Thursday, December 25, 2008

Hope Persists Amidst Gloom in Jinnah's Pakistan

Media reports from Pakistan often portray a picture of doom and gloom, with the IMF bailout of the economy, terrorist training camps, Islamic radicals, horrible governance, and corrupt and inept politicians making the headlines around the world. The adjective of "failed state" is often used to describe Pakistan. Is there more to the story than the big headlines? Is there hope for Pakistanis amidst the doom and gloom? On Quaid-e-Azam M.A. Jinnah's 132nd birthday today, I think there is. The telecommunication, information technology, higher education, media and the middle class progress started during Musharraf-Aziz years continues to have its impact on the country founded by the Quaid-e-Azam more the 61 years ago. Here are a few things I found posted by a fellow blogger on Tech Lahore blog:

1. Pakistan is the most connected country in South Asia, with the highest teledensity. The Internet penetration in Pakistan is at 10% versus 5% in India, according to ITU.
2. Pakistan’s communications costs are lower than any other country in the region.
3. Pakistan has the world’s largest biometric database (NADRA); this system (not the data) is now being provided to allied countries.
4. Pakistan has the world’s largest WiMAX network.
5. Pakistan has one of the world’s most aggressive Fiber-to-the-Home (FTTH) rollouts.
6. Pakistan has one of the highest rates of cellular connectivity growth in the world (According to PTA 2007’s report the rate of growth in Pakistan’s mobile sector is fourth highest in the world).
7. Pakistan was the winner of the 2007 GSM industry association award.
8. The US is importing UAVs designed and built in Pakistan to protect America’s borders.
9. With WLL (CDMA), WiMAX, GSM and FTTH, Pakistan is pretty much leading the pack in terms of diversity and breadth of connectivity.
10. According to Gartner, Pakistan is a “first category” offshoring location; this ranking has grown by leaps and bounds.
11. Pakistani companies won several awards at Asia’s APICTA startup/innovation conference and were considered the most “interesting” and cutting edge in Asia.
12. The world’s youngest Microsoft Certified Professional is a Pakistani and so is the world’s youngest Cisco CCNA professional.
13. Pakistani students excelled in MIT’s global software talent competition.
14. Citations of Pakistani scientific publications are rising sharply.
15. Over two dozen Pakistani scientists are working on the Large Hadron Collider; the grandest experiment in the history of Physics.

The Wall Street Journal did a story in September 2007 on Pakistan's start-up boom that said, "Scores of new businesses once unseen in Pakistan, from fitness studios to chic coffee shops to hair-transplant centers, are springing up in the wake of a dramatic economic expansion. As a result, new wealth and unprecedented consumer choice have become part of Pakistan's volatile social mix."

In the absence of any visionary and pro-active political leadership in the nation, Pakistan will likely continue to be heavily influenced by external factors and events in the foreseeable future. The change in Washington and potential change in Delhi in 2009 will likely have a far greater impact on Pakistan than anything Pakistani leaders say or do.

I am hopeful that people of Pakistan, especially the young entrepreneurial and the professional classes, will continue to do their best to help extend the positive legacies of Musharraf-Aziz years. I believe it can be safely said that the communications revolution (accompanied by dramatic growth in the vociferous electronic and new media) as well as a significant enlargement of the middle class in Pakistan helped sow the seeds of the end of arbitrary actions by President Musharraf. In other words, Musharraf pulled a Gorbachev (a la perestroika that unleashed uncontrolled energies) by enabling powerful resistance to his arbitrary rule. Some of these changes that Musharraf brought are durable and I hope will make our rulers more accountable. There will still be abuse of power but the media spotlight will hopefully shine brightly on it to the detriment of the abusers. Eventually there will be real participatory democracy to serve all Pakistanis with appropriate checks and balances imposed by a much larger and more powerful and aware middle class essential for true democratic governance in Pakistan, or anywhere else.

Here are two video clips of Pakistan's progress in the last few years:

Related Links:

Pakistan's Foreign Visitors Pleasantly Surprised

Start-ups Drive a Boom in Pakistan

Pakistan Conducting Research in Antartica

Pakistan's Telecom Boom

ITU Internet Data

NEDUET Progress Report 2008

Pakistani Entrepreneurs in Silicon Valley

Musharraf's Economic Legacy

Should Pakistanis be Proud of Their Country?

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Wednesday, December 24, 2008

Pakistan Exporting UAVs to America

By Noah Shachtman

America's killer drones are getting all the attention, in the fight against Pakistani militants. But Pakistan's military has plenty of unmanned aerial vehicles, or UAVs, too. And they're being used to spy on suspected insurgents, and listen in on their phone calls.

Since 2002, Pakistan has dramatically expanded its robotic fleet in the sky, Defense News reports. The Pakistani Air Force has two UAV squadrons -- and is looking to build up to six.

