helps you enhance your two-way communication with your doctor if you or people you care about are anaemic.</span></div>
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<span style="font-family: Times, Times New Roman, serif; font-size: large;">The article is in three parts. The first part explains metabolism - the cycle of life. The second addresses the question about where anaemia (mis)fits in within the cycle of life. The third covers risk factors that cause or increase susceptibility to anaemia.</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;"><strong>1. Metabolism - the Cycle of Life</strong></span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">A living organism must breathe. It must be able to regenerate cells to aid body growth and to replace worn out cells. The first activity is called catabolism. The second is anabolism. Taken together the two are referred to with the far more familiar term - metabolism.</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">Metabolism is a cell-level activity. Every living cell in the body participates. It requires two external inputs:</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">(i) <u>Food:</u> Digestion starts at food ingestion and ends at absorption of nutrients into the blood stream. Blood transports nutrients to cells where they are broken down into simpler substances. The process of breaking down leads to two useful outcomes: <strong>A.</strong> Energy is released and made available for the body for uses as diverse as blinking to running away from a hungry bear. <strong>B.</strong> Some of the simpler substances are critical building blocks needed for cell formation. The breaking down of food particles that takes place inside the cells is colloquially called burning.</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">(ii) <u>Oxygen:</u> Burning is an oxidative process, i.e., it requires oxygen. Carbons dioxide and other wastes are released during burning. The blood carries the wastes from the cells to the lungs. The lungs clean the blood and replenish its depleted oxygen content. The re-oxygenated blood is transported back to the cells. The metabolic cycle continues. The cycle of life continues.</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;"><strong>2. The Cycle of Life - Where Anaemia (mis)fits in</strong></span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">As we saw in the last section, for cycle of life to function at all, the <em>digestive system</em> must convert ingested food into simple nutrients that can be readily absorbed into the blood stream. The <em>respiratory system</em> must oxygenate, detoxify and then re-oxygenate the blood. The <em>circulatory system </em>must carry nutrients and oxygen to each cell in the body and carry waste out of cells and deliver it at the <em>excretory organs</em>.</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">Amongst these several functions, anaemia concerns the situation wherein body cells do not receive adequate supply of oxygen. As we saw no oxygen means no burning; no burning means no metabolism; no metabolism means no life.</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">So far so good? We are now ready to investigate what can cause problems in the oxygen delivery pathway. Once we understand this we can enhance the second leg of the two-way conversation we ought to have with our doctors. </span></div>
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<strong><span style="font-family: Courier New, Courier, monospace; font-size: large;">3. Anaemia - the Risk Factors</span></strong></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">We have heard of red blood cells (RBCs) and white blood cells. If you remove these from blood you are effectively left with blood plasma - the fluid that gives blood its mobility. Oxygen's solubility in plasma is rather poor. Therefore it needs something to hitch a ride on to its way to the cells. It needs a carrier. This carrier goes by the familiar name haemoglobin. Haemoglobin is a good carrier. But oxygen is unable to directly latch on to haemoglobin. It needs a latching agent. The agent must have three properties:</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">(i) Oxygen must be able to latch on to it;</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">(ii) The agent itself must be able to bind to haemoglobin;</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">(iii) Once oxygen-laden haemoglobin is delivered to a cell then the latching agent must unbind and release the oxygen molecule to the cell.</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">This latching agent is <em>iron</em>. Iron deficiency means inadequate supply of latching agents; which in turn means that enough oxygen cannot be transported to the cells; which in turn means inadequate metabolism; which in turn means insufficient energy generation and inadequate replacement of worn out cells. In short, this means anaemia. Eureka!</span></div>
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<em><span style="font-family: Courier New, Courier, monospace; font-size: large;">Thus, the <strong>1st risk factor is iron deficiency.</strong> Let us move on to the second.</span></em></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">Assume one takes adequate quantity of iron in food. However one's diet patterns may include co-consumption of generous servings of calcium-rich foods such as yoghurt or cheese. Furthermore many of us like soft drinks with meals or wrapping up the meal with a cup of strong coffee. These foods inhibit the uptake of iron by the body. It is not the amount of ingested iron that is important but how much actually gets absorbed, especially if one's iron uptake system is under-performing. If one already has iron deficiency then one may want to space the consumption of the other foods so that iron does not have to compete with those for being absorbed. For example coffee is absorbed within about an hour. But depending upon your source of iron, iron absorption could take several hours. Thus one may drink coffee up to an hour before having iron-rich food or wait for 3-5 hours after a meal before refilling one's cup or reaching out to a soda can.</span></div>
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<strong><em><span style="font-family: Courier New, Courier, monospace; font-size: large;">Co-consumption of calcium or caffeine rich foods is the 2nd risk factor.</span></em></strong></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">The most commonly occurring haemoglobin complex in our bodies holds four iron atoms, i.e., has four latching sites. Thus four oxygen units can latch on to a single haemoglobin molecule. Haemoglobin however does not float freely in blood. Haemoglobin is contained in red blood cells (RBCs) - everything is packaged! Thus if the RBC count in blood is low then the amount of haemoglobin in blood will also be low. In that case we would have fewer latching agents (iron atoms) and thus fewer oxygen molecules can be carried per unit volume of blood.</span></div>
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<strong><em><span style="font-family: Courier New, Courier, monospace; font-size: large;">Thus low RBC count is 3rd risk factor.</span></em></strong></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">Let us say one's intake of iron is adequate, one's absorption of iron is adequate and one has a normal RBC count. Essentially, one has jumped through the first three hoops. What then?</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">Well, oxygen must bind to haemoglobin at the iron site. However the iron site within haemoglobin does not have an affinity for oxygen alone. It can also bind to carbon monoxide, nitrous oxide or hydrogen sulphide. In fact iron sites have 250 times the affinity for carbon monoxide than it has for oxygen. Once haemoglobin binds to one of the other gases it is unavailable for carrying oxygen. One may be exposed to these gases due to pollution or smoking.</span></div>
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<strong><em><span style="font-family: Courier New, Courier, monospace; font-size: large;">Thus the 4th and 5th risk factors are pollution and smoking.</span></em></strong></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">Let us say one manages to jump through the fifth hoop as well, and land on one's feet! In that event an adequate number of oxygen molecules have hitch-hiked and are on the move. Just as traffic slows us down leading to an upset partner or impatient kids, RBCs can be slowed down as well, especially at bends in narrow capillaries. Promises to pick up groceries or ice-cream topped with crunchy nuts on the way do not work :-). If oxygen cannot be delivered at an adequate rate then metabolism will slowdown. To avoid slowing down in the bends and narrow alleys the RBCs must be elastic. Haemoglobin forms 95% of an RBC's dry content. Thus for an RBC to be elastic the haemoglobin must be elastic.</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">A genetic disorder called sickle cell disease causes haemoglobin to lose elasticity and distort from its usual round shape to a crescent shape. This causes two problems - the 'last cells' are perpetually starved for oxygen and the wear and tear of RBCs increases. In worst cases of sickle cell disease, mean life of an RBC falls to just 10% of a normal RBC.</span></div>
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<strong><em><span style="font-family: Courier New, Courier, monospace; font-size: large;">Thus sickle cell disease is the 6th risk factor. </span></em></strong></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">RBCs may also lose their elasticity if the body is frequently exposed to altitudes greater than 3000 meters without adequate acclimatization. Thus inducing an affliction similar to sickle cell disease.</span></div>
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<strong><em><span style="font-family: Courier New, Courier, monospace; font-size: large;">Thus frequent exposure to high altitudes without adequate acclimatization is the 7th risk factor. </span></em></strong></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">Thalassemia, a genetic disorder, can cause severe anaemia. It induces RBCs to shrink in size. As a result haemoglobin production is reduced. The cell pressure increases causing RBCs to rupture. Chronic iron deficiency, especially during childhood years can also cause RBCs to shrink and lead to their easy rupture. If that happens blood's capacity to carry oxygen is reduced.</span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;"><b><i>Thus Thalassemia and chronic iron deficiency during childhood are 8th and 9th risk factors. </i></b></span></div>
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<span style="font-family: Courier New, Courier, monospace; font-size: large;">Most of us would easily beat the seventh hoop though it takes some work and also gene-luck to beat the other eight. Let us say one is able to do that. So now oxygen in adequate quantities is reaching the last cells. Can we now uncork the champagne? No. Not yet! Remember the oxygen was carried to its destination precisely because it remained latched on to iron which in turn remained bound to haemoglobin. The time has come now for the haemoglobin complex to unbind and release the oxygen to the cell. High blood sugar levels inhibit this release. Blood sugar levels may remain elevated for a considerable time if excessive amounts of sugar is consumed. Diabetic patients tend to have chronic, high levels of sugar in the blood. Alternatively excessive alcohol consumption substantially lowers effectiveness of insulin to regulate sugar levels leading to elevated sugar levels. With high sugar levels oxygen will merely make a round trip - lungs to blood stream - and then back to lungs without being released in the cells.</span></div>
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<strong><em><span style="font-family: Courier New, Courier, monospace; font-size: large;">Thus we have our 10th, </span></em></strong><strong><em><span style="font-family: Courier New, Courier, monospace; font-size: large;">11th</span></em></strong><strong><em><span style="font-family: Courier New, Courier, monospace; font-size: large;"> and 12th risk factors - excessive consumption of sweets, diabetes and excessive consumption of alcohol.</span></em></strong></div>
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<span style="font-family: Times, Times New Roman, serif; font-size: large;">A dozen is a good place to stop - one for each month of the year. Have a fulfilling 2014.</span></div>
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<span style="font-family: Times, Times New Roman, serif; font-size: large;">Amit</span></div>
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Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-62164596668994705022013-07-27T22:40:00.002+01:002013-07-28T09:01:19.994+01:00Moose Safari in Sweden<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: Courier New, Courier, monospace;">For once, I turned into a wildlife traveller in Europe. I visited Sweden to see <a href="http://en.wikipedia.org/wiki/Moose" target="_blank">moose</a> - the largest deer on planet Earth. Here is my trip report. But first, a short note on tapering of <a href="http://en.wikipedia.org/wiki/Quantitative_easing" target="_blank">quantitative easing</a> (QE) in the US.</span><br />
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<span style="font-family: Courier New, Courier, monospace;">The US Feds have dropped hints that they might decrease the quantum of QE.</span><br />
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<span style="font-family: Courier New, Courier, monospace;">The QE Santa Claus has visited many homes - commodity markets, bank balance sheets, mortgage markets, auto industry and the treasury in the US, the European Central Bank (via euro-dollar swap lines), emerging market corporate and sovereign bond markets, global equity markets, groups that spearhead human rights around the world - the list is long.</span><br />
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<span style="font-family: Courier New, Courier, monospace;">The ECB remains in need of the swap lines. The US mortgage markets remain afloat mainly due to continuing QE. Increasingly, the US fiscal and trade deficits are being financed by the QE as China is seeking more and more real assets as a payback for its exports and petroleum-rich Arab countries continue to diversify away from US-based assets following the twin geopolitical shocks of 9/11 and the Arab Spring.</span><br />
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<span style="font-family: Courier New, Courier, monospace;">The QE quantum stands at $85bn a month. I think in the immediate term (about 1y) a tapering of the order of $15-25bn a month is possible, mainly as the rise of shale gas has induced a fall in trade deficit and the US banking sector has regained a fair bit of stability. For a materially larger taper I would watch out for the following; without one or more of these significantly greater and sustained tapering is not possible.</span></div>
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<span style="font-family: Courier New, Courier, monospace;">- material increase in taxes,</span></div>
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<span style="font-family: Courier New, Courier, monospace;">- sharp fall in trade deficit,</span></div>
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<span style="font-family: Courier New, Courier, monospace;">- sustained weakness in the Dollar vs other currencies,</span></div>
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<span style="font-family: Courier New, Courier, monospace;">- willingness on part of the ruling elites to accept material deflation in asset prices</span></div>
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<span style="font-family: Courier New, Courier, monospace;">- tapering of currency swap lines with the ECB</span></div>
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<span style="font-family: Courier New, Courier, monospace;">Yours, Traveling Ec0n0mist,</span></div>
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<span style="font-family: Courier New, Courier, monospace;">Amit</span><span style="font-family: Courier New, Courier, monospace;"><br /></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">One night? Sure. You can slip into a sleeping bag in a 7 x 9 ft wooden lodge or spend the night in (again) a sleeping bag in a 6 x 7 ft observation tent. That will be £160. How would you like to pay?</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">I bet this would make people drop the idea, hang up the phone or reach out for their delete button. Well don't. Here is why.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Jan and Marcus run <a href="http://www.wildsweden.com/" target="_blank">Wild Sweden</a> tours. Jan brings with him intimate knowledge of local wildlife, their habitat, their movement patterns and what an enthusiast must avoid in order increase her chances of spotting the animals.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">A moose can hear you zip (or unzip) from a kilometer. Those with large antlers have even better hearing. It can smell you from about the same distance. You can spot a moose in darkness by shining floodlights into its eyes as they reflect rather bright. Shining light into their eyes does not startle them. Those who like alcohol while they wait for the moose to turn up, Jan will include some. Having told the Do's and Don'ts, he will leave you in an observation tent with a sleeping bag, a chair, a pair of binoculars, boots and a basket of food and drinks. To my delight he made sure the food included local flavors. After about 3 hours of waiting I saw a moose calf and then, a moose bull. To see them in the wild is thrilling. You also feel an immense sense of achievement in that your presence went unnoticed by the moose's sharp senses. Once a moose is there it could easily spend 2-3 hours grazing in the same area. This will give you enough time to photograph and observe Moose behavior. I clicked a few hundred photographs of which about 10 turned out to be decent. This speaks more about my fledging skills at wildlife photography than about the real difficulty in photographing moose. Time permitting I will make another post about tips on Moose photography. I wish I could pick those up before I got into the tent! </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">After it got too dark to photograph, Jan drove back to the tent to pick me up for a drive by the forest and nearby fields to see even more Moose. Armed with a floodlight we spotted eight more of them. I was rather pleased with his patience as late at night as I frequently struggled to mount my camera on my new tripod in the darkness. Finally we drove back to <a href="http://www.wildsweden.com/kolarbyn-ecolodge/" target="_blank">Kolarbyn Ecolodge</a>.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Andreas runs Kolarbyn Ecolodge. In the right season the place is abound with blueberries, wild mushrooms and croaking frogs. He has fashioned it to be so eco-friendly that apart from a layer of plastic sheets to keep the rainwater away from dripping into the lodge, there is little else about the lodge that would leave a mark on the environment. He prepares the charcoal needed for fire, uses untreated wood to build the lodge in order to prevent chemical leakage and sources eco-friendly food from local suppliers. </span><span style="font-family: Arial, Helvetica, sans-serif;">Building lodges with untreated wood means that he has to build them afresh every 2-3 years. Buying from local suppliers is rather expensive as the decade long move towards integrating European agro-markets has driven Swedish farmers out of business. Those who remained in business became substantially more expensive as farm support systems have weakened considerably and consumer profile has changed from an average Swede to those who choose local produce to ensure what they eat meets the highest standards of eco-friendliness.</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;">I joined Jan for a Moose tour though he does regular wolf, bear and beaver tours as well. He mentioned it is often difficult to spot a wolf though his visitors often get a chance to hear wolf howls as they howl back at his imitation of the howling sound!</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The place is 2.5 hours from <a href="http://en.wikipedia.org/wiki/Stockholm_Central_Station" target="_blank">Stockholm Central station</a> by train + a bus ride. In order to arrive at the starting point take a train to <a href="http://en.wikipedia.org/wiki/K%C3%B6ping,_Sweden" target="_blank">Köping</a> (pronounced as 'sherping') and then a connection bus to <a href="http://en.wikipedia.org/wiki/Skinnskatteberg" target="_blank">Skinnskatteberg</a> (pronounced as 'hvin-skatt-bare'). If you tell him your arrival time in advance, he will likely be able to arrange a pick-up.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">For the service you get, the rather unique eco-friendly living experience, local food and the (near) guarantee of spotting Moose, the largest deer on planet Earth - I think you should pay Andreas and Jan a visit the next time you are in Sweden. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">All pictures were taken with a <a href="http://www.europe-nikon.com/en_GB/product/digital-cameras/slr/consumer/d7100" target="_blank">Nikon D7100</a> and a <a href="http://www.europe-nikon.com/en_GB/product/nikkor-lenses/auto-focus-lenses/dx/zoom/af-s-dx-nikkor-18-300mm-f-3-5-5-6g-ed-vr" target="_blank">Nikkor 18-300 lens</a> mounted on Velbon ultrek ut-53d with QHD-53d head. The moose was about 100 meters from the observation tent.</span></div>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiENvHVj8Tdb2gAYAOtcjzuUkgBuzriWOnlyszFdVet7N1-V4sqekU1fROpeC_lDXcdXtsZIzNFDbye2T3ZOjwetn0JOY9q5wjwstUO3BgWu42Kzq5T1pE3EScP3dKU13_DEyZOfloWFLve/s1600/DSC_0683_1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="227" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiENvHVj8Tdb2gAYAOtcjzuUkgBuzriWOnlyszFdVet7N1-V4sqekU1fROpeC_lDXcdXtsZIzNFDbye2T3ZOjwetn0JOY9q5wjwstUO3BgWu42Kzq5T1pE3EScP3dKU13_DEyZOfloWFLve/s320/DSC_0683_1.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: justify;"><span style="font-family: Courier New, Courier, monospace;"><b>A mouthful:</b> Just like a cow, a moose's stomach has four parts. It can eat about 30 kg of vegetation a day.</span></td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlWMfnbf4EvZOLYd00Jl0iwLRKRKjP-q15oJdGvHwOMlhwX7SdKH1DZblM8qfPYhuCwdHmzn3B3HU1OqIFiACOFg4A9wOYmfdiox08TRwh1ZRtv8W92mXkruJ1q8XdOqsl83zpGTrI3jFk/s1600/DSC_0728_1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="221" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlWMfnbf4EvZOLYd00Jl0iwLRKRKjP-q15oJdGvHwOMlhwX7SdKH1DZblM8qfPYhuCwdHmzn3B3HU1OqIFiACOFg4A9wOYmfdiox08TRwh1ZRtv8W92mXkruJ1q8XdOqsl83zpGTrI3jFk/s320/DSC_0728_1.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: justify;"><span style="font-family: Courier New, Courier, monospace;"><b>Grazing posture:</b> A moose spreads or bends its forelegs while grazing . This moose is rising back to its normal posture just after taking a mouthful. </span> </td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqytdFVY_ODyKhdmXp-gAPQRhgaYK9unp9JjWOIRph1LIOjsQqXUfi_PDMyMbsfaqpl_varZbzz5qL7jMgpAlV1JJSfip7pxvSb3dXGIJWXNbJydmmC4vz_3WQ0E7bIs5q-IaKJjZZbFs6/s1600/DSC_0775_1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="210" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqytdFVY_ODyKhdmXp-gAPQRhgaYK9unp9JjWOIRph1LIOjsQqXUfi_PDMyMbsfaqpl_varZbzz5qL7jMgpAlV1JJSfip7pxvSb3dXGIJWXNbJydmmC4vz_3WQ0E7bIs5q-IaKJjZZbFs6/s320/DSC_0775_1.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: justify;"><span style="font-family: Courier New, Courier, monospace;"><b>Moving one ear:</b> A Moose can move its ears independently. I had set the camera to slow shutter speed as natural light was dim. Therefore I fortuitously captured the motion blur of its right ear flapping. </span></td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjar1phPZt8QHEvGE-lg0tgOf3erdIuf6VOaWTVToO3nOtB0KArQIWVrM42zjm64IfS7Q9rXjXyvMQPyivTAlxLZRE7mTGwHxrA2pAElf0xpad4mNf1SS9H54FO5ktKG3zqc1c4bdemMHDN/s1600/DSC_0823_1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="222" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjar1phPZt8QHEvGE-lg0tgOf3erdIuf6VOaWTVToO3nOtB0KArQIWVrM42zjm64IfS7Q9rXjXyvMQPyivTAlxLZRE7mTGwHxrA2pAElf0xpad4mNf1SS9H54FO5ktKG3zqc1c4bdemMHDN/s320/DSC_0823_1.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: justify;"><span style="font-family: Courier New, Courier, monospace;"><b>Looking straight at the observation tent:</b> Its not the look that will get you but your odor or the sound you make. A moose's eyesight is not only poor but it has a huge blind spot right in its front view.</span></td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdpzlo4t-WFw2YNSPwc9mGefUuk15fii7ffBPlF555QcJQWN4EvXbtygZ2AwdJ55Xj5CVe-nCIVv6OnEv-VBeCNy6jzznpTMRv11kH6TELbdPNdJ-bckNpxXkM7D9Ib8xTbycfNgEKImCB/s1600/DSC_0859_1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="229" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdpzlo4t-WFw2YNSPwc9mGefUuk15fii7ffBPlF555QcJQWN4EvXbtygZ2AwdJ55Xj5CVe-nCIVv6OnEv-VBeCNy6jzznpTMRv11kH6TELbdPNdJ-bckNpxXkM7D9Ib8xTbycfNgEKImCB/s320/DSC_0859_1.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: justify;"><span style="font-family: Courier New, Courier, monospace;"><b>Night shot:</b> This looks like a relatively young moose as its coat is still light in color. </span></td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4PNKaaqlHdgwR9NhzoHOK02oCqsnrGiyif1xv6j20sWxr9hr8aNdy4aFjSv2Z__kWJdvPUWLLoZsY_isa9R-_qZFacxw2TVamjdPeJsaIasmz7XbxA4OqFK4YYw9e-g4ulJcDRhBjL00k/s1600/DSC_0862_1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="237" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4PNKaaqlHdgwR9NhzoHOK02oCqsnrGiyif1xv6j20sWxr9hr8aNdy4aFjSv2Z__kWJdvPUWLLoZsY_isa9R-_qZFacxw2TVamjdPeJsaIasmz7XbxA4OqFK4YYw9e-g4ulJcDRhBjL00k/s320/DSC_0862_1.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: justify;"><span style="font-family: Courier New, Courier, monospace;"><b>Moose Shine:</b> A moose's eyes reflect light particularly strongly in the yellow wavelength. Human eyes reflect the red wavelength. Therefore cameras are equipped with red eye reduction feature. </span></td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiE1HyAZyuyZ6cGq8WCIE28sKQMxdQTP0DuSUXx_pEKiJQvO3ABn7z1PxsoYWp45dQIh35MV5Irddc40GTX2louXiMvajZOZg8AtGnLAy9SjVfOl3_qqAFTCWSiNdrFvMlmpnsjDaW3yUs9/s1600/DSC_0880_1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="222" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiE1HyAZyuyZ6cGq8WCIE28sKQMxdQTP0DuSUXx_pEKiJQvO3ABn7z1PxsoYWp45dQIh35MV5Irddc40GTX2louXiMvajZOZg8AtGnLAy9SjVfOl3_qqAFTCWSiNdrFvMlmpnsjDaW3yUs9/s320/DSC_0880_1.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: justify;"><span style="font-family: Courier New, Courier, monospace;"><b>Moon light:</b> The moon barely rose above 40 degrees. Conifers look stunning with a full moon in the background. </span></td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjciWesecBsbxolo-TTxWebvVNsVPPsm8ZiUZuMeCHdlsOJ-OVLnIQPCj_50swM_UC67bO9N_w-jS2oHb7ZoQ6NchRUG48Jq7ul063WDrROabIwpRx_JOur9LihZ49UCBKX5DBpfWNvtyJS/s1600/DSC_0898_1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="220" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjciWesecBsbxolo-TTxWebvVNsVPPsm8ZiUZuMeCHdlsOJ-OVLnIQPCj_50swM_UC67bO9N_w-jS2oHb7ZoQ6NchRUG48Jq7ul063WDrROabIwpRx_JOur9LihZ49UCBKX5DBpfWNvtyJS/s320/DSC_0898_1.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: justify;"><span style="font-family: Courier New, Courier, monospace;"><b>Kolarbyn Ecolodge:</b> I am told that the ecolodge concept draws heavily on how miners and loggers lived for centuries when they would camp out in the woods. </span></td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigtgviq4ndtbfvK5j7ojHM6LlcRf2ivlgComEQgJXShR9IoEWNoZtfgEYKHC31G_DX7OEJVMn3vFI7aEaZClAmtQtFWLRZdgmKebLfklcoaw-sDVXj5tt7jF28jflgPHwfSqu_ZVF4M6Uy/s1600/DSC_0913_1.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="221" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigtgviq4ndtbfvK5j7ojHM6LlcRf2ivlgComEQgJXShR9IoEWNoZtfgEYKHC31G_DX7OEJVMn3vFI7aEaZClAmtQtFWLRZdgmKebLfklcoaw-sDVXj5tt7jF28jflgPHwfSqu_ZVF4M6Uy/s320/DSC_0913_1.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: justify;"><span style="font-family: Courier New, Courier, monospace;"><b>Blueberries:</b> They are all over the lodge. They are ready to be plucked in August.</span></td></tr>
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</div>
Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-68374436696621898722012-04-22T02:34:00.003+01:002012-04-24T22:01:03.531+01:00Impact of an Interest Rate Hike on Bank Profitability: a Global Round-up<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="color: #444444; font-family: 'Courier New', Courier, monospace;">Pigeons, doves and flamingoes are some *species in which both the male and the female produce milk.</span></div>
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<span style="color: #444444; font-family: 'Courier New', Courier, monospace;">Yours, ever-amused by nature's diversity analyst,</span></div>
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<span style="color: #444444; font-family: 'Courier New', Courier, monospace;"><br /></span></div>
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<span style="color: #444444; font-family: 'Courier New', Courier, monospace;">AA</span></div>
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<span style="color: #444444; font-family: 'Courier New', Courier, monospace;"><br /></span></div>
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<span style="color: #444444; font-family: 'Courier New', Courier, monospace;">*clearly these are not species and it is even more clear that I am taxonomically challenged; can someone help me out with the correct word please?</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Those who are familiar with banking basics might want to skip the first three paragraphs.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">One
of the key differences between a bank and a non-banking financial institution
(NBFI) is that banks are largely deposit funded. Deposits are guaranteed by governments. Other sources of funding do not carry a
priori government guarantees. Therefore
the regulatory landscape for banks differs from that for NBFIs. Differences in regulatory landscape account in large part for the difference in capital structure and competitive
positioning between the two.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">An interest must be paid on deposits. This interest rate (IR) is floored at zero. The
deposits are lent out to clients that need credit. The lending rate minus the deposit rate (henceforth,
referred to as IR spread) is positive except in extraordinary circumstances
wherein lending to sovereigns and central banks may carry negative
spreads. For the purpose of our
discussion we ignore such circumstances.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">We
are living in rather extraordinary times.
Since the dawn of central banking, when viewed globally as opposed to
looking at specific cases, IRs have never been as low and for as long a time. And, for bringing these rather extraordinary times upon the world, thank you Bear Stearns, thank you Lehman, but
before all that, thank you to the system that elevated home ownership in the US
of A to the pedestal of a fundamental right.
Since IRs are at historical lows while deposit rates cannot fall below
zero, the IR spread earned by banks are at historically low levels. This is one of the (many) causes of depressed
bank profitability since 2009. The low IR
environment has however prevented default rates from spiking while the world
ploughs through the worst economic downturn since World War II.</span></div>
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<b><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></b></div>
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<b><span style="font-family: Arial, Helvetica, sans-serif;">A key
question vis-à-vis future bank profitability projection is whether </span></b><b><span style="font-family: Arial, Helvetica, sans-serif;">bank profitability will increase or decrease </span></b><b><span style="font-family: Arial, Helvetica, sans-serif;">when IRs subsequently (say, by 2Q2013) rises. </span><span style="line-height: 14px;"><span style="color: blue; font-family: 'Courier New', Courier, monospace;">[1]</span></span></b></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">I
give my view below. I cover all major regions except Africa, South America and <o:p></o:p></span><span style="font-family: Arial, Helvetica, sans-serif;">West Asia.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Australia.</b> In case of an isolated rise in IRs, bank profitability
will increase. However, if the IR hike occurs
during unexpected slowdown in China’s GDP growth rate then profitability will fall
at banks with portfolio concentrations in mortgage and household lending sector
but rise at those with concentration to the corporate sector. <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Canada.</b> Profitability will rise with rise in IR except
at banks with a high concentration in mortgages.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>China.</b> Banks with concentrations in direct residential
mortgages (I do not know any such major banks in China) will see a boost in
profitability as even with a 40% fall in property prices default rates will
remain modest. Corporations in China, especially
those coupled with the international supply chain, operate on rather thin margins. Thus banks with a concentration in trade
financing or lending to such corporations will have their margins eaten up by a
spike in default rates. In any case this
analysis does not apply to major Chinese banks as PBoC will be ready to clean
the slate for them when the time comes for that. In an IR hike scenario, derivatives trading volumes
will plummet causing (mainly foreign) banks to lose a a large chunk of their fee-based
income.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Europe.</b> I guess I am stating the obvious here but for
completeness let me state it anyways. An
IR spike will spell the death knell for most banks in Europe either directly or
through contagion. Low IR environment
coupled with long-term repo operations is responsible for massive misallocation
of capital in Europe. That is however necessary as Europe is standing at a
point where it the choice is between low return on capital and no return of
capital. I expect this situation to last
through at least 2Q2013.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Indonesia.</b> Irrespective of whether the IR hike is idiosyncratic
or happens concurrently with an unexpected slowdown in China’s GDP growth rate,
bank profitability will rise. This is because
the adverse effect of credit quality degradation accompanying the IR hike would
be mitigated by low levels of leverage, strong domestic market and considerable
room for further boosting capital expenditure.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>India.</b> The conclusions for Indonesia apply to India
as well.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Japan:</b> While Japan’s GDP
may have stagnated as a consequence of the 1987 Plaza Accord, its GNP has
continued to track the growth rates in developing East Asia and more recently,
that of India. A hike in IR in Japan
will be structurally fatal as it will force Japanese banks to recognize impairments
on a large amount of assets and drive yen-denominated capital back into Japan
where further capital investments are value-destroying and private consumption is
expected to remain, at the best, stagnant.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Malaysia.</b> In case of an isolated rise in IRs, bank profitability
will increase. However, if the IR hike occurs
during unexpected slowdown in China’s GDP growth rate then profitability will fall
at banks with portfolio concentrations in mortgage lending sector but rise at
those with concentration in the non-mortgage retail lending or the corporate
sector.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Pakistan.</b> For Pakistan, looking at IR levels to obtain estimates of
future profitability is like tarot reading.
Geopolitical risk dominates the profitability landscape in Pakistan.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Russia:</b> Since the past 5
years, one principal component – the price of Brent crude oil – has practically
dominated all other factors in setting IR levels. IR levels are high when oil price is high has
been concurrent with higher economic growth in Russia. I expect this relationship to hold true in
the foreseeable future. Changes in IR levels
are pro-cyclical with changes in credit quality, i.e., IR levels are high when
credit quality is high and vice-versa.
Therefore IR hike will cause increase profitability as impairments will
be minimal.<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>Turkey:</b> In general, banks in
Turkey are primed for increased profitability in an IR hike scenario. It could however induce macroeconomic
instability leading to a fall in bank profitability via second order effect. <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>UK:</b> The analysis and conclusions
presented for Europe hold true for the UK as well.<o:p></o:p></span></div>
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<b style="font-family: Arial, Helvetica, sans-serif;">USA:</b><span style="font-family: Arial, Helvetica, sans-serif;"> There has been much
whispering amongst the BRICS countries to shift to bilateral trade to bilateral currencies.
