Wednesday, January 13, 2010

The AfPak ethnic border

In this blog entry I want to look at the Afghan conflict from a distance. We are regularly told about the fissure in Afghanistan between the Pasthuns and the other tribes (mainly Tajiks). But they speak closely related Persian languages. The real ethnic border is further east between the Indian and the Persian world. It is the Indus.

Pakistan can be divided in three parts. The thinly populated north houses a diversity of tribes, most of whom speak Tibetan languages. The Eastern half speaks Indian languages and the Western half speaks mainly languages related to Persian (Pashtu and Beluchi). The border between east and west is the Indus. Although there live much more people in the east (150 million) than in the west (30 million) the areas have a comparable size. Geographically too the Indus is a border: the area west of it is called the Iranian Plateau. Being a minority the Pashtuns and Beluchi are discriminated somewhat in Pakistan.

This raises the question whether Pakistan has really an interest in a stable Afghanistan. A prosperous Afghanistan might seduce the Pashtun to demand to join Afghanistan (the Beluchi are already fighting for secession). It would result in a more prosperous Western half of Pakistan that would be more oriented towards Kabul then towards Islamabad and Karachi. Pakistan's Afghanistan policy centers on religion for a good reason. Religion is the main thing they have in common and it is also the main thing where Afghanistan (mostly Sunni) differs from Iran (Shiite). However, when you focus on religion you end up supporting religious hardliners like the Taliban. An additional advantage of the Taliban for Pakistan is that its primitivity helps to prevent Afghanistan from becoming a prosperous country.

This raises the question why we ignore culturally more related Iran and Tajikistan and rely on Pakistan in our Afghanistan policy. Iran has good reasons to stabilize Afganistan that is major source of drugs, crime and unrest. Yet the religious division makes it rather certain that Iran never will have real close control over Afganistan. Iran is also a much richer country that has much more to offer to the Afghans than Pakistan.

Involving Iran in Afghanistan would have as an additional advantage that it would reduce Iran's fear for being surrounded and threatened by the US. This could result in more cooperative policies towards Iraq and regarding nuclear matters.

Wednesday, January 06, 2010

The dark side of micro-finance in Bosnia

Al Jazeera has an article about micro-finance in Bosnia. The theory is that microfinance helps people to start small businesses. Reality in Bosnia was that most loans were just used for consuming (nobody checked what you did with the money). Companies competed to extend loans and by the end of 2008 there were 390,000 loans on the books, together totaling over BAM 1 billion ($770m). As there was no central credit rating organization some people took several loans from different banks. Now the default rates are rising fast and the banks have become stingy.

For starting businesses the loans were not suitable. The rates were too high, the typical term of one year maximum much too short and the amounts of money available much too low. If you asked for 70,000 US$ it was not possible. So nothing was solved for the large communist era companies that wanted to transform themselves.

Wednesday, December 30, 2009

Inzko is going for broke in Bosnia

Bosnia's international overlord (OHR) Inzko has thrown down the gauntlet: he has stated that Dodik has violated Dayton and announced that he will go to the Security Council. It is the culmination of a long policy of confrontation from both sides, but mostly from Inzko.

In the Dayton Agreement Inzko's function is described as a mediator. But Inzko hasn't shown any of the neutrality that is expected from a mediator. Instead he has extensively tried to use his "Bonn powers". These powers were after Dayton given to the OHR to enable him to counter obstruction like the blocking of refugee returns. Inzko abused them by instead trying to use them to "improve" Dayton. What he failed to perceive was the element of authoritiveness. Using the Bonn powers to fight obstruction was in the spirit of Dayton and as such Bosnia's Serbs could accept it. However, using these same powers to "reform" the Dayton Agreement in a way that makes it more acceptable for the Bosniaks and less acceptable for the Serbs definitely is not acceptable for them. By acting so Inzko has undermined the credibility of his function.