"Al-Qaida and Taliban fighters use not just mobile and satellite phones for communication, but also sophisticated military radios," Defense News notes. So companies like East West Infiniti are building SIGINT [signals intelligence] for small drones and robotic blimps, to capture those conversations. Designed for militaries unable to afford high-end, dedicated SIGINT platforms, East West's Whisper Watch system can detect and monitor electronic emissions up to 250 kilometers away and then retransmit to a ground station located out of harms way.

Karachi-based Integrated Dynamics actually exports its Border Eagle surveillance drone to the United States for border patrol duties. The company also makes drones the turbojet-powered Tornado decoy, which can fly up to 200 kilometers, and emit false radar signals to "confuse enemy air defenses into thinking they are attacking aircraft," Defense News says.

Note: Pakistani UAV gear were on display in November, at IDEAS, Pakistan's big military trade show.

Related Links:

Pakistan Manufacturing Humvees?

Can India Do a Lebanon?

India, Pakistan Oppose Cluster Bomb Ban

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Friday, December 19, 2008

Internet Outage--Undersea Cables Cut Yet Again

Internet and telephone traffic between Europe and the Middle East and Asia has been seriously disrupted since Friday when three major underwater data lines were cut in the Mediterranean, according to media reports.

The main damage is to the four submarine cables running across the Mediterranean and through the Suez Canal. The damaged cables include Sea Me We 4 and Sea Me We 3 lines, which connect countries between Singapore and France as well as the Flag FEA cable route, which stretches from the U.K. to Japan, a France Telecom spokeswoman told Network World. A fault was also reported on the GO submarine cable 130km off Sicily.

France Telecom isn't sure what caused the cut, she said. "We have two assumptions. The first is that it could be an underwater earthquake," she said. "Or it could be simply a ship in the area which has cut the cable." The BBC says that some seismic activity was reported near Malta, where the break apparently occurred, shortly before the cut was detected Friday morning. Ships dragging anchors are also known to have cut submarine cables in the past.

The telecom company listed 14 countries affected by the current problem. The Maldives are 100 percent down, followed by India, which has 82 percent disruption. Qatar, Djibouti and the United Arab Emirates were the next most widely affected areas with about 70 percent service interrupted. Disruptions for Saudi Arabia, Egypt and Pakistan range from 51 percent to 55 percent. It should be noted that the Internet penetration in Pakistan is about 10% versus 5% Internet penetration in India, according to ITU.

Here are the details of impact from outages reported by France Telecom:

* Saudi Arabia: 55% out of service
* Djibouti: 71% out of service
* Egypt: 52% out of service
* United Arab Emirates: 68% out of service
* India: 82% out of service
* Lebanon: 16% out of service
* Malaysia: 42% out of service
* Maldives: 100% out of service
* Pakistan: 51% out of service
* Qatar: 73% out of service
* Syria: 36% out of service
* Taiwan: 39% out of service
* Yemen: 38% out of service
* Zambia: 62% out of service

Pakistani blogger Masud Reza is reporting that PTCL ITI (Information Technology Infrastructure) is running at 25% reduced capacity. Internet users are experiencing high latency and a degraded service level resulting in extremely low speed on downloads.

TW1 also has the same issue. TW1 (Tansworld 1) relies mainly on the SMW4 western segment.

The impact of the cable cuts is being felt much more in India than its neighbors. For example, 82 percent of India's voice traffic capability to Europe was out of service early Friday, although that situation has now improved, according to reports.

A maintenance boat is en route to the site of the cut, but it will not get there until Monday, and it will take as many as two weeks for the situation to return to normal, according to France Telecom.

This is the second time this year that the Internet services have been disrupted in parts of the Middle East and Asia after damage to undersea cables in the Mediterranean. In January 2008, there was disruption to 70% of the nationwide network in Egypt, a government official told Reuters. There was also disruption in the United Arab Emirates (UAE), Kuwait and Saudi Arabia. India also suffered up to 60% disruption, a national industry body told Reuters news agency in January of this year. Pakistan was affected with TW1 customers suffering the most. PTCL switched its Internet traffic from SMW4 to SMW3.

Jonathan Wright - director of wholesale products at Interoute which manages part of the optical fibre network - told the BBC that the effects of the break would be felt for many days.

"This will grind economies to a halt for a short space of time," he told BBC "If you look at, say, local financial markets who trade with European and US markets, the speed at which they get live data will be compromised."

"If you think how quickly trades can be placed, if they are suffering from bad latency times, then by the time a trade is placed, the market may well have moved on."

"We've lost three out of four lines. If the fourth cable breaks, we're looking at a total blackout in the Middle East," said Mr Wright, according to BBC report.

"These three circuits account for 90% of the traffic and we're going to see more international phone calls dropping and a huge degradation in the quality of local internet," he added.