I believe this will happen in the course of a decade or so but not now. While the US was slowly losing its lipstick
gloss, the Eurozone decided to get ugly in a hurry and whispers about Japan’s
high gross sovereign debt/GDP ratio have already grown into murmurs in the international
press. This has put brakes on plans of
several countries to diversify away from the use of Dollar in 3</span><sup style="font-family: Arial, Helvetica, sans-serif;">rd</sup><span style="font-family: Arial, Helvetica, sans-serif;">
party transactions. Therefore I do not think external
forces can corner the Feds into an IR hike </span><span style="line-height: 14px;"><span style="color: blue; font-family: 'Courier New', Courier, monospace;">[2]</span></span><span style="font-family: Arial, Helvetica, sans-serif;">. Having discounted external causes of an IR
hike, let us now look at potential internal causes. An IR hike will lead to a significant inflow
of capital causing a sharp appreciation of the Dollar, and of far greater
concern given the fragility of international credit markets; it will cause a
severe liquidity crunch in the dollar funding market. As I have just pointed out, the world has NOT
moved away from using the dollar in 3</span><sup style="font-family: Arial, Helvetica, sans-serif;">rd</sup><span style="font-family: Arial, Helvetica, sans-serif;"> party transactions. I conjecture that on account of the Eurozone crisis, rather the opposite is
true. Therefore the Feds will have to organize
a covert bailout of the world’s major central banks via additional dollar-local
currency swap lines </span><span style="color: blue; font-family: 'Courier New', Courier, monospace; line-height: 13px;">[3]</span><span style="font-family: Arial, Helvetica, sans-serif;">. Thus I
think that the Feds will maintain a low IR policy through at least 2Q2013. Having discounted sharp rise in interest rates
now let us take a quick look at what might happen if the IR rise is modest (say
< 100 bps). In this scenario deterioration
of credit quality will dominate increased profits due to rise in IR spread.</span></div>
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<span style="color: blue; font-family: 'Courier New', Courier, monospace;"><span style="line-height: 14px;">[1]</span></span><span style="font-family: Arial, Helvetica, sans-serif;"> o</span><span lang="EN-GB" style="font-family: Arial, Helvetica, sans-serif;">n one hand, in a rising IR
environment net interest margin (NIM) will rise but also, credit quality will
worsen<o:p></o:p></span></div>
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<span lang="EN-GB"><span style="line-height: 14px;"><span style="color: blue; font-family: 'Courier New', Courier, monospace;">[2]</span><span style="font-family: Arial, Helvetica, sans-serif;"> </span></span><span style="font-family: Arial, Helvetica, sans-serif;">I am discounting the possibility of
a China hard-landing scenario – it will force the Communist Party to liquidate a
substantial portion of its external holdings sending Fed rates high, causing
massive defaults in the US.</span><o:p></o:p></span></div>
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<span lang="EN-GB"><span lang="EN-GB"><span style="line-height: 14px;"><span style="color: blue; font-family: 'Courier New', Courier, monospace;">[3]</span><span style="font-family: Arial, Helvetica, sans-serif;"> </span></span>
<span style="font-family: Arial, Helvetica, sans-serif; text-align: justify;">without a covert bailout, the world will be dis-incentivized from the use of Dollar in 3</span><sup style="font-family: Arial, Helvetica, sans-serif; text-align: justify;">rd</sup><span style="font-family: Arial, Helvetica, sans-serif; text-align: justify;"> party transactions; I do not think the US is prepared to yield Dollar’s status to a gold-holdings backed system or a system comprising several reserve currencies</span><span style="text-align: justify;">.</span><span style="font-family: Arial, Helvetica, sans-serif;">.</span><o:p></o:p></span></span></div>
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</div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-49124012242152390982012-02-05T22:30:00.000+00:002012-02-26T01:05:38.090+00:00Münchner Sicherheitskonferenz 2012: eine Zusammenfassung von vier Reden<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: 'Courier New', Courier, monospace;">TILL DEBT DO US APART</span><br />
<span style="font-family: 'Courier New', Courier, monospace;"></span><br />
<span style="font-family: 'Courier New', Courier, monospace;"><br /></span><br />
<span style="font-family: 'Courier New', Courier, monospace;"><i>Germany's POV</i></span><br />
<span style="font-family: 'Courier New', Courier, monospace;"><br /></span><br />
<span style="font-family: 'Courier New', Courier, monospace;">Same stuff, different days<span class="Apple-tab-span" style="white-space: pre;"> </span> 1.1</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">You gambled and fumbled in a million ways<span class="Apple-tab-span" style="white-space: pre;"> </span> 1.2</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">A decade of cheats, a decade of lies<span class="Apple-tab-span" style="white-space: pre;"> </span> 1.3</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">No longer will work, your alibis<span class="Apple-tab-span" style="white-space: pre;"> </span> 1.4</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">The banks are furious, the debt is due<span class="Apple-tab-span" style="white-space: pre;"> </span> 1.5</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">The time has come to ring-fence you<span class="Apple-tab-span" style="white-space: pre;"> </span> 1.6</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">It is too late to tell I told you so<span class="Apple-tab-span" style="white-space: pre;"> </span> 1.7</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">Out you go, out you go ...<span class="Apple-tab-span" style="white-space: pre;"> </span> 1.8</span><br />
<span style="font-family: 'Courier New', Courier, monospace;"><br /></span><br />
<span style="font-family: 'Courier New', Courier, monospace;"><i>Greece's POV</i></span><br />
<span style="font-family: 'Courier New', Courier, monospace;"><br /></span><br />
<span style="font-family: 'Courier New', Courier, monospace;">The rise of Prussia, the fall of the Third Reich 2.1</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">We watched it all, with fear with fright<span class="Apple-tab-span" style="white-space: pre;"> </span> 2.2</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">Across the pond, lies the American dream<span class="Apple-tab-span" style="white-space: pre;"> </span> 2.3</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">Let us build it here, with Germany and team 2.4</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">First amongst equals, not a solo lead<span class="Apple-tab-span" style="white-space: pre;"> </span> 2.5</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">A European Germany, not a Germanic retreat<span class="Apple-tab-span" style="white-space: pre;"> </span> 2.6</span><br />
<span style="font-family: 'Courier New', Courier, monospace;"><br /></span><br />
<span style="font-family: 'Courier New', Courier, monospace;">Free trade, single currency</span><span class="Apple-tab-span" style="font-family: 'Courier New', Courier, monospace; white-space: pre;"> </span><span style="font-family: 'Courier New', Courier, monospace;"> 3.1</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">Many nations, still Europe's destiny<span class="Apple-tab-span" style="white-space: pre;"> </span> 3.2</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">With barriers down, with Germanic productivity<span class="Apple-tab-span" style="white-space: pre;"> </span> 3.3</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">Credit boom, became Southern reality<span class="Apple-tab-span" style="white-space: pre;"> </span> 3.4</span><br />
<span style="font-family: 'Courier New', Courier, monospace;"><br /></span><br />
<span style="font-family: 'Courier New', Courier, monospace;">Bankers and a new vision for Europe</span><span class="Apple-tab-span" style="font-family: 'Courier New', Courier, monospace; white-space: pre;"> </span><span style="font-family: 'Courier New', Courier, monospace;"> 4.1</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">1999 and structured credit products<span class="Apple-tab-span" style="white-space: pre;"> </span> 4.2</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">Bye-bye to 19% interest rates<span class="Apple-tab-span" style="white-space: pre;"> </span> 4.3</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">Happy days in a happy place<span class="Apple-tab-span" style="white-space: pre;"> </span> 4.4</span><br />
<span style="font-family: 'Courier New', Courier, monospace;"><br /></span><br />
<span style="font-family: 'Courier New', Courier, monospace;">2.2 - we refers to European nations</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">2.3 - pond refers to Atlantic Ocean</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">2.5 - paraphasing Chancellor Helmut Kohl who was the key architect of the fall of the Berlin Wall and the Maastricht Treaty which essentially created the new Europe</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">2.6 - here retreat refers to a place that is a secure resting place for troops</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">3.2 - destiny refers to geopgrahpic and cultural factors that make the presence of several nations in Europe unavoidable in the current age</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">3.4 - Southern refers to Southern Europe</span><br />
<span style="font-family: 'Courier New', Courier, monospace;">4.2 - Euro was first introduced on Jan 1, 1999</span><br />
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<span style="font-family: 'Courier New', Courier, monospace;">With adaptation from the works of real poets,</span><br />
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<span style="font-family: 'Courier New', Courier, monospace;">AA</span><br />
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<span style="font-family: 'Courier New', Courier, monospace;">The Munich Security Conference concluded on Feb 05. It hosts a fairly open exchange of views amongst global policy, business and sovereign leads.<o:p></o:p></span></div>
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<span style="font-family: 'Courier New', Courier, monospace;">I summarize few of the speeches below.<o:p></o:p></span></div>
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<span style="font-family: 'Courier New', Courier, monospace;">Yours, enjoying London blanketed in snow analyst,<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b><a href="http://www.securityconference.de/Dr-Josef-Ackermann.845+M52087573ab0.0.html" target="_blank">Dr. JosefAckermann, Chairman, Deutsche Bank AG</a></b><o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>My Summary: </b>In Spain over 45% of the population under 25 is unemployed. Similar numbers for Italy and Greece. People in Europe are increasingly questioning whether they are part of a system that benefits them as well or are merely units to be used and profited from. The financial crisis is a crisis of trust. If actions fall short of restoring the trust then Europe would fall into disunity. With disunity Europe will lose the ability to shape international policy and instead each European nation would have to submit to externally recommended policy handouts. The young in Europe have not seen war and we must keep it that way. Political risks overwhelm risks of collective sovereign defaults. Europe needs both austerity and growth – an impossible combination so a fine balance is needed. The good thing about the European crisis is that balance in Europe can be restored endogenously. To restore the balance, Europe needs greater fiscal and political union. <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><i>My comment</i>: Dr. Ackermann conspicuously does not mention a move towards a greater benefits or wealth transfer union as part of the solution. <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b><a href="http://www.securityconference.de/Michael-Diekmann.821+M52087573ab0.0.html" target="_blank">Michael Diekmann,Chairman , Allianz SE</a></b><o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>My Summary: </b>Allianz provides catastrophe insurance globally. Over the past few decades catastrophes have both increased in frequency and intensity. This has increased the cost of damage insurance and the cost of insuring global supply chains. In the future, Allianz would find it increasingly difficult to provide the value it has delivered unless Europe tunes in one voice on Climate Change Policy. Another risk to Allianz is regulatory drive towards unbundling energy production, transmission and distribution. This will reduce investor flexibility, create new regulatory barriers and decrease liquidity. This drive in the energy sector parallels financial sector regulators’ drive towards unbundling banking services.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><i>My comment ref insurance of global supply chains</i>: Today, Allianz and the preponderance of US naval fleet are fulcrums on which the seamlessness of global trade rests. Without these fulcrums consumers cannot squeeze value out of continentally spaced economic endeavors. Without these fuclrums, the <a href="http://en.wikipedia.org/wiki/Comparative_advantage" target="_blank">law of comparative economic advantages</a> is a mere myth. We take the existence of fulcrums for granted, don’t we? Stability and global cooperation is more fragile than what people who are not responsible for ensuring these believe.<o:p></o:p></span></div>
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<a href="http://www.securityconference.de/Zhang-Zhijun.833+M52087573ab0.0.html" target="_blank"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Zhang Zhijun, ViceMinister of Foreign Affairs, China</b><o:p></o:p></span></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>My Summary: </b>Asia’s history is different from that of Europe. Asia has been a victim of colonialism. The West should recognize that Asians have the right to adapt development and peace initiatives to local conditions and the principle of <i>gradual change</i> in China’s context must be appreciated and understood by all. There is talk of power shifting from the West to the East. This is good for all, including the West as it occurs at a time when Western economies have been declining. Asia’s increasing wealth is the result of ingenuity and entrepreneurship of Asians. Asia’s wealth will help sustain employment in the West. China has been a partner in peace and stability in Asia. China has peacefully resolved border disputes with 12 nations. China continues to be an important partner in peace in the Korean Peninsula through a pivotal role in six-party talks. China will not take lightly reinterpretation in certain quarters of its own peaceful economic rise as the rise of a militaristic hegemon. Also, China is against the emergence of multilateral security architectures in Asia. China does not seek to impose its development model on anyone and expects the same in return. <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><i>My comment</i>: I have long believed that if you owe your banker thousand dollars then it is your problem but if you owe him a million dollars then it is his problem. Upon appropriate scale transformation, the same should hold true where the banker and debtor are nation states. As America’s largest creditor, Zhijun does not appear concerned about debt that America continues to pile; debt that America neither has the ability nor the intention of repaying. What gives in? <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><i>My comment</i>: Zhijun used the collective pronouns “we” or “us” when presenting his views except when he is talking about what China has done for the good of the rest of the world. For him, it is axiomatic that China’s view is Asia’s view. <o:p></o:p></span></div>
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<a href="http://www.securityconference.de/?id=813" target="_blank"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Radoslaw Sikorski,Foreign Minister, Poland</b><o:p></o:p></span></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"><b>My Summary: </b>Sikorski echoes former German Chancellor Kohl’s view that ‘Germany is too big to be the first amongst equals but too small to dominate Europe’. In doing so, he quotes Kissinger who he less agrees with – ‘Germany is too big for Europe but too small to dominate the world’. Therefore Germany should not have hegemonistic intentions and should instead value its, still, very privileged place in Europe, that of Europe’s largest shareholder. Should Germany continue to work towards European solutions rather than be driven by hegemonistic intentions then it will, in Poland, find a very willing partner that will help Germany achieve its goals. Warning Germany to not even attempt to be a hegemon Sikorski quotes a WWII Polish Marshall who when asked why Russia is always a bigger security challenge than Germany said that whenever Germany gets too big for its own boots, Poland automatically has allies – powerful words indeed from a Polish minister spoken on German soil. He backs those up with theory and numbers as follows. The numbers are stacked against Germany and Germany fails the test of theory: <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">(i)<span style="font-size: 7pt;"> </span>The hegemon must have a preponderance of economic power: In 1949, the year of foundation NATO, the US economy was $1.3T, larger than the economies of Britain, Germany, France, Italy and Spain put together. This should be noted since today even though Germany is very rich, its GDP is $3.1T which is merely 25% more than that of France. Secondly, Germany's enormous trade balance is regional rather than of global signifiance; 9 out of its 10 largest trading partners are within Europe. Thirdly, a hegemon should command a large share of resources (which Germany lacks).<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">(ii)<span style="font-size: 7pt;"> </span>The hegemon must have a preponderance of military power: It should be a net provider of security to support the conduction of global trade. As of date the US spends $680 billion on defense which is larger than the rest of the world combined whereas Germany spends a mere $43 billion on defense. Therefore, there is no chance for Germany to become any meaningful net provider for security. <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">(iii)<span style="font-size: 7pt;"> </span>The hegemon must be perceived as benign (which is not so for Germany). <o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">(iv)<span style="font-size: 7pt;"> </span>The hegemon must be perceived as capable of building and maintaining a liberal political and economic order (which needs to be yet demonstrated by Germany).<o:p></o:p></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">(v)<span style="font-size: 7pt;"> </span>The hegemon must be capable of providing public goods to a wider community (which Germany appears unwilling to and, even lacks the economic and institutional capacity for).</span></div>
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<span style="font-family: 'Times New Roman'; font-size: small;"></span></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-39718626528063927012011-11-06T15:04:00.001+00:002011-11-13T11:56:25.814+00:00Europe at Crossroads: Part I<div dir="ltr" style="text-align: left;" trbidi="on">
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">King Abdullah bin Abdul-Aziz Al Saud first gets tautological and then philosophical about women's right to drive (</span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Oct 2005</span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">)</span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">.</span></div>
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><br /></span></div>
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Barbara Walters: "<i>Would you support allowing women to drive?</i>"</span></div>
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><br /></span></div>
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">His Excellency King Abdullah: "<i>I believe strongly in the rights of women. <b>My mother is a woman. My sister is a woman. My daughter is a woman. My wife is a woman.</b> I believe the day will come when women will drive. In fact if you look at the areas of Saudi Arabia, the desert, and in the rural areas, you will find that women do drive. The issue will require patience. In time I believe that it will be possible. I believe that patience is a virtue.</i>"</span></div>
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><br /></span></div>
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Yours, thinking about the European experiment analyst,</span></div>
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><br /></span></div>
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">AA</span></div>
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<table cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinqBjVeZWV0CUyGK0CqrJVr1orU2anzKhE0xB-4vaTgXOA5xmFSWe2t-KjjF3oyZ9yGHjrghSitpDz7xkuQ4YyPmzZAfnCSizrRO7yEV8XLDt1lzGf6GxVn6CpSV4AB2g781XaaNySVD7U/s1600/EuropeanNightMap.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinqBjVeZWV0CUyGK0CqrJVr1orU2anzKhE0xB-4vaTgXOA5xmFSWe2t-KjjF3oyZ9yGHjrghSitpDz7xkuQ4YyPmzZAfnCSizrRO7yEV8XLDt1lzGf6GxVn6CpSV4AB2g781XaaNySVD7U/s400/EuropeanNightMap.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span class="Apple-style-span" style="font-size: small;"><b>Fig. 1:</b> Night Map of the European Peninsula</span></td></tr>
</tbody></table>
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<span lang="EN-GB" style="font-family: Arial, sans-serif;">The last time when Europe was at crossroads it was the late 19<sup>th</sup> century.
At that time Europe was grappling with unstable power balances in
South-Central Europe and the Balkan Peninsula brought about by the simultaneous
decline of the<span class="apple-converted-space"> </span><a href="http://en.wikipedia.org/wiki/Sick_man_of_Europe" target="_blank">Sick Man
of Europe</a> and the overflow of creative energies, ethno-linguistic
political aspirations and military capabilities of the German speaking peoples
under the </span><span style="font-family: Arial, sans-serif;">leadership
of <a href="http://en.wikipedia.org/wiki/Prussia" target="_blank">Prussia</a>.
It took Europe three wars (the <a href="http://en.wikipedia.org/wiki/Balkan_war" target="_blank">Balkan War</a> and
the two world wars) before it could finally decide which turn it must
take.</span><br />
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<span lang="EN-GB" style="font-family: Arial, sans-serif;">In my view Europe is at crossroads again. Much has changed since
the</span><span style="font-family: Arial, sans-serif;"> </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">19<sup>th</sup></span><span style="font-family: Arial, sans-serif;"> century. However just as it was back then, Germany
continues to remain too small to allow for the complete expression of capital
and creative surpluses of the German speaking peoples. The European debt
crisis is right in the fore. But lurking behind the façade of a
debt crisis are the same 150 year old risks to the natural and complete
expression of the surpluses of the German speaking
peoples – potential loss of cost effective and free access to raw
materials, and to markets in Europe. I will skirt the Q of war as a means
of dispute resolution mechanism and instead focus on financial and
geoeconomic solutions to the debt crisis. The good thing about the crisis
is that it is solvable. By solvable I mean it is within Europe's ability
to solve the problem on its own. There are five principal, non-mutually
exclusive solutions to the problem, some European, some that rely on external
help:<o:p></o:p></span></div>
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<br /></div>
<div style="margin-bottom: 0.0001pt; margin-left: 0.2in; margin-right: 0in; margin-top: 0in; text-indent: -0.2in;">
<span lang="EN-GB" style="font-family: Arial, sans-serif;">1. <b>ECB
Bond Purchase:</b> ECB significantly expands the purchase of bonds of
troubled sovereigns and systematically important European FIs.</span><u1:p></u1:p><u2:p></u2:p><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
<div style="margin-bottom: 0.0001pt; margin-left: 0.2in; margin-right: 0in; margin-top: 0in; text-indent: -0.2in;">
<u3:p></u3:p><span lang="EN-GB" style="font-family: Arial, sans-serif;">2. <b>Austerity and Deflation in the Periphery:</b></span><span style="font-family: Arial, sans-serif;"> </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">In the short-run, strong austerity measures, public sector pay cut and
sharp reduction in capital spending in the short run. In the medium-run,
facilitating ECB oversight of the budgetary process, denationalization or
Europeanization of national assets, significant improvement in tax collections
and linking of public sector wage hikes and credit availability to productivity
gain as determined by some central institution.</span><u2:p></u2:p><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
<div style="margin-bottom: 0.0001pt; margin-left: 0.2in; margin-right: 0in; margin-top: 0in; text-indent: -0.2in;">
<u1:p></u1:p><span lang="EN-GB" style="font-family: Arial, sans-serif;"><u3:p></u3:p>3. <b>The Indian Way:</b></span><span style="font-family: Arial, sans-serif;"> </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">Since 1947 India worked towards achieving a political union. The
goal was achieved at a significant economic cost. The</span><span style="font-family: Arial, sans-serif;"> </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">center instituted mechanisms for perpetual transfer of wealth from
productive regions and productive peoples to those that were perennially
inefficient. Europe over a similar period instead walked the road of
economic integration while leaving significant political differenced
unresolved. The Indian way is European core permanently subsidizing the
periphery.</span><u2:p></u2:p><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
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<u1:p></u1:p><span lang="EN-GB" style="font-family: Arial, sans-serif;"><u3:p></u3:p>4. <b>An IMF-led bailout</b></span><u2:p></u2:p><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
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<u1:p></u1:p><span lang="EN-GB" style="font-family: Arial, sans-serif;"><u3:p></u3:p>5. <b>A China-led bailout</b></span><u2:p></u2:p><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
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<span lang="EN-GB" style="font-family: Arial, sans-serif;">In this five-part note we look at each of these options, understand
their implications, and examine the difficulties in their being exercised.
Here is the first part. </span><span style="font-family: Arial, sans-serif;"><u2:p></u2:p>In Part II we look at austerity and deflation in the
periphery.<o:p></o:p></span></div>
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<b><span lang="EN-GB" style="font-family: Arial, sans-serif;">Option 1:</span></b><span lang="EN-GB" style="font-family: Arial, sans-serif;"> ECB Bond Purchase (aka, ECB provides
liquidity)<o:p></o:p></span></div>
<u1:p></u1:p>
<br />
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<b><span style="font-family: Arial, sans-serif;">a.</span></b><span style="font-family: Arial, sans-serif;">
</span><span lang="EN-GB" style="font-family: Arial, sans-serif;">Who does it cheer in the short run?</span><span style="font-family: Arial, sans-serif;"><u1:p></u1:p> The </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">equity markets, CDS
purchasers, private bond holders, Belgium, Portugal, Italy, Greece, Spain,
France</span><span style="font-family: Arial, sans-serif;">, the </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">UK and the US</span><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
<div style="margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;">
<span lang="EN-GB" style="font-family: Arial, sans-serif;"> </span><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
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<b><span style="font-family: Arial, sans-serif;">b.</span></b><span style="font-family: Arial, sans-serif;"> Who
does it offend? </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">Ireland,
the Nordic countries and Germany</span><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
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<b><span lang="EN-GB" style="font-family: Arial, sans-serif;">c.</span></b><span lang="EN-GB" style="font-family: Arial, sans-serif;"> </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">Who are neutral?</span><span style="font-family: Arial, sans-serif;"> </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">China,
Russia, India</span><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
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<b><span style="font-family: Arial, sans-serif;">d.</span></b><span style="font-family: Arial, sans-serif;"> </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">Likelihood of exercise in a meaningful
quantum: nearly 0<u1:p></u1:p>.</span><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
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<b><span style="font-family: Arial, sans-serif;">e.</span></b><span style="font-family: Arial, sans-serif;"> Why is the exercise
of ‘Option 1’ unlikely? – Because Germany wouldn't have it that way. The
reason for that lies in why Germany started the EU project in the first place.
</span><span lang="EN-GB" style="font-family: Arial, sans-serif;">Germany brought the EU project to the
forefront, again, after the Berlin Wall was brought down </span><span style="color: blue; font-family: Arial, sans-serif;">[1]</span><span lang="EN-GB" style="font-family: Arial, sans-serif;">.
To the Germans, this made perfect sense. If Germany were to succeed (i)
trade barriers would fall allowing her cost efficient and secure access to
raw materials </span><span lang="EN-GB" style="color: blue; font-family: Arial, sans-serif;">[2]</span><span lang="EN-GB" style="font-family: Arial, sans-serif;">;
(ii) barrier-free access to a large market would make Germany’s continual
investment in high technology affordable, allowing her to continue to maintain
its high-tech edge; (iii) Germany would deploy its surplus capital in
productive </span><span style="font-family: Arial, sans-serif;">endeavors </span><span lang="EN-GB" style="font-family: Arial, sans-serif;">in nation states in the geographic and
cultural vicinity as opposed to, say, in China, India or South America; (iv)
nationalism in Europe would wane with the rise of the notion of a common
economic destiny (i</span><span style="font-family: Arial, sans-serif;">n the late 19<sup>th</sup> and early 20<sup>th</sup> centuries raucous
expressions of the idea of nationalism caused internecine wars that
culminated into the demise of European colonialism); (v) with the wane of
nationalism, Germany could take a serious stab at reconstructing the European
states from their current religio-linguistic basis into a law-based society – a
change as transformational as the metamorphosis of a caterpillar into a
butterfly.<o:p></o:p></span></div>
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<br /></div>
<div style="margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: Arial, sans-serif;">f.</span></b><span style="font-family: Arial, sans-serif;"> What happens if ECB
significantly expands its bond purchase program?<o:p></o:p></span></div>
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<u2:p></u2:p><span style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';">
</span></span><span lang="EN-GB" style="font-family: Arial, sans-serif;">inflation in the EMU</span><u3:p></u3:p><u2:p></u2:p><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
<u1:p></u1:p>
<br />
<div style="margin-bottom: 0.0001pt; margin-left: 27pt; margin-right: 0in; margin-top: 0in; text-indent: -0.25in;">
<span lang="EN-GB" style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span lang="EN-GB" style="font-family: Arial, sans-serif;">moral hazard – the ones with irresponsible
credit behavior are left off hook and those that behaved responsibly
are left to pick the tab <o:p></o:p></span><u3:p></u3:p><u2:p></u2:p></div>
<u1:p></u1:p>
<br />
<div style="margin-bottom: 0.0001pt; margin-left: 27pt; margin-right: 0in; margin-top: 0in; text-indent: -0.25in;">
<span lang="EN-GB" style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span lang="EN-GB" style="font-family: Arial, sans-serif;">Having barrier-free access to a large market benefits Germany only if
such a market becomes self-sustaining. No one wants to have access to a
large market which one must also fund in perpetuity.<o:p></o:p></span><u2:p></u2:p></div>
<u1:p></u1:p>
<br />
<div style="margin-bottom: 0.0001pt; margin-left: 27pt; margin-right: 0in; margin-top: 0in; text-indent: -0.25in;">
<u3:p></u3:p><span lang="EN-GB" style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span lang="EN-GB" style="font-family: Arial, sans-serif;">German nationalism is stoked. <o:p></o:p></span><u2:p></u2:p></div>
<u1:p></u1:p>
<br />
<div style="margin-bottom: 0.0001pt; margin-left: 0.5in; margin-right: 0in; margin-top: 0in; text-indent: -0.25in;">
<span lang="EN-GB" style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span lang="EN-GB" style="font-family: Arial, sans-serif;">The fire of German nationalism will reduce the goal of German elites’ to
transform Europe into a law-based society to cinders.<o:p></o:p></span><u3:p></u3:p><u2:p></u2:p></div>
<u1:p></u1:p>
<br />
<div style="margin-bottom: 0.0001pt; margin-left: 0.5in; margin-right: 0in; margin-top: 0in; text-indent: -0.25in;">
<span lang="EN-GB" style="font-family: Wingdings;">Ø<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span lang="EN-GB" style="font-family: Arial, sans-serif;">It will beget nationalistic feelings elsewhere in Europe, leading to
resurrection of unions inspired by nationalism causing a reversal of
intra-European free trade.<o:p></o:p></span></div>
<u1:p></u1:p></div>
</div>
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<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="color: blue; font-family: 'Courier New', Courier, monospace; line-height: 115%;">[1]</span></span></span> <span lang="EN-GB" style="font-family: Arial, Helvetica, sans-serif;">The European dream is the manifestation of release of latent energies of the Germanic peoples following the collapse of the Holy Roman Empire in the early 19<sup>th</sup> century. <o:p></o:p></span></div>
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<span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="color: blue; font-family: 'Courier New', Courier, monospace; line-height: 115%;">[2]</span></span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> secure from the vagaries of nationalistic jostling of the various European national states</span></div>
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</div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-20812950099892503952011-10-09T03:35:00.005+01:002011-10-11T22:48:55.192+01:00The Regional Geopolitics of Creation of Pakistan<div dir="ltr" style="text-align: left;" trbidi="on">
<span class="Apple-style-span" style="font-family: Arial, sans-serif;">This post is about Pakistan, not of its present state but of its birth itself.</span><br />
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</span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;">
<span class="Apple-style-span" style="font-family: Arial, sans-serif;">Yours, thinking about Pakistan's strategic importance to China, UK and US analyst,</span></div>
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<span class="Apple-style-span" style="color: #666666; font-family: Arial, sans-serif; font-size: large;"><b>Protagonists: Britain, the Indian National Congress, Japan, the Indian Right and Russia</b></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">Frederick C. King, “<i>India in the War and After</i>”, An Irish Quarterly Review, vol. 31, no. 122, Jun 1942, pp. 185-192.<o:p></o:p></span></div>
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<b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">Disclaimer:</span></i></b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;"> This post is NOT a review or critique of the aforementioned paper. Nor does all what I type below follows from what is contained in the paper. My referencing the paper is merely for the purpose of acknowledging its role in enriching my own information set about the topic I address in this post.<o:p></o:p></span></i></div>
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<b><span style="font-family: Arial, sans-serif; font-size: 14pt;">Time to Say Goodbye</span></b><span style="font-family: Arial, sans-serif; font-size: 14pt;"><o:p></o:p></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">As early as 1941 (if not before) the British were already planning to leave the Indian subcontinent. They had reached the consensus that it was better to continue to exert control of the subcontinental dynamics through the levers of the educational system and trade dependency system they had built in India, the regional foreign relations dynamics and military exigencies vis-à-vis key external powers </span><span style="font-size: 12pt;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[1]</span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> they had set into momentum and the economic and social policy blueprint that leaders of the Indian National Congress had acquired while at the London School of Economics.<o:p></o:p></span></span></div>
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<b><span style="font-family: Arial, sans-serif; font-size: 14pt;">The Japanese Shadow & British Concerns</span></b><span style="font-family: Arial, sans-serif; font-size: 14pt;"><o:p></o:p></span></div>
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<span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;">British prime concern was that if they were to leave, the Indian subcontinent would fall to the march of Japanese materialism </span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[2]</span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">.<o:p></o:p></span></span></div>
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<span class="Apple-style-span" style="font-family: Arial, sans-serif;"><b><b><span style="font-family: Arial, sans-serif; font-size: 14pt;">British Comfortable with Indian Military Capabilities<o:p></o:p></span></b></b></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">The British felt confident about India’s ability to pay the cost of her own defense against Japan. In their view, India had (i) a large pool of ‘<a href="http://en.wikipedia.org/wiki/Martial_Race">martial races</a>’ </span><span style="font-size: 12pt;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[3]</span></span><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> from which fighting men could be drawn, (ii) Indian farmer and coolies </span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[4]</span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> were fatalistic, sturdy and had little requirements; their physical capabilities and simple-mindedness </span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[5]</span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> could be commandeered to bolster professional forces and erect a second line of defense, (iii) India’s indigenous production of steel, leather and rubber was adequate to meet the needs of the army, (iv) Indians had improvised their little technological resources to produce arms and ammunitions of adequate quality </span></span><span style="font-size: 12pt;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[6]</span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">, in sufficient quantity and, (v) India’s eastern topography would act as a force multiplier against the vastly technologically superior Japanese </span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: 16px;">(superior to the Indians, not the British themselves!)</span><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: 16px;"> – for about 5 months a year, rains and marshes would render mechanized formations useless.</span></div>
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<span class="Apple-style-span" style="font-family: Arial, sans-serif;"><b><b><span style="font-family: Arial, sans-serif; font-size: 14pt;">But Feared the <a href="http://en.wikipedia.org/wiki/Fifth_column">Fifth Column</a><o:p></o:p></span></b></b></span></div>
<span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: 16px;">The British were however concerned that the Japanese may instead of marching to the beats of their martial self-image, adopt a different strategy in India – work on her internal differences and wait and watch while the British administration implodes under the weight of fight in Europe and an India rendered ungovernable by exposed fault lines.</span><br />
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">In the context of the impending Japanese invasion, no other fault line worried the British than the Hindu-</span><span style="font-size: 13pt;"> </span><span style="font-family: Arial, sans-serif; font-size: 12pt;">Mohammedan rift. It would have worked as follows:<o:p></o:p></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">A small though ideologically committed number of Indian leaders </span><span style="font-size: 12pt;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[7] </span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">reasoned that India’s best interests rested in subservience to Japan, a Buddhist nation, than to Mohammedans or to the British </span><span style="font-size: 12pt;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[8]</span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">. The British feared that inspired by continued Japanese military successes in the Pacific Theatre, the fringe could rapidly grow in size. If this were to happen, the Indian masses would break away from the Congress, a party that the British had long cultivated and whose leaders were more or less tuned to British line of thinking in their external outlook. Beyond that, the Indian leaders that preferred Japan also belonged to the same social group which, unlike the Congress, was willing to use direct action in response to calls to revert India or a part of her to a </span><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: 16px;">political framework that harked back to </span><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: 16px;">Mughal era . In the fringe were to take the centerstage, widespread rioting would be inevitable. That would cripple the British administrative machinery in India and cause a rebellion in the ranks of her Mohammedan soldiers fighting for the British on the European soil. Consequently, the British Empire in the Indian subcontinent would likely implode and the Japanese would move in and gain control of a literally interminable supply of men for war against the USA.</span></div>
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<span class="Apple-style-span" style="font-family: Arial, sans-serif;"><b><b><span style="font-family: Arial, sans-serif; font-size: 14pt;">Pakistan – a Solution (to British Problems)<o:p></o:p></span></b></b></span></div>
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<span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: 16px;">As I mentioned right in the beginning, the British trusted the institutional levers they had built in India to allow them to retain control of the subcontinental dynamics even after their departure. These levers could however be exercised only if India did not fall to Japan following the British departure and if power was transferred to the Congress as opposed to those Hindus that preferred a Japan-led Asia. The British had one other major geopolitical concern – how to ensure that their successor(s) in the Indian subcontinent would continue to uphold their long-followed policy of denying Russia access to warm water ports of the Indian Ocean?</span></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">On the matter of securing their institutional levers in India, Britain considered it of utmost importance that India be granted independence sooner rather than later. However with Jinnah having threatened violence if his demand for creation of a Mughal-inspired political set-up was not met, the power transfer process ran a high risk of miscarriage with the consequent implosion of British administration in India and the rise of Japan in the subcontinent. Getting M.K. Gandhi to concede to Jinnah’s demands became a necessity for this reason alone. M.K. Gandhi however would have none of this. He did not threaten to jump right in and </span><span style="font-family: Arial, sans-serif; font-size: 12pt;">join Jinnah in the game of chicken </span><span style="font-size: 12pt;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[9]</span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">. He instead back-pedalled on the independence movement itself. The politician wrote as a sage in the <i>Harijan</i> <i>weekly</i> ( April 1942).<o:p></o:p></span></div>
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<span style="font-size: 12pt;">“The attainment of independence is an impossibility until we have solved the communal tangle. We may not blind ourselves to a naked fact. How to tackle the problem is another question; we will never tackle it so long as either or both parties think independence will or can come without any solution of the tangle. There are two ways of solving what has almost become insoluble. One is the royal way of non-violence; the other of violence. <o:p></o:p></span></div>
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<span style="font-size: 12pt;">All interested in freedom have to make the choice. I suppose the choice has already been made by the chief actors. But the rank and file do not know their own minds. It is necessary for them, if they can, to think independently and take non-violent action in terms of unity. It consists in Hindus and Muslims on the wayside fraternizing with one another if they believe joint life is a perfect possibility, nay a necessity.”</span><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">This line was echoed by the Congress party. While they were not excited about the prospects of the Japanese replacing the British, they were nevertheless confident that Britain, in defense of her own self-interest, would not abandon her responsibilities in the subcontinent. Thus, the Congress decided to put its own independence movement in the cold storage. <o:p></o:p></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">As I have just argued however, the British were eager to grant independence to India. While the Congress was high on ideals, it did not have the moral courage to pursue what was required to deal with the vexed “communal tangle”. Or perhaps, I am wrong and that it was not an issue about the Congress’ moral courage or lack thereof but about India herself lacking in adequate capability. In that case Indians should be grateful to people such as M.K. Gandhi for recognizing India’s weakness, and thereby, not putting the nation on the path of achieving what was at the time, impossible. This weakness, irrespective of whether it was in Congress’ moral fibre or India herself, played straight into the British hands. Knowing that the Congress leaders themselves did not have a solution to the “communal tangle” but to kick it down the road, the British set their minds on whetting M.A. Jinnah’s dreams <span style="font-family: Arial, sans-serif; font-size: 12pt; line-height: 115%;">–</span> a part of his dreams became their action point. This act, as history bears testimony, eventually broke Congress' resolve and they reluctantly conceded to India’s partition.<o:p></o:p></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">The emergence of Pakistan would cut off India from Central Asia, bottle the Indian energies in the subcontinent, block prospects of overland pipelines and thereby make her dependent on the British for her energy security. More importantly though from the British perspective, it united the Hindus behind the Congress, thus pre-empting Japan from waging a 'fifth column' war and, pulled a dark curtain on Russia’s dreams for access to the Indian Ocean.<o:p></o:p></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 12pt;">Pakistan’s birth and the timing of India’s independence were both preordained by the geopolitical imperatives of an exhausted empire.<o:p></o:p></span><br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhqMvHJ4p1cdTMhuZfMo4rczLjLvngxHBZMf4kKKiQ8cr0U_8D-wvjW5AloikxLpomGXPjNOaBLua1ZR5AsREnUKrgSOkeaP1VMFxS_A56YITNfMfqLGb0_X5oh02b0cax0HNcVphXrb8QC/s1600/MapOfBritishIndia_1945.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="367" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhqMvHJ4p1cdTMhuZfMo4rczLjLvngxHBZMf4kKKiQ8cr0U_8D-wvjW5AloikxLpomGXPjNOaBLua1ZR5AsREnUKrgSOkeaP1VMFxS_A56YITNfMfqLGb0_X5oh02b0cax0HNcVphXrb8QC/s400/MapOfBritishIndia_1945.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>Fig. 1:</b> Map of British India and Dependencies (1945)</td></tr>