Dodik has reacted to this with his own challenge: he wants a referendum on the extension of the appointment of some international judges. He claims that these judges are prejudiced but he doesn't seem very serious about that: I haven't heard a list of complaints or seen a website that attacks the functioning of those judges. They definitely would be there if Dodik wanted to convince the international community of his viewpoint. Instead it looks like Dodik just is trying to pick a fight on a point where he thinks he can get the support of his population.

This confrontationist attitude may cost Dodik dearly. By shaping the confrontation as a challenge to the OHR and the international community he is doing exactly what his enemies wish: challenging the world's big powers openly more or less forces them to react. It looks like Dodik has become overconfident after his previous confrontations with Inzko and now wants to definitively dispower Inzko.

In my opinion both sides are foolish. Their behavior may seriously harm Bosnia.

Puzzled about Cyprus

The international community keeps pushing for a reunification of Cyprus. I have never really understood their eagerness. Their last proposal - that was rejected by the Greeks in a referendum - astonished me for its lenience towards the Turks. In my opinion you don't have a country when foreign (Turkish) troops are stationed there forever. The guarantees for the Turks against Greeks buying land also astonished me: the Greek did not get any guarantees against the Turks taking over more and more due to higher population growth and immigration from Turkey. This would become a hot issue when Turkey would become an EU member and as a consequence Turks from Turkey would get the freedom to settle on Cyprus.

In my opinion there is only one solution: partition. This is what the Turks advocate. The Greeks object because they think the Turks have taken more than their share of the island (1/3 of the island for 1/5 of the population). So I expect that a solution can only be reached when the Turks give up some of this territory.

Internationals may protest to such a solution as rewarding or acceptance of ethnic cleansing. And some of both communities who want to return to their old homes will object too. But unlike Bosnia where everyone speaks the same language Cyprus has two very different languages and cultures. I am pessimistic on the possibility to rebuild the delicate trust that was broken several decades ago.

Thursday, December 24, 2009

Why we are heading for the next economic crisis

With a total lack of economic reforms it seems clear that we are going towards the next bubble. The next crisis may make us look back to the present as a picknick.

For reason of its central position in the economy banks have government protection. This is supposed to result in a steady supply of credit to the business sector and private people. This protection and the access to cheap money from the central bank also constitute a hidden subsidy from the government for the banking sector. For this reason this protection has traditionally been reserved for commercial banks while business banks lack this protection.

Many people think that the Glass-Steagall act that regulated this separation was primarily for the protection of the commercial banks of the greater risks of the business banks. I don't agree. Glass-Steagall was introduced at about the same time that the US government introduced guarantees for the commercial banks. Its goal was to make sure the business banks didn't enjoy the same protection. This not only safed the government money. It also prevented ensuing distortions. Risk is a less important factor as it can be huge at commercial banks too: in periods of falling house prices commercial banks tend to suffer heavily.

Of course a separation between business banks and commercial banks has a price. A company need to keep contacts with two banks to get full service and both banks need to do extensive investigations to determine that it is safe to put money into a company. For this reason there is always the pressure from commercial banks to get more leeway to provide business services to companies. From ths 1970s this pressure succeeded and finally in 1999 Glass-Steagall was repealed.

This resulted in an extended financial sector that was de facto subsidized by the government. Of course this subsidy was hidden in guarantees and Central Bank loans but that didn't make it less real. Being subsidized this channel started to attract more and more money - at the expense of other channels. It was one of the factors that contributed to an increasingly endebted business sector.

In reaction to the credit crisis the banking sector was expanding and companies like Goldman Sachs got a status as bank. This certainly helped stabilize the crisis. But for the long term it was exactly the wrong development. Instead of expanding the guaranteed sector it should have been shrinked by forbidding banks to engage in activities outside their core or at least by making such activities unattractive by demanding large reserves. In addition banks should also be equired to have large reserves against any loans they make towards other financial institutions.

Such restrictions would actually help the recovery. Now much of the easy money disappears in all kind of speculation and such restrictions would make that less attractive.