"Normally you would expect to see one major break per cable per year. With four you should have an insurance policy. For this to happen twice in one year, on the same cable, is a serious cause for concern."

A second subsea cable to Malta is currently being laid.

More redundancy, multiple routes and better undersea cable protection should be explored to prevent the continuing negative impact of the repeat damage to the undersea cables.

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Thursday, December 18, 2008

How Far Will Karachi Stocks Fall?

Monday's removal of an arbitrary floor of 9144 points on KSE-100 imposed Aug 27 has sent Karachi shares plunging 16.21% in the first four days of trading, with KSE-100 closing at 7,785.26 points on Thursday.

The government and the exchange had hoped to be able to put together a 20 billion rupee ($255 million) stabilization fund to support prices once the floor was removed. However, some participating institutions balked at putting money into a falling market. Also, the International Monetary Fund, which recently agreed to advance Pakistan $7.6 billion to help stabilize its economy, is against using government funds to bolster share prices, reports the Wall Street Journal.

"Foreign portfolio investors who may have faced a liquidity crunch due to global events will offload their holdings in Pakistan," said Farhan Mahmood, a research analyst at JS Global Securities.

The trading volume at KSE has surged more than 50 times since Monday to over 50 million share a day. It had been less than a million shares a day average since Aug 27, 2008.

The 49% drop in KSE-100 this year still compares favorably with Bombay's Sensex index fall of 55% so far in 2008. Since the KSE's movement of shares and the index is still restricted to a daily limit of 5% either way, it is likely to see further volatility in the remaining two weeks of this year, unless Pakistan's government is able to restore some confidence in the economy after the IMF bailout. If the KSE does continue its decline, however, it could create an opportunity for smart investors to pick up some good, healthy Pakistani blue chip companies' shares at deep discounts.

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Tuesday, December 16, 2008

Will IMF Bailout Hurt Average Pakistanis?

The International Monetary Fund (IMF) has approved a 23-month, US $7.6 billion loan to Pakistan in November to avert a severe current accounts deficit and Pakistan's debt default. On November 27, the IMF released to Islamabad a first installment of $3.1 billion, in it first "bailout" of an Asian country during the current world financial crisis.

Prior to this news, Pakistan's President Asif Ali Zardari knocked on many doors and begged unsuccessfully for billions of dollars in assistance for months from "Friends of Pakistan" (FOP), a group of countries including China, Saudi Arabia and the United States. This was part of an effort by Pakistan's new president to avoid going to the International Monetary Fund (IMF).

Why did the FOP decline to help? Why was Mr. Zardari trying to avoid an IMF bailout? Let's try and examine the answers to these two important questions being asked.

Friends of Pakistan:

Being friends, the FOP know a lot about Pakistan and Mr. Zardari. They have been watching Pakistani economy's return to the bad old days. While each of the friends genuinely wants to help in stabilizing Pakistan's economy, they have major concerns about the need for transparency and fiscal discipline before committing their money to help their friend. Given Mr. Zardari's reputation as Mr. Ten Percent, they are reluctant to write checks with no strings attached. In other words, they want to trust but verify, an objective that seems achievable if the IMF is involved in closely supervising Pakistan's budget, spending and economy.

Avoiding IMF:

Mr. Zardari has tried to avoid borrowing from the IMF for several reasons. For example, he does not want any one watching over his shoulders as he transacts business as usual. Another reason is that the IMF imposes tough conditions and budgetary restrictions that are usually unpopular and hurt the democratic government's chances of staying in power. The IMF makes the system of political patronage in a feudal society more difficult, if not impossible. Pakistanis have bitter memories of the IMF austerity programs implemented by the PPP and Pakistan Muslim League (Nawaz) governments in the late 1980s and 1990s. Fearing a hostile public reaction and not wanting to accept a further loss of Pakistani "sovereignty" under conditions where the US is routinely carrying out military operations within Pakistan, the PPP-led government long hesitated in seeking a loan from the IMF. Earlier, President Musharraf's government had ended Pakistan's dependence on IMF by economic reforms that created confidence in Pakistan's economy and brought significant foreign investments to Pakistan. That confidence has disappeared after Musharraf's departure from the scene.

IMF's Tough Conditions:

1. Pakistan's central bank must tighten money supply. In order to pave the way for the IMF loan, Pakistan's central bank raised its bank lending rate in early November by 2 percentage points to 15 percent and the state bank has let it be known that a further 1.5 percentage point hike will be implemented in January. The justification for such high interest rates is the high inflation rate in excess of 20% in Pakistan, mainly due to high food and energy prices. Removal of subsidies is making it worse, in spite of declining world oil prices. Tighter money supply will almost certainly hurt businesses, consumers and overall employment, forcing a major recession. According to an Asia Times Online report, Anjum Nisar, the president of the Karachi Chamber of Commerce and Industry, has said, "Pakistan's industrial landscape may soon be marked with dead and sick units and there will be massive unemployment because of the devastating impact on businesses of the higher cost of bank loans arising from the interest rate increase." The liquidity crunch resulting from IMF's tough conditions will turn the already precarious situation of Pakistan's poor daily wage earners into a disaster. Increase in hunger and poverty will hurt Pakistani government's ability to fight Islamist insurgency and maintain peace and stability.