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<a href="file:///C:/Users/Brahman/Desktop/India1940s.docx#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt; line-height: 115%;">[2]</span></span></span></span></a><span style="font-family: Arial, sans-serif; font-size: 11pt;"> The Japanese began imbibing the idea of materialism as a way of life in 1853 through contacts with the Americans and Europeans which were not borne out of choice but humiliation forced upon them.</span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 11pt;"><o:p></o:p></span></div>
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<a href="file:///C:/Users/Brahman/Desktop/India1940s.docx#_ftnref3" name="_ftn3" title=""><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt; line-height: 115%;">[3]</span></span></span></span></a><span style="font-family: Arial, sans-serif; font-size: 11pt;"> The concept of ‘martial race’ is not a British creation but perhaps no one in the past 300 years have succeeded better at creating new superficial yet distinct identities and utilizing those to maintain a steady supply of natives in support of the master’s wars.</span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 11pt;"><o:p></o:p></span></div>
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<a href="file:///C:/Users/Brahman/Desktop/India1940s.docx#_ftnref4" name="_ftn4" title=""><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt; line-height: 115%;">[4]</span></span></span></span></a><span style="font-family: Arial, sans-serif; font-size: 11pt;"> </span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 11pt;">Farmers and coolies constituted over 70% of the Indian population.</span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 9pt;"><o:p></o:p></span></div>
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<a href="file:///C:/Users/Brahman/Desktop/India1940s.docx#_ftnref5" name="_ftn5" title=""><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt; line-height: 115%;">[5]</span></span></span></span></a><span style="font-family: Arial, sans-serif; font-size: 11pt;"> Over 84% of the Indians were illiterate (1931 census)</span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 11pt;">.</span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 9pt;"><o:p></o:p></span></div>
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<a href="file:///C:/Users/Brahman/Desktop/India1940s.docx#_ftnref6" name="_ftn6" title=""><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt; line-height: 115%;">[6]</span></span></span></span></a><span style="font-family: Arial, sans-serif; font-size: 11pt;"> </span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 11pt;">The British encouraged the home-made arms enterprise in the land where today the “Good Taliban” meets the “Bad Taliban”. <a href="http://en.wikipedia.org/wiki/Darra_Adam_Khel">Darra Adam Khel</a> was quite possibly a British creation.</span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 8pt;"><o:p></o:p></span></div>
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<a href="file:///C:/Users/Brahman/Desktop/India1940s.docx#_ftnref7" name="_ftn7" title=""><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt; line-height: 115%;">[7]</span></span></span></span></a><span style="font-family: Arial, sans-serif; font-size: 11pt;"> The most well-known amongst such leaders was Subhash Chandra Bose.</span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 9pt;"><o:p></o:p></span></div>
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<a href="file:///C:/Users/Brahman/Desktop/India1940s.docx#_ftnref8" name="_ftn8" title=""><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 11pt; line-height: 115%;">[8]</span></span></span></span></a><span style="font-family: Arial, sans-serif; font-size: 11pt;"> Even just five years before independence, </span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 11pt;">hardly any Indian leader had concrete ideas on how India would maintain her independence once she emerges from the British yoke. This includes M.K. Gandhi and J. Nehru who towered over on the Indian political landscape after the departure of <a href="http://en.wikipedia.org/wiki/Lokmanya_Tilak">Lokmanya Tilak</a>. M.A. Jinnah had a very different idea of an independent India – an India where power is transferred to claimants of the Mughal heritage. With imagination and capabilities falling short of what was needed to maintain independence, the political differences mainly centred over the question of whether to continue with the current master, the British, revert to the old master, the Mohammedans, or welcome the new master, the Japanese.</span><span lang="EN-GB" style="font-family: Arial, sans-serif; font-size: 8pt;"><o:p></o:p></span></div>
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Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-63812900719116197402011-03-16T00:05:00.034+00:002011-03-31T18:00:01.637+01:00Libya, No-fly Zone & the Next 10 Days<div dir="ltr" style="text-align: left;" trbidi="on"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"></span><br />
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<div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="font-family: 'Courier New'; font-size: medium;"><span style="color: red; font-family: 'Courier New'; font-size: 13.5pt;">[added March 20, 2011, 1015 GMT]</span><span class="apple-converted-space" style="color: red;"><span style="color: black; font-family: 'Courier New'; font-size: 13.5pt;"> </span></span><span style="color: black; font-family: 'Courier New'; font-size: 13.5pt;"><i>Pop quiz: how many wars is the US currently engaged in? You might think 3: Afghanistan (2001-), Iraq (2003-) and now, Libya. Did you miss out Pakistan (2004-)? It is a <a href="http://en.wikipedia.org/wiki/Unmanned_aerial_vehicle">UAV</a>-show all the way. <a href="http://counterterrorism.newamerica.net/drones">Pakistan’s toll</a> is 2000+, and counting.</i><span class="Apple-style-span" style="color: red;"><o:p></o:p></span></span></span></div><span class="Apple-style-span" style="color: red; font-family: 'Courier New'; font-size: medium;"> <u1:p></u1:p> </span><br />
<div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="color: red; font-family: 'Courier New'; font-size: medium;"><br />
</span></div><div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="color: red; font-family: 'Courier New'; font-size: medium;"><span style="color: black; font-family: 'Courier New'; font-size: 13.5pt;">Yours, thinking about<span class="apple-converted-space"> </span><a href="http://en.wikipedia.org/wiki/MENA">MENA</a><span class="apple-converted-space"> </span>Analyst,<o:p></o:p></span></span></div><span class="Apple-style-span" style="color: red; font-family: 'Courier New'; font-size: medium;"><u1:p></u1:p> </span><br />
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</span></div><span class="Apple-style-span" style="color: red; font-family: 'Courier New'; font-size: medium;"><u2:p></u2:p> </span><br />
<div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="color: red; font-family: 'Courier New'; font-size: medium;"><span style="color: black; font-family: 'Courier New'; font-size: 13.5pt;">AA<o:p></o:p></span></span></div></div><div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span style="color: black; font-family: 'Courier New'; font-size: 13.5pt;"><br />
</span></span></div></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">I predicted three weeks ago (<a href="http://geoeconviews.blogspot.com/2011/02/dominoes-tunisia-egypt-libya.html">cliquez ici</a>) that rebels in Libya are unlikely to succeed in deposing Gaddafi. I stick to this prediction and make further predictions. I would not classify this post as 'analysis'. If you are interested in knowing the basis of what I state here then feel free to write back.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b>THE NEXT 10 DAYS</b></span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Gaddafi’s forces have reached Ajdabiya (labeled A on the map of north eastern Libya). I do not expect them to march into Benghazi just yet which is 100 miles north of Ajdabiya. Instead they will likely gain further mass around </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Ajdabiya over the next few days and another contingent would</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> head east 250 miles to Torbuk (labeled B on the map). Once Torbuk is taken they will take Benghazi in a pincer movement </span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[1]</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. Panic has already begun to set amongst rebels in Benghazi. They have started sending their family members towards the Egyptian border (the solid north-south line on the east-end of the map). The misty-eyed idealists that joined the protests will desert in large numbers. The ground leaders will likely stay on as for them it is a fight to finish. The mercenaries fighting alongside the rebels will do the same or flee back home (the Mediterranean looks more likely though as getting home means traversing southern Libya, which firmly remains within Gaddafi's control) . </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The key behind-the-stage actors and Gaddafi-appointed diplomats that sided with the rebels will likely take asylum in the European capitals.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLxGMVgNjol3q4TUfalOCX1PbrArPBpxcLaRGX2cPMZBoJANgbe8l0K3sEKSvagl_ByxUitdkyn6yDbu8_1QlZVytkIU0w4wgDsYNui8IMPOZTD-S8eb-JqRjWgQC2M4S1nCdzwwdqoJMM/s1600/EastLibyaMap.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="203" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLxGMVgNjol3q4TUfalOCX1PbrArPBpxcLaRGX2cPMZBoJANgbe8l0K3sEKSvagl_ByxUitdkyn6yDbu8_1QlZVytkIU0w4wgDsYNui8IMPOZTD-S8eb-JqRjWgQC2M4S1nCdzwwdqoJMM/s400/EastLibyaMap.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>Map 1:</b> Map of East Libya. Places of interest on the map - the towns of Ajdabiya, Torbuk and Benghazi, the Mediterranean Sea to the north and Egyptian border to the east.</td></tr>
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</span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">I fear widespread massacre of those left behind in coastal towns in the region above the purple line (see the map). This should be “over” </span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[2]</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> in about 10 days.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b>NO-FLY-ZONE - INEFFECTIVE & TOO LATE</b></span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China will be able to hold back the growing international calls for a UN-mandated no-fly zone (NFZ) for at least a week </span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[3]</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. Its job is not too hard as: </span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"></span></div><div style="text-align: justify;"></div><ul><li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">US has no interest in unilateral action. </span></li>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">When push-comes-to-shove Germany will say a firm no to a EU-organized NFZ.</span></li>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">France has no interest in taking the lead on the NFZ. Its loud noises on this count are a reflection of power games with Germany on matters concerning the future of the Eurozone and not North Africa.</span></li>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Britain has the capacity but not the political will to play a leading role in enforcing the NFZ.</span></li>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The Egyptian military does not have an interest in enforcing the NFZ. And without Egyptian participation, Arabs (read, <a href="http://en.wikipedia.org/wiki/Gulf_Cooperation_Council">GCC</a> Arabs) have no ability to project power beyond the Arabian Peninsula or the Persian Gulf. Besides, as much as the GCC leaders despise Gaddafi, they would (privately) heave a sigh of relief if Gaddafi manages to arrest the domino.</span></li>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia does not favor the NFZ.</span></li>
</ul><br />
<div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">My main concern in not whether an NFZ can be established but what (if anything at all) can be done to broker peace. NFZ will not save lives; a brokered truce will.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">There is of course the possibility of assassination and that would send the events along an entirely different path. For me such an event would be a random draw - I profess complete cluelessness about its potential occurrence. That aside, I think it is astounding to see how much structure there is underlying the seemingly chaotic games played by those who run the world.</span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: #444444;">___________________________________________</span></span></div><div style="text-align: left;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[1]</span><span class="Apple-style-span" style="color: #444444; font-family: 'Courier New', Courier, monospace;"> There is no point chasing up north when those that are being chased can escape to the East and regroup. Besides, Gaddafi can achieve victory at a lower cost by breaking the will of his antagonists. That is much easier done when the antagonists are cornered and forced to fight or set sail across the Mediterranean than when they have an opportunity to draw out Gaddafi’s forces into a desert safari.</span></div><div style="text-align: left;"><span class="Apple-style-span" style="color: #444444; font-family: 'Courier New', Courier, monospace;"><br />
</span></div><div style="text-align: left;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[2]</span><span class="Apple-style-span" style="color: #444444; font-family: 'Courier New', Courier, monospace;"> The phenomenon we are observing in Libya and the broader Arab world is an organic phenomenon and not an incident. So, nothing will really be over in the true sense of the word over. Therefore the quotes.</span></div><div style="text-align: left;"><span class="Apple-style-span" style="color: #444444; font-family: 'Courier New', Courier, monospace;"><br />
</span></div><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue;">[3]</span><span class="Apple-style-span" style="color: #444444;"> Contrary to widespread media reports Gaddafi has hitherto used his air force for mainly:</span></span></div><div style="text-align: left;"><span class="Apple-style-span" style="color: #444444; font-family: 'Courier New', Courier, monospace;"><br />
</span></div><div style="text-align: left;"><span class="Apple-style-span" style="color: #444444; font-family: 'Courier New', Courier, monospace;">· organizing troops movements</span></div><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: #444444;">· destroying ammunition depots that are controlled by rebels</span></span></div><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: #444444;">· destroying food depots and water catchments in rebel areas</span></span></div><div style="text-align: left;"><span class="Apple-style-span" style="color: #444444; font-family: 'Courier New', Courier, monospace;"><br />
</span></div><div style="text-align: left;"><span class="Apple-style-span" style="color: #444444; font-family: 'Courier New', Courier, monospace;">He has had enough time to organize his artillery logistics. Even if an NFZ were imposed now I do not think it would make much difference.</span></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-42185000624649858452011-03-15T00:50:00.015+00:002011-03-25T22:29:20.735+00:00A Short Note on the German-French Proposals for Strengthening the EMU<div dir="ltr" style="text-align: left;" trbidi="on"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"></span><br />
<div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span style="font-family: 'Courier New'; font-size: 13.5pt;">I visited <a href="http://en.wikipedia.org/wiki/Sendai">Sendai</a> in 2004. It is sad to see the destruction inflicted on the city by the <a href="http://en.wikipedia.org/wiki/2011_Sendai_earthquake_and_tsunami">2011 earthquake/tsunami</a>. I salute the spirit of the Japanese people and their sense of civic responsibility in such extraordinary times.<o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"> </span><br />
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</span></div><div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span style="font-family: 'Courier New'; font-size: 13.5pt;">Yours, thinking about the European-experiment Analyst,<o:p></o:p></span></span></div><div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><br />
</span></div><div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span style="color: black; font-family: 'Courier New'; font-size: 13.5pt;">AA<o:p></o:p></span></span></div><div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span style="color: black; font-family: 'Courier New'; font-size: 13.5pt;"><br />
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<div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">This post is with reference to a recent <a href="http://uk.reuters.com/article/2011/02/04/uk-eu-summit-idUKTRE71302F20110204">news item in Reuters</a>.</span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Essentially what the article states is that France and Germany, <i>the EMU-G2, are pushing for a fiscal union, tax union and a benefits union</i> </span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[1]</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. </span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i>Where there are proposals there is opposition</i>. A sampling is here:</span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">* Southern Europe is opposed to the idea of the abolition of inflation-indexed wages. Inflation in Eastern European nations has structural causes though their muted response on this matter is keeping in line with their political weight in the EMU. </span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">* Cross-border tax arbitrage vis-à-vis continental Europe has been critical to the success of Ireland's corporate sector and thus it is opposed to floors on corporate tax rates.</span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">* Countries with a strong center-left political constituency are opposed to raising the retirement age (for most people above 62 an increase in retirement age would mean no work or significant underemployment and yet, a delayed onset of benefits).</span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">* The proposal by the EMU-G2 that EMU sovereigns adopt laws that place a cap on their sovereign debt is rather amusing - it has never worked in the past as a sustained institutional practice in any part of the world except in cases where the control of debt accumulation process was handed over to another sovereign.</span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><i style="font-family: Arial, Helvetica, sans-serif;">However the proposals are sound</i><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> - no monetary union can survive crises without fiscal coordination and a common defense policy. The latter has become and continues to remain a non-issue as a result of the fall of the Berlin Wall and the subsequent re-orientation of Russia's approach towards outward projection of power. Thus the EMU-G2 must sow the seeds of a fiscal union in order to perpetuate the EMU. The only problem is that the ability to set tax rates, the ability to control transfer payments and the ability to respond to political crises with fiscal measures are essential ingredients of sovereignty. A complete fulfilment of the EMU-G2 proposals will therefore </span><i style="font-family: Arial, Helvetica, sans-serif;">not just make EMU's financial system robust but also put an end to the sovereignty of the EMU member states</i><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. Which is fine except that I do not know of any time in history when a larger state emerged from individual components solely on the basis of a shared notion of common economic destiny and financial stability. </span><i style="font-family: Arial, Helvetica, sans-serif;">Banks do not make sovereign states. Economics does not make a sovereign state</i><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. </span><i style="font-family: Arial, Helvetica, sans-serif;">Period </i><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[2]</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. </span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">__________________________________________________</span></div><div style="text-align: justify;"></div><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; text-align: justify;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[1</span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue;">] </span>A welfare state is a post-WWII construct and thus the emergence of importance of alignment in benefits policies is a historical oddity.</span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="font-family: 'Times New Roman';"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[2</span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue;">]</span> I am not suggesting that Germany is attempting to create a state in this manner. At an appropriate time (if it comes at all), Germany will lay the foundations of such a state in the shared cultural values. A discourse on this matter is way out of scope of this short note. </span></span></span></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-87004952126623916982011-03-01T13:48:00.009+00:002011-03-05T23:16:41.827+00:00On Bank of Thailand's Policy Stance in the Context of Local and Global Forces<div dir="ltr" style="text-align: left;" trbidi="on"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">First a brief on approaches to risk management at financial institutions and in foreign relations.</span><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Contingent credit lines (CCLs), colloquially known as <a href="http://en.wikipedia.org/wiki/Overdraft">overdraft facilities</a> are used by firms to ensure operational liquidity. A CCL is essentially an up-and-out <a href="http://en.wikipedia.org/wiki/Option_style">American</a> <a href="http://en.wikipedia.org/wiki/Barrier_option">barrier</a> <a href="http://en.wikipedia.org/wiki/Call_option">call option</a> sold by an FI. Here, the strike is the market credit spread of the client, i.e., the credit spread that the client would be charged if it were to avail a similar facility directly from the market. And, if the client's FI-estimated default spread were to rise to hit the barrier at any time during the term of the facility then the CCL facility would be automatically cancelled <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span>.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">FIs manage the default risk on CCLs on the basis of diversification. </span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Hedging is an </span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">alternative approach to managing default risk. However that does not work for a portfolio comprising CCLs issued to <a href="http://en.wikipedia.org/wiki/Small_and_medium_enterprises">SME</a> firms in emerging markets (EMs) such as Thailand because (i) barrier options cannot be hedged when the market credit spread of the client is close to the barrier, (ii) the hedge instruments would be a portfolio of forward default swaps and there is no liquid market for forward default swap contracts written on SME firms. So, diversification is the only practical way.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Similar approaches hold for mitigating foreign relations risk. One of the long-term consequences of the recent events in the </span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Middle East and North Africa (MENA) region </span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">will be a structural break in political games - they will change from (if I may exaggerate a little) one-party games to multiple-party games. In a one-party game hedging can be practical. Unlike in matters related to risk management at FIs, hedging turns increasingly ineffective as a tool to manage risks in foreign relations in a multi-party game, just as diversification becomes increasingly more suitable. China’s foreign policy approach in the MENA region is predicated on the assumption that hedging would work. This has indeed worked for China in the past. But it will work less in the future as MENA dynamics shift to multi-party games. China however does not appear particularly skilled at using the diversification approach to managing foreign relations risk. Therefore the events in the MENA region do not look good when viewed from China’s perspective.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Yours, thinking about the MENA region, Analyst,<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">AA</span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><span style="font-family: Arial, sans-serif;"><o:p><br />
</o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><span style="font-family: Arial, sans-serif;"><o:p><span class="Apple-style-span" style="color: #222222; font-family: Arial, Helvetica, sans-serif;"><em><span lang="EN-US" style="color: #333333;">Disclaimer: The figures below are approximate. While the general argument stands, I do not recommend using these figures for </span></em><em><span lang="EN-US">your professional work.</span></em></span></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><b><span style="font-family: Arial, sans-serif;">INFLATION IN THAILAND: GLOBAL AND LOCAL CAUSES<o:p></o:p></span></b></div><div class="MsoNormal" style="margin-bottom: 0cm; text-align: justify;"><div style="line-height: normal;"><span style="font-family: Arial, sans-serif;"><span class="Apple-style-span">The US government conducted its first round of quantitative easing (QE1) in 2008 to prevent a credit crisis-induced deflation spiral in non-consumable real assets. Despite QE1 deflation in non-consumables has continued to remain a primary concern in the US policy circles. Consequently the US government initiated a second round of quantitative easing in 4Q2010. The first round of quantitative easing transferred a fair bit of toxic assets to the government. With the US government’s credit rating intact, this raised the capitalization of the US financial system from its dangerously level. Lending to the private sector however continued to decline. Where there was surplus capital it was recycled back into US government securities or kept aside for acquiring failing financial institutions (FIs) of which there were plenty. The important point here is that money from QE1 did not leave the US shores.</span></span></div><div style="line-height: normal;"><span style="font-family: Arial, sans-serif;"><br />
</span></div><div style="line-height: normal;"><span style="font-family: Arial, sans-serif;"><span class="Apple-style-span" style="line-height: 18px;">Investment opportunities in the US have remained few. However the risk of failure of large US-based FIs has fallen considerably since 2008. Thus unlike during the period of QE1, reserve excess on account of QE2 flowed out of the US shores. The EMU is expected to barely register any growth; Japan is much too dependent on international demand for growth; what China needs is not more financial capital but a rebalancing of its growth model. The US-based FIs therefore channelized the excess due to QE2 into commodity markets </span></span><span class="Apple-style-span" style="color: blue; font-family: Arial, sans-serif; line-height: 18px;">[2] </span><span class="Apple-style-span" style="font-family: Arial, sans-serif; line-height: 18px;">and countries such as Thailand</span><span class="Apple-style-span" style="color: blue; font-family: Arial, sans-serif; line-height: 18px;"> </span><span class="Apple-style-span" style="color: blue; font-family: Arial, sans-serif; line-height: 18px;">[3] </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">which have a liberal capital control framework, a robust domestic demand and, low public debt/GDP and interest payment/tax receipt ratios.</span></div><div style="line-height: normal;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div style="line-height: normal;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><span style="font-family: Arial, sans-serif;">The surge in capital inflows has also found its way into the property sector which in Thailand had already started witnessing a strong upward price trend since 1H2010 due to the return of consumer confidence, economic buoyancy and the near-absence in exposure of Thai banks to toxic mortgage-backed securities or reliance on wholesale markets for funding.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><span style="font-family: Arial, sans-serif;">Wage price inflation in Thailand is however a home-grown phenomenon - its cause is mainly structural - the chronic failure of technical education to keep pace with other factors that have made Thailand an attractive manufacturing destination. Though in recent years attempts by political leaders to find broader acceptability has also contributed to wage inflation, particularly in low paying jobs.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><span style="font-family: Arial, sans-serif;"><o:p></o:p></span></div><div style="line-height: normal;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"></span></div></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 7.1pt; margin-right: 0cm; margin-top: 0cm; mso-outline-level: 4; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><b><span style="font-family: Arial, sans-serif;">POLICY STANCE OF THE BANK OF THAILAND<o:p></o:p></span></b></div><div class="MsoNormal" style="margin-bottom: 0cm; text-align: justify;"><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: justify;"><span style="font-family: Arial, sans-serif;">While credit mispricing in the property sector and in the corporate sector is a growing concern, inflation has been the primary target of BoT’s monetary policy calibration in recent periods. After 13 consecutive months of keeping the benchmark rate at 1.25%, BoT decoupled its interest rate policy from the West - it carried out 25 bps increases in the benchmark rate in the months of July, August and December last year and then again in Jan-2011, bringing the benchmark rate to 2.25%.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; margin-left: 7.1pt; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><br />
</div><div style="line-height: normal;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="Apple-style-span" style="line-height: 18px;">Even before Thailand began <b>raising its benchmark rates</b>, its currency had been appreciating. To relieve some of the appreciation pressure in 2009 BoT began allowing Thai firms to invest directly in foreign securities. The move however had little impact then and THB/USD strengthened 2% y/y in 2009 and 12% y/y in 2010. Given this background the rise in Thai benchmark rates has encouraged volatile capital flows</span> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[4]</span></span></span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif; line-height: 18px;">which in turn have tended to boost further currency appreciation. This could hurt non-agricultural exports in 2011 as this year the Thai economy cannot draw power from base effects and given that global recovery turned out to be much weaker in 2010 than consensus view, the expectations on recovery in 2H2011/1H2012 are more conservative. </span></div><div style="line-height: normal;"><br />
</div></div><div class="MsoNormal" style="margin-bottom: 0cm; text-align: justify;"><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: justify;"><b><span style="font-family: Arial, sans-serif;">Liberalizing capital outflows</span></b><span style="font-family: Arial, sans-serif;"> is another tool that the Thai authorities have exercised so far. In 2H2010 the limit on outward FDI, including on those in overseas affiliates of Thai firms, was scrapped and the limit on loans to overseas firms and on investment in offshore property were raised.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: justify;"><br />
</div><div style="line-height: normal;"><span style="font-family: Arial, sans-serif;"><span class="Apple-style-span" style="line-height: 18px;">To curb THB appreciation the BoT also added calibrated <b>capital control</b> to their repertoire of tools. For example, in Oct-2010, the 15% tax exemption on foreigners’ earnings from investment in Thai bonds was removed and the sale of bill of exchange</span> <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[5]</span></span></span></span> certificates to non-residents was banned.<o:p></o:p></span></div></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 7.1pt; margin-right: 0cm; margin-top: 0cm; mso-outline-level: 4; text-align: justify;"><br />
</div><div class="MsoNormal" style="margin-bottom: 0cm; text-align: justify;"><div style="line-height: normal;"><span style="font-family: Arial, sans-serif;"><span class="Apple-style-span" style="line-height: 18px;">Despite these measures however, short-term capital flows continued on the upward trend and with that, the THB has been appreciating against most major currencies</span> <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[6]</span></span></span></span>. <o:p></o:p></span></div></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><b><span style="font-family: Arial, sans-serif;">BOT'S POLICY STANCE IN THE NEAR-FUTURE</span></b></div><div class="MsoNormal" style="margin-bottom: 0cm; text-align: justify;"><div style="line-height: normal;"><span style="font-family: Arial, sans-serif;"><span class="Apple-style-span" style="line-height: 18px;">The Thai authorities are likely to continue encouraging outward FDI and dampen foreign demand for short-term bonds and other financial assets. Interest rates are likely to be increased further albeit at a slower rate than in 2H2010. Major hikes are unlikely though even if they occur they are likely to occur only after the general elections that are likely to be held in 3Q2011. Until then the government will likely continue to rely on subsidies to curb food, transportation and energy price inflation. Hiking bank reserve ratio is unlikely to help in the case of Thailand though could be used as a signalling mechanism. In the face of continuing uncertainty in global recovery and the looming political risk in Thailand</span> <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[7]</span></span></span></span><span style="font-family: Arial, sans-serif; line-height: 115%;">, BoT is unlikely to repeat the harsh capital controls imposed during 2006-08 which triggered what turned out to be the worst peak-to-trough fall in Thailand’s stock market’s history</span> <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[8]</span></span></span></span>. <o:p></o:p></span></div></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 7.1pt; margin-right: 0cm; margin-top: 0cm; mso-outline-level: 4; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; mso-outline-level: 4; text-align: justify;"><b><span style="font-family: Arial, sans-serif;">KEY RISKS TO THAILAND<o:p></o:p></span></b></div><div class="MsoListParagraphCxSpFirst" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 14.2pt; margin-right: 0cm; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1; mso-outline-level: 4; text-align: justify; text-indent: -14.2pt;"><span style="font-family: Symbol;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span style="font-family: Arial, sans-serif;">Potential policy missteps with regards to capital control measures<o:p></o:p></span></div><div class="MsoListParagraphCxSpLast" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; margin-left: 14.2pt; margin-right: 0cm; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1; mso-outline-level: 4; text-align: justify; text-indent: -14.2pt;"><span style="font-family: Symbol;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span style="font-family: Arial, sans-serif;">Heightened awareness of political risk in the context of the on-going political instabilities in the MENA region </span><span style="font-family: Wingdings;">à</span><span style="font-family: Arial, sans-serif;"> sharp reversal of capital flows into Thailand </span><span style="font-family: Wingdings;">à</span><span style="font-family: Arial, sans-serif;"> a sharp fall in THB/USD </span><span style="font-family: Wingdings;">à</span><span style="font-family: Arial, sans-serif;"> soaring inflation <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[9]</span></span></span></span></span> </div><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1"><div class="MsoFootnoteText" style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span> E. Loukoianova, S.N. Neftci, and S. Sharma, Pricing and hedging of contingent credit lines, IMF WP/06/13.<o:p></o:p></span></div><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue; line-height: 18px;">[2] </span><span class="Apple-style-span" style="line-height: 13px;">Commodities serve as an inflation hedge and their prices are supported by robust consumer demand in several EM economies</span></span></div></div></div><div id="ftn2"><div class="MsoFootnoteText" style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[3]</span></span></span></span> in SE Asia, Malaysia, Thailand and Vietnam, and to a lesser extent, Indonesia<o:p></o:p></span></div></div></div><div id="ftn3"><div class="MsoFootnoteText" style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[4]</span></span></span></span> Foreigners hold 7% of Thailand’s government bonds and 37% of stock exchange assets (Dec-2010 est.).<o:p></o:p></span></div></div></div><div id="ftn4"><div class="MsoFootnoteText" style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[5]</span></span></span></span> A bill of exchange offers higher interest rate than comparable deposit instrument since the former does not carry deposit insurance.<o:p></o:p></span></div></div></div><div id="ftn5"><div class="MsoFootnoteText" style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[6]</span></span></span></span> <o:p></o:p><span class="Apple-style-span" style="line-height: 13px;">except since events in the MENA region forced international investors to turn greater attention to political risk</span></span></div></div></div><div id="ftn6"><div class="MsoFootnoteText" style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[7]</span></span></span></span> <span style="line-height: 115%;">Over the past two years aversion to countries that have a debt servicing problem has been a principal factor determining global capital flows. With the profound changes that are taking place in the MENA region, political uncertainty has come to fore in the minds of international investors. While Thailand scores well on measures of debt serviceability, it does not on the latter</span>.<o:p></o:p></span></div></div></div><div id="ftn7"><div class="MsoFootnoteText" style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[8]</span></span></span></span> <span style="line-height: 115%;">The harsh capital control measures triggered the fall but the Global Financial Crisis of 2008-09 was in large part responsible for the magnitude by which Thai stock market receded</span>.<o:p></o:p></span></div></div></div><div id="ftn8" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[9]</span></span></span></span> Baring wage price inflation, other causes of inflation in Thailand will not be mitigated by capital flight.</span><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: 9pt;"><o:p></o:p></span></div></div></div></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-9426932233918979562011-02-20T14:10:00.022+00:002011-03-11T01:11:51.532+00:00Dominoes: Tunisia --> Egypt --> Libya (?)<div dir="ltr" style="text-align: left;" trbidi="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"></span><br />
<div style="text-align: justify;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Yours, with thoughts in North Africa, Analyst,</span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">AA</span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Libya lies to the south of the Mediterranean and in sandwiched between Algeria in the West and Tunisia in the North West and, and Egypt in the East. Muammar al-Gaddafi has ruled the country since 1969. Hosni Mubarak </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">ruled Egypt </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">and Zine El Abidine Ben Ali ruled Tunisia in presidential capacity since Oct 1981 and Nov 1987 </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">respectively</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. They have now departed.<b> </b>Will Muammar al-Gaddafi be next? </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Let us begin with a very brief background:</span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
<div style="margin-bottom: .0001pt; margin: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="margin-bottom: .0001pt; margin: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i><span style="color: black;">Protests in Libya began on Feb 15. Human Rights Watch has reported over a 100 deaths. What started in Benghazi has spread to Albayda and Derna. The rage continues (which makes twitter a more appropriate medium than a blog).</span></i><span style="color: black;"><o:p></o:p></span></span></div><div style="margin-bottom: .0001pt; margin: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div align="center" style="margin-bottom: .0001pt; margin: 0cm; text-align: center;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span style="color: black;">So then, is it spring or is it a false spring for democracy in Libya?</span></b><span style="color: black;"><o:p></o:p></span></span></div><div style="margin-bottom: .0001pt; margin: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="margin-bottom: .0001pt; margin: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="apple-style-span"><span style="color: black;">The situation in Libya is developing at the time of this writing. What I engage in below is predictive analysis. </span></span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="apple-style-span"><span style="color: black;">Back to the Q, I </span></span><span style="color: black;">place my bets on the latter. We will find out in a few weeks whether I am right. Time tips it all! Before we discuss further I must mention one critical assumption I make - </span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i>foreign powers will not act decisively enough to tip the balance in Libya</i>.</span><br />
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</div></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b>1. Harbingers</b> Gaddafi has had the advantage of Tunisia and Egypt serving as harbingers of a surge in youth power. This has given him adequate time to (re)identify those he can rely on, the sops he can throw at those with genuine grievances but without a thirst for political power, prep up counter-protesters and, find lines that he can hold should the situation escalate (which has already happened).</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b>2. Internet Penetration</b> Social networking sites were critical to sustaining the momentum in the recent protests. The internet penetration in Egypt is 16%. In Libya, it is a meagre 5% <span class="Apple-style-span" style="color: blue;">[1]</span>. The unrest in Libya has thus far remained concentrated in regions that are geographically distant from the seat of 'real' power (see more on this below). The dependence of momentum on internet communication is far greater in Libya than in Egypt where protests began in Cairo itself.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b>3. Power Structure in Libya</b></span><br />