The consequence of the present policies is that the easy money is stimulating bubbles while it contributes not much to permanent recovery. Sooner or later the new bubbles will burst. That time easy money will no longer be an option - many governments are too endebted - and we may face a real crisis.

Monday, December 21, 2009

The EU is making the same mistake twice

As they say, those who cannot learn from history are doomed to repeat it. Once the EU drove Yugoslavia into a civil war with a divisive policy that sets up one ethnic group against the other.

In 1991 EU nations secretly supported separationist preparations in Croatia and Slovenia. Then they prematurely recognized them under the excuse that Yugoslavia had dissolved: a distortion of the situation and dangerous exploit in international law that could be used against any multi-ethnic country. But perhaps the most dangerous was that the EU adopted the self-delusion that everyone would follow them. In fact nothing changed on the ground in Yugoslavia except that one side had gotten an ally and the other an adversary.

Rich provinces all over the world try to secede in the knowledge that they will be even richer when they no longer have to subsidize the rest of the country. In the case of Croatia and Slovenia there was the additional appeal of a speedy EU membership. Given these circumstances the secession of Slovenia and Croatia was probably unavoidable unless the EU adopted an explicit policy that took attraction of a speedy EU membership away. Instead the EU fell for Croat and Slovene propaganda that tried to paint their secession in moral colors. Milosevic was painted as an extreme nationalist. He wasn't. He was just asking what most politicians representing an underrepresented large ethnic group that felt discriminated against would have asked. His political methods weren't always nice, but he was faced with political adversaries in other republics who had extended their power far beyond what had been intended in the Yugoslav constitution. His involvement in mass urder in Bosnia was still in the future: for the moment his policies in Kosovo were very similar to Croatia's policies towards its Serb minority.

A sound policy would have taken a distance and let both sides struggle it out in the political arena. It would have stressed that without an agreement the republics were still part of Yugoslavia, but it the same time it would have discouraged violence or rigorous steps by the central government. Instead the "moral" view of the EU led to immoral behavior. It now considered the rebellious Serbs in Croatia as insurrectionists instead of one side in a conflict. And it discarded Croat discrimination as primarily Croatia's "internal affairs". The result was predictable: Croatia didn't see anymore need for caution in its treatment of its Serb minority and the Serbs didn't see any other way than armed conflict to achieve their goals. Bosnia's war started in a similar way.

One would have supposed that more than a decade later the West would do better with Kosovo. Instead we see exactly the same pattern. The EU again couldn't resist the temptation to choose sides: this time by recognizing Kosovo. It could have chosen a neutral position and appointed a neutral mediator, but instead it appointed Ahtisaari whose misguided principles ("Kosovo should never again under Serbian rule") made any other outcome than unilateral independence impossible. A real neutral negotiator would asked the Albanians to convince Serbia that the rights of the Serb and other minorities were guaranteed.

Now too the real bad things happen afterwards when the EU has no longer the capability to see the behavior of both sides in the same light. Where in Croatia the EU crossed the line with its ignoring of the maltreatment of Croatia's Serbs, it seems now poised to cross the line with the privatization of Brezovica. Anyone can see that that will inevitably result in the end of the employment of many Serbs there. Past actions, like the evacuation of the court house, concerned symbols. Here it concerns directly the survival of Kosovo's Serb minority. And just as in the past the EU hid behind declarations about Croat "sovereignty" it now hides behind Kosovo sovereignty and the Ahtisaari Plan.

Friday, December 11, 2009

The appeasement of China

When one studies the runup towards World War II the appeasement of Germany plays an important part. It was not just Munich 1938: on many prior ocassions (like the remilitarisation of the Rhineland) Germany had imposed its will with fait accompli's and military threats. In many cases Germany was just ondoing unfair provisions of the Versailles Treaty. Yet the effect was the same: Germany became used to getting its way unilaterally and became overconfident.