2. Pakistan government must cut spending and raise taxes. The IMF economic stabilization package calls for the government's annual budget deficit to "be reduced from 7.4 percent of GDP in 2007/2008 (July-June) to 4.2 percent in 2008/2009 and 3.3 percent in 2009/2010." The IMF added, "This fiscal adjustment will be achieved primarily by phasing out energy subsidies, better prioritizing development spending, and implementing strong tax policy and administration measures." This condition will also lead to a deep and prolonged recession in Pakistan.

3. The IMF wants Pakistan to raise tax revenue from the present 10 percent of gross domestic product (GDP) to 15 percent by 2013. Neighboring India's total tax revenue, including levies on income, imports and sales, also amounts to less than 10 percent of GDP now. In China, the figure is 20 percent, and among the members of the Organization for Economic Cooperation and Development it averaged 37 percent in 2001. As part of a plan to increase tax revenue, the IMF is pressing Pakistan for the introduction of a tax on agricultural income. Pakistan's large landowners have tenaciously resisted such proposals in the past. Should Islamabad ultimately impose a tax on agricultural income, it will only be after a bitter struggle within the Pakistani feudal ruling class over how to design it to be regressive to make small producers bear a disproportionate share of the tax burden.

4. IMF does not require defense spending cuts, further exacerbating the economic impact on ordinary citizens. The IMF, which is controlled by the US and other western powers, made no demands for cuts to Pakistan's massive military budget. Juan Carlos Di Tata, IMF senior special adviser for the Middle East and Central Asia, expressed concern about the rise in Pakistan's defense spending, but then added that the question of Pakistan's military expenditure had been excluded from the bank's negotiations with the country's Pakistan People's Party-led coalition government. "The issue of defense spending was not discussed during the program negotiations," said Di Tata. "Defense spending is basically an item that was determined by the government and included in the budget projections for this fiscal year. There was no discussion of this topic."

What's Next:

According to the IMF, even after last month's IMF loan, Pakistan will need another $20 billion "to get control over its imbalances." The FOP are scheduled to meet January 13-16 to decide on additional non-IMF assistance to Pakistan. Most likely, they will want IMF to continue supervising Pakistan's economy as a condition for their assistance.

While the US economic revival is planned with multiple stimulus packages, near-zero interest rates and tax cuts to increase liquidity for government, business and consumer spending, it seems the IMF prescription for Pakistan is quite the reverse. It is a basic economic fact that raising taxes does not increase revenue during a slowdown. Rather than close the budget gap, attempts to raise revenue cause a downward economic spiral. Instead of softening the impact on businesses and consumers, the austerity measures will clearly hurt the average and poor Pakistanis disproportionately and cause a great deal of suffering leading to greater political instability in the country. An unstable Pakistan is in no one's interest. But,what is good for the goose is apparently not good for the gander, according to the IMF's perverse logic.

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Monday, December 15, 2008

Kashmir Holds Key to Peace and Prosperity in South Asia

"India is not scared of the guns here in Kashmir -- it has a thousand times more guns. What it is scared of is people coming out in the streets, people seeing the power of nonviolent struggle," says the senior leader of the moderate wing of Kashmir's main separatist alliance, Hurriyat, and a key organizer of the civil disobedience campaign that began earlier this year, filling the air with chants of azadi. The number of armed attacks in the valley, meanwhile, has dropped to its lowest since the insurgency began in 1989, according to Indian officials.

How has India responded to the the peaceful movement for freedom in Kashmir? Not recognizing the reality of change on the ground, the Indian government has attempted to demonize the struggle as LeT led terrorism. Beyond that, it has continued to use force against unarmed, peaceful civilian protesters on the streets of Kashmir. Wall Street Journal reports the current situation in Kashmir as follows: Indian troops often resorted to lethal force, killing more than 50 Kashmiri civilians. Scores of protesters and separatist politicians have been thrown behind bars or placed under house arrest. Indian officials say these detentions are necessary to preserve public peace, and that the troops have to use force to maintain law and order. Some half a million Indian soldiers and policemen remain deployed in the Indian-administered part of Jammu and Kashmir, home to 10 million people. (About 5 million people live in Pakistani-held Kashmir.) Indian laws grant troops in Kashmir almost total immunity from prosecution, including in cases of civilian deaths. Srinagar, once India's prime tourist destination, is dotted by checkpoints, its indoor stadium, cinemas and hotels surrounded by sandbags and converted into military camps. Broadcast media are censored....As Kashmir descended into chaos after these killings of innocent civilian demonstrators, India responded with increasingly severe curfews and lockdowns that continue. Often they come without prior warning or formal announcement, as in Srinagar over the past weekend.