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<div style="margin-bottom: 0.0001pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: black;"><b>3A.</b></span><span style="color: black;"><b> <i>The Current Structure</i></b><span class="apple-converted-space"> </span>There are two power centers - the Revolutionary Leadership, led by Gaddafi, and the People's Congresses. However, the Revolutionary Leadership can neither be voted out nor dismissed. The executives of the People's Congresses are elected every four years. The candidate list that the electorates choose from is approved by the Revolutionary Leadership which also enjoys veto power over any decision made by the Congresses. The armed forces in Libya, unlike those of Egypt, neither have their own independent power structure nor do they derive their strength from foreign links. It is true though </span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">that the lower rungs have dissatisfied elements. Indeed, they appear to be involved in the protests. However, as mentioned before, they do not have surprise on their side. In all past uprisings around the globe that I know of where lower-ranked officers have succeeded, the surprise factor has been essential.</span></div><div style="margin-bottom: 0.0001pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="margin-bottom: 0.0001pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: black;"><b>3B.<span class="apple-converted-space"> </span><i>Comparisons with Pre-revolutionary Iran</i></b></span><span style="color: black;"> Hydrocarbon-related industries accounted for about 50% of the GDP and oil income accounted for about 80% of government revenues in p</span>re-revolutionary Iran. In Libya hydrocarbon and mineral extraction related industries account for even higher - at a staggering 95% of the GDP. As a result, the state's tax extraction capability is weak and therefore and therefore information channels are not organized to identify productive sectors or regions of the economy. Therefore economic dynamism in Libya relies critically on patronage structures.</span></div><div style="margin-bottom: 0.0001pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="margin-bottom: 0.0001pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span style="color: black; font-family: Arial, Helvetica, sans-serif;">Pre-revolutionary Iran had an urbanization rate of over 50%. Libya is even more urbanized - nearly 90% of its population lives in urban areas. The urban unemployment rate in Libya is much higher. Youth frustration would therefore appear worse in Libya. However, unlike pre-revolutionary Iran, Libya lacks autonomous Persian bazaars<span class="apple-converted-space"> </span></span><span style="color: blue; font-family: Arial, Helvetica, sans-serif;">[2]</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. Also, unlike pre-revolutionary Iran, it lacks religious authorities who could provide a rallying point for moral authority. Thus while urban frustration may indeed be higher in Libya 2011 than it was in Iran 1979 (it appears so, but I really do not know), it is without avenues for organized expression. <span class="Apple-style-span" style="color: #666666;">[</span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="color: red;">added Feb 25, 2011, 2355 Hrs GMT:</span><span class="Apple-style-span" style="color: #666666;"> </span><span class="Apple-style-span" style="color: #666666;">After the Soviets were sent packing from Afghanistan in early 1989, </span><span class="Apple-style-span" style="color: #666666;">the battle-hardened surplus fanned out across the globe; some of them ended up in new foreign lands (e.g., in Jammu & Kashmir, India) and some returned back to their home countries to replicate their Afghan triumph. </span><a href="http://en.wikipedia.org/wiki/Libyan_Islamic_Fighting_Group"><span class="Apple-style-span" style="color: blue;">LIFG</span></a><span class="Apple-style-span" style="color: #666666;"> was formed by an assortment of such returnees who mainly hailed from the same eastern towns where Libya-2011 protests took seed. Between the mid to late 1990s LIFG carried out assassination attempts on Gaddafi and his regime members. In the late 1990s however Gaddafi succeeded in fisting this group into submission. At least that is what appears if you consider ground-action by LIFG as a measure of its existence. Could this measure however be incorrect? If yes then, that would falsify my conclusion that "</span><i style="color: #666666;">urban frustration ... in Libya 2001 ... is without avenues for organized expression</i><span class="Apple-style-span" style="color: #666666;">". I am humbled by the fact that the Shah of Iran having crushed opposition from the religious authorities in the 1960s and early 70s continually scoffed at the idea that they are anything but a spent force. History however took a different trajectory - the Islamists </span><span class="Apple-style-span" style="color: #666666;">attracted both the religiously motivated and the secular modernists. By the time the Shah smelt his coffee it was </span><a href="http://geoeconviews.blogspot.com/2011/02/egypt-2011-repeat-of-iranian-revolution.html"><span class="Apple-style-span" style="color: blue;">too late</span></a><span class="Apple-style-span" style="color: #666666;">.</span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #666666;">]</span></span></div></div><div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b>4. Geographic Location of the Protests</b> The protests started in Benghazi which </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">is the industrial and commercial center of Libya</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. Then they </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">spread eastwards to the towns of Alquba, Albayda and Derna </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">(see the map) and </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">have thus far remained centered in the eastern part of the country. Tripoli, the seat of power of Gadaffi, however lies in the far western end of Libya <span class="Apple-style-span" style="color: blue;">[3]</span>. </span><br />
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</span></div><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5WYKtWIGvYXVSLXQIVa0VEfUp2MkuWUv-HF_UAOFdzV8dkPDrUIVTQ7uzDIGh2kGqWvPo5anC2aKQ8NZTkhphzc2vjMibFIItWFNrx0z0ZJnoUuwlZ09wo492wmB6kUzJ2Y9MZhcyTwvf/s1600/LibyaMap.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5WYKtWIGvYXVSLXQIVa0VEfUp2MkuWUv-HF_UAOFdzV8dkPDrUIVTQ7uzDIGh2kGqWvPo5anC2aKQ8NZTkhphzc2vjMibFIItWFNrx0z0ZJnoUuwlZ09wo492wmB6kUzJ2Y9MZhcyTwvf/s400/LibyaMap.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="text-align: justify;"><span class="Apple-style-span" style="font-size: x-small;"><b>Map 1:</b> <b>Geography of Libyan protests:</b> Protests in the East (B, C, D). Political power in the West (A)</span><span class="Apple-style-span" style="font-size: small;">.</span></div></td></tr>
</tbody></table><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div style="margin-bottom: 0.0001pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: black;">It appears that the protesters have chosen to gain strength in parts of Libya where oil wealth is not the only source of economic activity. That this region is geographically far from Tripoli affords them protection from immediate reprisal and insulates their movement from confusion or dilution that strong counter-protests can induce. It also suggests, contrary to reports in the international media, that the unrest is directed at the local government and not at Gaddafi himself<span class="apple-converted-space"> </span></span><span style="color: blue;">[4]</span><span style="color: black;">.<o:p></o:p></span></span></div><div style="margin-bottom: 0.0001pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><br />
</div><div style="margin-bottom: 0.0001pt; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: black;">Now, even if the protesters manage to hold on to their gains in the East (I doubt it as they are without an effective leadership or an ideological anchor), how would they carry their movement into Tripoli where counter-protesters and a ruler who has had the time to prepare in advance awaits with forces, who on several occasions in the past have demonstrated staunch loyalty to Muammar al-Gaddafi?</span><o:p> </o:p> </span></div><span class="Apple-style-span" style="color: #999999; font-family: Arial, Helvetica, sans-serif;">_______________________________________________________________</span><br />
<div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue;">[1]</span> 2008 est. <i>source</i>: World Bank, self-estimates</span></div><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue;">[2]</span> The Persian bazaars acted as a magnet for those disaffected with the Shah's system. It is where such people found camaraderie, employment and developed social networks. Even though the bazaars enjoyed substantial autonomy from the Shah's governance apparatus, oil wealth would flow there in the form of contracts for pieces of work outsourced to SMEs by those belonging to the thin layer of the Shah's patronage structure. </span></div><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue;">[3]</span> By road, Tripoli is over 1000 km from Benghazi and over 1300 from Derna.</span></div><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue;">[4]</span> Gadaffi proclaimed a few days back that he would join the people in their protests against the government!</span></div></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-25494224345164151752011-02-15T14:03:00.004+00:002011-03-27T12:32:08.418+01:00Impact of a US Slowdown on Thailand’s Export and GDP Growth Rates<div dir="ltr" style="text-align: left;" trbidi="on"><span class="Apple-style-span" style="color: #333333; font-family: 'Courier New', Courier, monospace;"><a href="http://en.wikipedia.org/wiki/Bhut_Jolokia_chili_pepper">Bhot jolokia</a> is perhaps the hottest naturally occurring edible substance. It rates about a million on the <a href="http://en.wikipedia.org/wiki/Scoville_scale">Scoville scale</a> (Tabasco sauce is rated at 5,000). This is about it for interesting diversions. The analysis in this post rests on several assumptions and there are plenty of references to numbers. We do not want to be lost in diversions ...</span><br />
<div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: left;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: #333333;"><br />
</span></span></span></div><div class="MsoNormal" style="margin-bottom: 0.0001pt; text-align: left;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: #333333;">Yours, looking forward to spring Analyst,</span></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><span lang="EN-US" style="color: #333333;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><br />
</span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><span lang="EN-US" style="color: #333333;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">AA</span></span><br />
<span class="Apple-style-span" style="color: #333333; font-family: 'Courier New', Courier, monospace;">_______________</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0.0001pt; text-align: left;"><em><span lang="EN-US" style="color: #333333; font-family: Arial, sans-serif;"><br />
</span></em><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><em><span lang="EN-US" style="color: #333333;">Disclaimer: The figures here are approximate. While the general argument stands, I do not recommend using these figures for </span></em><em><span lang="EN-US">your professional work.</span></em></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">We engage in <b>what-if analysis</b>, to isolate the vulnerability of Thailand’s export and GDP growth rates to an (hypothesized) slowdown in the US <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span lang="EN-US" style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span> that begins in 4Q2011.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Our problem is ill-defined though simple to state. How would a slowdown in the US from its baseline level of economic activity impact Thailand?<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Let us first look at transmission mechanisms of a US slowdown. The US weighs heavy in world affairs. Therefore the channels of direct impact are many. For example, one set of channel is the choices the US makes with regards to deficit spending, monetary policy, trade policy and defense policy <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span lang="EN-US" style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[2]</span></span></span></span>. Its position on RMB appreciation would constitute another channel. The non-governmental channels are decisions its consumers make on discretionary spending and the choices its corporations make with regards to capacity expansion plans and inventory levels. Then we have secondary channels impact such as anticipatory cut-backs in other major economies, changes in risk appetite of international investors, and so on. <o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">In our analysis, we assume that all other economies continue to (magically) chug along unperturbed. Unrealistic I admit, but so are most isolated impact studies. Besides, the results still shed useful light on the linkages between the US and the Thai economy and give a lower bound on the impact of a US slowdown on Thailand.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">We focus on the trade channel alone. We think that the short-run economic impact on Thailand of a potential adoption of trade-distortive measures by the US will be marginal. Therefore we assume that trade levels will continue to be determined by supply-demand forces and relative total factor productivity.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-US" style="text-transform: uppercase;">Impact of Contraction in US Imports</span></b><span lang="EN-US" style="text-transform: uppercase;"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><i><span lang="EN-US">Reducing dependence on exports to the US</span></i></b><span lang="EN-US"> Thailand’s bilateral exports to the US stood at 22.5% of its total exports in 1998 <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span lang="EN-US" style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[3]</span></span></span></span> (Chart 1). Over the past decade however Thailand has reduced its exports dependence on mature markets, including the US. Last year, the US accounted for only 10.5% of its total exports (Chart 2).<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><o:p><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiucSdMLPer3nZ54NlRwKziEgL13i8LuXtzDFYku26R43263vtBCcPmEnFQceUI0levYnsQwCDauZtDsOeZyfhQJDY6nmGoLpB3i1ocnfIuRPb3CZnJaCTE0PHxzj1qYWsJyqOIMlVIVmpy/s1600/Chart01.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="241" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiucSdMLPer3nZ54NlRwKziEgL13i8LuXtzDFYku26R43263vtBCcPmEnFQceUI0levYnsQwCDauZtDsOeZyfhQJDY6nmGoLpB3i1ocnfIuRPb3CZnJaCTE0PHxzj1qYWsJyqOIMlVIVmpy/s400/Chart01.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span class="Apple-style-span" style="font-size: small;"><b>Chart 1:</b> Declining trend in Thailand’s direct exports to mature markets</span></td></tr>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggSw3QC3BMYvkaf_bn7GCHu08hgTkbKdDoh7x_TqvSpx6mQum_ou-E_8Xn55qQs2Z55LlMTDs-mz4bc8mKAN4SUgz4fqYRAL4gU0FbtelVgpJ4Al0T2PZXm-iRTYL8ZZSMU5SvDtryE1X_/s1600/Chart02.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="293" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggSw3QC3BMYvkaf_bn7GCHu08hgTkbKdDoh7x_TqvSpx6mQum_ou-E_8Xn55qQs2Z55LlMTDs-mz4bc8mKAN4SUgz4fqYRAL4gU0FbtelVgpJ4Al0T2PZXm-iRTYL8ZZSMU5SvDtryE1X_/s400/Chart02.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span class="Apple-style-span" style="font-size: small;"><b>Chart 2: </b>Composition of US imports from Thailand</span></td></tr>
</tbody></table><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><i><span lang="EN-US">Sharp fall in machinery exports</span></i></b><span lang="EN-US"> Thailand’s machinery export comprised 44% (USD10bn) of its bilateral exports to the US in 2010 and these remain vulnerable to a US slowdown. In 2009 Thailand’s machinery export contracted by 25%. The contraction in machinery export to the US was sharper at 36%. In the event of a slowdown in the US we expect machinery exports to fall by 20% (USD2.0bn) - the downside risk mitigated by the fact that the consumer and business sentiments in the US have remained cautious throughout 2010 and is expected to continue to remains so through 2011.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><i><span lang="EN-US">No effect on agricultural exports</span></i></b><span lang="EN-US"> We do not expect a material impact on the demand for Thai agricultural exports to the US for the following reasons:<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6pt; text-align: justify;"></div><ul style="font-family: Arial, Helvetica, sans-serif;"><li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Thai agricultural products are competitively priced and the basket comprises mainly of food products; the demand for which is sticky in the short-run.</span></li>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;">While material in absolute terms <span class="Apple-style-span" style="color: blue; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">[4]</span>, USD22.3bn (2010), Thailand’s agricultural exports are a small fraction of the global international trade in agricultural products. This slack can be easily picked up by other markets.</span></li>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;">The price of agricultural commodities have maintained a general upward trend throughout 2010 despite prospects of uncertain recovery in the US, deflation concerns in Japan and sovereign debt and banking sector problems in the Eurozone. The two main reasons underpinning the performance of commodities are strong demand from China and India and the channelization of funds from the second round of quantitative easing in the US into the commodity markets. We expect these trends to continue through 2011.</span></li>
</ul><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><i><span lang="EN-US">No effect on fuel/chemical exports</span></i></b><span lang="EN-US"> Thailand’s chemical and fuel exports were 13.3% of its total global exports in 2010. The main destination of these exports is however regional and their price dynamics will be impacted more by domestic demand in China, India, Indonesia and Malaysia, investor preference for the commodity asset class and inflationary expectations in the emerging markets </span></span><span class="Apple-style-span" style="color: blue; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">[5]</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> than by a slowdown in the US.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><i><span lang="EN-US">Effect on ‘Other’ exports</span></i></b><span lang="EN-US"> Under the assumption that direct imports by the US for products classified as ‘other’ contracts by the same fraction as import of machinery, we expect Thailand’s direct exports to the US to further contract by USD1.6bn. <o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Thus the direct impact on Thailand’s bilateral exports to the US due to a US slowdown will be –USD3.6bn.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-US" style="text-transform: uppercase;">Impact of contraction in re-exports to the US</span></b><span lang="EN-US" style="text-transform: uppercase;"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Hong Kong and Singapore are the two largest re-export centers for Thailand’s exports. In 2010, 69.8% of Thailand’s exports (USD7.5bn) to Hong Kong and 44.3% of its exports to Singapore (USD4bn) were re-exported </span></span><span class="Apple-style-span" style="color: blue; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">[6]</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. Exports to the US from Hong Kong fell by 44.9% in 2009 and that to the US from Singapore fell by 13.6% in 2008. Assuming that percentage contraction in re-exports from these countries remains the same as contraction in exports from these countries under a US slowdown scenario, Thailand’s exports will fall by USD3.3bn due to reduction in re-exports from Hong Kong and by USD0.6bn due to reduction in re-exports from Singapore. The total contraction due to contraction in re-exports will be USD3.9bn. The composition of the tri-lateral trade suggests that the major brunt will be borne by the machinery sector.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-US" style="text-transform: uppercase;">Tourism Impact</span></b><span lang="EN-US" style="text-transform: uppercase;"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Tourism represents 6.5% of Thailand’s GDP. However spending by tourists from the US represents just about 5% of all tourism revenues and therefore, the impact of US slowdown on tourism earnings will be insignificant - a 50% fall in revenues from tourists from the US will contribute to a contraction in foreign exchange earning of USD470M. In fact over the past five years perception of risk of political violence in Bangkok has been the single most important and dominant risk factor for the tourism industry; the impact of economic slowdown has thus been much smaller in comparison.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-US" style="text-transform: uppercase;">How much do Thailand’s earnings contract?</span></b><span lang="EN-US" style="text-transform: uppercase;"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Total fall in earnings directly attributed due to contraction in US imports alone of goods or services from Thailand in the event of a slowdown in the US will be USD8bn (2.8%) of Thailand’s 2010 GDP.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-US" style="text-transform: uppercase;">How much does Thailand’s GDP contract?</span></b><span lang="EN-US" style="text-transform: uppercase;"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0cm; text-align: justify;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="font-size: small;">The value-addition in machinery products is small as the items are either low-tech or the technology royalty is accumulated elsewhere.</span> <span class="Apple-style-span" style="font-size: small;">Besides, raw material such as steel and rare earth metals are mostly imported and Thailand imports over 78.0% </span></span></span><span class="Apple-style-span" style="color: blue; font-family: Arial, Helvetica, sans-serif; line-height: 18px;">[7]</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-size: small;">of its fuel requirements.</span> <span class="Apple-style-span" style="font-size: small;">Assuming a 25% value-addition in machinery products, this translates to GDP impact of US$1.5bn.</span> <span class="Apple-style-span" style="font-size: small;">Assuming a 20% value-addition in export products classified as ‘Other’, the GDP impact is –USD320M.</span> <span class="Apple-style-span" style="font-size: small;">A tourism value-addition of 60% would translate into a further GDP impact of –USD282M.</span> Thus, the GDP impact of a US slowdown on Thailand through the channel we have mentioned is –USD2.1bn, or –0.73% of Thailand’s 2010 GDP.</span></div><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="margin-top: 3pt; text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="MsoFootnoteReference"><span lang="EN-US"><span class="MsoFootnoteReference"><span lang="EN-US" style="line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span lang="EN-US"> of a magnitude similar to the one experienced in 2009 in terms of Y-o-Y GDP growth rate <o:p></o:p></span></span></div></div><div id="ftn2"><div class="MsoFootnoteText" style="margin-top: 3pt; text-align: left;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue; line-height: 13px;">[2]</span> The US spends more on defense than the rest of the world combined. A reduction in defense budget may lead to flare-ups in the Persian Gulf or facilitate the (re)emergence of competitive domestic politics in non-democratic Middle Eastern societies and trigger a spike in oil prices. In the context of the current economic environment, this will send a stagflationary shock-wave across the globe.<o:p></o:p></span></span></div></div><div id="ftn3"><div class="MsoFootnoteText" style="margin-top: 3pt; text-align: left;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue; line-height: 13px;">[3]</span> the year following the Asian Financial Crisis (AFC)<o:p></o:p></span></span></div></div><div id="ftn4"><div class="MsoFootnoteText" style="margin-top: 3pt; text-align: left;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue; line-height: 13px;">[4]</span> 13.4% of Thailand’s exports in 2010<o:p></o:p></span></span></div></div><div id="ftn5"><div class="MsoFootnoteText" style="margin-top: 3pt; text-align: left;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue; line-height: 13px;">[5]</span> which are high and are likely to continue to remain so throughout 2011<o:p></o:p></span></span></div></div><div id="ftn6"><div class="MsoFootnoteText" style="margin-top: 3pt; text-align: left;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span lang="EN-US"><span class="Apple-style-span" style="color: blue; line-height: 13px;">[6]</span> </span><span lang="EN-US"><a href="http://www.singstat.gov.sg/pubn/papers/economy/op-e26.pdf">http://www.singstat.gov.sg/pubn/papers/economy/op-e26.pdf</a></span><span lang="EN-US"><o:p></o:p></span></span></div></div><div id="ftn7" style="mso-element: footnote;"><div class="MsoFootnoteText" style="margin-top: 3pt; text-align: left;"><span lang="EN-US"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue; line-height: 13px;">[7]</span> 70% of the total energy generation in Thailand is from gas-fired plants and 8.2% by high quality coal – the overwhelming fractions of both of which are imported.</span><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: 9pt;"><o:p></o:p></span></span></div></div></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-15991999959541144372011-02-05T16:00:00.000+00:002011-02-12T18:05:27.337+00:00Egypt 2011: A Repeat of the Iranian revolution?<div dir="ltr" style="text-align: left;" trbidi="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"></span><br />
<div class="MsoNormal" style="margin-bottom: 0in;"><span class="Apple-style-span" style="color: #222222; font-family: 'Courier New', Courier, monospace;">Do you like monologues? We will attempt one. We think it will go well.</span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span style="color: #222222;"><br />
Yours, twin-analysts,</span><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><b><span style="color: #222222; font-family: 'Courier New', Courier, monospace;">AA</span></b><span style="color: #222222;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"> & <i>AA'</i></span><br />
</span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #222222;"><br />
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</span><i><span lang="EN-GB" style="color: #222222;"><u1:p></u1:p>AA’: Did you see it coming?</span></i><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">AA:</span></b><span lang="EN-GB" style="color: #222222;"> You mean the events in Egypt?</span><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i><span lang="EN-GB" style="color: #222222;">AA’: Yes.</span></i><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">AA:</span></b><span lang="EN-GB" style="color: #222222;"> No. A bolt from the blue.</span><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i><span lang="EN-GB" style="color: #222222;">AA’: Indeed. Just like the Iranian revolution.</span></i><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">AA:</span></b><span lang="EN-GB" style="color: #222222;"> Insofar as the element of surprise is concerned, yes.</span><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i><span lang="EN-GB" style="color: #222222;">AA’: And more. You yourself <a href="http://geoeconviews.blogspot.com/2011/02/short-note-on-egypt-and-democracy.html"><span style="color: #2288bb; text-decoration: none;">argued</span></a> that true democracy in Egypt would allow Islamists to gain a significant share of power.</span></i><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">AA:</span></b><span lang="EN-GB" style="color: #222222;"> And your point is?</span><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 6pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i><span lang="EN-GB" style="color: #222222;">AA': Just look at the Iranian revolution. The desire for economic freedom brought pro-democracy protesters and the Islamists together against the <a href="http://en.wikipedia.org/wiki/Mohammad_Reza_Pahlavi"><span style="color: #2288bb; text-decoration: none;">Shah of Iran</span></a> and his power apparatus. The same has happened in Egypt now. The world was taken by surprise then just as it has been now. </span></i><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i><span lang="EN-GB" style="color: #222222;">And if I may get a tad ahead of myself here, why would Egypt not end up walking the same journey that Iran did? An uprising is a terrible waste if it cannot survive its own victory.</span></i><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">AA:</span></b><span lang="EN-GB" style="color: #222222;"> Indeed.</span><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 6pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i><span lang="EN-GB" style="color: #222222;">AA’: So well, in Iran once the Shah was deposed the next phase was the rapid pursuit of Islamist democracy - liberal democrats and the Islamists joined hands to build a new system, ground up. A theocratic constitution was voted in through a national referendum. It was not something the democrats could protest as it merely reflected the will of an overwhelming majority of the Iranian peoples. For reasons I wouldn't want to go into now, many amongst those who willingly risked their own lives in the cause of liberty (from the Shah's repressive apparatus) appeared willing to sacrifice their newly earned freedom at the altar of another repressive system that was in the works. Within just two years the last vestiges of democratic pretences were discarded -<a href="http://en.wikipedia.org/wiki/Abolhassan_Banisadr"><span style="color: #2288bb; text-decoration: none;">Abulhassan Banisadr</span></a>, a prominent face of the pro-democracy faction in anti-Shah movement who was later elected the President of Iran was impeached as he fell out with the <a href="http://en.wikipedia.org/wiki/Ayatollah"><span style="color: #2288bb; text-decoration: none;">Grand Ayatollah</span></a>.</span></i><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i><span lang="EN-GB" style="color: #222222;">The Islamists co-opted the democratic voices early on. It was necessary. Without that there was not a chance that the West would have stood down while an unfamiliar group with an unclear agenda and lethal methods got busy dismantling the entire power structure built by ,and around, the unequivocally pro-Western, Shah of Iran.</span></i><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">AA:</span></b><span lang="EN-GB" style="color: #222222;"> Democracy has a high mortality rate at birth, doesn’t it?</span><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i><span lang="EN-GB" style="color: #222222;">AA’: Yes indeed. In light of your earlier post then I am sure you would agree that as Egypt 2011 unfolds it will increasingly look like an Iran 1979 repeat.</span></i><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">AA:</span></b><span lang="EN-GB" style="color: #222222;"> Perhaps. However, you overlook the dissimilarities, of which there are many. I will be surprised, very surprised, if the <a href="http://en.wikipedia.org/wiki/Muslim_Brotherhood"><span style="color: #2288bb; text-decoration: none;">Egyptian Muslim Brotherhood</span></a> (EMB) ends up walking the Iran 1979-path. The <a href="http://en.wikipedia.org/wiki/Justice_and_Development_Party_(Turkey)"><span style="color: #2288bb; text-decoration: none;">Adalet ve Kalkınma Partisi</span></a>-path appears more likely.</span><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><i><span lang="EN-GB" style="color: #222222;">AA’: Why?</span></i><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">AA:</span></b><span lang="EN-GB" style="color: #222222;"> Well, let us examine the differences between the Iran then and the Egypt today.</span><span style="color: black;"><o:p></o:p></span></span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222;"><u1:p></u1:p></span> </span><br />
<div style="color: #222222; line-height: normal; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><br />
</div><div style="color: #222222; line-height: normal; margin-bottom: 6pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: black;">Power Structure</span></b><span lang="EN-GB" style="color: black;"> </span><span style="color: black;">The government’s power in both countries rested not on pillars of internal acceptability but on the fact that both governments (prior to the uprising) were eminently acceptable to the Western political and business elites.</span><span style="color: black;"><o:p></o:p></span></span></div><div style="color: #222222; line-height: normal; margin-bottom: 6pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: black;">In Iran the Shah was an absolute monarch. Not only was he the face of the government but also he was the regime itself. He ensured that in no arm of the government would independent chains on command develop or sustain over sufficiently long periods of time so as to acquire their own independent dynamics.</span><span style="color: black;"><o:p></o:p></span></span></div><u1:p style="line-height: normal;"></u1:p><br />
<div style="color: #222222; text-align: justify;"><span class="Apple-style-span" style="color: black; line-height: 21px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">In Egypt Mubarak was the public face of the government. However ever since 1952 when Nasser (who was then, just a lieutenant-colonel) overthrew the Monarch of Egypt in a coup d'état, the armed forces have been the final guarantors of the stability of the regime’s structure, and thus constitute a formidable second pillar of the regime.</span></span></div><div style="color: #222222; text-align: justify;"><span class="Apple-style-span" style="color: black; line-height: 21px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></span></div><div style="text-align: justify;"><span class="Apple-style-span" style="line-height: 21px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"></span></span><br />
<div style="color: black; margin-bottom: 0.0001pt; margin-left: 0.25in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="line-height: 21px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: black;">KEY POINT:</span></b><span lang="EN-GB" style="color: black;"> <i>Iran 1979 uprooted an entire regime. Egypt 2011 has shaken one pillar of governance but the other pillar remains strong as ever</i>.</span><span style="color: black;"><o:p></o:p></span></span></span></div><span class="Apple-style-span" style="line-height: 21px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><u1:p></u1:p> </span></span><br />
<div style="color: black; margin-bottom: 6pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="line-height: 21px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #222222;"><br />
</span><b><span lang="EN-GB" style="color: #222222;">Fulcrum of Revolution</span></b><span lang="EN-GB" style="color: #222222;"> The fulcrum of the Iranian revolution, particularly, that of violent demonstrations that began in October 1977, was the clerics.</span><span style="color: black;"><o:p></o:p></span></span></span></div><span class="Apple-style-span" style="line-height: 21px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><u1:p></u1:p> </span></span><br />
<div style="color: black; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span" style="line-height: 21px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-GB" style="color: #222222;">The EMB, despite its status as a banned organization enjoys widespread popularity in Egypt. The initial group of protesters however appear to have spontaneously taken to the streets - taking cue from the successful deposition of <a href="http://en.wikipedia.org/wiki/Zine_El_Abidine_Ben_Ali"><span style="color: #2288bb;">Zine ElAbidine Ben Ali</span></a> in neighbouring Tunisia following (largely) bloodless protests. The EMB has so far maintained a low profile and it appears that while the armed forces did not plan for the its tussle with Mubarak on the issue of the latter's succession to pay out in the manner it did, they are likely to have had channelized (and calibrated) the spontaneous outpouring of anger against Mubarak to defeat his plans for dynastic succession.</span><span style="color: black;"><o:p></o:p></span></span></span></div><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 21px;"><u1:p></u1:p></span> </span></span><br />
<div style="color: black; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0.25in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #222222;"> <br />
</span><b><span lang="EN-GB" style="color: #222222;">KEY POINT:</span></b><span lang="EN-GB" style="color: #222222;"> <i>Islamists played a crucial role throughout various stages of the Iranian revolution. In Egypt 2011 the Islamists have never been at the center stage. Instead, the armed forces appear to have been successful in calibrating the protests. </i></span><span style="color: black;"><o:p></o:p></span></span></span></div><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 21px;"><u1:p></u1:p></span> </span></span><br />
<div style="color: black; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></span></div><div style="color: black; line-height: 21px; margin-bottom: 6pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">Opposition to the Islamist Agenda</span></b><span lang="EN-GB" style="color: #222222;"> In Iran the only force that opposed the Islamists was the widely disliked<span class="apple-converted-space"> </span>Shah. The masses, including those that were secular, saw in the Ayatollah a moral authority that stood in sharp contrast with what they considered was the decadent authority of the Shah.</span><span style="color: black;"><o:p></o:p></span></span></span></div><div style="color: black; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-GB" style="color: #222222;">In Egypt the armed forces are the ultimate guardians of regime stability and are held in high esteem by a broad cross-section of the protesters. The top echelons of the armed forces are sharply critical of EMB’s agenda and have been in sync with Mubarak and the Egyptian General Intelligence Directorate’s views and methods to suppress its activities. EMB thus not only faces a formidable and yet, untarnished force, any attempt to strike at this pillar of regime stability would split the protest movement - pitting those who protested only in the cause of democracy or merely out of a dislike for Mubarak (of which, there appear to be plenty) against those whose goal is to establish a theocracy and, confusing those who want both. In the process what EMB runs high risk of losing is the closure of an opportunity </span><span style="color: blue;">[1]</span><span style="color: #222222;"> that has opened up for the first time in 30 years. These facts, the high probability of failure and the high cost of failure impose a natural limit on how much EMB can co-opt the protests to its own agenda.</span><span style="color: black;"><o:p></o:p></span></span></span></div><div style="color: black; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #222222;"><br />
</span></span></span></div><div style="line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"></div><div style="color: #222222; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0.25in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">KEY POINT:</span></b><span lang="EN-GB" style="color: #222222;"> <i>Islamists not only faced no opposition during the Iranian Revolution </i></span><span lang="EN-GB" style="color: blue;">[2]</span><i><span style="color: #222222;">, but also had </span></i><i><span lang="EN-GB" style="color: #222222;">even the secularists mesmerized with their moral authority. In Egypt 2011 the armed forces who continue to command the respect of a wide cross-section of Egyptians remain firmly opposed to EMB’s agenda. </span></i><span style="color: black;"><o:p></o:p></span></span></span></div><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222; line-height: 21px;"><u1:p></u1:p></span> </span></span><br />
<div style="color: #222222; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></span></div><div style="color: #222222; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">Economic Conditions</span></b><span lang="EN-GB" style="color: #222222;"> The economic conditions in the Egypt of today are very different from those in the Iran of 1979. Now that is hardly a useful statement. Let us elaborate - with numbers. </span><span style="color: black;"><o:p></o:p></span></span></span></div><div style="color: #222222; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: black;"><o:p><br />
</o:p></span></span></span></div><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="color: #222222; line-height: 21px; margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDkgwwMbbYlbpujVSZotoGAa0nEk9i1gKlJzq50uJ2xp6NJim-jLU0QLaXAlS4PbNRxgYYBqE6gB5B_mIn3i8QMbtkAfMuV7FEi4lqT6gbWPtF4EBcfc3OL_6cUVwybl5J2sqU8GsTCkV8/s1600/Egypt2011_Iran1979_EconomicComparison.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDkgwwMbbYlbpujVSZotoGAa0nEk9i1gKlJzq50uJ2xp6NJim-jLU0QLaXAlS4PbNRxgYYBqE6gB5B_mIn3i8QMbtkAfMuV7FEi4lqT6gbWPtF4EBcfc3OL_6cUVwybl5J2sqU8GsTCkV8/s400/Egypt2011_Iran1979_EconomicComparison.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span class="Apple-style-span" style="font-size: small;"><b><span style="line-height: 115%;">Table 1:</span></b><span style="line-height: 115%;"> Economic Comparison: Egypt 2011 and Iran 1979</span></span></td></tr>
</tbody></table><div style="color: #222222; line-height: 21px;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></span></div><div align="center" style="color: #222222; line-height: 21px;"></div><div style="color: #222222; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-GB" style="color: #222222;">The differences in economic conditions result in differences in international economic linkages and domestic patronage structures. These in turn mean that unrest in Egypt cannot pave way for an Iran 1979-style revolution. Let us see why.</span><span style="color: black;"><o:p></o:p></span></span></span></div><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222; line-height: 21px;"><u1:p></u1:p></span> </span></span><br />
<div style="color: #222222; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></span></div><div style="color: #222222; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0.25in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">A.</span></b><span lang="EN-GB" style="color: #222222;"> </span><b><span lang="EN-GB" style="color: #222222;">External Dependence</span></b><span style="color: black;"><o:p></o:p></span></span></span></div><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222; line-height: 21px;"><u1:p></u1:p></span> </span></span><br />
<div style="color: #222222; line-height: 21px; margin-bottom: 6pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-GB" style="color: #222222;">In the year following the Yom-Kippur war energy exports reached 88% of the total foreign exchange earnings, the sale of oil and natural gas accounted for 84% of government revenues and its production accounted for 51% of Iran's GDP. Energy in its most fungible form - oil and natural gas - is perhaps the third most ideology neutral of any export </span><span class="Apple-style-span" style="color: blue;">[3]</span><span lang="EN-GB" style="color: #222222;"> for which even the most isolated regimes in the world can get ready buyers. The second fact that stands out about Iran is the near </span><span style="color: #222222;">complete absence of the need for foreign financial capital throughout the 1970s.</span></span></span></div><div style="margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-GB" style="color: #222222; line-height: 21px;">Egypt in contrast is a net energy importer. Tourism earnings, its largest single source of foreign exchange, will plummet (and stay down) should the world fear a repeat of Iran 1979. (In comparative terms) Egypt has a significant and growing reliance on foreign sources of financial capital</span><span lang="EN-GB" style="color: #222222;"><span class="Apple-style-span" style="line-height: 21px;">. External economic dependence will have a moderating affect on EMB's agenda. Moreover, given that frustration with economic hardships has been a significant force behind the Egyptian protests, if EMB does attain power, it will not be without the population having already defined the relationship between the ruler and ruled - this will include a significant economic component as well. The Iranian revolutionaries could leave the economy on auto-pilot and focus on consolidating their relationship with the ruled on purely theological and moral grounds. EMB cannot do that; the different economic conditions in Egypt guarantee that.</span></span></span></span><br />
<span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-GB" style="color: #222222;"><span class="Apple-style-span" style="line-height: 21px;"><br />
</span></span></span></span></div><div style="line-height: 21px; margin-bottom: 0in; margin-left: 0.25in; margin-right: 0in; margin-top: 0in; text-align: justify;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">KEY POINT:</span></b><span lang="EN-GB" style="color: #222222;"> <i>The economic structure in Iran allowed the revolutionaries to ignore the economic impact of potential diplomatic isolation. Egypt is not a rentier state, its principal sources of foreign exchange will not weather diplomatic isolation, action by the credit ratings agencies will cause economic contraction, rise in cost of capital and significant food and fuel price inflation. Economic hardship and not morality grounded in religious thought was the primary trigger of Egyptian protests. Thus EMB cannot afford the economic consequences of full expression of its ideology.</i></span><span style="color: black;"><o:p></o:p></span></span></span></div><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 21px;"><u1:p></u1:p></span> </span></span><br />
<div style="margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><div style="line-height: 21px;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
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<div style="color: #222222; line-height: 21px; margin-bottom: 0.0001pt; margin-left: 0.25in; margin-right: 0in; margin-top: 0in; text-align: justify;"><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b><span lang="EN-GB" style="color: #222222;">B.</span></b><span lang="EN-GB" style="color: #222222;"> </span><b><span lang="EN-GB" style="color: #222222;">Patronage Structure</span></b><span style="color: black;"><o:p></o:p></span></span></span></span></span></div></div><div style="line-height: normal; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222; line-height: 21px;"><u1:p></u1:p></span></span></span></span></span></div><div style="margin-bottom: 6pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #222222; line-height: 21px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-GB" style="color: #222222;">Oil allowed the Shah to rule without having to deal with his subjects. Having been hardly taxed, people could not complain about the Shah's economic policies. This removed the possibility of emergence of class-based groups opposed to the Shah. It however had the unintended effect of the state losing its tax extraction capabilities. Tax extraction mechanisms shed light on the relative productiveness of various sectors and regions. Without such information connections and patronage earned through visible demonstration of loyalty and respect of the pecking order become the driving force </span></span></span><span class="Apple-style-span" style="color: #222222;"><span class="Apple-style-span" style="line-height: 21px;">of the economic system</span></span><span lang="EN-GB" style="color: #222222;"><span class="Apple-style-span" style="line-height: 21px;">. The Shah however, perhaps on account of his personal proclivity to micromanage kept the formal patronage system small. The energy sector at its peak accounted for over 50% of Iran's GDP but involved only 0.6% of the labor force. The white revolution in the 1960s disrupted the rural economy and de-emphasized the role of agriculture. This, along with the Shah's economic vision caused rapid urbanization. However these people could not find place in the formal system. Instead, SMEs </span></span><span class="Apple-style-span" style="color: blue; line-height: 21px;">[4]</span><span lang="EN-GB" style="color: #222222;"><span class="Apple-style-span" style="line-height: 21px;"> rapidly grew in number (not in size). Those that enjoyed the Shah's patronage preferred the opacity of this system as it allowed them to maximally extract the only capital they controlled - human labor. All in all, Iran enjoyed spectacular economic growth for over a decade. However the Shah's power base remained thin as ever. If I might exaggerate a bit here - no one other than foreign firms had a stake in the Shah's success. When matters came head-on, there were no counter-protests against the revolutionaries. No one felt (s)he had anything to defend.</span></span></span></span></div></div><div style="margin-bottom: 0.0001pt; margin-left: 0in; margin-right: 0in; margin-top: 0in; text-align: justify;"><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-GB" style="color: #222222;"><span class="Apple-style-span" style="line-height: 21px;">Egyptian economy is diverse - tourism, manufacturing, agriculture, mining, logistics, textile, telecommunications are all important sectors of the economy. While nepotism has caused economic inefficiency and given rise to public frustration, those that have benefited from such a system form a large constituency - they belong to the many tens of millions of Egyptians who have not joined the protests. I would not be surprised if this group that remains silent today rise in defense of the regime (not necessarily, Mubarak) if push comes to the shove.</span></span></span></span></span></span></div><div style="line-height: normal; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-GB" style="color: #222222;"><span class="Apple-style-span" style="line-height: 21px;"><br />
