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A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

30 November 2008

Between a rock and a hard place (UPDATE)

Now that the media has caught up with Stratfor's earlier analysis re the mayhem in Mumbai, and its consequent devolution of relations between India and Pakistan, Stratfor steps out ahead again, and explains why India -- its government, its people -- is caught between a rock and a hard place.

And why the unthinkable seems to be, correctly or otherwise, that nation's only possible response.
-- David M Gordon / The Deipnosophist

November 30, 2008

India: A Political Response Begins to Form

Five days after the Mumbai militant attacks began, the Indian government's response is beginning to take shape Nov. 30. So far, the following actions have been taken:

  • According to a Reuters interview with India's minister of state for home affairs, Sriprakash Jaiswal, India will increase security to a "war level." Jaiswal went on to say, "They (Pakistan) can say what they want, but we have no doubt that the terrorists had come from Pakistan."
  • Indian Home Minister Shivraj Patil resigned Nov. 30. Finance Minister Palaniappan Chidambaram, who led an effort to overhaul India's security agencies as a junior minister in the 1990s, will take his place. Prime Minister Manmohan Singh, an economist by trade, will handle the finance portfolio for now. National Security Adviser M.K. Narayanan had submitted his resignation, but Singh refused it and thus Narayanan will retain his position, according to the Times of India. More resignations are expected from senior members of the Indian Intelligence Bureau and the Research and Analysis Wing.
  • Singh announced in an official statement that air and sea security would be increased; the counterterrorism National Security Guard will be expanded to include four additional hubs in different parts of the country; special forces at the disposal of the central government will now be utilized for counterinsurgency operations; and a Federal Investigating Agency will be formed.
  • Singh asked Foreign Secretary Shiv Shankar Menon to rush to Washington, D.C., to brief U.S. President-elect Barack Obama's advisers on the Mumbai attacks. Menon is expected to leave for Washington on Dec. 1.
Notably, recent statements from Singh and Foreign Minister Pranab Mukherjee have a revealed a much less hawkish tone and have avoided any further mentions of the attacks being linked to Pakistan. Sources in New Delhi report that the shift in tone has likely stemmed from behind-the-scenes intervention by the U.S. administration.

As Stratfor has discussed, after an attack of this magnitude, India's ruling Congress party has no choice but to respond forcefully if it wishes to avoid government collapse. That response would inevitably be directed at Pakistan, given the growing indications of a Pakistani link to the attacks and the history of Pakistani-backed Islamist militant activity inside India. Though the circumstances are very different today than they were in 2002, after another major attack in India blamed on the Pakistani state, the Indians have a political need to pressure the Pakistani government to rein in the suspected rogue elements of the Inter-Services Intelligence (ISI) agency who maintain close relations with these groups.

But New Delhi is also in a quandary. While it retains the option of amassing troops along the Indo-Pakistani border and possibly conducting cross-border raids against militant training camps in Pakistan-occupied Kashmir, thus building up a crisis with Islamabad, the Pakistani government is now at its weakest point politically, militarily and economically. This is of enormous concern to the United States, which at the very least needs Islamabad to hold itself together in order to make progress on the counterterrorism front in both Pakistan and Afghanistan.

The restraint that the ruling Congress party has exhibited so far, however, could end up being the party's political death sentence. By many accounts, the response thus far is being considered weak. No amount of political musical chairs is likely to satisfy the Indian public and those inside the Congress party arguing for more aggressive action against Pakistan. Moreover, dismissing senior members of the government most intimately familiar with the current situation might be politically necessary, but it could undermine continuity of policy, particularly when there are enormous inefficiencies already inherent in the creation of large federal entities. It could be that the government is awaiting more concrete evidence of a Pakistani link before it ratchets up tensions, but from where things stand now, pressure is building up inside India against a ruling party that has long been accused of being "soft on terrorism."

The main opposition Hindu nationalist Bharatiya Janata Party (BJP) is ready to pounce and retake the government. Already the BJP has run a number of front-page advertisements in major Indian newspapers accusing the ruling Congress party coalition of its failure to defend the nation. One such ad appeared on a blood-red-stained background with the message, "Brutal terror strikes at will. Weak government. Unwilling and incapable. Fight terror - Vote BJP." The next few days will be critical as the BJP looks for the most optimal time to make its move against the government to bring on early elections. It must also be remembered that the BJP and its Hindu nationalist affiliates have ties to a number of activists reeling from the Mumbai attacks. These could easily be used to start riots inside India to put more pressure on the ruling Congress party (a tactic that Islamist militant groups operating in India have long hoped to trigger). The BJP has also condemned Congr ess for trying to get the Pakistani ISI chief to come to India, saying, "Inviting ISI for probe is like handing over treasury keys to the thief."