The events in Mumbai and the media spotlight on terrorism have obscured the reality of the 60-year peaceful struggle of Kashmiris ignored by the media and dismissed by India as Pakistan-backed terror in the Srinagar Valley.

In spite of the Indian government's efforts to mislead the world about the reality of Kashmir, there are some members of the media such as Yaroslav Trofimov of Wall Street Journal and activists like Arundhati Roy have made their efforts to help keep the Kashmiri freedom flame burning. Roy wrote recently for the Guardian newspaper as follows: Not surprisingly, the voice that the government of India has tried so hard to silence in Kashmir has massed into a deafening roar. Raised in a playground of army camps, checkpoints, and bunkers, with screams from torture chambers for a soundtrack, the young generation has suddenly discovered the power of mass protest, and above all, the dignity of being able to straighten their shoulders and speak for themselves, represent themselves. For them it is nothing short of an epiphany. Not even the fear of death seems to hold them back. And once that fear has gone, of what use is the largest or second largest army in the world?

Last 4 years in South Asia saw Pakistan ready to settle the Kashmir issue with no positive results due to the lack of any sense of urgency by India. With armed Muslim groups in Kashmir dormant since the post-2004 thaw and President Musharraf of Pakistan eager to make concessions, the world has seen an era of relative peace in Kashmir which appears close to shattering again. It is clearly a missed opportunity in South Asia.

In the context of Pakistan's anti-American public opinion, the country's ongoing crises, and the growing US demands on Pakistan, the future of US-Pakistan relations and the chances of success in the "war on terror" do not look particularly bright. The only solution to this darkening mood in both nations is a serious and sincere effort by each to improve their bilateral relationship based on a recognition of mutual interests and genuine needs. The incoming Obama administration has an opportunity to change the US tone with Pakistan in January 2009 to make the friendship genuine and useful to both partners in the war on terror. Barack Obama's oft-repeated position that Kashmir and India-Pakistan relations can not be isolated from the "war on terror" in Afghanistan, Pakistan and elsewhere in the world offers a good starting point for discussion.

As long as the Kashmir issue remains unresolved, Pakistan, India and the US can not win the "war on terror" and bring peace and stability to the South Asian region, including Afghanistan. Recent Mumbai attacks and the ostensible Kashmir link via LeT have confirmed that yet again. India's opposition to Mr. Obama's desire to mediate will test the Obama administration's resolve in seriously pursuing resolution of Kashmir.

Here is a comprehensive video on the origins of Kashmir dispute and the positions of various parties as presented by Pakistani Peace Activist Dr. Pervez Hoodbhoy:

Related Links:

Obama's South Asia Policy

Military Occupation of Kashmir

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Sunday, December 14, 2008

India's War on Hunger Takes a Back Seat

Calls to "do a Lebanon" to fight terror are being made vociferously by the Indian media as they have focused the national and international attention on Mumbai terrorist attacks that targeted two opulent hotels and a small Jewish center in India's financial capital. The need for war on poverty and hunger has never succeeded in getting the kind of media spotlight in India that now shines on the urge to punish Pakistan for its alleged misdeeds in Mumbai. Meanwhile, the daily death and injury toll from widespread hunger in India continues to be much higher than the tragic results of the murder and mayhem in Mumbai.

Indian author Arundhati Roy recently brought attention to the tale of two Indias and India's real problems in an OpEd piece for the Guardian newspaper in the following words: "On a day when the newspapers were full of moving obituaries by beautiful people about the hotel rooms they had stayed in, the gourmet restaurants they loved (ironically one was called Kandahar), and the staff who served them, a small box on the top left-hand corner in the inner pages of a national newspaper (sponsored by a pizza company I think) said "Hungry, kya?" (Hungry eh?). It then, with the best of intentions I'm sure, informed its readers that on the international hunger index, India ranked below Sudan and Somalia. But of course this isn't that war. That one's still being fought in the Dalit bastis of our villages, on the banks of the Narmada and the Koel Karo rivers; in the rubber estate in Chengara; in the villages of Nandigram, Singur, Chattisgarh, Jharkhand, Orissa, Lalgarh in West Bengal and the slums and shantytowns of our gigantic cities."

Ms. Roy was referring to the hunger index published each year by the Washington-based International Food Policy Research Institute to rank countries based on three leading indicators - prevalence of child malnutrition, rate of child mortality, and the proportion of people who are calorie deficient. India ranks 66th on the 2008 Global Hunger Index of 88 countries while Pakistan is slightly better at 61 and Bangladesh slightly worse at 70.