</span></span></span></span></span></span></div></div><div style="margin-bottom: 0in; margin-left: 0.25in; margin-right: 0in; margin-top: 0in; text-align: justify;"><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><b style="line-height: 21px;"><span lang="EN-GB" style="color: #222222;">KEY POINT:</span></b><span lang="EN-GB" style="color: #222222;"><span class="Apple-style-span" style="line-height: 21px;"> </span><i><span class="Apple-style-span" style="line-height: 21px;">The Iranian revolutionaries did not have to face counter-protests as the Shah's thin patronage structure guaranteed the removal of ordinary Iranians from amongst those that had stake in the system. In Egypt tens of millions of people have benefited from the system that Mubarak presided over. EMB is well aware that an attempt at radical pursuit of its agenda will end up conveying the impression that it seeks to not only remove the now-despised public faces of the regime but seeks to overturn the regime itself. In that event, it would have to face the ire of counter-protesters.</span></i></span></span></span></span></span></div></div><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: normal;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 21px;"><u1:p></u1:p></span></span></span></span></span><br />
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<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;"><span style="color: black;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"> </span></span><br />
<hr align="left" size="1" width="33%" /><span style="color: black;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"> </span></span></div><div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span style="background-attachment: initial; background-clip: initial; background-color: white; background-image: initial; background-origin: initial; color: blue;">[1]</span><span style="color: black;"> the opportunity to translate widespread though latent support amongst the populace into a legitimate political force</span></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span style="color: black;"></span></span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;"><span style="background-attachment: initial; background-clip: initial; background-color: white; background-image: initial; background-origin: initial; color: blue;">[2]</span><span style="color: black;"> except from the Shah who they sought to depose</span></span></div><div style="margin-bottom: .0001pt; margin: 0in;"><div style="margin-bottom: .0001pt; margin: 0in;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;"><span style="color: black;"></span></span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;"><span class="apple-style-span">[3]</span><span class="apple-style-span"><span style="color: black;"> the first two being</span></span><span class="apple-converted-space"><span style="color: black;"> </span></span><span class="apple-style-span"><span style="color: black;"><a href="http://en.wikipedia.org/wiki/Weapon_of_mass_destruction"><span style="text-decoration: none;">WMDs</span></a></span></span><span class="apple-converted-space"><span style="color: black;"> </span></span><span class="apple-style-span"><span style="color: black;">and</span></span><span class="apple-converted-space"><span style="color: black;"> </span></span><span class="apple-style-span"><span style="color: black;"><span style="text-decoration: none;"><a href="http://en.wikipedia.org/wiki/Yellowcake">yellow cake</a></span></span></span></span><br />
<span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;"><span class="apple-style-span"><span style="color: black;"><span style="text-decoration: none;"><a href="http://en.wikipedia.org/wiki/Yellowcake"></a></span></span></span></span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;"><span class="apple-style-span">[4]</span></span><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;"><span class="apple-style-span"><span style="color: black;"> small to medium enterprises that employ 5 - 50 people</span></span></span></div></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> <u1:p></u1:p></span></div></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-20736532001120428762011-02-01T17:09:00.001+00:002011-02-19T14:52:49.202+00:00A Short Note on Egypt and Democracy<div dir="ltr" style="text-align: left;" trbidi="on"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">The <a href="http://data.worldbank.org/data-catalog">World Bank</a> says India' population in 2009 touched 1.16bn. A question for Dr. Manmohan Singh - what does it feel to lead a billion people?</span><br />
<div dir="ltr" id="idOWAReplyText28905"><div dir="ltr" style="text-align: justify;"><span style="color: black; font-family: 'Courier New', Courier, monospace;"><br />
</span></div><div dir="ltr" style="text-align: justify;"><span style="color: black; font-family: 'Courier New', Courier, monospace;">Yours, learning about Egypt analyst,</span></div><div dir="ltr" style="text-align: justify;"><span style="color: black; font-family: 'Courier New', Courier, monospace;"><br />
</span></div><div dir="ltr" style="text-align: justify;"><span style="color: black; font-family: 'Courier New', Courier, monospace;">AA</span></div><div dir="ltr" style="text-align: justify;"><span style="color: black;"><span style="font-family: Arial;"><br />
</span></span></div><div dir="ltr" style="text-align: justify;"><span style="color: black;"><span style="font-family: Arial;">First some numbers: these were sampled from a survey by <a href="http://pewglobal.org/2010/12/02/muslims-around-the-world-divided-on-hamas-and-hezbollah/">Pew Research Center</a> released on December 2, 2010. Pakistan or Turkey? - which country does Egypt appear closer to in its proclivity for a liberal democracy?</span></span><br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTYHeI-VFho6bAyjW72WBTkggOZNPkCO5Lg4LdRo1cEDfeyaahhrmwSsRL3WBAOhPjj7Mnxd-kHroa9sxf3qDIQdCTCs-CYO1dg-bgTtzx2MbbfAkj51VmU-1KHS708jfwemj-9hUkOSpa/s1600/PewResearchCenter_Islam_Survey_20100212.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="79" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTYHeI-VFho6bAyjW72WBTkggOZNPkCO5Lg4LdRo1cEDfeyaahhrmwSsRL3WBAOhPjj7Mnxd-kHroa9sxf3qDIQdCTCs-CYO1dg-bgTtzx2MbbfAkj51VmU-1KHS708jfwemj-9hUkOSpa/s400/PewResearchCenter_Islam_Survey_20100212.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Source: Pew Research Center (click the picture for a larger image)</td></tr>
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<div class="MsoNormal" style="margin-bottom: 0in; text-align: justify;"><div style="line-height: normal;"><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: medium;"></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="color: black; font-family: Arial, sans-serif;">My thoughts on this matter were triggered by an <a href="http://www.foreignpolicy.com/articles/2011/01/28/pharaohs_end?page=0"><span style="color: blue;">article</span></a> by Hamid Shadi for FP which ends with:</span><span style="color: black; font-family: 'Times New Roman', serif;"><o:p></o:p></span></span></div><div style="line-height: normal;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> </span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="color: black; font-family: Verdana, sans-serif;">"Of course, a major question remains: <i>does the United States, in fact, want real democracy in Egypt</i>?<i> </i>Or would it prefer that the current regime -- perhaps after agreeing to reforms -- somehow stay in power?"</span><span style="color: black; font-family: 'Times New Roman', serif;"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="color: black; font-family: Arial, sans-serif;">I do not think Shadi has got it right.</span><span style="color: black; font-family: 'Times New Roman', serif;"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="color: black; font-family: Arial, sans-serif;">First, the protests in Egypt are not against the regime but the public face of the regime - Hosni Mubarak. The regime comprises senior armed forces personnel and the armed forces remain a widely respected institution. From the patterns of the protests and of the reaction of the protagonists to those protests it appears that the regime has used the events in Tunisia to ensure clear success in their plan for a change of guards. Scheduled to be played out during the Presidential elections in September this year, the tussle between the armed forces and Hosni Mubarak on the latter's succession is now being played out in the streets of major cities in Egypt. Genuine grievances are a powerful force. They are being channelized to put to rest Mubarak's </span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">succession </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="color: black; font-family: Arial, sans-serif;">plans </span><span style="color: blue; font-family: Arial, sans-serif;">[1]</span><span style="color: black; font-family: Arial, sans-serif;">.</span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="color: black; font-family: Arial, sans-serif;">As for Shadi's question that I have italicized for emphasis, I think the US has answered it. This is how I see it:</span><span style="color: black; font-family: 'Times New Roman', serif;"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif; line-height: normal;"><span style="color: black; font-family: Arial, sans-serif;">In the state of general equilibrium, a 'true democracy' would reflect the will of the people. Political power in Egypt today rests with two groups - the West-supported elites and Islamists </span><span style="color: blue; font-family: Arial, sans-serif;">[2]</span><span style="color: black; font-family: Arial, sans-serif;">. </span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">At another time in the past the Arab nationalists and the Arab socialists were a powerful force in the Egyptian society. However due to natural societal proclivities in Egypt, </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">the success of the American policy in the region and </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">the fact that boundaries in the region were drawn by extra-regional powers not with historical legitimacy in mind but with the goal to re-anchor the European balance of power in the wake of precipitous decline of the Ottoman empire,</span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">legitimate opposition was gradually pushed towards the Islamists.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="color: black; font-family: Arial, sans-serif; line-height: normal;">People such as <a href="http://nobelprize.org/nobel_prizes/peace/laureates/2005/elbaradei-bio.html" style="color: blue;">Dr. Mohamed ElBaradei</a> receive generous coverage in the English press. However they are considered by Egyptians as a paratrooper </span><span style="color: blue; font-family: Arial, sans-serif; line-height: normal;">[3]</span><span style="color: black; font-family: Arial, sans-serif;"> who will get sidelined or perhaps, given time and a chance at the helm, will develop no different from the tight-fisted rulers that four generations of Egyptians have become accustomed to. The chance of the former occurring is far higher as they lacks </span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif; line-height: normal;">the street-survival skills that Mubarak had finessed or the Islamists possesses </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="color: blue; font-family: Arial, sans-serif;">[4]</span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">.</span><br />
<span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="Apple-style-span" style="line-height: normal;"></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="color: black; font-family: Arial, sans-serif;">Thus the only natural equilibrium conditioned on 'true democracy' is a rule wherein Islamists gain a significant share of power. It will be a democracy in the sense that it expresses the desire of the average citizen but will not carry any of the hallmarks of liberal democracies </span><span style="color: blue; font-family: Arial, sans-serif;">[5]</span><span style="color: black; font-family: Arial, sans-serif;">. </span><span style="color: black; font-family: 'Times New Roman', serif;"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="color: black; font-family: Arial, sans-serif; line-height: normal;">Over the medium-term, an Islamist democracy in Egypt will give fillip to calls for its emulation in the broader Arab world. This will unhinge the current anchors of stability of sovereign boundaries and energy flows from the region and cause a redirection of people's anger in Egypt from local rulers to those that lead in the US, the UK and France. Russia will be presented a smörgåsbord of geopolitical choices. While Russia is unlikely to have an appetite for grand strategies in the region </span><span style="color: blue; font-family: Arial, sans-serif; line-height: normal;">[6]</span><span style="color: black; font-family: Arial, sans-serif;">, it will act on opportunities for re-establishing a strong naval presence in the Mediterranean sea. </span><span style="color: black; font-family: 'Times New Roman', serif; line-height: normal;"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Thus, I do not think the US has an appetite for real democracy in Egypt (or, in other key Arab states - </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Morocco, </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Jordan or Saudi Arabia). It will however continue to push for what Shadi refers to as 'real democracy' in Lebanon, Libya, Syria and Yemen.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: medium;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: medium;"><br />
</span></div></div></div></div><div dir="ltr"><div dir="ltr" id="idOWAReplyText37339"><div dir="ltr" style="text-align: justify;"><span style="font-family: Arial;"></span></div><div dir="ltr" style="text-align: justify;"><div><hr align="left" size="1" style="font-family: Arial;" width="33%" /><div id="ftn1"><div class="MsoFootnoteText" style="text-align: justify;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span"><span class="MsoFootnoteReference"><span lang="EN-GB"><span class="MsoFootnoteReference"><span lang="EN-GB" style="line-height: normal;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[1]</span></span></span></span></span></span><span class="Apple-style-span"><span lang="EN-GB"> </span></span>passing the mantle to his son - <a href="http://en.wikipedia.org/wiki/Gamal_Mubarak">Gamal Mubarak</a></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><a href="http://en.wikipedia.org/wiki/Gamal_Mubarak"></a><span class="MsoFootnoteReference"><span lang="EN-GB"><span class="MsoFootnoteReference"><span lang="EN-GB" style="line-height: normal;"><span class="Apple-style-span" style="color: blue;">[2]</span></span></span></span></span><span lang="EN-GB"> </span>An Islamist is a believer in Islamism which I define as <span class="Apple-style-span" style="color: #222222; line-height: normal;">the political philosophy based on the axioms that a shared Muslim identity transcends all other forms of societal divisions, that the problems in Muslim societies are caused by an incomplete adherence to Islamic tenets and that such problems can only be resolved through a committed projection of religion into the political sphere.</span></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: #222222; line-height: normal;"></span></span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace; line-height: normal;"><span class="MsoFootnoteReference"><span lang="EN-GB"><span class="MsoFootnoteReference"><span lang="EN-GB" style="line-height: normal;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace;">[3]</span></span></span></span></span><span lang="EN-GB"> </span>they lack grassroot support</span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace; line-height: normal;"><span class="Apple-style-span" style="line-height: normal;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace; line-height: normal;">[4] </span><span class="Apple-style-span" style="line-height: normal;">paradrop is easy, mission accomplished is not </span></span></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace; line-height: normal;"></span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue; font-family: 'Courier New', Courier, monospace; line-height: normal;">[5] </span><span class="Apple-style-span" style="line-height: normal;">No, I am not thinking that liberal democracies can spring overnight in the region. However, if a reasonably democratic state is established once the dust settles, I think over time it will be forced increasingly frequently into choices where the only alternative to the use of force will be to watch a creeping takeover of the state by those who believe in democracy only insofar as it enables a takeover of the system.</span></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue; line-height: normal;">[6] </span><span class="Apple-style-span" style="color: #222222;">Building closer ties with Germany, </span></span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: #222222;">the </span>Caucasus and </span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: #222222;">tightening its grip over energy routes that go to Europe from the former Soviet states </span><span class="Apple-style-span" style="color: #222222;">will keep Russia occupied for the next decade.</span></span></div></div></div></div></div></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com1tag:blogger.com,1999:blog-4744702633253369487.post-5916220851125067352011-01-06T17:34:00.000+00:002011-01-08T22:07:13.557+00:00Serbia’s Core - Kosovo: Part II: Towards a Unified Jugoslavija<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;"><span style="font-family: 'Courier New'; font-size: 12pt;">Welcome back. This post is in continuation of a multi-part series on understanding Serbia on the matter of Kosovo. While Kosovo lies at the heart of Serbian nationalism, it is irrelevant to understanding the forces behind Serbia’s expansion in the first half of the 20<sup>th</sup> century or the drivers behind secession in its parent state – Yugoslavia.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;"><span style="font-family: 'Courier New'; font-size: 12pt;">In this part, we analyze the factors underlying the emergence of Yugoslavia as a unified state following WWI. If you already anticipate you will like this post then you might want to first read Part I of the series. Cliquez <a href="http://geoeconviews.blogspot.com/2011/01/serbias-core-kosovo.html">ici</a>! <o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-family: 'Courier New'; font-size: 12pt;">Yours, looking forward to weekend fun Analyst,<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-family: 'Courier New'; font-size: 12pt;">AA<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><b style="mso-bidi-font-weight: normal;"><span style="color: #595959; font-family: Arial, sans-serif; font-size: 18pt; text-transform: uppercase;">Part II: Towards a Unified Jugoslavija</span></b><span style="font-family: Arial, sans-serif; font-size: 12pt; text-transform: uppercase;"><o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; text-align: justify;"><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">1. On Borders<o:p></o:p></span></b></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Certain borders are more natural than others. Australia is marked by its geographical frontiers, the borders of Japan coincide with those of an ethno-linguistic and culturally homogenous group, the border between the two Koreas is the direct result of ideological competition between superpowers on a foreign land and the border between Malaysia and Indonesia in </span><a href="http://en.wikipedia.org/wiki/Borneo"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Borneo</span></a><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> arose out of the split between the suzerainty of the British and Dutch empires over the island.</span><span style="font-family: Arial, sans-serif;"> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">How about Yugoslavia </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[1]</span></span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">?<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
<b><span style="font-family: Arial, sans-serif; font-size: 12pt;">2. The Establishment of Jugoslavija</span></b><br />
<b><span style="font-family: Arial, sans-serif; font-size: 12pt;"><br />
</span></b></div><div class="MsoNormal" style="margin-bottom: 6pt; text-align: justify;"><b style="line-height: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">2.1. First, the <o:p></o:p></span></b><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><b>Divisions</b></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Serbia descends from Yugoslavia, a state proclaimed on Dec 1, 1918.</span><span style="font-family: Arial, sans-serif;"> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Yugoslavia did not have natural geographical frontiers </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[2]</span></span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">.</span><span style="font-family: Arial, sans-serif;"> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">It did not have a common religion </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[3]</span></span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">. </span><span style="font-family: Arial, sans-serif;"> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Worse yet, it had a long history of rulers who reengineered suitable demographics through forced religious conversions, through governance that encouraged conversion for gain and through forced migration and resettlement of peoples based on their religious affiliations.</span><span style="font-family: Arial, sans-serif;"> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">While Yugoslavs were mainly Slavic, they did not share a common history as different groups amongst them were dominated for several centuries by different and a shifting mix of foreign powers.</span><span style="font-family: Arial, sans-serif;"> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">The cultural similarity amongst its principal groups was weakened by religious differences and the nature of foreign domination.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; text-align: justify;"><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">2.2. What Brought Jugoslavija Together?<o:p></o:p></span></b></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Jugoslavija came into existence through the efforts of the Serb and Croat nationalists. Let us see how.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In the Serbian language ‘jugo’ means ‘south’ and ‘slavija’ means the ‘land of the Slavs’. The peoples of Jugoslavija shared a common ethnicity. They spoke the same language. In fact, the standardized versions of Serbian of Serbia, Croatian of Croatia and Bosnian of Bosnia and Herzegovina are mutually intelligible.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; text-align: justify; text-indent: .5in;"><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">2.2.1. The Serbian Factor<o:p></o:p></span></b></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Having spent four centuries under Ottoman domination, Serbia spent the better part of the 19<sup>th</sup> century fighting for full independence. Its independence was finally recognized in 1878 at the <a href="http://en.wikipedia.org/wiki/Congress_of_Berlin"><span style="text-decoration: none;">Congress of Berlin</span></a> as part of a larger plan by the German and British empires to deal a blow to the strengthening pan-Slavic movement in the Balkans and south central Europe through reorganization of the Balkans.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Serbian nationalists however did not see independence as a mission accomplished but as part of a living, breathing, organic phenomenon. There were two main reasons for this view: first, many territories where ethnic Serbs constituted a significant portion of the population still remained under foreign rule. Second, many influential Serb nationalists felt that not only those that were widely recognized as Serbs but all southern Slavs were one people that stood divided only because of centuries of foreign domination. This thought provided the intellectual foundations for <a href="http://en.wikipedia.org/wiki/Romantic_nationalism"><span style="text-decoration: none;">romantic nationalism</span></a> based on a pan-Serbian identity. The idea of Serbia thus extended far beyond the geographic boundaries decided at the Congress of Berlin. <o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; text-align: justify; text-indent: .5in;"><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">2.2.2. The Croat Factor<o:p></o:p></span></b></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Croatia spent eight centuries under foreign domination before gaining independence following the dissolution of the Austro-Hungarian Empire in Oct 1918. However the goal of the Croat nationalists was bigger - they wanted to gain control of territories that were once part of an independent Croatia (eight centuries back!). More practical was however a fear of falling back into Austro-Hungarian dominance or alternatively, becoming a backyard within the sphere of Russian influence. Serbian nationalists also feared that the revolving door of Balkan power play might reclaim whatever 'little' that the Congress of Berlin had yielded under Russian pressure.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;">United in their fears and the notion that the south Slavic people are ‘one’, nationalists in both countries (and Slovenia) reached a consensus that independence could only be sustained by amalgamating their territories into a single homeland for the southern Slavs.</span><span style="font-family: Arial, sans-serif;"> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Thus, Jugoslavija was born.</span><span style="font-family: Arial, sans-serif;"> </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Those that sought the establishment of Greater Serbia or Greater Croatia drew comfort in the fact that the new entity internalized their search for their respective greater lands and thus, largely insulated that search from the undesirable influence of external powers </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[4]</span></span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; text-align: justify; text-indent: .5in;"><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">2.2.3. The Foundation of the Socialist Federal Republic of Yugoslavia<o:p></o:p></span></b></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;">The notion of unity of the southern Slavs survived the organized mass killings of Serbs by the Ustaše Croatian regime at the Nazi-sanctioned </span><a href="http://en.wikipedia.org/wiki/Jasenovac_concentration_camp" style="font-family: Arial, sans-serif;"><span style="text-decoration: none;">Jasenovac concentration camp</span></a><span class="Apple-style-span" style="font-family: Arial, sans-serif;">.</span><span style="font-family: Arial, sans-serif;"> Following WWII, </span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Yugoslavia was reestablished, though as a federation of six socialist republics (SRs)</span><span class="MsoFootnoteReference"> <span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[5]</span></span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> instead of, as a Kingdom.</span></span></div><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[1]</span></span></span></span><span style="font-family: Arial, sans-serif;"> full name, ‘Kingdom of Yugoslavia’<o:p></o:p></span></div></div><div id="ftn2" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[2]</span></span></span></span><span style="font-family: Arial, sans-serif;"> Yugoslavia did not have natural geographic frontiers except with Romania to its north-west where the Carpathian mountain ranges separated the two.<o:p></o:p></span></div></div><div id="ftn3" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[3]</span></span></span></span><span style="font-family: Arial, sans-serif;"> The peoples of Yugoslavia were mainly adherents to the Orthodox Church of Serbia, the Roman Catholic Church and Islam (the Bektashi order or the Sunni order).<o:p></o:p></span></div></div><div id="ftn4" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[4]</span></span></span></span><span style="font-family: Arial, sans-serif;"> Austria and Hungary were particularly hostile to the notions of Greater Serbia or Greater Croatia. Only military defeats, declining power and Russian pressure guaranteed the Ottoman Empire’s acceptance of Serbia’s independence. The British and German empires were against these notions as they viewed them as instruments for unchecked expansion of Russian influence in the Balkans. Russia viewed romantic nationalism of Serbia or Croatia as narrow and thus, an impediment to its own goal of reviving the more inclusive, pan-Slavic nationalism in the Balkans and south central Europe.<o:p></o:p></span></div></div><div id="ftn5" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 10pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[5]</span></span></span></span><span style="font-family: Arial, sans-serif;"> Bosnia & Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia<o:p></o:p></span></div></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-6018812468143221952011-01-04T23:26:00.000+00:002011-01-06T17:34:06.444+00:00Serbia’s Core - Kosovo: Part I: The Games of Our Days<span class="Apple-style-span" style="color: #444444; font-family: Arial, sans-serif; font-size: large;"><span class="Apple-style-span" style="color: black; font-size: small;"></span></span><br />
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Welcome back and wish you all a happy and purposeful 2011.</span><br />
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"></span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">We shall continue with the practice of starting off with what I think are interesting diversions before heading to the subject matter of the post.</span><br />
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"></span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Germany's growth and industrial power was supported over the (nearly) past two decades by the twin engines of American appetite for consumption and credit-led growth in parts of Europe where productivity growth did not match rise in real-income. That granted Germany the domestic political space and gave it the financial muscles needed to continue to champion pan-EU institutions and, in large measure, finance EU's expansion while overlooking the the many unsustainable budgetary trends and destabilizing increase in private credit in many EU states. The German appetite for continuing as the main financier of the EU will significantly decrease, both, as a result of internal politics and, as a result of the new global environment that will not be economically benign towards nations that have a heavy reliance on an export-led model. Besides, the growing entente between Germany and Russia reduces the motive of Germany to make, what it perceives, are unilateral concessions towards the EU. In the context of these trends, I have two questions for those at the helm of the affairs of Poland:</span><br />
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">1. Will Poland accept the institutionalization within the EU of measures such as the recent ones taken with regards to Ireland that substantially reduced the latter's sovereign right of control over its own budgetary and taxation processes?</span><br />
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">2. Nations, unlike other expressions of shared destiny, have to survive in the long-run which makes it imperative for them to plan for the worst case. Historically speaking, periods of German and Russian entente have been tragic for Poland, just have been the years of animosty between the two. If EU works out for Poland as Poland hopes has hoped then, Poland's participation in the EU would guarantee its strategic security. What options is Poland creating for its strategic security during these times of extraordinary peace and economic growth in Poland even as it continues to deepen its commitment to the EU?</span><br />
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Yours, thinking about Serbia's difficult choices in the new decade analyst,</span><br />
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<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">AA</span></div></div></div><br />
<div><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="color: #444444; font-family: Arial, sans-serif; font-size: large;"><span class="Apple-style-span" style="color: #444444; font-family: 'Times New Roman'; font-size: large;"><b>PART I: THE GAMES OF OUR DAYS</b></span></span></div><div><span class="Apple-style-span" style="color: #444444;"><br />
</span></div></div></div><div style="text-align: justify;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;">Vuk Jeremić has two clear tasks as the Foreign Minister of Serbia - put Serbia on the glide path to EU accession and delay the emergence of Kosovo as a sovereign state </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 12pt; line-height: 115%;">[1]</span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">. While Serbia’s proposals for granting </span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><a href="http://www.media.srbija.gov.rs/medeng/documents/amendments_eng.pdf"><span style="font-family: Arial, sans-serif; font-size: 12pt;">substantial operational autonomy</span></a></span><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> to Kosovo haven’t cut ice, Serbia is happy with the status quo. However the US, Germany and the UK are not. The window of military coercion closed as a result of the adoption of the <a href="http://www.un.org/Docs/scres/1999/sc99.htm">UNSC Resolution 1244</a></span><span style="font-family: Arial, sans-serif; text-decoration: none;"> </span></span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace; font-size: 16px; line-height: 18px;">[2]</span><span class="Apple-style-span" style="font-size: 16px;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;">, the subsequent removal of Slobodan Milošević and the emergence of elite consensus in Serbia on eschewing force in dealing with secessionist elements in Kosovo </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 12pt; line-height: 115%;">[3]</span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">.</span></span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> </span><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As nationalism tempered Serbia’s focus shifted to repairing relations with international institutions and rebuilding its economy; EU accession and access to international markets, multilateral loans and foreign aid became a priority. This in turn created new levers for those wanting to backtrack from their obligation under resolution 1244 to preserve the sovereignty and territorial integrity of Federal Republic of Yugoslavia.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In addition to riding on Serbia’s wants, those countries sought to weaken its resolve by presenting a sovereign Kosovo as a fait accompli. The thinking was that Serbia’s position would become increasingly untenable as more and more UN members recognized Kosovo’s sovereignty. A significant number of member states however </span><a href="http://en.wikipedia.org/wiki/International_recognition_of_Kosovo" style="font-family: Arial, sans-serif;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">remain undecided or are against</span></a><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"> a Kosovo born through unilateral declaration of independence </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 12pt; line-height: 115%;">[4]</span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">. An alternative route is a vote at the much smaller though highly influential, UNSC </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 12pt; line-height: 115%;">[5]</span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">. While the vote will not pass China’s veto </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 12pt; line-height: 115%;">[6]</span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">, it could expose Serbia to an additional parallel channel of pressure to acquiesce to Kosovo’s secession </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 12pt; line-height: 115%;">[7]</span></span></span><span class="Apple-style-span" style="font-family: Arial, sans-serif;">.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In the early 20<sup>th</sup> century the unification drive in the region was shaped by the interplay of the force that sought to establish ‘Greater Serbia’ and that driven by desire of the southern Slavic people to escape the yoke of the Austro-Hungarian or the Turkish empires or the growing influence of the Russian Empire. Over time however changing geopolitical realities eliminated the fear of foreign domination, which in turn ended up highlighting the internal contradictions in the communist state of Yugoslavia and lead to increasing centrifugal tendencies since the 1960s (see Map 1), of which the Kosovo case may be viewed as the latest manifestation.<o:p></o:p></span></span><br />
<span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><br />
</span></span><br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGI12z59BqYpWSTiSv3uSGukajS0IhuiL_WNujCgcPj3P7uMgN9kLG1T1uoq0qRcLyrCn-w5FUgPozBXR-A2L02xUND6L99aNdWcL2o3OzCXmFwck3t8RG8vKO3t35LM4gQrbAfEc7wMa1/s1600/Serbia1989%25262008.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="170" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGI12z59BqYpWSTiSv3uSGukajS0IhuiL_WNujCgcPj3P7uMgN9kLG1T1uoq0qRcLyrCn-w5FUgPozBXR-A2L02xUND6L99aNdWcL2o3OzCXmFwck3t8RG8vKO3t35LM4gQrbAfEc7wMa1/s400/Serbia1989%25262008.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: justify;"><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt; line-height: 115%;">Map 1 </span></b><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace; font-size: 16px; line-height: 18px;">[8]</span><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt; line-height: 115%;">: </span></b><span style="font-family: Arial, sans-serif; font-size: 12pt; line-height: 115%;">Fragmentation of Socialist Federal Republic of Yugoslavia: 1989 - SFRY, 2010 - Bosnia & Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia</span></td></tr>
</tbody></table><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><br />
</span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="MsoHyperlink"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><o:p><span style="text-decoration: none;"></span></o:p></span></span></span><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="MsoHyperlink"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><span style="text-decoration: none;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In subsequent posts we will cover:<o:p></o:p></span></span></span></span></span></div><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="MsoHyperlink"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><span style="text-decoration: none;"> </span></span></span></span><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="MsoHyperlink"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><span style="text-decoration: none;"><br />
</span></span></span></span></div><div class="MsoListParagraph" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="MsoHyperlink"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><span style="text-decoration: none;"><span style="font-family: Symbol; font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">factors underlying the emergence of Yugoslavia as a unified state<o:p></o:p></span></span></span></span></span></div><div class="MsoListParagraph" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="MsoHyperlink"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><span style="text-decoration: none;"><span style="font-family: Symbol; font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">emergent secessionist tendencies in the Socialist Federal Republic of Yugoslavia (SFRY) of which Serbia is the successor state,<o:p></o:p></span></span></span></span></span></div><div class="MsoListParagraph" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="MsoHyperlink"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><span style="text-decoration: none;"><span style="font-family: Symbol; font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">changes in the domestic and international status of Kosovo since 1974 and<o:p></o:p></span></span></span></span></span></div><div class="MsoListParagraphCxSpLast" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 27.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="MsoHyperlink"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><span style="text-decoration: none;"><span style="font-family: Symbol; font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"> </span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">the reason why despite agreeing to secession by five other members from its parent state, in spite of the current administrative realities in Kosovo </span></span></span></span></span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace; font-size: 16px; line-height: 18px;">[9]</span><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: 16px;"> and the fact that an overwhelming majority of Kosovars prefer independence, Serbia is against Kosovo’s independence.</span></div><div class="MsoListParagraphCxSpLast" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 27.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><span class="MsoHyperlink"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><span style="text-decoration: none;"><span style="font-family: Arial, sans-serif; font-size: 12pt;"><br />
</span></span></span></span></span></div></div><div class="separator" style="clear: both; text-align: center;"></div><div style="mso-element: footnote-list;"><hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 10pt; line-height: 115%;">[1]</span></span></span><span style="font-family: Arial, sans-serif;"> Had Serbia been guided by the consensus on choice instead of by a consensus on what is feasible, the second goal would have been to prevent, rather than delay, Kosovo’s emergence as a sovereign.<o:p></o:p></span></div></div><div id="ftn2" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 10pt; line-height: 115%;">[2]</span></span></span><span style="font-family: Arial, sans-serif;"> UNSC - United Nations Security Council<o:p></o:p></span></div></div><div id="ftn3" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 10pt; line-height: 115%;">[3]</span></span></span><span style="font-family: Arial, sans-serif;"> Unless a strong expression of Serbian nationalism appears to be associated with the onset of a new spiraling crisis in the Balkans, the military window will likely remain closed.<o:p></o:p></span></div></div><div id="ftn4" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 10pt; line-height: 115%;">[4]</span></span></span><span style="font-family: Arial, sans-serif;"> As of December 31, 2010, 72 of the 192 UN member states have recognized Kosovo’s independence.<o:p></o:p></span></div></div><div id="ftn5" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 10pt; line-height: 115%;">[5]</span></span></span><span style="font-family: Arial, sans-serif;"> Resolutions recommended by a majority of UNSC members carry significant political and moral weight as the Article 5 of the UN Charter requires all UN member states to “<i style="mso-bidi-font-style: normal;">agree to accept and carry out the decisions of the Security Council</i>”.<o:p></o:p></span></div></div><div id="ftn6" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 10pt; line-height: 115%;">[6]</span></span></span><span style="font-family: Arial, sans-serif;"> China is firmly opposed to allowing legitimacy to the idea of unilateral declaration of independence for regions that do not meet the “salt-water colonization” criteria (<i>see the <a href="http://www.un.org/documents/ga/res/15/ares15.htm">UNGA Resolution 1541 (XV)</a></i>).<o:p></o:p></span></div></div><div id="ftn7" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 10pt; line-height: 115%;">[7]</span></span></span><span style="font-family: Arial, sans-serif;"> Kosovo’s last declared independence from Serbia on Feb 17, 2008. This declaration received much wider international support than an earlier declaration on Sep 22, 1991.<o:p></o:p></span></div></div><div id="ftn8" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 10pt; line-height: 115%;">[8]</span></span></span><span style="font-family: Arial, sans-serif;"> credit - Hoshie at <a href="http://commons.wikimedia.org/wiki/User:Hoshie">http://commons.wikimedia.org/wiki/User:Hoshie</a><o:p></o:p></span></div></div><div id="ftn9" style="mso-element: footnote;"><div class="MsoFootnoteText" style="text-align: justify;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New', Courier, monospace; font-size: 10pt; line-height: 115%;">[9]</span></span></span><span style="font-family: Arial, sans-serif;"> Serbia retains almost no control of Kosovo. The territory is administered by international bodies such as the EULEX and the UNMIK, aided in local duties by Kosovar leaders.</span></div></div></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-10478406015619918282010-11-22T01:40:00.000+00:002010-11-26T15:35:21.013+00:00The Origins of Malaysia's Household Debt Levels<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Persian was the lingua franca of the Indian elites for several hundred years until about the early 19th century. Only recently I came to know that Hindi, the most widely understood language in the subcontinent, has numerous rootwords or loanwords from the Persian language - a fact that many Indians are unaware of. Some of these words are mentioned below.</span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><br />
</span><br />
<strong><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Persian Hindi </span></strong><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Anar Anaar <em>pomogranate</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Chaghoo Chaku <em>knife</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Chai Chai <em>tea</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Darya Dariya <em>sea</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Dil Dil h<em>eart</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Doost Dost <i>f</i><em>riend</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Galat Galat <em>wrong</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Hamishe Hamesha <em>forever</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Nan Naan <em>a type of bread</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Paneer Paneer <em>a popular Indian cheese</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Rang Rang <em>color</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Ruz <em>day</em> Roj <em>daily </em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Sabzi Sabji <em>vegetable</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Safed Safed <em>white</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Sakht Sakht <em>hard, tough </em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Shekar Shakkar <em>sugar</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Sust Sust <em>lazy</em></span><br />
<span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">Vilayat Vilayat <em>foreign land</em></span><br />
<br />
<span style="font-family: 'Courier New', Courier, monospace;">This list is just the tip of an iceberg. I am hardly qualified to provide a comprehensive list. Well then, what is the point of this snippet? - I guess it is just the thought that there is more that binds us, that belongs to our common hertiage, than we may know. Now, over to the subject of this post ...</span><br />
<br />
<span style="font-family: 'Courier New', Courier, monospace;">Yours, thinking about the Malaysian banking system Analyst,</span><br />
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<span style="font-family: 'Courier New', Courier, monospace;">AA</span><br />
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<em>Disclaimer:</em> <em>The figures below are approximate. While the general argument stands, I would encourage the use of other sources of statistical data, particularly if you are using it for your professional work.</em><br />