The political situation is still dicey, but Congress is increasingly looking like it will be unable to survive the aftermath of this attack unless it takes more aggressive action. At the same time, the buildup in the BJP's rhetoric locks that party into a more hardline position, should it end up coming to power. Either way, the potential for a crisis in Indo-Pakistani relations is still high.
Geopolitical Diary: The Mumbai Crisis
1 December 2008

The world grew more complicated during the American Thanksgiving holiday. On Wednesday night, Nov. 26, a group carried out a complex terrorist-style attack in Mumbai, India. In addition to seizing two luxury hotels and a Jewish facility, the attackers carried out a series of random attacks throughout the city, using automatic weapons and hand grenades. Current evidence indicates that at least one group came to Mumbai from Karachi, Pakistan, via ship, then hijacked an Indian vessel and landed at a fairly isolated beach, hooking up with operatives already deployed in Mumbai. Some of the attackers appear to have been Indian Muslims and some from Pakistan, but under any circumstance the attacks were more complex and sophisticated, and of longer duration, than previous terrorist-style attacks in India.

The Indian government, which is not particularly strong, obviously must respond. It does not have the option of simply moving past the event. The Indians’ two responses must be either blaming themselves for poor security or blaming the attacks on a foreign power —obviously Pakistan. Both of these could be correct responses, but emphasizing one would probably bring down the Indian government, while emphasizing the other would allow the government to deflect responsibility to Pakistan, a country neither liked nor trusted in India. The charge would not necessarily be that the Pakistani government, or even elements of the government, planned the attacks. The charge would be that the Pakistani government failed to act decisively to prevent the attacks. In other words, the attacks occurred because the Pakistanis have not been sufficiently aggressive in bringing radical Islamist forces in Pakistan under control.

This is, of course, the same charge the Americans have been making against Pakistan, and is one of the foundations of U.S. President-elect Barack Obama’s foreign policy. He has said that he would place heavy pressure on the Pakistanis to get them to be more effective in fighting al Qaeda and the Taliban. Indeed, Obama has said he would be sending more troops to Afghanistan and would expect Pakistan’s cooperation with U.S. efforts.

It is not clear precisely what India will do in this crisis. In 2001, when New Delhi was responding to another terrorist attack, it took about a week to decide what to do; in the end, the government sent forces to the Pakistani border. The tension escalated to include nuclear threats. If that model is followed here, we might well be in an intense crisis in a week or so, although reports of intense political infighting might delay a response. The Pakistanis will try to head off a crisis by offering full cooperation with India in dealing with the problem, but it is not clear that the Indian public or politicians will accept this. It will be regarded as an ineffectual gesture by many, if not most. From where we sit, Pakistan will have to provide more than an agreement to increase cooperation.

That places Pakistan between two very powerful forces: India and the United States. Pakistan has already indicated what it might do, saying that if India increased its forces along the border, Pakistan would shift 100,000 troops to the border as well — all of them drawn from its border with Afghanistan. In other words, Pakistan has let the United States know that Indian pressure will result in a reduction of Pakistani forces along the Afghan border, while the United States is demanding that the number of forces there actually be increased. That in turn would create a crisis in Pakistan’s relations with the United States.

Pakistan’s other option is to take effective action against Islamists along both its borders. The problem is that it is not clear that the Pakistani government could do this, even if it wanted to. There are elements within the Pakistani intelligence service that potentially could sabotage any move in this direction, and there is widespread opposition among the Pakistani public to any crackdown. If the government attempted one, it is not clear that Pakistan would not fracture and dissolve into chaos.

The Mumbai attackers, whoever they ultimately turn out to have been, clearly were not stupid. They were less interested in killing people in Mumbai than in creating precisely this crisis. First, the Pakistanis are trapped between the United States and India. Second, the government either turn can on the Islamists — unleashing chaos — or refuse to do so, creating an international crisis. In the event of chaos, whoever organized the attack is in a position to increase their influence in Pakistan. In the event the government refuses to act, it will grow more dependent on radical Islamists. In either case, the attack has set into motion a process that could increase the influence of Islamists in Pakistan.

The alternative is for India to let the attacks pass without generating a crisis with Pakistan. But he problem with that strategy is not only internal Indian politics. There is also the fact that there is no reason to believe that attackers don’t have the ability to mount more attacks in India. There is no way for the Indians to block these attacks, and if such attacks were to continue, the Indian government not only would lose further credibility, it would wind up in the same crisis it might wish to avoid now. And no one knows what follow-on capabilities and plans the attackers have.
For the moment, therefore, the attackers — whether al Qaeda, Lashkar-e-Taiba or some other combination of groups — are driving events. It is not clear how the Indians, Americans or the Pakistani government can seize the initiative away them. And it is not clear that any of the three countries can get out of the way of the crisis that is unfolding.

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