Indian media's headlines about the newly-minted Indian billionaires need to bring sharper focus on the growing rich-poor gap in India. On its inside pages, The Times of India has reported Communist Party leader Sitaram Yechury's as saying that "on the one hand, 36 Indian billionaires constituted 25% of India’s GDP while on the other, 70% of Indians had to do with Rs 20 a day". "A farmer commits suicide every 30 minutes. The gap between the two Indias is widening," he said.

"The major threat of hunger is in 33 countries including India," the IFRI report said, adding that rising food prices pose serious threats for malnourished people in these regions. The report calculated hunger levels for 17 major states in India, representing more than 95 percent of the population. Twelve states fall into the ‘alarming’ category and Madhya Pradesh was reported to have an ‘extremely alarming’ level of hunger. Four states — Punjab, Kerala, Haryana and Assam — fell in the 'serious' category. "Affluent" Gujarat, 13th on the Indian list is below Haiti, ranked 69. The authors said India's poor performance was primarily due to its relatively high levels of child malnutrition and under-nourishment resulting from calorie deficient diets.

"Despite years of robust economic growth, India scored worse than nearly 25 sub-Saharan African countries and all of South Asia, except Bangladesh," the report says.

Can the two major South Asian neighbors get their priorities straight to end terror and mutual conflict to focus on fighting hunger and poverty? I am hoping and praying that they do.

Related Links:

21st Century Challenges for Resurgent India

Mumbai's Economic Impact

India's Republic of Hunger

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Wednesday, December 10, 2008

Corruption in America, South Asia

When Barack Obama was elected president, Governor Blagojevich of Illinois saw opportunity in the vacancy created in the U.S. Senate. "I've got this thing and it's f------ golden, and uh, uh, I'm just not giving it up for f------ nothing," he allegedly said, according to U.S. Atty. Patrick Fitzgerald of Chicago. Fitzgerald has the governor's recorded conversations demanding $500,000 to a million dollars to sell the senate seat.

How ironic! The governor of a major American state that is sending its senator to the White House as president got charged with massive corruption on Dec 9, 2008, the day designated as International Anti-Corruption Day by the United Nations.

This latest corruption scandal in the United States confirms that corruption exists in all parts of the world to varying degrees, including the industrialized world. However, this report also illustrates that, unlike Pakistan and many other less developed countries, there is greater accountability in the West for the people in power. Official corruption is almost universal but the extent of corruption and the strength of anti-corruption enforcement measures vary widely. It is not the constitution or the laws on the books that make a difference; it's the independence of the career civil servants and the judiciary that differentiates the US system from what is observed in Pakistan and other developing nations. The US attorneys, for example, pursue investigations and prosecutions independently of the politicians who appoint them. The judges are appointed for life and they do not take dictation from politicians and their appointees either.

At the time of the recent India-US nuclear deal approval, members of India's parliament, including convicts released on parole, were offered all kinds of incentives to vote in a certain way. Both the government and the opposition tried desperately to entice them with promises of largess, influence and plum jobs in return for their vote. The BJP opposition, however, could not match the resources of the governing Congress party and the deal was approved.

There have been significant bribery allegations involving Indian politicians and officials and corporations such as Bofors, Enron and Xerox. The Swedish firm Bofors AB allegedly paid Rs.640 million ($13 million) in bribes to middlemen to get the contracts for the deal signed in 1986. Nearly a decade later, Enron India spent US$ 20 million in "educating" Indian bureaucrats about the role of private companies in power generation, an euphemism for bribes. Two telecommunications companies, Essar and Swisscom, were alleged to have paid a former minister, Sukh Ram, a hefty amount during early 1996 to help change the original license conditions, which it had signed with the Department of Telecommunications. Except Bofors, none have been prosecuted to any extent. Meanwhile, India's spending on defense procurement and infrastructure spending involving foreign companies has increased several fold without much scrutiny of how the deals are made.

Not only is there lack of accountability in the developing nations, it seems that corrupt politicians such as Pakistan's President Zardari, widely known as Mr. Ten Percent, get rewarded with high offices by the illiterate electorate living in a feudal society, with the assistance of amnesties arranged by the United States. It is what President Bush often describes as "soft bigotry of low expectations" when the West pushes for the pardon of corrupt politicians in countries such as Pakistan, in clear violation of the UN Conventions against Corruption. What is worse, such policies of condoning corruption are pursued in the name of promoting democracy in the third world.