<div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><strong>The Current Household Sector Indebtedness in Malaysia</strong></span><br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><strong></strong></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Consider this - Malaysia's household debt stood at 39% of its GDP in 1997 - the year the Asian Financial Crisis (AFC) hit the Asian Tigers of the 1990s. In Aug-2010 it reached 78% of the Malaysian GDP. 55% of the household sector debt is due to residential mortgages, over 80% of which is financed at a variable rate with (often) a 3-5 year initial fixed rate period. 23% of the household debt and is due to auto loans. The vulnerability of households to interest rate shock is therefore high. And, it continues to rise - there are no regulatory restrictions on the maximum LTV ratio for loans extended to finance the purchase of residential properties in Malaysia except for a guideline that came into force in November 2010 that the LTV ratio for a loan intended to finance the third residential property must not exceed 70% </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">(yes, it is not a typographical error; I mean 'third')</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. Banking system assets in the household sector have grown in locked steps with the growth in household sector debt and today comprise 60% of the total banking system assets against just 33% in the period just prior to the AFC. The argument that retail loans are less risky due to the comparative absence of size concentrations (the Malaysian banking sector certainly thinks so) does not quite hold when taken to the limits - what may not be lost to size concentrations could well be lost to 'policy concentration' </span><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;"><span class="Apple-style-span" style="color: blue;">[1]</span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> and high leverage. </span><strong style="font-family: Arial, Helvetica, sans-serif;">How did Malaysia's household sector become as leveraged?</strong></div><span style="font-family: Arial, Helvetica, sans-serif;"><br />
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<div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><strong>The Tiger Years (1988-'97)</strong></span><span style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">For nearly a decade prior to the AFC, Malaysia’s annual real GDP growth rate clocked 9.5%, several million new jobs were created, credit to private corporations rapidly expanded and in the 10 years, house prices grew by 125%. Export growth was strong. The growth in imports was even stronger as Malaysia sustained a trade deficit in order to build the industrial and transportation infrastructure necessary for its capital intensive growth model. That growth model found a receptive international environment:</span><br />
<ul><li><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">the <a href="http://en.wikipedia.org/wiki/Plaza_Accord">Plaza Accord</a> of 1987 drove Japanese capital overseas, particularly to the emergent, low-cost, resource-rich and geographically proximate countries - Indonesia, Malaysia and Thailand. </span></li>
<li><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The fall in interest rates in the US during the latter part of the Volcker Era which was later sustained through the Greenspan years paved way for outwards investments from the West and,</span></li>
<li><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">the wind down of the <a href="http://en.wikipedia.org/wiki/Latin_American_debt_crisis">Latin American debt crisis</a> in the late 1980s boosted risk appetite amongst American investors.</span></li>
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</span></div></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><strong>Macro Indicators During the AFC</strong></span><br />
<div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><strong></strong></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The AFC of 1997 brought an abrupt end to the extraordinary growth years in East Asia. The visible beginning of the crisis was marked by speculative currency attacks that started with the Thai Baht in May 1997 and spread to the Malaysian Ringgit in July 1997. During the crisis, Malaysia’s GDP growth rate, the KLSE index, its property price index and the MYR/USD rate experienced a peak-to-trough fall of 15%, 53%, 60% and 65% respectively and, the unemployment rate, overnight lending rate and the CPI had a trough-to-peak rise of about 5%, 32% and 22% respectively. The crisis left a profound impact on Malaysia and its inflation-adjusted asset prices have not quite recovered yet to their pre-crisis values. More of interest to us here however is how the AFC contributed to the post-1997 surge in household debt which still continues to outpace the country's nominal GDP growth rate.</span></div><br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><strong>Retail Lending Becomes the New Mantra</strong></span><br />
<div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><strong></strong></span><span style="color: black;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The Malaysian government affected sweeping changes to mitigate the systemic crisis and build the policy foundations of a sustainable recovery. It introduced capital controls, banned offshore trading in the ringgit, established the policy and regulatory infrastructure needed to deepen the local bond markets and spearheaded efforts to diversify the international investor base </span></span><span class="Apple-style-span" style="color: blue;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[2]</span></span><span style="color: black;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. The right policy efforts met with a benign international trade environment - US’s appetite for trade deficits was huge and expanding and the emergence of the </span></span><span style="color: black;"><a href="http://en.wikipedia.org/wiki/Eurozone"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Euro Area</span></a></span><span style="color: black;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> created trade efficiencies and resulted in a surge in consumer demand, particularly in its Southern European member states. Also contributing to the benign external environment was a recovery in global commodity prices in 1999 that helped commodity rich nations such as Indonesia and Malaysia in SE Asia. As a result, the downturn in Malaysia was short-lived. Household savings rate rose to reach back to their pre-crisis figures and retained earnings surged at corporations. Government receipts jumped with rise in taxes. Capital investments fell sharply resulting in a lower need for new issuances of public debt. Rising exports and commodity prices lifted corporate profits and reduced their reliance on government support for recovery. The sharp fall in capital investments, higher commodity prices and the elastic impact of Ringgit devaluation on the demand for imported consumer goods boosted Malaysia’s external reserves position. In short, within less than two years of the worst financial crisis it had faced since independence, Malaysia was ready for a new round of credit expansion.</span></span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
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<span style="color: black;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"></span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The question at the time was then - which sector would offer the most promising long-term potential for credit growth? The emergence of local corporate bond markets lead to disintermediation of the banks from some of the most highly lucrative fee-based transactions. The structural fall in capital investments had further lowered the demand of corporate sector for loans. </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Fiscal consolidation, the short-lived nature of the crisis, large jump in tax receipts and structural fall in capital investments made the government an unlikely growth segment for credit. </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Besides, and perhaps most importantly, the crisis lead to an organic emergence of an industry-wide view in banking that collateralized lending is a poor mitigant for size concentrations. </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Thus, neither the corporate nor the government could be viewed as a growth-segment for credit.</span><br />
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<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Therefore the forces of aversion to exposure concentrations, disintermediation, government policy and a benign international environment coupled with a low base of </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">household sector debt </span><span class="Apple-style-span" style="color: blue;"><span class="Apple-style-span" style="font-family: 'Courier New', Courier, monospace;">[3]</span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> created conditions necessary for rapid expansion of household credit.</span><br />
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<span class="MsoFootnoteReference"><span style="font-family: 'Courier New';"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New'; font-size: 10pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;"><span class="Apple-style-span" style="color: black; font-family: 'Times New Roman'; font-size: small; line-height: normal;"><span style="font-family: 'Courier New';"><span class="apple-style-span"><span style="color: black;"></span></span></span></span>[2]</span></span></span></span></span><span style="font-family: 'Courier New';"> <em><span style="color: black; font-family: 'Courier New'; font-style: normal;">Malaysia’s efforts at diversifying its international investor base have been remarkably successful in this regard.</span></em><span class="apple-style-span"><i><span style="color: black;"> </span></i><span style="color: black;"> From the point of view of understanding the economic consequences of the geopolitical events of September 11, 2001, it is an interesting counter-factual to consider whether Malaysia would have been anywhere nearly as successful without an external trigger for a coordinated and pressing need for investors from the oil-rich Middle Eastern economies to diversify away from US-based assets.</span></span></span><o:p></o:p><br />
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<span style="font-family: 'Courier New';"><span class="apple-style-span"><span class="Apple-style-span" style="font-family: 'Times New Roman';"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New';"><span class="MsoFootnoteReference"><span style="font-family: 'Courier New'; font-size: 10pt; line-height: 14px;"><span class="Apple-style-span" style="color: blue;">[3]</span></span></span></span></span><span style="color: black; font-family: 'Courier New';"> 39% of the GDP around the crisis period</span></span></span></span></div></div></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-21807148158939744352010-08-31T19:26:00.000+01:002010-09-01T16:43:37.759+01:00Kyrgyzstan: The Cameras of June (2010) - Part II<div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="text-transform: uppercase;"><span class="Apple-style-span" style="font-size: 15px; text-transform: none;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">Welcome back to the second part of the three-part series on understanding Russia's options vis-à-vis the June events in Kyrgyzstan. With this part, we complete erecting the fact-framework that is necessary to surge ahead at full steam with the analysis of Russia's options.</span></span></span></div><div style="text-align: left;"><span class="Apple-style-span" style="text-transform: uppercase;"><span class="Apple-style-span" style="font-size: 15px; text-transform: none;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><br />
</span></span></span></div><div style="text-align: left;"><span class="Apple-style-span" style="text-transform: uppercase;"><span class="Apple-style-span" style="font-size: 15px; text-transform: none;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">Glaciers move at the the rate of a few feet or higher per year. This motion occurs due to the effect gravity and thermal energy has on glacial deformation, thermal energy has on relative coefficient of friction, the effect of earthquakes (glaciers can themselves induce earthquakes, for example, when glacial beds have a spatial water-absorption or brittleness differential) and gravity-induced sliding. In a hard to quantify but metaphorically similar manner, the key choices of protagonists in geopolitical games remain the same for a long period of time since those choices are shaped by the key interlocking interests of the main players, the forces of history, the logic of geographic and cultural proximity (or distance), topography, the macroeconomic environment and other factors that tend to change, at a glacial pace. </span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace; font-size: 15px;">The June story has not turned sour yet (aren't you glad for that!). </span></div><div style="text-align: left;"><span class="Apple-style-span" style="text-transform: uppercase;"><span class="Apple-style-span" style="font-size: 15px; text-transform: none;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><br />
</span></span></span></div><div style="text-align: left;"><span class="Apple-style-span" style="text-transform: uppercase;"><span class="Apple-style-span" style="font-size: 15px; text-transform: none;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">Yours, thinking about Malaysia risks-and-opportunities Analyst,</span></span></span></div><div style="text-align: left;"><span class="Apple-style-span" style="text-transform: uppercase;"><span class="Apple-style-span" style="font-size: 15px; text-transform: none;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><br />
</span></span></span></div><div style="text-align: left;"><span class="Apple-style-span" style="text-transform: uppercase;"><span class="Apple-style-span" style="font-size: 15px; text-transform: none;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">AA</span></span></span></div><div style="text-align: left;"><span class="Apple-style-span" style="text-transform: uppercase;"><span class="Apple-style-span" style="font-size: 15px; text-transform: none;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"> </span></span></span></div><b><span style="font-family: Arial, sans-serif; font-size: 14pt; text-transform: uppercase;">PART II - INTEREST OF KEY PLAYERS IN <place w:st="on"><country-region w:st="on">KYRGYZSTAN</country-region></place></span></b><br />
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<div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">This section discusses the interest of key players in Kyrgyzstan. It is however non-trivial to a casual observer who these players are. So, let us identify these first before we head straight to address the title of this section.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Russia belongs right at the top of the list for two reasons - Kyrgyzstan was part of the Soviet Union for seven decades until the latter’s dissolution in 1991 and because Kyrgyzstan became independent not because it fought for, or even chose, it but because the center could not hold. With Russia’s reemergence in the past decade, the logic of geography and historical links are reasserting.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">China shares a 1,100km long border with Kyrgyzstan. It is the second most important foreign player and its influence in Kyrgyzstan, unlike that of Russia, is growing. While several mutual desirables are the cause and reinforcers, China’s influence has three main underpinnings - its interest in acquiring rare earth metals, elite consensus in Kyrgyzstan that favors increasing the extent and diversifying the source of foreign stakeholdership in its economic and security matters, and Russia’s interest in promoting non-Western </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[1]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;"> trade interests in Central Asia.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The US comes third. Its interest in Kyrgyzstan is mainly transactional </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[2]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;"> and therefore even while its influence is substantial at times; it can unexpectedly wane, or wax. This may appear surprising given that US’ principal goal in Central Asia, which is to build the foundations for the emergence and self-sustenance of liberal democracies </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[3]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">, entails a rather long-term endeavor.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Canada, Germany and South Korea have significant mining interests in Kyrgyzstan. Their activities are however those of a profit-seeking agent in a still-nascent industry. While they bring the technical skills and financial capital that are much needed in Kyrgyzstan, there are several other countries that could fill the gap should they leave. As a result, their interest in Kyrgyzstan does not generate a strategic surplus. Therefore we do not further discuss their interests in this paper.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">India is a minor player in Kyrgyzstan. However a substantial rise in its activities in the region will have profound geopolitical implications since it can only happen on the back of a land route that connects Central Asia through Afghanistan and Iran to the Iranian ports in the Indian Ocean. Such a route will mark the ultimate realization of the 300 year old Tsarist dream (see the section on Russia), make the ‘Pakistan question’, a question that dominated India’s strategic thought for much of its six decades since independence, irrelevant, and bring China and India in the same landmass for the first time </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[4]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">, in direct competition in a resource rich region. Therefore we also discuss India’s core strategic interests in Kyrgyzstan.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Kazakhstan and Uzbekistan are large countries </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[5]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;"> that border Kyrgyzstan - this alone warrants the discussion of their key strategic interests in this section. However as framed by the cameras of June </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[6]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">, Russia’s choices in Kyrgyzstan are not impacted by their interests. Therefore we leave their interests in Kyrgyzstan out of this paper.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In the subsections below we discuss the key strategic interests of each of the main players mentioned above. Often, we will refer to their regional, and not their Kyrgyzstan-specific interests since their interests are shaped for the most part by their regional view as opposed to a Kyrgyzstan-specific view.</span><br />
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</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6pt; text-align: justify; text-indent: 0.5in;"><place w:st="on"><country-region w:st="on"><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 13pt;">RUSSIA</span></b></country-region></place><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 13pt;"></span></b><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><country-region w:st="on"><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">Russia</span></i></b></country-region><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;"> Folds Up</span></i></b><span style="font-family: Arial, sans-serif;"> </span><country-region w:st="on"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Kyrgyzstan</span></country-region><span style="font-family: Arial, sans-serif; font-size: 12pt;"> was a Soviet state for seven decades until the <country-region w:st="on"><place w:st="on">USSR</place></country-region> collapsed in 1991. In the consequent demographic shock, the </span><span style="font-family: Arial, sans-serif; font-size: 12pt;">pool of military manpower of its successor state, Russia, shrunk by over 40% and Russia’s economy suffered a sharp decline during the long and painful transition from the organizing principles of state-instituted collectives to a free-market economy. With unfavorable demographic and economic conditions and a loss of ideological moorings stacked up against a considerably weakened spirit, Russia folded up its military presence from Kyrgyzstan </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[7]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">, rather abruptly; back then one could have pat the bear without the fear of being mauled.</span><br />
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</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><country-region w:st="on"><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">Russia</span></i></b></country-region><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;"> Returns</span></i></b><span style="font-family: Arial, sans-serif;"> </span><span style="font-family: Arial, sans-serif; font-size: 12pt;">As <country-region w:st="on"><place w:st="on">Russia</place></country-region> turned inwards, communism receded from the Eurasian landmass and new sovereigns emerged. These states needed aid, an admission into the international system and a re-jig of their trade relations. The <place w:st="on"><country-region w:st="on">US</country-region></place> was best positioned to provide that, or at least, the hope for it. In the backdrop of such a benign environment the <country-region w:st="on"><place w:st="on">US</place></country-region> forayed into the ideological vacuum </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[8]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;"> to lay the institutional foundations of future liberal democracies. In the military space, with the inclusion of the Czech Republic, Hungary and Poland into the NATO alliance in 1999, the US advanced for the first time into regions that formerly fell within sphere of exclusive Soviet dominance. These advances however remained limited to the west of the Caucasus until 4Q2001 when the US took over the Karshi-Khanabad and Termez airbases in Uzbekistan and the Manas airbase in Kyrgyzstan in support of its war against Afghanistan. The fear of another US expansion into its sphere of influence, this time in its southern underbelly, brought Russia back into the region after a 12 year hiatus with the establishment of its first overseas base in Kant, Kyrgyzstan, just 30km from the US airbase in Manas.</span><br />
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</span></div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Origins of Russia's Interests in Central Asia</span></i></b><span style="font-family: Arial, sans-serif;"> </span><span style="font-family: Arial, sans-serif; font-size: 12pt;">Russia’s interests in the region go back to the seventeenth century when naval power began to emerge as a prime determinant of international power. <country-region w:st="on"><place w:st="on">Russia</place></country-region> however lacked warm water ports necessary to compete effectively with the European and the Ottoman navies. It therefore set its eyes on expanding in three directions - towards the Yellow Sea in the Far East, the Black Sea and the Mediterranean Sea to the west of the Caucasus and the Indian Ocean to the east of the <place w:st="on">Caucasus</place>.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The <place w:st="on">Yellow Sea</place> is removed from the Russian core by over 7,000km and was not on any major sea trade route until the late nineteenth century </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[9]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">. Towards the </span><span style="font-family: Arial, sans-serif; font-size: 12pt;">west of the Caucasus, </span><country-region w:st="on"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Russia</span></country-region><span style="font-family: Arial, sans-serif; font-size: 12pt;">’s attempts to establish dominance</span><span style="font-family: Arial, sans-serif; font-size: 12pt;"> were stalled by the <place w:st="on">Ottoman Empire</place> or, whenever the latter appeared as if it would be routed in war, by the timely interventions by the British and the French. Towards the east of the Caucasus however, <country-region w:st="on">Russia</country-region> was able to silence the Khanates, including those in present day <country-region w:st="on"><place w:st="on">Kyrgyzstan</place></country-region>. By the late 19<sup>th</sup> century, <country-region w:st="on">Russia</country-region> had reached the northern borders of <country-region w:st="on">Afghanistan</country-region>, within 1,000km of the warm ports in the <place w:st="on">Indian Ocean</place>.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><country-region w:st="on"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Russia</span></i></b></country-region><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">'s Strategic Interests</span></i></b><span style="font-family: Arial, sans-serif; font-size: 10pt;"> </span><span style="font-family: Arial, sans-serif; font-size: 12pt;">With an eye fixated on warm water ports for over 300 years, <place w:st="on"><city w:st="on">Moscow</city></place> has looked at the world rather differently from how it appears in standard cartographic depictions. This fixation calls for developing land routes that connect its core with ports in southeastern Iran, neutralizing Islamist influences in Afghanistan and keeping Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan within its sphere of military influence.</span><br />
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</div><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3tU7FTjdlVLlfDOmoTj0cN9oITge_17gJcL-zf_ySmkp3tIhq7lK5Afjzl8vpIb3NWfwJe8TIS7t0vsvBr8LxRpDcO_5trCjytXK5DP9gi0wZsnmqX_hiW-4CXxesobAkd6oLEuA0nfWy/s1600/MoscowCentricWorld.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="281" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3tU7FTjdlVLlfDOmoTj0cN9oITge_17gJcL-zf_ySmkp3tIhq7lK5Afjzl8vpIb3NWfwJe8TIS7t0vsvBr8LxRpDcO_5trCjytXK5DP9gi0wZsnmqX_hiW-4CXxesobAkd6oLEuA0nfWy/s400/MoscowCentricWorld.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>Map 1:</b> A Moscow-centric world</td></tr>
</tbody></table><div class="MsoNormal" style="line-height: normal; margin-bottom: 6pt; text-align: justify;"><span class="Apple-style-span" style="font-size: 15px;">Russia has three additional interests in the region - keep Islamic fundamentalism in check, dominate the Central Asian land trade routes and, in the context of the several decades of weak demographics it faces, reduce drug-related fatalities <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[10]</span></span></span></span> by checking contraband drug trade that originates in the Af-Pak region.</span></div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The first calls for denying political space to Islamism through the development of regional multilateral institutions to anchor Central Asia into cooperative economic and security arrangements, counterbalancing the Sunni Arab influence by supporting Iran's ambitions for emerging as a regional power and weakening terror groups in the Af-Pak region by working with the Northern Alliance, India and Iran and striking at contraband trade in narcotics, one of the primary sources of terrorist financing.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The second calls for establishing permanent military bases in the Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan and denying similar opportunities to others, particularly to the US and China.</span><br />
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</div><div class="MsoBodyText" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">And the third calls for firming up border controls in Kyrgyzstan, Tajikistan and Uzbekistan, strengthening their government machinery, cooperating with Iran on border control measures and ensuring that foreign powers in the Af-Pak region do not condone narco-capitalism in cutting deals with the local powers.</span><br />
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</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6pt; text-align: justify; text-indent: 0.5in;"><place w:st="on"><country-region w:st="on"><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 13pt;">CHINA</span></b></country-region></place><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 13pt;"></span></b><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Virtuous Cycle and China’s Trade Policies</span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;"> The ‘virtuous cycle’ of access to cheap credit, a decade of low consumer price inflation and rise in asset prices in the US well above their historical means was enabled by a massive redirection of household savings in China and arbitrage in laws relating to the environment, labor rights, workplace safety standards and land ownership. Its decades-long policies of keeping the Renminbi undervalued, of financial repression <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[11]</span></span></span></span> and of instituting the dominance of the banking system in retail savings services discouraged private consumption. Thus the counterpart of the virtuous cycle experienced in the US, in China, was a huge rise in productive capacity and dollar-denominated assets and a massive expansion of the infrastructure. Low labor costs and labor inflexibility <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[12]</span></span></span></span> yielded an industrial sector that has high operating leverage. While the financial leverage of China’s industrial sector is not high, it is not hedged against a protracted downturn in its principal markets. <country-region w:st="on"><place w:st="on">China</place></country-region>’s private sector must therefore diversify its export earnings and the destination of its investments overseas. Thus one can speak of two constants in <country-region w:st="on"><place w:st="on">China</place></country-region>’s trade policies - it would seek alternative export markets and it would get increasingly mercantilist. For commodities with strategic value, China would bypass the markets and instead acquire mines <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[13]</span></span></span></span> and agricultural lands or lease the use of such assets on a long-term basis <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[14]</span></span></span></span>.</span><br />
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</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">China’s Interests in Kyrgyzstan: an offshoot of its Trade Policies </span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;">China’s strategic interest in Central Asia, including Kyrgyzstan, is a direct manifestation of its trade policy - export goods to the region and use its dollar holdings to gain control of the region’s vast mineral and energy resources. It is financing the construction of an extensive network of energy pipelines connecting fields in Turkmenistan, Uzbekistan and Kazakhstan with its westernmost province, the Xinjiang Uyghur Autonomous Region (XUAR) <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[</span></span><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">15], [16], [17]</span></span></span></span>. Due to the difficult topography of <country-region w:st="on">Kyrgyzstan</country-region>, these networks mostly bypass <country-region w:st="on"><place w:st="on">Kyrgyzstan</place></country-region> (see <a href="http://geoeconviews.blogspot.com/2010/08/kyrgyzstan-cameras-of-june-part-i.html">Part 1</a>).</span><br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_rzXE5WDzjxJVoPg9lewK89qL6iJi_j7tEHa7X-cq4wdW-kBB1R3lJMc87-wypkAItUMIH_cRzWZKyXOy63FUcyGYNXjZrP23_Xv0nJV4JJybBverf29xvDeEbmMLh8nsCKxRrf1Sf1mf/s1600/China&CentralAsianPipelineNetwork.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="351" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_rzXE5WDzjxJVoPg9lewK89qL6iJi_j7tEHa7X-cq4wdW-kBB1R3lJMc87-wypkAItUMIH_cRzWZKyXOy63FUcyGYNXjZrP23_Xv0nJV4JJybBverf29xvDeEbmMLh8nsCKxRrf1Sf1mf/s400/China&CentralAsianPipelineNetwork.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>Map 2:</b> China and O&G pipeline network in Central Asia</td></tr>
</tbody></table><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">How the Region Views China’s Engagements? </span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;">China’s engagement has been viewed positively by the Central Asian governments. There are three reasons for this; <place w:st="on"><country-region w:st="on">Russia</country-region></place> dominates the security affairs of this region. China’s presence is viewed as an important counterweight <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[18]</span></span></span></span>. Second, <country-region w:st="on"><place w:st="on">China</place></country-region>’s investments are not conditioned on progress on the issues relating to human rights of transparency of governance. This gives the Central Asian republics room to maneuver in their trade relations with the Europeans. Third, the global financial crisis of 2008-09 hit the Central Asian republics hard. Their construction and consumer spending boom was driven by cheap foreign currency loans from foreign banks. As the crisis hit, these banks withdrew lines in order to shore up their liquidity positions back home. This in turn induced a severe liquidity crunch and a sharp depreciation in local currencies in the Central Asian markets. In the mean time, Russia, which otherwise would have supported the CIS countries, was suffering from Ruble depreciation and a rapid fall in its own foreign currency reserves, triggered by a combination of fall in commodity prices, sharp risk aversion and withdrawal of foreign currency lines by international banks. The EU’s continuing problems that began with the crisis are all well-known. In addition to action of banks and a sharply reduced ability of the US, Russia or the EU to extend help, the Central Asian countries suffered from a sharp fall in worker remittances, particularly, Kyrgyzstan, Tajikistan and Uzbekistan where the remittance to GDP ratios are 27%, 30% and 8%, respectively <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[19]</span></span></span></span>, a fall in international aid, a sharp drop in asset prices and a spike in borrowing rates as money flowed out in search of safe havens. In such a difficult time, China was the only nation that had both, the wherewithal and the interest, to extend strategic economic aid and make investments needed to sustain the exploitation of energy and mineral resources in the Central Asian region.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">Strategic Benefits to China </span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;">The infrastructure links with Central Asia will reduce China’s concentration in oil imports from the Middle East, Sudan and Libya which stand at 58% <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[20]</span></span></span></span> and make land-based access </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[21]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;"> to the Iranian oil and gas reserves feasible. These potentialities are consistent with China’s principal long term goal vis-à-vis energy security which is to lower its dependence on the use of sea routes for energy imports as they pass through choke points </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[22]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;"> dominated by the US navy, and now, increasingly by the Indian navy. </span><br />
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</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">Potential Risks to China </span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;">The infrastructure can support the flow of nuisance just as well as it would support the flow of goods and mineral wealth, and people-to-people contacts can help nurture trade links just as well as they can fan sympathies and deeper support for separatist movements </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[23]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">. China is therefore working with the governments of Kazakhstan, Kyrgyzstan and Tajikistan, to step up border control measures directed at arms and narcotics smuggling and illegal border crossings, and encouraging them to deny political space to groups sympathetic to the idea of an independent Uyghur homeland. </span><br />
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</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6pt; text-align: justify; text-indent: 0.5in;"><place w:st="on"><country-region w:st="on"><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 13pt;">USA</span></b></country-region></place><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 13pt;"></span></b><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The End of the Cold War and US Overseas Force Deployment</span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;"> The Cold War ended in the breakup of the Soviet State and the world woke up to an inward looking Russia. With the Russian threat removed, Germany spent its immense energies over the next decade in absorbing the cost of German reunification and the EU project. The US channelized its surplus diplomatic energies into furthering and deepening the international commitment to the concept of free trade and creating conditions necessary for the emergence of liberal democracies in Russia’s periphery. The economic boom that followed pushed the question of both, the relevance of US force deployment in Western Europe and the utility of US’ military surplus into the background, until 9/11 happened.</span><br />
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</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The US Invades Afghanistan</span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;"> US-led allies attacked Afghanistan in October 2001 following the Taliban regime’s refusal to hand over Osama bin Laden and his accomplices that were suspected of having masterminded the 9/11 terrorist attacks. What began as a massive air campaign was soon transformed into a series of long-drawn <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[24]</span></span></span></span> tactical land battles on both sides of the Durand line <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[25]</span></span></span></span>. The decade-old question of relevance of US deployment in Western Europe was revisited; US boots on Western European soil were substantially reduced while those in the Af-Pak region swelled to nearly a third of pre-1991 Western European deployment levels. Pakistan’ support was enlisted and a logistic line from the seaport of Karachi through more than 1,000km of Pakistani territory, a line that is ideal for moving heavy equipment, fuel supplies and stocking up inventories, was established. However this line was inadequate, inefficient and risky. Multipliers were needed.</span><br />
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</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><country-region w:st="on"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">US</span></i></b></country-region><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial, sans-serif; font-size: 12pt;"> Moves into Central Asia</span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;"> <country-region w:st="on">Pakistan</country-region>’s ideological and institutional association with the Taliban movement provided the <country-region w:st="on">US</country-region> a perfect foil for moving into <country-region w:st="on">Russia</country-region>’s underbelly in <place w:st="on">Central Asia</place>. Three other logistic lines were established in support of the Afghan war, two from <country-region w:st="on">Uzbekistan</country-region> and one from <country-region w:st="on"><place w:st="on">Kyrgyzstan</place></country-region>. These lines are much shorter, cheaper to operate and originate in countries where the Taliban enjoys little popular support. Besides, US’ presence was favored by the particular combination of geopolitical and economic realities in the region - leasing airbases would earn the two countries valuable foreign exchange and the US presence would provide a counterweight to the Russian and Chinese dominance of their political and trade relations, respectively. US’ presence was also welcomed by Russia as it addressed Russia’s problems arising out of the export of destabilizing influences <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[26]</span></span></span></span> emanating out of Afghanistan and relieved pressure on it in the Caucasus.</span><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Despite its military presence, US’ actions in the region remain mainly transactional and its interest in Kyrgyzstan’s airbase relates mainly to US’ war in Afghanistan <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[27]</span></span></span></span>. On the other hand though, it will continue to develop institutional assets in Kyrgyzstan that can be brought to bear additional pressure on Russia or China, particularly in situations that force them to choose between making further, difficult commitments in support of Kyrgyz elites or risk tarnishing their reputation </span><span class="FootnoteCharacters"><span style="font-size: 12pt;"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[28]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 12pt;">.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 6pt; text-align: justify; text-indent: 0.5in;"><place w:st="on"><country-region w:st="on"><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 13pt;">INDIA</span></b></country-region></place><b style="mso-bidi-font-weight: normal;"><span style="font-family: Arial, sans-serif; font-size: 13pt;"></span></b><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">India’s Historic Connections with Central Asia</span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;"> India lies on the ancient Silk Route <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[29]</span></span></span></span>, the route through which both trade and invasions flowed. Babur, the founder of the mighty Mughal Empire in <country-region w:st="on">India</country-region> in the early sixteenth century, was born in Andijan, a city in present day <place w:st="on"><country-region w:st="on">Uzbekistan</country-region></place>. For several centuries until about the mid-1900s Persian served as the lingua franca for trade, military and political exchanges between the peoples of the two regions.</span><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;"></span><br />
</div><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi23-2VbstJPjxXG7fZjhixqLMUumYZqpwbpU3q1gmPIaR745Z0nN8d3eg8mY4eNqrBqRKZcS1a0sOGSX5QDBTknAfcOJw5pfpt7BqwhsMxbE1wBj0esmBFOEHb0Nc5pBenK0ohKMl7fy36/s1600/SilkRoute_India.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="265" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi23-2VbstJPjxXG7fZjhixqLMUumYZqpwbpU3q1gmPIaR745Z0nN8d3eg8mY4eNqrBqRKZcS1a0sOGSX5QDBTknAfcOJw5pfpt7BqwhsMxbE1wBj0esmBFOEHb0Nc5pBenK0ohKMl7fy36/s400/SilkRoute_India.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><b>Map 3:</b> The historic Silk Route</td></tr>
</tbody></table><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">India Loses its Connections</span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;"> Around the mid-1900s, the Russian Empire conquered Central Asia and the British Empire conquered the Indian subcontinent. The two regions were thus drawn into separate spheres, the centers of which maintained a cold peace only where the two did not collide. The Persian language fell into disuse as the language of the elites and was replaced by Russian in Central Asia and English in India. Furthermore, due to fear that Russia’s search for warm water ports would lead it to invade the subcontinent; the British established a buffer zone in what lies in the present day Afghanistan. Thus direct contacts between the two regions were lost.</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><b><i><span style="font-family: Arial, sans-serif; font-size: 12pt;">India’s Interests in Modern Times</span></i></b><span style="font-family: Arial, sans-serif; font-size: 12pt;"> India’s foreign policy goals in Central Asia are two - reestablish trade with the region <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[30]</span></span></span></span> and safeguard against threats from its northwestern frontiers <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[31]</span></span></span></span>. <place w:st="on"><country-region w:st="on">India</country-region></place>’s trade presence in the region however remains insignificant in comparison with that of other powers in the region. This is mainly because land-based trade must pass through <place w:st="on"><country-region w:st="on">Pakistan</country-region></place>; a difficult proposition given the relations between the two. And while Iran and Russia remain enthusiastic supporters of India’s seaborne trade, which must pass through Iran, India has so far been diffident in pursuing this option in deference to the US. Nevertheless the region remains a growth market for India, particularly in the pharmaceutical, textiles and information technology sectors and the Central Asian countries seek to benefit from low cost technologies, help in diversifying the industrial base and access to the Indian market, including the export of education services <span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[32]</span></span></span></span>. </span><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: 0in; text-align: justify;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Towards the security end, <country-region w:st="on">India</country-region> has purportedly established its first overseas air force base in <place w:st="on"><city w:st="on">Ayni</city>, <country-region w:st="on">Tajikistan </country-region></place><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;">[33]</span></span></span></span>. In India’s view, the emergence of economically growing, pluralistic democracies in the region would have the most benign influence on its own security.</span><br />
</div><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="layout-grid-mode: char; line-height: normal; margin: 3pt 0in 0in;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[1]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> Germany - a country with which Russia has a budding, special relationship - is an exception.</span></span><br />
</div></div><div id="ftn2"><div class="MsoFootnoteText" style="layout-grid-mode: char; line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[2]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> Given US’ principal goal (see the next footnote) and facts relating to Kyrgyzstan’s topography, inaccessibility from the sea, small population base, unstable internal politics and lack of fossil fuel deposits, US’ interest in Kyrgyzstan is mainly transactional and will continue to remain in the foreseeable future.</span></span><br />
</div></div><div id="ftn3"><div class="MsoFootnoteText" style="layout-grid-mode: char; line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[3]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> Liberal democracies in Central Asia undermine Russia’s influence in the region. Weaning the republics away from the Soviet sphere of influence is US’ principal goal.</span></span><br />
</div></div><div id="ftn4"><div class="MsoFootnoteText" style="layout-grid-mode: char; line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[4]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> The two countries already share a 3,488km long land border. However that is dominated by the inhospitable Himalayan Range. Therefore the two have traditionally belonged to regions that abut, but are yet separate.</span></span><br />