In China we see now a similar pattern. Everybody knows that China will have to do something about its trade surplus and its undervalued renminbi. Yet Obama (just as Bush before him) are too timid to say it openly. Instead they let themselves be lectured again and again by arrogant Chinese leaders. At the end of his last visit to China Obama even signed a common declaration that was widely seen a kowtowing to China's ambitions for regional hegomony.

The price of this indulgence is becoming higher and higher. The world economy is getting seriously out of balance and may end up in a crisis. China's leaders become more and more bold in their demands. Their recent noise about the Dalai Lama's visit to the Tamang region in India was the most striking example. And when one reads posts by Chinese on the internet it becomes clear that the problem is much wider. Many of them are extremely nationalist and quite a few threaten with war if China doesn't get its way.

One can only hope that it doesn't take too long before mr. Obama finally realizes that he can keep giving in to China forever because it will only lead to a steady increase of their demands. And this concerns not only the US: Other countries face the same problem with China.

Thursday, November 26, 2009

Moral persuasion versus blackmail

With the discussion about sanctions against Iran it is good to remember how ineffective sanctions usually are. Yet proponents of sanctions keep asking for more - claiming effectiveness that on closer look doesn't hold. In fact moral arguments work much better than blackmail.

Stratfor recently even claimed that the Apartheid had been beaten by sanctions. In fact there were sanctions for many years against South Africa - without much effect. The advocates of sanctions knew that but it didn't bother them as their real goal was to further discussion on the moral basis of apartheid. The South African regime defended Apartheid with the argument of "separated development". In a world where many white parents would be deeply shocked when the children would marry blacks such an argument certainly had its appeal. By shifting the discussion to the way this "separate development" reserved the best jobs and best lands for the white people the apartheid adversaries succeeded in making apartheid look bad morally. That did the job.

A similar argument can be seen in the demise of communism. The Macchiavellians like to claim that the fomenting of war in Afghanistan in 1979 by Carter and Brzezinski and the the start of a new arms race that the Soviet Union couldn't keep up with did the job. But Gorbachev has said that it was the detente that had convinced him that the West wasn't as bad as communist propaganda preached. Reagan's moral appeals ("mr. Gorbachev, tear does this wall" and calling the Soviet Union "the Evil Empire") did the rest.

In Milosevic's Serbia and Saddam's Iraq sanctions enriched a clique closely connected to the ruler. They strengthened rather than weakened his control over the country. Milosevic was in the end brought down with a "color revolution" - a foreign sponsored semi-coup. And Saddam was brought down with force.

Given this background one would expect stronger support for a moral approach. Yet the Macchiavellians manage to keep monopolizing the discussion when it comes to disagreeable regimes like Iran, Zimbabwe, North Korea, Birma, etc. In my opinion a moral approach would be much more fruitful. Unfortunately Obama seems incapable to shed the shadow of the immoral Cheney.

Sunday, November 22, 2009

ICJ decision on Kosovo to be vague

In an interview with the Russian news agency Ria Novosti the president of the International Court of Justice, ICJ, Hisashi Owada said that the Court’s advisory opinion on whether Kosovo's unilateral declaration of independence went against international law will not be "a clear yes or no".

I am still looking for the Russian original - as far as I can see Ria Novosti hasn't published an English translation - so that I can see the quote in context (I don't speak Russian but Google Translate might help). Please help me find it!

On itself it is not a surprise. I had heared similar rumors from people who have contacts at the ICJ here in Holland. Yet there are some strange elements in this interview. First of all it is unusual that a president of a court give an indication of the verdict while the data gathering is still going on. For the rest it looks like there will be some vague general text with the addition of more clear individual opinions of the diverse judges. The question is why the court would lend itself to such a charade.

In my opinion the best outcome would be when the court stated that they can understand why the Western countries did what they did (some face saving) but that it is not legal and there have to be real negotiations. Otherwise the most probable end will be a Kosovo without minorities (they keep being marginalized and leaving) and with a dubious international status for a long time.