The behavior of condoning corruption in the third world extends to the private sector as well, with American and European companies routinely engaging in bribery in Africa, Middle East and Asia. For example, Forbes reported last year on Siemens involvement in bribery in the developing world as follows: "The World Bank is looking at an electrical power plant project in Pakistan concluded in the mid-1990s, which was built and later partially maintained by Siemens and financed by the World Bank. The World Bank is concerned that Siemens' costs for the project may have been overpriced.Siemens is currently engulfed in a slush-fund scandal, in which prosecutors allege that managers siphoned off hundreds of millions of euros in company money to obtain foreign contracts.Siemens' own internal investigation uncovered 420 mln euros in suspicious payments going back to 1999 which may have been made to obtain telecommunications equipment contracts in a range of foreign countries. The Bavarian State Prosecutors office has said the sum is estimated in the triple-digit millions of euros." Subsequent to these reports, Daniel Noa, Siemens' top anti-corruption chief, stepped down after only six months at the company, with little explanation given.

There have also been reports from Munich about Siemens pleading guilty to bribing politicians and officials in Nigeria, Russia and Libya. Last month, Siemens said it would take a charge of about 1 billion euros ($1.29 billion) this fiscal year as part of a settlement of bribery investigations by authorities in Germany and the United States.I believe such reports represent only the tip of the iceberg of corruption involving Western multi-nationals and politicians and officials in developing nations.

There are definitely laws on the books in the West such as the Foreign Corrupt Practices Act (FCPA) in the United States. Almost all ethics classes taught in the Western management schools and company training courses cover this topic. However, the question is whether these laws are really enforced and how often are the companies held accountable? Or do they simply rely on the foreign governments to report misbehavior? It would be a fantasy to expect the officials and politicians on the receiving end to report incidents of bribery as they are the main beneficiaries. But I think the German, French, US, British and other governments of developed nations who claim higher moral positions should be cracking down on these reprehensible practices just to enforce their own laws and live up to their own higher standards. While it may be argued and it is like putting the shoe on the wrong foot, I see it as the only hope we have of containing such widespread corruption in developing nations that is robbing their people blind.

Related Links:

Corruption in Pakistan

Transparency International Survey 2007

Is Siemens Guilty?

Zardari Corruption Probe

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Saturday, December 6, 2008

Social Media: Blessing or Curse?

Of the two recent studies making headlines this week, one brings good news and the other warns of grave risks.

The good news first: New research shows that in a social network, happiness spreads among people up to three degrees removed from one another. That means when you feel happy, a friend of a friend of a friend has a slightly higher likelihood of feeling happy too. And the more connected you are to happy people, the happier you feel.

"We get this chain reaction in happiness that I think increases the stakes in terms of us trying to shape our own moods to make sure we have a positive impact on people we know and love," explains Professor James Fowler, co-author of the study and professor of political science at the University of California in San Diego.

"We've known for some time that social relationships are the best predictor of human happiness, and this (latest study) shows that the effect is much more powerful than anyone realized," Daniel Gilbert, professor of psychology at Harvard told CNN. "It is sometimes said that you can't be happier than your least happy child. It is truly amazing to discover that when you replace the word 'child' with 'best friend's neighbor's uncle,' the sentence is still true."

Earlier this year, President-elect Barack Obama's campaign rewrote the rules of successful presidential election campaigning as it embraced social networking and Web 2.0 technologies to reach out to young American voters across the nation. The dramatic success of the Obama campaign in fundraising and energizing young, affluent voters and on college campuses has been quite phenomenal. Obama significantly outraised funds by at least two to one, to the tune of $750m in small contributions, and defeated the powerful Clinton Democratic machine as well as his Republican opponent John McCain.

While almost no one questions the power of social networking in transforming the lives of under-30 Americans, there are concerns being raised about the risks of social networking. As the membership of social networks and the users of social media applications such as Facebook, MySpace, and Orkut grow dramatically to hundreds of millions in the US, Europe, Asia and Latin America, it seems that this phenomenon is still in very early infancy in Pakistan. As of now, there are about 200,000 Pakistanis on Facebook, about 100,000 on Orkut, and a few thousand on MySpace. There are smaller social networks such as that have a few thousand Pakistani members as well. While bills itself as a Muslim social network, it seems primarily focused on match-making. Recently Naseeb has started a Pakistani job-search site as well. Pakistan's middle class is estimated to be about 25m people, larger than the population of several European countries and Australia. With such a large middle class population, only a small fraction is participating in the social networking phenomenon. The reasons cited for this minuscule participation include the lack of access to the PC and the Internet, lack of familiarity, and shyness standing in the way of appropriate public self-expression. While I acknowledge that these might be contributing factors, I believe the main factor is the lack of a socially and culturally appropriate content and welcoming environment that suits the Pakistani sensibility and taste. It is something hard to describe but it is something you know when you see it. A new social network called PakAlumni Worldwide has recently been launched to serve this exact need and to encourage Pakistanis to participate in larger numbers. It is still in its early days with about 800 members but growing rapidly. The membership includes a large number of Pakistanis living in the United States, Europe, the Middle East and various parts of Asia. The social connections made via PakAlumni can easily turn into business connections and help build support for important social causes. PakAlumni can also help bring the Pakistani diaspora together to grow closer and more prosperous and help Pakistan achieve greatness in the process while improving its civil society and image.