</div></div><div id="ftn5"><div class="MsoFootnoteText" style="layout-grid-mode: char; line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[5]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> Kazakhstan’s GDP is 26.5 times the GDP of Kyrgyzstan while Uzbekistan is 5.5 times as populous.</span></span><br />
</div></div><div id="ftn6"><div class="MsoFootnoteText" style="layout-grid-mode: char; line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[6]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> For those who need a reminder - understanding Russia’s choices with respect to recent events in Kyrgyzstan is the central theme of this paper.</span></span><br />
</div></div><div id="ftn7"><div class="MsoFootnoteText" style="layout-grid-mode: char; line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[7]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> and from all other former Soviet states</span></span><br />
</div></div><div id="ftn8"><div class="MsoFootnoteText" style="layout-grid-mode: char; line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[8]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> The emergence of the new states was not a result of freedom struggle or struggle for assertion of cultural, ethnic, linguistic or religious rights. The Soviet breakup surprised the local elites themselves and an ideological vacuum replaced communism. </span></span><br />
</div></div><div id="ftn9"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[9]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> after the Meiji Restoration in </span></span><country-region w:st="on"><place w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Japan</span></span></place></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> in 1868 </span></span><br />
</div></div><div id="ftn10"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[10]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> For its deleterious impact on demographics, the problem of Vodka-sipping has also gained strategic dimensions. However a solution to the problem of excessive drinking has to emerge internally. </span></span><br />
</div></div><div id="ftn11"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[11]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> Financial repression in China is visible most in its policy of fixing a minimum positive spread between the minimum lending rate and maximum deposit rate and the rather restricted access of consumers to credit. </span></span><br />
</div></div><div id="ftn12"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[12]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> The macro-level inflexibility of </span></span><country-region w:st="on"><place w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">China</span></span></place></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">'s urban labor results from the view of the political elites that an increasingly expanding base of employed citizens is necessary for maintaining societal stability. </span></span><br />
</div></div><div id="ftn13"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[13]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> such as, those that have rare earth metals or oil & gas</span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"></span></span><br />
</div></div><div id="ftn14"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[14]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Over the past two decades, China had increasingly contributed to keeping global consumer prices low. I think that stage is now past and the world will see China exporting inflation in the coming decade.</span></span><br />
</div></div><div id="ftn15"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[15]</span></span></span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Financial Times, Isabel Gorst, Apr 17, 2009</span></span><br />
</div></div><div id="ftn16"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[16]</span></span></span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Sébastien Peyrouse, “</span></span><i><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">The economic aspects of the </span></span><place w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Chinese-Central Asia</span></span></place><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> rapprochement</span></span></i><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">,” Silk Road Studies, Jul 9, 2007.</span></span><br />
</div></div><div id="ftn17"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[17]</span></span></span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Stephen Blank, “</span></span><country-region w:st="on"><place w:st="on"><i><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">China</span></span></i></place></country-region><i><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">’s recent Central Asian energy moves</span></span></i><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">,” CACI Analyst, May 20, 2009.</span></span><br />
</div></div><div id="ftn18"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[18]</span></span></span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">This view extends beyond Kyrgyzstan</span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">; the elite consensus in the region is that an increase in stakeholdership of foreign powers in their economic and security matters and a rise in the number of such powers best serves their long-term interests.</span></span><br />
</div></div><div id="ftn19"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[19]</span></span></span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Erica Marat, “Shrinking remittances increase labor migration from </span></span><place w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Central Asia</span></span></place><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">,” CACI Analyst, Nov 2, 2009.</span></span><br />
</div></div><div id="ftn20"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[20]</span></span></span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> </span></span></span><i><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Source</span></span></i><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">: personal analysis, FACTS Global Energy</span></span><br />
</div></div><div id="ftn21"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[21]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> passing through Pakistan, the Pakistan-administered and the China-administered portions of the state of Jammu & Kashmir into Tibet or Xinjiang.</span></span><br />
</div></div><div id="ftn22"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[22]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> the Strait of Hormuz, Hambantota on the southern tip of Sri Lanka and the Malacca Strait</span></span><br />
</div></div><div id="ftn23"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[23]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> The separatists in the </span></span><country-region w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">China</span></span></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">’s XUAR belong to the same religious and Turkic ethno-linguistic group as do a majority of people in </span></span><place w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Central Asia</span></span></place><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> states.</span></span><br />
</div></div><div id="ftn24"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[24]</span></span></span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> Multiple arguments support the a priori expectation of a long-drawn invasion. For example, past invasions of Afghanistan have been long drawn. Alternatively, one could base that expectation on the observation that since WWII, a US invasion has had two constants - the </span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">US has never invaded a country larger than the state of Texas and that once the US invades, it digs in for an extended period of military presence.</span></span><br />
</div></div><div id="ftn25"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[25]</span></span></span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">The Durand Line refers to the poorly marked border between </span></span><country-region w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Afghanistan</span></span></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> and </span></span><country-region w:st="on"><place w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Pakistan</span></span></place></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">.</span></span><br />
</div></div><div id="ftn26"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[26]</span></span></span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> terror, Islamist ideologies and contraband drug trade</span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"></span></span><br />
</div></div><div id="ftn27"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[27]</span></span></span></span></span><span class="FootnoteCharacters"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> In fact, should the US be preparing to wind down its commitment in Afghanistan, one could see it far more amenable to pressures for giving up the Manas airbase in Kyrgyzstan.</span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"></span></span><br />
</div></div><div id="ftn28"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[28]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> We saw this happen in the June 2010 crisis in </span></span><country-region w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Kyrgyzstan</span></span></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> - while the Western institutions repeatedly highlighted </span></span><country-region w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Russia</span></span></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">’s inaction; the Kyrgyz people questioned the utility of </span></span><country-region w:st="on"><place w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Russia</span></span></place></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">’s military presence in their country and of their participation in the CSTO, the Russia-led regional security grouping.</span></span><br />
</div></div><div id="ftn29"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[29]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> The term was coined by the German geographer Ferdinand von Richthofen in 1877.</span></span><br />
</div></div><div id="ftn30"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[30]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> Such an event would lay to rest the congenital conflict between Pakistan and India.</span></span><br />
</div></div><div id="ftn31"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[31]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> This goal is the same as that the British Empire adopted vis-à-vis </span></span><place w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Central Asia</span></span></place><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">. However, the geopolitical context has changed - it is not </span></span><country-region w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Russia</span></span></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">’s gaining warm water ports that concerns </span></span><country-region w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">India</span></span></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> but the contraband trade in weapons and narcotics emanating from the region and its impact on </span></span><place w:st="on"><country-region w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">India</span></span></country-region></place><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">’s internal security.</span></span><br />
</div></div><div id="ftn32"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[32]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> Several hundred Indian students study in medical schools in Kyrgyzstan and Kazakhstan. India plans to facilitate growth in outbound students to the region in the field of petroleum engineering and geophysics.</span></span><br />
</div></div><div id="ftn33" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin: 3pt 0in 0in; text-align: justify;"><span class="FootnoteCharacters"><span class="FootnoteCharacters"><span style="line-height: 115%;"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">[33]</span></span></span></span></span><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> </span></span><city w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Osh</span></span></city><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">, the city </span></span><country-region w:st="on"><place w:st="on"><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;">Kyrgyzstan</span></span></place></country-region><span class="Apple-style-span" style="font-family: "Courier New", Courier, monospace;"><span class="Apple-style-span" style="font-size: small;"> that experienced widespread ethnic riots, is about 400km from Ayni.</span></span></div></div></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-34300817787632258762010-08-12T20:05:00.000+01:002010-08-14T20:49:58.800+01:00Kyrgyzstan: The Cameras of June (2010) - Part I<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">PART I - KYRGYZSTAN: KEY CHARACTERISTICS & THEIR IMPLICATIONS</span><br />
<br />
<span style="font-family: 'Courier New', Courier, monospace;">We are back to Kyrgyzstan - the land of forty tribes. I hope you enjoyed the preface that I posted a few days back.</span><br />
<br />
<span style="font-family: 'Courier New', Courier, monospace;">Gaspar Noé did a brilliant job with reverse chronology in <a href="http://en.wikipedia.org/wiki/Irr%C3%A9versible">Irréversible</a>. Perhaps that works only with films though. Or I am not just good at it. Thus, if you have not already read my <a href="http://geoeconviews.blogspot.com/2010/08/kyrgyzstan-cameras-of-june-2010.html">previous post on Kyrgyzstan</a> then I would encourage you to stop right here and read that </span><span style="font-family: 'Courier New', Courier, monospace;">first.</span><br />
<br />
<span style="font-family: 'Courier New', Courier, monospace;">This part describes the key national characteristics of Kyrgyzstan. I think it is absolutely essential to understand these. Even if you disagree, I promise, it will be a fun read.</span><br />
<br />
<span style="font-family: 'Courier New', Courier, monospace;">In the second part, which should be out some time next week, we will discuss the key strategic interests of Russia, China, USA and India -</span><span style="font-family: 'Courier New', Courier, monospace;">the 4 main foreign players in Kyrgyzstan. These parts should set stage for explaining how the <strong>Cameras of June</strong> framed Russia's choice of further actions.</span><br />
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<span style="font-family: 'Courier New', Courier, monospace;">Yours, too sleepy to type more analyst,</span><br />
<br />
<span style="font-family: 'Courier New';">AA</span><br />
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<div style="text-align: justify;"><strong><span style="font-family: Arial, Helvetica, sans-serif;">KEY CHARACTERISTIC: LOCATION & POLITY</span></strong></div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;"></span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Kyrgyzstan has an area of 200,000 sq. km. It is doubly land-locked and borders with Kazakhstan to its north, China to its east, Tajikistan to its south and Uzbekistan to its south west. Its capital is Bishkek, a city with a million people.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2-2bvokx7Js19-8zqSz4ty0iKCuj2tfO1G97T7FLA3MpQjRWPpGKqpPY7yjc2p_DmD_JTSQPE9JF26Red3dIU2YBR1jqywtg1XwEvyY45pKOG0sz0oP_oA5VfkMPn3MA882-ABI_zqJ-T/s1600/KZ&Neighbors.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="296" ox="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2-2bvokx7Js19-8zqSz4ty0iKCuj2tfO1G97T7FLA3MpQjRWPpGKqpPY7yjc2p_DmD_JTSQPE9JF26Red3dIU2YBR1jqywtg1XwEvyY45pKOG0sz0oP_oA5VfkMPn3MA882-ABI_zqJ-T/s400/KZ&Neighbors.jpg" width="400" /></span></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Kyrgyzstan and its neighbors</span></td></tr>
</tbody></table><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Kyrgyzstan emerged in 1991 as a sovereign state following the dissolution of the USSR. Newly formed sovereigns tend to adopt political structures of their former masters even when other forms of polities would be more suitable. Kyrgyzstan was no different; it cast itself as a presidential republic even though given its topography, weak center and ethnic fault lines, a governance system based on parliamentary democracy would have been more appropriate. A presidential form of governance in such a state accentuates existing fault lines and raises people’s expectations beyond what the state has the capacity to deliver.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Incidentally, in a constitutional reform referendum on Jun 27, 2010, Kyrgyzstan voted for a move to a system based on parliamentary democracy. We however have serious reservations if the referendum vote will be durable or even, will bring the stability that we just theorized that parliamentary democracy should in Kyrgyzstan! The reason we have our reservations is because the referendum asked two questions (see <a href="http://www.eurasianet.org/node/61405">David Trilling's article</a>) - whether the leader of the provisional government should be confirmed as the president for the next 18 months, while an important question, this has no long term significance; and whether the country should move to a system of governance based on parliamentary democracy, a question with profound structural implications. However the voters were given only a single binary choice - if a voter were to indicate a ‘yes’ then that would be assumed to mean a yes to both questions and similarly, a ‘no’ would be taken to mean a no to both questions!</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span> </div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Clearly, the voters would have a tendency to answer the first question in the affirmative since the leader and several others in her provisional government rode to power just a few months back on the back of popular discontent that overthrew the previous government. Thus the question of parliamentary democracy appears to have gotten a free ride. As a parting remark on this matter, we wonder why a referendum on a matter of such profound importance was conducted at a time when the nation was on a boil. Even if a vote for parliamentary democracy would usher in a utopia, the near-term direct benefits of such a vote would still have been zilch.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">KEY CHARACTERISTIC: TOPOGRAPHY</span></strong></div><div style="text-align: justify;"></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span> </div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Kyrgyzstan is dominated by the Tien Shan mountain ranges that run in the east-west direction. Forty percent of its territory lies at an elevation of more than 3km. The country is very rich in water resources - it has several thousand glaciers that give rise to numerous rivulets and endows it with well-fed perennial rivers. The rivers are however not navigable as the water flow is rather rapid. Kyrgyzstan therefore lacks natural features needed for intra-country connectivity. </span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3TdZ_hrlaDMwnfHzDZwTJf3IFHq_bz1vlf7Biex0Lqo5SSIP-SeYb4cKdE0WEvMRFp-frcP_aB6zsFVFWID-uDcL_D813WabsCEH5ExBQFIBM7PVJJ3MyTsDPGO8SWPdaUmu43sVH73cA/s1600/KyrgyzstanTopography.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="237" ox="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3TdZ_hrlaDMwnfHzDZwTJf3IFHq_bz1vlf7Biex0Lqo5SSIP-SeYb4cKdE0WEvMRFp-frcP_aB6zsFVFWID-uDcL_D813WabsCEH5ExBQFIBM7PVJJ3MyTsDPGO8SWPdaUmu43sVH73cA/s400/KyrgyzstanTopography.jpg" width="400" /></span></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Kyrgyzstan: Elevation Map</span></td></tr>
</tbody></table><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Kyrgyzstan’s topography has profoundly shaped its internal environment and external interests in the region. The ranges fragment the country into multitudes of small valleys that are interlinked only by rudimentary networks, many of which are unsuitable for year-round mechanized transport. The lack of geographic connectivity has fragmented domestic markets and political decision making, rendered nationwide programs ineffective and, helped barter trade flourish, as a result of which, its central bank policy actions are rather ineffective.</span></div><div style="text-align: justify;"></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">On the military front, Kyrgyzstan's mountains are young and therefore have steep rising slopes. This makes the terrain unsuitable for large scale infantry movement and makes the deployment of heavy artillery infeasible. Therefore Kyrgyzstan is not attractive for foreign powers seeking to establish bases to project raw power. Nevertheless, its western and northern borders look over historic routes that are being modernized by China, largely to support of its mercantile, over-the-land trade with Kazakhstan, Uzbekistan and Turkmenistan, and perhaps Iran in the future. Therefore Kyrgyzstan can offer listening sites to foreign powers, the attractiveness of which will grow as China makes further inroads into Central Asia. Kyrgyzstan however is unlikely to see commensurate benefits as it itself is not in a position to put these bases to effective commercial or military use.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span> </div><div style="text-align: justify;"><strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">KEY CHARACTERISTIC: DEMOGRAPHICS</span></strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></div><div style="text-align: justify;"></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span> </div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Kyrgyzstan has 5.4 million people, 70% of which are ethnic Kyrgyz, 15%, ethnic Uzbeks, and 9%, ethnic Russians. The Uzbeks are concentrated in the west and the Russians in the north. Muslims are 80% of the population and those belonging to the Russian Orthodox Church, 15%.</span><br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEiWUsb8EcNWpUldWn4hd_vo9ALmv7zVeVpxNDnkVzm3l1jshnfZHDu7aPc0348behFkWA5Yakvcsagneh-GqU35Orom4rz85H95y2ggnPhRSeBHeIWYQKOW6-l3epnAn-xpMF27vZ737X/s1600/KZ_PopulationGrowthRate.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="196" ox="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEiWUsb8EcNWpUldWn4hd_vo9ALmv7zVeVpxNDnkVzm3l1jshnfZHDu7aPc0348behFkWA5Yakvcsagneh-GqU35Orom4rz85H95y2ggnPhRSeBHeIWYQKOW6-l3epnAn-xpMF27vZ737X/s400/KZ_PopulationGrowthRate.jpg" width="400" /></span></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Kyrgyzstan - population growth trend</span></td></tr>
</tbody></table><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Since independence, the ethnic composition of the country has changed significantly mainly because of emigration of non-Turkic people, particularly the ethnic Russians who now comprise 9% of the population, down from 20% 1991. Fertility rate differential has been the other main contributory factor for the share of ethnic Kyrgyz population rising from 54% in 1991 to 70% today. The demographic change has had a profound economic and social impact. </span><br />
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</span> </div><div style="text-align: justify;"><strong><em><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Impact of Demographic Changes on Agriculture</span></em></strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> During the Soviet era, collective agriculture was the norm. This allowed economies of scale which in turn permitted cost-effective deployment of the technical know-how. Traditional skills were however lost in the process and replaced by veterinarians, agriculture and logistics experts, civil engineers and traders, most of whom were ethnic Russians. Their emigration caused production and transportation systems built on the foundation of the ideology of collectivity to collapse. The domestic market was fragmented. Agriculture, once a commercial success, was reduced to a subsistence-level activity and has, despite two decades since independence, largely failed to recover.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span> </div><div style="text-align: justify;"><strong><em><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Impact of Demographic Changes on Internal Stability</span></em></strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> The ethnic fault lines in Kyrgyzstan run deep and trace their origins to the Soviet policies of large scale population resettlement and redistribution of land between ethnic groups to achieve the twin goals of internal stability and economic progress. In Kyrgyzstan, fertile lands in the Fergana valley that were traditionally owned by the Kyrgyz were transferred to Uzbeks for agriculture. As a result, Kyrgyz discontent simmered during the Soviet era. When it surfaced, it was directed at the Uzbeks. Ethnic Russians were seldom targeted as they were seen as the local presence of the powerful Soviet state and because they were considered critical to the economy. Their presence also ensured stability between the Kyrgyz and the Uzbeks as they had the ability to incentivize deals between the two peoples whenever such a need arose. With its demographic transformation however, Kyrgyzstan has lost its traditional balancer. Therefore, relations between the Kyrgyz and Uzbek peoples of Kyrgyzstan come to a boil more often, and with greater intensity.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><strong><em><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Regional Security Ramifications of Demographic Changes</span></em></strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> As the demographic transformation continues and its lagged effects begin to be felt, the Kyrgyz society could look far more polarized in the future than it is today. Such a polarization would have a security impact that would ring far beyond the borders of Kyrgyzstan itself. Let us see how.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span> </div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">A country can tolerate only a limited amount of polarization amongst its principal groups without its institutions giving into the centrifugal forces such a polarization would generate. The center could however adapt to check the increasing competition amongst the polarized groups. How would the center adapt in the case of Kyrgyzstan? - While ethnic identities divide, Islam is the religion of over 80% of Kyrgyzstan's population; an overwhelming majority of both, ethnic Kyrgyz and ethnic Uzbeks, are Sunni Muslims. Islamism, the political philosophy based on the axioms that a shared Muslim identity transcends all other forms of societal divisions, that the problems in Muslim societies are caused by an incomplete adherence to Islamic tenets and that such problems can only be resolved through a vigorous projection of the religion of Islam into the political sphere</span><span class="Apple-style-span" style="line-height: 13px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">,</span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> has provided an attractive rallying point in other countries with large Muslim populations where the social, political and economic mechanisms have failed to deliver societal equilibrium. Thus despite the current strong separation between the Mosque and the State in Kyrgyzstan, at some point in future, the center could fall back on Islamism to check the growing ethnic polarization and thereby, strengthen the hand of regional Islamists who seek to establish a Central Asian caliphate. Should that happen, the expansion of China into Turkmenistan and Uzbekistan and, to some extent into Kazakhstan, that is powered by its enormous dollar reserves and surplus productive capacity would unwind, Islamist movements in Uzbekistan will receive a morale boost, Russia’s ability to play as a balancer will be even reduced even further and US' cost for projecting power into Afghanistan and northwest Pakistan will rise.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span> </div><div style="text-align: justify;"><strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">ECONOMY</span></strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
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<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">GDP Prior to 1991 nearly all of Kyrgyzstan’s output was consumed locally or in other Soviet states. The dissolution of the USSR disrupted traditional trade linkages, the emergence of new sovereign borders fragmented the markets, Soviet-instituted subsidy programs that formed the bedrock of agricultural activity disappeared and people with technical skills emigrated. Kyrgyzstan’s GDP sharply contracted for several years following independence. Today it remains a low-income country, ranked at 146 out of 180 countries in 2009 by the IMF based on nominal per capita GDP. The five pillars of its economy are subsistence-level agriculture, hydroelectric power generation, mineral exports, remittances and international aid.</span></div><div style="text-align: justify;"></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrO9Fa8RMHLcxcU_ZmF6kiBvw2OU0m09_l3z3rhLapbKqX55j8ZLXvM0_OUoWPY2n8MD-PvR90x-3rZJFLQp9OWoex4M6jhmk6uRZZJNqo9OvYXW1RHe5cvgIkZWkpc8bMjY3hK1HRzJIC/s1600/KZGDPGrowthRate.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="191" ox="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrO9Fa8RMHLcxcU_ZmF6kiBvw2OU0m09_l3z3rhLapbKqX55j8ZLXvM0_OUoWPY2n8MD-PvR90x-3rZJFLQp9OWoex4M6jhmk6uRZZJNqo9OvYXW1RHe5cvgIkZWkpc8bMjY3hK1HRzJIC/s400/KZGDPGrowthRate.jpg" width="400" /></span></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Kyrgyzstan - real GDP growth rate</span></td></tr>
</tbody></table><strong><em><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Agriculture </span></em></strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Agricultural output contributes 35% of Kyrgyzstan’s GDP. Only 8% of Kyrgyzstan is arable but 45% can be used for rearing, thus making animal husbandry a major component of the output. Agricultural efficiency has fallen significantly since with the collapse of the USSR came the collapse of collective farming, disappearance of a guaranteed export market and a sharp fall in both state-subsidies and capital investments. As sovereign boundaries emerged, winter grazing grounds in Kazakhstan were cut off. As a result, transhumant grazing suffered leading to an unsustainable cull of large herds of sheep.</span></div><div style="text-align: justify;"></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><strong><em><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Energy </span></em></strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Kyrgyzstan has almost no fossil fuel though is endowed with significant hydroelectric power potential. At present, only about 10% of this potential has been exploited. Despite that, it has surplus power which it swaps with Uzbekistan and Kazakhstan for fossil fuels. Energy prices however remain highly volatile (In the case of Kyrgyzstan, energy price volatility affects more than just the economic output - sharp rise in utility prices in 2009 caused popular discontent that lead to the overthrow of the Bakiyev government in April 2010.) due to four reasons: (i) oversupply of electricity, even at the current level of generation, (ii) electricity is not a fungible form of energy, (iii) the export market is limited and, (iv) the unstable nature of intra-state relations in Central Asia limits Kyrgyzstan to only short-term or small-scale swap agreements.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span> </div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Contrary to the generally held view, it is not capital investments but the low fungibility of its electricity that limits the full realization of Kyrgyzstan’s hydroelectric potential (At full potential, Kyrgyzstan’s electricity exports could increase at least 10-folds to reach 20% of its 2009 GDP.). Its electricity exports are priced at about US¢3.1/kW-hr which is less than one third the price of electricity generated by gas or oil fired plants in its export markets. Improving the fungibility of its electricity exports will lead to a significant rise in capital investments. Fungibility can be significantly enhanced through the construction of a regional power grid to supply electricity to large but deficient markets in Afghanistan, India, Iran and Pakistan. The plans for a regional power grid however remain infeasible due to the difficult security environment in the region and because the balance of geopolitical imperatives of the key regional and international players remain tilted against the enhancement of Central Asia’s economic linkages in the direction of warm water ports in the Indian Ocean.</span></div></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-60020555905370664872010-08-10T17:07:00.000+01:002010-08-10T17:13:20.158+01:00Kyrgyzstan: The Cameras of June (2010)<div style="text-align: left;"><span style="font-family: "Courier New", Courier, monospace;">I should have covered this hot spot before. I wanted it to be the first post on this blog. While I was still working on Kyrgyzstan, Kim Jong-Il cried for attention (no pun intended).</span></div><span style="font-family: "Courier New", Courier, monospace;"></span><br />
<div style="text-align: left;"></div><div style="text-align: left;"><span style="font-family: "Courier New", Courier, monospace;">Unlike the last post, this time I will split the post in several parts. I think it looks better that way.</span></div><br />
<div style="text-align: left;"><span style="font-family: "Courier New", Courier, monospace;">Yours thinking about blogsthetics analyst,</span></div><br />
<div style="text-align: left;"><span style="font-family: "Courier New", Courier, monospace;">AA</span></div><div style="text-align: justify;">______________</div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;">April was a newsworthy month for Kyrgyzstan, even if for the wrong reasons. Violent expression of popular discontent left at least 80 protestors dead and several hundreds injured, brought down the government and caused President Bakiyev to relinquish power in return for a safe exit as he and his family prepared to flee the country. These events hardly made a blip in the international media. Fast-forward two months and one might be forgiven for the thought that peak summer arrived a month early in Bishkek (July is the hottest month). What started off as criminal violence in the second and third largest cities of Osh and Jalalabat, morphed into riots targeted at the Uzbek minority that killed hundreds and sent the provisional government scampering for foreign help to bring the country back from the brink of chaos. The violence occurred along historic fault lines and the presence of ethnic Russians was (thankfully) overlooked. In June however, cameras flashed feverishly and Kyrgyzstan was splashed all across the international media space in the second and third weeks of June.</span></div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;">Back in April, Russia had supported regime change in Kyrgyzstan. As politicians are wont to demonstrate and as has often been warned by generals, regime change is the easy part. This time was no different. The provisional government faced its first test of governance in June, and vividly fumbled. Desperate calls for international help went unheeded. US operated an air force base in Manas, barely 25km from the capital city, Bishkek. It however stiffed its lips, preferring instead to remain focused on its raison d'être in Manas, operate the logistics hub in Kyrgyzstan to support its military operations in Afghanistan. The Russian President took the ‘high’ ground and announced that the turmoil was an internal matter. In some sense, one cannot read a reversal in Russia’s choice to not get militarily involved as its influence in Kyrgyzstan hit new highs in April not because it went in full-armored but because it was on the right side of elites who had joined ranks with anti-government protestors. Popular discontent on a boil induces a winner-takes-all condition; those who succeed in staying put at the convex front of impending societal changes usually take the crown.</span></div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;">In the three weeks following the June crisis, Western diplomats made several appeals to Russia to step in to stabilize. The press tried it all - humored, ridiculed and castigated Russia, reminded it of responsibilities that come with its status as the principal power in Central Asia and highlighted the tragic consequences of failing to act. Russia however did not responded with military aid, even while Kyrgyzstan waited and its governance institutions proved hopelessly ineffective in preventing the handling to human tragedy. Russia's reputation as the principal stabilizer in the region took a hard blow. The initial global focus on the incompetence of the new Kyrgyz government in controlling the riots morphed into an intense focus on Russia’s inaction, making its position increasingly, and visibly, morally untenable.</span></div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;">We examine here in a three part series the reason for Russia’s inaction and hypothesize why it acted in the manner it did during the crisis. In the first part, we review key national characteristics of Kyrgyzstan and how they impact its socio-political and economic choices and, the interest of foreign powers in the region. Russia is the principal power in the region, but not the dominant power. Its choices are modulated by the kaleidoscopic interplay of interests of other powers in the region. We discuss the interests of other powers in Kyrgyzstan in part two. Finally, in part three, we turn our attention to the immediate triggers of the crisis before turning to the main subject. We have a lot of ground to cover. Kyrgyzstan is however doubly land-locked (as opposed to the Korean Peninsula). Thus, we won't dive straight in!*</span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span style="font-family: "Courier New", Courier, monospace;">* those who have read the post on NK would know what I mean</span></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0tag:blogger.com,1999:blog-4744702633253369487.post-83537841678443593932010-08-03T09:45:00.000+01:002010-08-15T08:03:57.684+01:00Post-Cheonan Tensions in the Korean Peninsula<div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;"></span><span style="font-family: 'Courier New', Courier, monospace;">This is a long post by any standard. The reason this is so is because I discuss a brief history of the Korean Peninsula, the motivations and the fears that each player holds closest to its heart and briefly consider major flare-ups in the past and their impact on stability in the peninsula. Once we have these laid out, the stage is all set to reason about whether the current chain of events could send the peninsula into the abyss of instability. I talk about the base case scenario - a starting point from where one could reason about plausible alternatives that could look a lot worse. Happy reading!</span></div><br />
<strong><span style="font-size: large;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">RISING TENSIONS (2009-2H2010</span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">)</span></strong><br />
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<div class="separator" style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; clear: both; text-align: justify;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhx5N29dq96Kw9WD9tUoO7YecNTrNJeooZ4TSsVg7Yk2-94SgCyjValUEyYbA0Gkmpj1eGgfUdSGxtBs_Gnahm-AZ3NZjlXEjznkhUZ2PD4gMthehqhyphenhyphenmxB7lCli3wJWizFnOeXtja0raas/s1600/MAP+Korean+Peninsula.JPG" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-size: large;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><img border="0" bx="true" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhx5N29dq96Kw9WD9tUoO7YecNTrNJeooZ4TSsVg7Yk2-94SgCyjValUEyYbA0Gkmpj1eGgfUdSGxtBs_Gnahm-AZ3NZjlXEjznkhUZ2PD4gMthehqhyphenhyphenmxB7lCli3wJWizFnOeXtja0raas/s400/MAP+Korean+Peninsula.JPG" width="336" /></span></span></a></div><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The Korean peninsula is in the news and the chain of events does not look good. Back in April 5, 2009, North Korea (NK) test launched Taepodong-2, a multi-stage ballistic missile with a range of 4,000km. A week later the United Nations Security Council (UNSC) unanimously authorized additional sanctions on </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> - an embargo on arms trade was imposed and member states were authorized to interdict North Korean vessels on the high seas. Two days later, North Korea responded in a manner that is, ironically, widely characterized as ‘unpredictable’ - it announced the cessation of the Six Party Talks (SPT) </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">, declared it would no longer feel bounded by agreements reached at the SPT, expelled all nuclear weapons inspectors of the International Atomic Energy Agency (IAEA) and informed the agency that it would resume work on its nuclear weapons program.<o:p></o:p></span></span></div><div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br clear="all" /></span><br />
<hr align="left" size="1" width="33%" /><div id="ftn1"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span></span><span style="font-size: 9pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> Six Party Talks refers to the series of joint-diplomatic engagements involving </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">, </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">, </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">, </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">, </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> and the </span><st1:place w:st="on"><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">US</span></st1:country-region></st1:place><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> that were launched in August 2003. The principal goal of these engagements was to agree to a framework for achieving a non-reversible and verifiable rollback of </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s nuclear weapons capabilities, for bringing </span><st1:place w:st="on"><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region></st1:place><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> within international financial and trading systems. <o:p></o:p></span></span></div></div></div><br />
<div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;">In May 2010, a fresh round of tensions were trigged by investigations that concluded <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span> that a North Korean torpedo was responsible for the sinking of the ROKS Cheonan, a South Korean anti-submarine patrol corvette, and the consequent death of 46 onboard sailors. <st1:country-region w:st="on"><st1:place w:st="on">North Korea</st1:place></st1:country-region> has vehemently denied its involvement in the sinking of the corvette and has declared that should it be attacked, it would defend itself with all available means, including the use of nuclear weapons. On July 28, the US and South Korean military concluded a four-day exercise in the East Sea <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[2]</span></span></span></span>, the first in a series of coercive diplomacy acts intended to deter North Korea from carrying out further attacks. Perhaps the only relief over the past one-and-a-half years was a private visit to Pyongyang by the former US President, Bill Clinton, that secured the release of two US citizens, journalists who were jailed by North Korea on charges of having illegally entered that country.</span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> <st1:place w:st="on"><st1:country-region w:st="on">North Korea</st1:country-region></st1:place> has denied involvement in the incident. <st1:country-region w:st="on">China</st1:country-region> and <st1:place w:st="on"><st1:country-region w:st="on">Russia</st1:country-region></st1:place> have questioned the validity of the claim that ROKS Cheonan was sunk by a torpedo fired by the North Korean navy. <o:p></o:p></span></div></div><div id="ftn2" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[2]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> The sea between <st1:country-region w:st="on">Japan</st1:country-region> and the peninsula is referred to as ‘<st1:placename w:st="on">East</st1:placename> <st1:placetype w:st="on">Sea</st1:placetype>’ by <st1:country-region w:st="on">South Korea</st1:country-region>, ‘<st1:placename w:st="on">East</st1:placename> <st1:placename w:st="on">Korean</st1:placename> <st1:placetype w:st="on">Sea</st1:placetype>’ by <st1:country-region w:st="on">North Korea</st1:country-region> and ‘Sea of Japan’ by <st1:place w:st="on"><st1:country-region w:st="on">Japan</st1:country-region></st1:place>.<o:p></o:p></span></div></div></div></span></div><br />
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<div></div><div style="text-align: justify;"><span style="font-size: large;"><strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">WITHER PEACE?</span></strong></span></div><div style="text-align: justify;"><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">What do these events mean for peace in the Korean peninsula? In the strict sense of the word ‘peace’ the question is meaningless as the two Koreas continue to be officially at war since 1950 as the July 1953 armistice was never followed through with a peace treaty. Therefore in the current context, we define peace as a state wherein there is no material violation of the land, sea or air space of either country. In our view the</span><b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> chance that peace is shattered is slim;</span></b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> it is no higher than it has been prior to earlier periods of escalating coercive posturing and fatal skirmishes. To see this, we discuss the strategic interests of the main players in the region, their reactions to past outbreaks of hostilities in the peninsula and review the impact of current events on the interlocking geopolitical interests in the region.<o:p></o:p></span></span></div></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"></div><div style="text-align: justify;"></div><div style="text-align: justify;"><strong><span style="font-size: large;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">THE KOREAN PENINSULA OVER THE PAST 150 YEARS</span></span></strong></div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; clear: both; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="separator" style="clear: both; text-align: justify;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxVNqon2WnIo-QrOuI4mEETT64d-RnTQRRybXTAyFew-Teorru2v3Ppv4r_4mj8FszjLBXv0L7WroVjkH98J1AMvk5wjIlNDsf16JmMYBfkJyHT_rcN_e3VJZWUr2bOqE_tfcnh2Zmlhrn/s1600/38thParallelNorth.JPG" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><img border="0" bx="true" height="273" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgxVNqon2WnIo-QrOuI4mEETT64d-RnTQRRybXTAyFew-Teorru2v3Ppv4r_4mj8FszjLBXv0L7WroVjkH98J1AMvk5wjIlNDsf16JmMYBfkJyHT_rcN_e3VJZWUr2bOqE_tfcnh2Zmlhrn/s400/38thParallelNorth.JPG" width="400" /></span></a></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;">With the Treaty of Ganghwa signed in February 1876, the Korean peninsula passed from being a Qing Dynasty </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"> protectorate to a Japanese protectorate. </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"><st1:country-region w:st="on"><st1:place w:st="on">Japan</st1:place></st1:country-region></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"> established complete sovereign rights over the peninsula through the Japan-Korea Annexation Treaty of August 1910. The defeat of </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"><st1:country-region w:st="on"><st1:place w:st="on">Japan</st1:place></st1:country-region></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"> in World War II in August 1945 ended its 35 year rule over the peninsula and the de facto partition of the peninsula along the 38</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"><sup>th</sup></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"> parallel, into the Soviet and the American spheres of influence. The Koreans were not happy with the division and both the provisional Korean governments claimed the peninsula in its entirety. In the backdrop of these events and with Soviet backing, </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"><st1:country-region w:st="on">North Korea</st1:country-region></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"> invaded </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"><st1:country-region w:st="on"><st1:place w:st="on">South Korea</st1:place></st1:country-region></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"> in 1950 leading to the outbreak of the Korean War. The war ended in June 1953 with an armistice that formalized a border between the two </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"><st1:country-region w:st="on"><st1:place w:st="on">Koreas</st1:place></st1:country-region></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"> close to the 38</span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"><sup>th</sup></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"> Parallel. </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"><st1:country-region w:st="on"><st1:place w:st="on">South Korea</st1:place></st1:country-region></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"> however did not sign the armistice agreement and the agreement was never followed by a peace treaty. The two </span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"><st1:country-region w:st="on"><st1:place w:st="on">Koreas</st1:place></st1:country-region></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;"> therefore continue to remain technically at war since June 1950.</span></div><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> Its successor state is the modern day <st1:place w:st="on"><st1:country-region w:st="on">China</st1:country-region></st1:place>. <o:p></o:p></span></div></div></div></span><br />
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</div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; text-align: justify;"><strong><span style="font-size: large;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">BACKGROUND AND STRATEGIC INTERESTS OF KEY PLAYERS</span></span></strong></div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; text-align: justify;"></div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; text-align: justify;"></div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; text-align: justify;"><strong><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="font-size: x-large;">North Korea</span></span></span></strong></div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;">The North Korean regime is a totalitarian dictatorship that has outlasted its foundational supporter, the <st1:place w:st="on">Soviet Union</st1:place>. It has been on a deathwatch since 1991 <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span> and more so since the death of Kim Il-Sung in July 1994, its former President and father of the current President, Kim Il-Jong (KJI). Those who predicted its imminent demise have had a lot of explaining to do. Perhaps they were right though if one were to think of demise as a process as opposed to an event.</span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><st1:country-region w:st="on"><st1:place w:st="on"><span style="font-size: 12pt;">North Korea</span></st1:place></st1:country-region><span style="font-size: 12pt;"> is ruled by one of the most isolated regimes in the world today. It maintains clandestine relationships <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[2]</span></span></span></span> with <st1:country-region w:st="on">Iran</st1:country-region>, <st1:country-region w:st="on">Libya</st1:country-region>, <st1:country-region w:st="on">Pakistan</st1:country-region>, <st1:country-region w:st="on">Syria</st1:country-region> and <st1:country-region w:st="on">Yemen</st1:country-region> and enjoys the diplomatic support of <st1:country-region w:st="on">Cuba</st1:country-region> and <st1:country-region w:st="on"><st1:place w:st="on">Venezuela</st1:place></st1:country-region>. In 1992, <st1:country-region w:st="on">China</st1:country-region> replaced the <st1:place w:st="on">Soviet Union</st1:place> as its principal backer. While <st1:country-region w:st="on"><st1:place w:st="on">China</st1:place></st1:country-region>’s support has kept the regime alive, it has been insufficient to allow it to adapt or expand.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;">In recent history no totalitarian regime has survived for long - some have adapted (<st1:country-region w:st="on">China</st1:country-region>, late 1970s), some disintegrated following failed reforms (Soviet Union, 1988-1991), some were overthrown (<st1:country-region w:st="on">Romania</st1:country-region>, 1980s) and some remained in suspended animation prior to collapse (<st1:country-region w:st="on"><st1:place w:st="on">Albania</st1:place></st1:country-region>, late 1970s - early 1990s). The North Korean regime seeks to adapt. To this end, <st1:place w:st="on"><st1:country-region w:st="on"><b>North Korea</b></st1:country-region></st1:place><b> has</b> <b>two principal goals</b> <b>-</b> admission into the international trading system and retention of the internal power structure <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[3]</span></span></span></span>.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;">The normalization of trade links will prevent an economic implosion and grant the regime an implicit legitimacy. <st1:country-region w:st="on">South Korea</st1:country-region>, <st1:country-region w:st="on"><st1:place w:st="on">Japan</st1:place></st1:country-region> and the West have however steadfastly maintained that democratization is a prerequisite for trade normalization. Besides this insistence, <st1:country-region w:st="on">North Korea</st1:country-region> has a paranoid fear that the <st1:country-region w:st="on"><st1:place w:st="on">US</st1:place></st1:country-region> would attack it to affect a regime change. To remove this fear, it has repeatedly asked the <st1:country-region w:st="on"><st1:place w:st="on">US</st1:place></st1:country-region> for a bilateral pact of nonaggression since the early 1990s. The <st1:country-region w:st="on"><st1:place w:st="on">US</st1:place></st1:country-region> has however refused to consider such a pact <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[4]</span></span></span></span>. To expand its bargaining space in international negotiations, <st1:country-region w:st="on"><st1:place w:st="on">North Korea</st1:place></st1:country-region> has therefore vigorously pursued a nuclear weapons program for over 15 years now and has engaged in clandestine trade in missile technologies. This has allowed it to extract hundreds of millions of dollars in international aid since the early 1990s for its punctuated display of good behavior. <span class="msoIns"><ins cite="mailto:1253598" datetime="2010-08-10T17:52"></ins></span></span><br />
<span style="font-size: 12pt;"><span class="msoIns"><o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; mso-list-ins: 1253598 20100810T1752; mso-list: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;">The regime’s seemingly irrational behavior and frequent reneging on its international commitments can be explained by the hypothesis that it intends to highlight its nuisance potential as a bargaining chip in order to achieve its two principal goals. The North Korean regime thinks it can do this without attracting military retribution as it knows it cannot push it too hard (as long as it is backed by China or another major power) as else that would plunge the Korean Peninsula into geopolitical instability <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[5]</span></span></span></span>. At the same time, this puts a bound on the perceived irrationality of the North Korean regime.<o:p></o:p></span></div><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: blue;"><span class="Apple-style-span" style="background-color: white;">[</span></span><span class="Apple-style-span" style="color: blue;"><span class="Apple-style-span" style="background-color: white;">1</span>]</span></span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="Apple-style-span" style="background-color: white;"><span class="Apple-style-span" style="color: blue;"> </span></span>The <st1:place w:st="on">Soviet Union</st1:place> collapsed in 1991. <o:p></o:p></span></div></div><div id="ftn2" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[2]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> These mainly relate to trade in missile and nuclear weapons technologies. <o:p></o:p></span></div></div><div id="ftn3" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[3]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> These are no different from what <st1:place w:st="on"><st1:country-region w:st="on">China</st1:country-region></st1:place> has pursued over the past 30 years and met with remarkable success.<o:p></o:p></span></div></div><div id="ftn4" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[4]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="Apple-style-span" style="color: blue;"> </span>US’ mutual defense treaties with <st1:country-region w:st="on">Japan</st1:country-region> and <st1:country-region w:st="on"><st1:place w:st="on">South Korea</st1:place></st1:country-region> obligate it to defend these two countries against external aggression. <st1:country-region w:st="on">North Korea</st1:country-region> has repeatedly threatened war against <st1:country-region w:st="on">Japan</st1:country-region> and <st1:place w:st="on"><st1:country-region w:st="on">South Korea</st1:country-region></st1:place>. Thus, a US-North Korea nonaggression pact will seriously undermine the credibility of US’ mutual defense treaties.<o:p></o:p></span></div></div><div id="ftn5" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[5]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> Beyond its weapons of mass destruction, <st1:place w:st="on"><st1:country-region w:st="on">North Korea</st1:country-region></st1:place>’s naval and air forces pose little threat. However it maintains a formidable army comprising 1.2 million active personnel and nearly 10 million in reserves.<o:p></o:p></span></div></div></div></span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;"></span></div><div style="text-align: justify;"></div><div style="text-align: justify;"><strong><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="font-size: x-large;">China</span></span></span></strong></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, sans-serif; font-size: 16px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The Chinese language has an idiom - “if the lips are gone, the teeth will be cold”. It is used to mean that when a protective element fails, the one that is protected, despite its apparent strength, runs a high risk of failing. This is how the Qing Dynasty and its successor, the present day </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">, have viewed its relationship with the Korean peninsula since 1870s, and with good reason.</span></span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="font-family: Arial, sans-serif;"><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The Meiji Restoration of 1868 produced an outward-looking, modern industrial state of Japan </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. In 1876, </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> forced the Joseon Dynasty that ruled the Korean peninsula to a protectorate status which resulted in the Joseon Dynasty proclaiming independence from the Qing Dynasty in matters relating to foreign affairs. Thus </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> gained a foothold in the peninsula which allowed it to launch two major attacks on the Qing Dynasty in the subsequent decades - the first resulted in the loss of the </span><st1:placename w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Liaodong</span></st1:placename><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><st1:placetype w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Peninsula</span></st1:placetype><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> and </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Taiwan</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> in 1885 to </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> and the second took place in 1937 resulting in the loss of the resource rich </span><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Manchuria</span></st1:place><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Following its defeat in </span><st1:place w:st="on"><st1:city w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">World War II</span></st1:city><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">, </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:country-region></st1:place><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> adopted a pacifist constitution </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: blue;">[2]</span></span></span></span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> however continues to view the </span><st1:placename w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Korean</span></st1:placename><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><st1:placetype w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Peninsula</span></st1:placetype><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> through the prism of the teeth and lips metaphor, with the </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">US</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> replacing </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> as the potential threat. </span><st1:country-region w:st="on"><b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></b></st1:country-region><b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s principal goal in the </span><st1:placename w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Korean</span></st1:placename><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><st1:placetype w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Peninsula</span></st1:placetype><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> is</span></b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> the maintenance of the status quo whereby the peninsula remains partitioned between the two </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Koreas</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. The reason for this is that the status quo puts a buffer between </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> and the 30,000 </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">US</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> troops stationed in </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea </span></st1:place></st1:country-region><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: blue;">[3]</span></span></span></span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. It additionally permits </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> to focus on </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Taiwan</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> vis-à-vis naval defense matters in the East. Furthermore, the buffer state acts as a natural hedge against a future rise of military power in </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. The status quo is beneficial from an economic perspective as well since a reunification would deprive </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> of a significant portion of the FDI from </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> as these funds would flow into the impoverished North.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><st1:country-region w:st="on"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></span></st1:country-region><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> however remains concerned that the North Korean regime’s rhetoric and irrational military acts might precipitate a crisis leading to a full blown invasion of </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> by the </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">US</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> led allies. Therefore we expect that </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> would exercise the leverage of its considerable economic, diplomatic and defense linkages with </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> to talk it down should it appear that the latter’s antics might force a showdown.</span><o:p></o:p></span></div><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> China’s security perceptions over the Peninsula are rooted in Japan’s actions during the late 19<sup>th</sup> century through the end of WWI. We therefore briefly discuss Japan in this section.<o:p></o:p></span></div></div><div id="ftn2" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[2]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> Article 9 of the Japanese constitution specifically prohibits <st1:place w:st="on"><st1:country-region w:st="on">Japan</st1:country-region></st1:place> from maintaining armed forces with war potential or using threat or force to settle international disputes.<o:p></o:p></span></div></div><div id="ftn3" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[3]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> <st1:country-region w:st="on">China</st1:country-region> expects that a reunified <st1:place w:st="on"><st1:country-region w:st="on">Korea</st1:country-region></st1:place> would fall squarely within the American sphere of influence. And in the unlikely case that it allies with <st1:country-region w:st="on">China</st1:country-region>, the reunification will trigger a rapid nuclearization of <st1:place w:st="on"><st1:country-region w:st="on">Japan</st1:country-region></st1:place>. Thus from the <st1:country-region w:st="on">China</st1:country-region>’s perspective, two <st1:place w:st="on"><st1:country-region w:st="on">Koreas</st1:country-region></st1:place> in the peninsula are eminently more desirable than one.<o:p></o:p></span></div></div></div></span><br />
<br />
<div style="mso-element: footnote-list;"><strong><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: x-large;">South Korea</span></span></strong></div></span></div><div style="text-align: justify;"><st1:country-region w:st="on"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea</span></span></st1:country-region><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s view on matters relating to </span><st1:place w:st="on"><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region></st1:place><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> is rooted in the relatively recent history of the region; the animosity between the Peninsular elites was pretty much a result of the superpower rivalry that followed World War II as the victorious powers competed to redefine their spheres of influences.</span></span><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="layout-grid-mode: char; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Over the years however, South Korean elites have developed a view that the North Korean regime is essentially a force for bad; the reasons for which are many:<o:p></o:p></span></span></div><div class="MsoNormal" style="layout-grid-mode: char; line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">·</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">1950-53: The North Korean invasion of </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> killed over 350,000 Koreans of which 140,000 were South Korean citizens.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">·</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">1950-till date: </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> has been unwilling to give up the use of force to achieve a Korean reunification.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">·</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">1953-early 2000s: </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> is reported to have abducted about 3,800 South Koreans in the period following the armistice. Some of the abductees have been released upon extraction of hundreds of millions of dollars in aid from the South.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">·</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">1971 and 1974: North Korean agents made an assassination attempt on the then South Korean President, Park Chung Hee. While the President survived both attempts, the second attempt killed his wife.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">·</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">1987: North Korean agents planted explosives in a Korean Airlines flight that killed all 115 people on board. The attack is purported to have been triggered by </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s decision to exclude </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> from the 1988 Seoul Olympics.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">·</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">1990s-till date: North Korean has repeatedly threatened </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> with the use of nuclear weapons in the event of a conflict between the two.<o:p></o:p></span></span></div></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><b><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea has five principal goals</span></span></b><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">in the peninsula</span></b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">-</span></b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> nudge the North Korean government towards democratization, bring about a considerable improvement of human rights situation in the North, prevent an economic implosion in the North Korea, prevent the reignition of open hostilities and, over a longer term, achieve a reunification between the two Koreas.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The first goal bears ideological importance and rhymes with the view of the other major powers. Besides, </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> believes that without incremental democratization, </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> will become even more unstable in the coming years. An unstable </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> is much more likely to launch into war against the South </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. Even if </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> does not initiate a war, destabilization would cause millions of refugees to pour into </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">, a situation that the latter is ill-prepared to handle. An economic implosion would do the same and therefore preventing an economic implosion in </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> is important to the South. The second goal relates to the issue of abductees and is important from the viewpoint of eventual reunification.</span><o:p></o:p></span></div><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> <st1:place w:st="on"><st1:country-region w:st="on">North Korea</st1:country-region></st1:place> maintains a formidable army and a growing array of weapons of mass destruction.<o:p></o:p></span></div></div></div></div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;"></span></div><div style="text-align: justify;"></div><div style="text-align: justify;"><strong><span style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></strong><br />
<strong><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="font-size: x-large;">Japan</span></span></span></strong></div><div style="text-align: justify;"><st1:country-region w:st="on"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></span></st1:country-region><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> has come a long way from viewing the Korean peninsula as a source of natural resources and as a base point for launching military attacks into </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. It however remains deeply concerned about </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s increasingly threatening posture, particularly as the latter continues to expand its array of weapons of mass destruction. </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> sees increasing democratization and an increasing respect for human rights in </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> as important to its own security. </span><b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Beyond that, </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s</span></b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">key goal vis-à-vis </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> is</span></b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> a verifiable and non-reversible roll back in the latter’s nuclear weapons and missile capabilities. Achieving this goal would make </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> risk neutral to the future evolution of </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> - an unstable </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> would not be in a position to inflict serious harm as the Japanese mainland is separated from </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> by at least 600km of sea. In the alternative case that the two </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Koreas</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> reunify, </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> would not face a nuclear-armed successor state.</span></span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"></div><div style="text-align: justify;"></div><div style="text-align: justify;"><strong><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="font-size: x-large;">Russia</span></span></span></strong></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-size: 16px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The Soviet Union’s interest in the </span><st1:place w:st="on"><st1:placename w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Korean</span></st1:placename><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><st1:placetype w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Peninsula</span></st1:placetype></st1:place><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> was the result of its long-held desire to gain access to warm water ports. It was the principal backer of the North Korean regime for over 40 years and the Korean War would not have occurred without the active encouragement it provided to </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">.</span></span><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">In the modern context however, </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s contribution is no longer the major component in </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s aid package. The size of </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s trade relations with </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> is an insignificant fraction of its total trade. </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s focus since its recovery in early 2000s from the debilitating effects of the Soviet breakup has been the Balkans, the Caucasus region and </span><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Central Asia</span></st1:place><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. Each of these regions is far away from the </span><st1:placename w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Korean</span></st1:placename><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><st1:placetype w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Peninsula</span></st1:placetype><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> and, the peninsula itself is separated from </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s core by over 7,000km. These facts therefore raise the question why </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> is even involved in the Six Party Talks. The reason for </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">’s participation is that it is one of the five permanent members at the UNSC. Thus any Security Council resolution against </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> would require a positive vote from </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">While </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> generally agrees with the international community that respect for human rights and greater societal openness is important in </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">, </span><b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">its paramount goals in the region are</span></b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> - ensure stability in the peninsula and prevent the emergence of a new nuclear power in its neighborhood. The first goal is however far more important to China and South Korea than to Russia and the issue of preventing North Korea from becoming a full-fledged nuclear power gives many more sleepless nights to Japan and the US, than to Russia. Its main interests in the peninsula will therefore be well taken care by the eager pounding of hearts of other capable, interested parties.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">The diplomatic surplus that </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> generates out of the choices it makes with regards to </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> will be put to work elsewhere - on the tradeoffs it needs to make in the Caucasus region, in Eastern Europe and issues with the </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">United States</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> concerning strategic weapons deployment.<o:p></o:p></span></span></div></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div style="text-align: justify;"></div><div style="text-align: justify;"></div><div style="text-align: justify;"><strong><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="font-size: x-large;">USA</span></span></span></strong></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 12pt;">The US can easily address the problem in the Korean Peninsula - it could sign a bilateral nonaggression pact with North Korea and pave way for normalization of the North Korea’s trade relations in return f</span><span style="font-size: 12pt;">or the latter’s abjuration of the use of force against South Korea and Japan, its cooperation for the implementation of mechanisms to allow a verifiable, non-reversible and an externally enforceable rollback of its (NK’s) own nuclear weapons capabilities and its bringing about a visible improvement in t</span><span style="font-size: 12pt;">he human rights situation (in NK). One might wonder then why this has not been done yet. There are several reasons for this.</span></span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;">First, <st1:country-region w:st="on">North Korea</st1:country-region> has a paranoid distrust of the <st1:country-region w:st="on"><st1:place w:st="on">US</st1:place></st1:country-region>. Thus, any deal such as the one outlined above will require multilateral guarantees and multilateral trust verification mechanisms and therefore, will be complicated, require prolonged negotiations and involve trade-offs, many of which may not have even a remote connection with the North Korea issue. Second, <st1:country-region w:st="on"><st1:place w:st="on">North Korea</st1:place></st1:country-region> has frequently reneged on its international commitments under prior concluded negotiations. Third, while <st1:country-region w:st="on"><st1:place w:st="on">North Korea</st1:place></st1:country-region> is prepared to give up the weapons of mass destruction, its regime feels that the elite power structure would not survive democratization. Fourth, there is a strong constituency of strategic thinkers in the US that believe the death of its current President who is reportedly not in good health could open opportunities in the near future for dealing with factions that are more amenable.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><br />
</div><b><span style="font-size: 12pt; line-height: 115%;">US has five objectives in the interim -</span></b><span style="font-size: 12pt; line-height: 115%;"> prevent an implosion of the North Korean regime until an amenable faction emerges, prevent the proliferation of nuclear weapons and ballistic missile technologies by North Korea, remain committed to not making any material concessions until irreversible mechanisms for a complete rollback of North Korea’s nuclear weapons capabilities have been put in place, encourage China to use its considerable leverage with the regime to prevent the latter from forcing a showdown in the peninsula and tighten the screws on money laundering channels and financial institutions that the North Korean regime uses to settle its foreign transactions <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span>. </span> <br />
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<div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> The North Korean regime is heavily dependent on such transactions. Besides, access to such transactions reduces the effectiveness of aid and trade and levers that <st1:country-region w:st="on">China</st1:country-region>, <st1:country-region w:st="on">Japan</st1:country-region> and <st1:country-region w:st="on">South Korea</st1:country-region> have with <st1:place w:st="on"><st1:country-region w:st="on">North Korea</st1:country-region></st1:place>.<o:p></o:p></span></div></div></div></span></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;"></span></div><div style="text-align: justify;"></div><div style="text-align: justify;"><strong><span style="font-size: large;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">THE QUESTION OF PEACE</span></span></strong><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></div><div style="text-align: justify;"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">We have noted right in the beginning that the chain of events over the past five quarters has been rather grim. However, when one considers the recent events in the light of past patches of flare-ups in the </span><st1:place w:st="on"><st1:placename w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Korean</span></st1:placename><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span><st1:placetype w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Peninsula</span></st1:placetype></st1:place><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> (see below), they do not stand out as particularly bad. In the past, the flare-ups remained just that - they never escalated into a sustained military conflict or an invasion of either of the two </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Koreas</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. This observation is particularly noteworthy when viewed in the light of the grim nature of such flare-ups (assassination of the South Korean President’s wife, 1974) and that the flare-ups have spanned both periods, when North Korea was relatively much weaker (1993, North Korea withdrew from the NPT) and when it has been relatively much stronger (later part of Nixon’s Presidency) than it is today.</span></span><br />
<span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span> </span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="line-height: 115%;"></span></span><b><i><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="font-size: x-large;">Flare-ups Since the 1953 Armistice</span></span></span></i></b><br />
<span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span><br />
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<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"></span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">1968: North Korean patrol boats seize a <st1:country-region w:st="on"><st1:place w:st="on">U.S.</st1:place></st1:country-region> ship that was on an intelligence mission and hold its crew, including 80 officers, captive for 11 months.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">Jan 19, 1968: North Korean army unit enters <st1:city w:st="on"><st1:place w:st="on">Seoul</st1:place></st1:city> to assassinate President Park Chung Hee. The attempt failed and ended in the death of nearly a hundred people including 68 South Koreans and 3 Americans. <o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">Apr 15, 1969: A US Navy reconnaissance plane was shot down over the <st1:place w:st="on"><st1:placename w:st="on">East</st1:placename> <st1:placetype w:st="on">Sea</st1:placetype></st1:place> by a North Korean MiG-17 aircraft killing all 31 Americans on board. <o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">1974: North Korean agents kill <st1:country-region w:st="on">South Korea</st1:country-region>’s first lady in their second attempt to assassinate <st1:place w:st="on"><st1:placename w:st="on">President</st1:placename> <st1:placetype w:st="on">Park </st1:placetype></st1:place><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span>. <o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">1993: Just two years after the dissolution of its major backer, the Soviet Union, <st1:country-region w:st="on"><st1:place w:st="on">North Korea</st1:place></st1:country-region> withdraws from the Nuclear Nonproliferation Treaty (NPT) and prevents international inspectors from reaching the Yongbyon nuclear plant.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">1996: A <st1:country-region w:st="on">North Korea</st1:country-region> submarine runs aground the <st1:country-region w:st="on"><st1:place w:st="on">South Korea</st1:place></st1:country-region>’s coast. The manhunt for the sub’s crew kills 24 North Koreans and 13 South Koreans.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">1999: Sea skirmish between North and <st1:country-region w:st="on"><st1:place w:st="on">South Korea</st1:place></st1:country-region> navies leaves dozens of North Korean personnel dead.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">2001: President Bush halts all diplomatic talks with <st1:country-region w:st="on"><st1:place w:st="on">North Korea</st1:place></st1:country-region> claiming evidence that the latter was attempting to enrich Uranium.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">2002: <st1:place w:st="on">Yellow Sea</st1:place> skirmish leads to the death of six South Korean and a dozen North Koreans. <st1:country-region w:st="on">US</st1:country-region> President George Bush designates <st1:country-region w:st="on">North Korea</st1:country-region> as being part of an “Axis of Evil” in his State of the Union address and suspends <st1:country-region w:st="on"><st1:place w:st="on">US</st1:place></st1:country-region> oil shipments to the North. <st1:country-region w:st="on"><st1:place w:st="on">North Korea</st1:place></st1:country-region> retaliates by reactivating the Yongbyon nuclear reactor and (again) expelling all nuclear weapons inspectors.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">Oct 9, 2006: <st1:country-region w:st="on"><st1:place w:st="on">North Korea</st1:place></st1:country-region> conducts its first nuclear test.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: 3.0pt; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">2008: The newly elected South Korean President,</span> <span style="font-size: 12pt;">Lee Myung-Bak, reverses the decade-old Sunshine Policy and links further improvement in ties between the two <st1:country-region w:st="on"><st1:place w:st="on">Koreas</st1:place></st1:country-region> to the North’s compliance in the ongoing process of denuclearization. The North reacts furiously and cuts off all official dialogue.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 27.35pt; margin-right: 0in; margin-top: 0in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; text-align: justify; text-autospace: none; text-indent: -.25in;"><span style="font-size: 12pt;">·<span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> </span></span></span><span style="font-size: 12pt;">May 25, 2009: <st1:country-region w:st="on"><st1:place w:st="on">North Korea</st1:place></st1:country-region> conducts its second nuclear test.<o:p></o:p></span></div><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> Ironically, <st1:place w:st="on"><st1:placename w:st="on">President</st1:placename> <st1:placetype w:st="on">Park</st1:placetype></st1:place> was assassinated in Oct 1979 by Kim Jaegyu, the director of the (South) Korean CIA.</span></div><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="Apple-style-span" style="font-family: 'Times New Roman';"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-family: Arial, sans-serif; font-size: 13pt;"><br />
</span></i></b></span></div><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><b><i><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: x-large;">In Recent Times</span></span></i></b></div></div></div></span></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-size: 16px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">In the present times we are watching an increasingly hardened stance on the North by </span><st1:country-region w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">South Korea</span></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> which is however being balanced by an increasingly accommodative, and at times, supportive </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">China</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">. </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Russia</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> remains aloof though occasionally use its weight in international affairs to limit internationally coordinated measures against the North from going too far. </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Japan</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> maintains little direct leverage over the North due to its pacifist constitution, because it has all but ceased providing aid, and because trade links with the North are now all but severed </span><span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">.</span></span><br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">With the knowledge that it cannot be pushed too hard, </span><st1:country-region w:st="on"><st1:place w:st="on"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">North Korea</span></st1:place></st1:country-region><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"> appears to play the same old game wherein gap periods in diplomatic contacts are followed by a demonstration of its nuisance potential, leading to a revival of the diplomatic process and the extraction of aid.</span><o:p></o:p></span></div><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> Dick K. Nanto and Emma Chanlett-Avery, “<st1:place w:st="on"><st1:country-region w:st="on">North Korea</st1:country-region></st1:place>: Economic Leverage and Policy Analysis,” Congressional Research Service, Jan 22, 2010.<o:p></o:p></span></div></div></div><br />
</div><div style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;"></span></div><div style="text-align: justify;"></div><div style="text-align: justify;"><strong><em><span class="Apple-style-span"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="font-size: x-large;">Will the Peninsula Heat Up Further?</span></span></span></em></strong></div><div style="text-align: justify;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 16px;">A nuclear armed <st1:country-region w:st="on">North Korea</st1:country-region> is unacceptable to the <st1:country-region w:st="on"><st1:place w:st="on">US</st1:place></st1:country-region>. However a rollback need not be achieved with the current regime. In fact rollbacks in the past, most notably in <st1:country-region w:st="on">South Africa</st1:country-region> and <st1:country-region w:st="on"><st1:place w:st="on">Brazil</st1:place></st1:country-region>, were achieved only once the regimes there changed. Besides, while the US could easily militarily dominate North Korea, the war would likely throw the global economy into a tailspin, severely undermine the already delicate economies of its European partners, and, in all likelihood, the European project itself. Even if South Korea (miraculously) escapes relatively unharmed in the military showdown, it remains entirely ill-equipped to handle the consequences of a refugee influx from the North. China’s paramount interest is in maintaining its lips. Thus it will not brook an invasion of North Korea. And, if it appears that intra-elite relationships in North Korea are going sour beyond what is considered as a norm, China would arrest the spiral through intervention in North Korea’s domestic politics or even, through limited-military intervention on grounds that regime collapse would send refugees packing into its north eastern territories. Japan would find it extremely difficult to support strong military measures until a roll-back of North Korea’s nuclear and missile capabilities has been achieved. Besides, to whet Japan’s appetite for war, the US would need to present it with more than just a plan for a “Mission Accomplished” speech - Japan does not want an Iraq in its neighborhood <span class="MsoFootnoteReference"><span class="MsoFootnoteReference"><span style="font-size: 12pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span>. With so many imponderables, the US is unable to provide guarantees that such a war would be quick and would not lead to a power vacuum in North Korea. Unless North Korea itself initiates major hostilities, a status quo in the peninsula remains Russia’s most desired scenario.</span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><br />
</div><div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-align: justify; text-autospace: none;"><span style="font-size: 12pt;">Thus the latest round is likely to be as exciting as watching paint dry. A key assumption is that the key parties follow an information-complete rational behavior. What could happen should this assumption fail to hold? How far can <st1:country-region w:st="on"><st1:place w:st="on">North Korea</st1:place></st1:country-region> push before war descends on the Korean peninsula? These questions are more interesting.<o:p></o:p></span></div><div style="mso-element: footnote-list;"><br />
<hr align="left" size="1" width="33%" /><div id="ftn1" style="mso-element: footnote;"><div class="MsoFootnoteText" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 0in; margin-right: 0in; margin-top: 3.0pt; text-align: justify;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt;"><span class="MsoFootnoteReference"><span style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;"><span class="Apple-style-span" style="color: blue;">[1]</span></span></span></span></span><span style="font-family: Arial, sans-serif; font-size: 9pt;"> On May 1, 2003, in a speech delivered on board the USS Abraham Lincoln, US President G.W. Bush declared an end to major combat operations relating to the second US-led invasion of Iraq. Iraq continues to fester, still.<o:p></o:p></span></div></div></div></span></div>Amithttp://www.blogger.com/profile/15826478372618142766noreply@blogger.com0