As to the risks involved in social media participation, a recent hoax on MySpace led to the suicide of a 13-year old girl in Missouri. Megan Meier thought she had made a new friend in cyberspace when a cute teenage boy named Josh contacted her on MySpace and began exchanging messages with her. Megan, who suffered from depression and attention deficit disorder, corresponded with Josh for more than a month before he abruptly ended their friendship, telling her he had heard she was cruel and told her "the world would be a better place without you".

Lately, IT executives in large corporations have expressed fears that employees using social networking sites may download viruses that wind up on their employer's computers or reveal information about themselves on the networking sites that compromises their employer's business secrets. To prevent such problems, some companies, including Intel, ban their workers' access to social networking sites. Not only do employees put their companies at risk, they also expose themselves to identity fraud. McAfee's list of top 12 Christmas scams this year warns that people on some social-networking sites have been receiving messages that say "You've got a new friend." When clicked, the messages downloads software that steals their financial information.

Social networks and social media applications are like any other powerful tools at our disposal. They can be extremely useful in connecting us to the world and increase our wealth and happiness, but they can also bring serious harm to the lives of young people who tend to be more open to sharing personal information with strangers or clicking on malicious links.

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Sunday, November 30, 2008

Economic Impact of Mumbai Attacks

Hong Kong-based Political & Economic Risk Consultancy Ltd. has recently rated India as the riskiest of 14 Asian countries, not including Pakistan and Afghanistan, it analyzed for 2009. The Mumbai attacks are likely to worsen India's risk rating, especially if the attacks lead to hostilities with Pakistan and anti-Muslim riots in India. By targeting foreigners and the nation's commercial capital, the terrorists have struck at international links that have supported 9 percent average growth in the $1.3 trillion Indian economy for the past three years. The Mumbai events "couldn't happen at a worse time," Patrick Bennett, a strategist with Société Générale in Hong Kong, told the Wall Street Journal.

With the economic growth already slowing to a multi-year low rate of 7% and the national elections approaching in first half of 2009, these attacks have come at a particularly awkward time for the ruling Congress party. The opposition BJP's leader L.K. Advani has criticized the government's handling of terrorism as “non-serious approach”, according to the Press Trust of India. In response, Prime Minister Manmohan Singh has replaced his home minister and vowed to get tough on a "neighboring country", an apparent reference to Pakistan.

Foreign investors have already pulled $13.5 billion out of the India's stock market so far this year, driving the benchmark Sensex index down 57% and hurting the rupee. Liquidity has dried up, economic growth is slowing and consumers and businesses are spending less money, according to Bloomberg.India faces a prolonged downturn that is already forcing companies to cut jobs. Its economy grew 7.6% in the July-September quarter, the slowest pace in almost four years, and down from a 9.3% expansion a year earlier, according to Wall Street Journal.

"There may not be some big countercyclical fiscal stimulus to address a cyclical downturn, but it could be more of a piecemeal approach," says Ramya Suryanarayan, economist at DBS bank in Singapore. The fiscal deficit is running "at between 7% and 8% of gross domestic product, and further expansionary policies will add to the stress."

Given the angry and vengeful public mood in India, it is likely that the hardliners will prevail, forcing significant policy changes that will affect the entire region for a long time to come. For beginners, the warlike Indian posture toward Pakistan will scare investors and tourists away from India. With the emboldened Hindu fundamentalist outfits gaining support, a more serious threat to the Indian economy could come from a repeat of Gujarat 2002 across the entire country. If India decides to "punish" Pakistan by invading it, it will be devastating for both India and Pakistan and set them back by decades as the business and consumer confidence plummets. The BPO and IT businesses will go to more stable regions of the world. Already, the gap between the Chinese and the Indian economies seems to be growing. China's stability under one-party government is more effective in sustaining high growth, Indian Finance Minister Chidambaram said in April of this year, adding "the distance between India and China is in fact increasing, not reducing because China's growth rate is faster." Sustained gap in economic growth between India and China could make India's economy more like Taiwan's in comparison with China's, in spite of India's big population.

India's image as a peaceful and stable nation has helped it build confidence of foreign investors and businesses to set up shops in India and fuel its economic growth. For example, Americans alone brought $13 billion in foreign direct investments in 2007 from large investors and Fortune 500 corporations to India, which helped create jobs and sustain the virtuous cycle of intellectual and economic development. If the actions of Indian politicians shatter this image of peace and stability, it will be very difficult to rebuild it.

Based on a quick review of India's current status and great potential, including its strengths and weaknesses, I strongly believe India can stay on the road to greatness it deserves with its rich heritage as one of the oldest civilizations on earth and the world's largest modern democracy. India's toughest challenge in the 21st century will continue to be in how well it negotiates the obstacles and potholes created by internal strife from growing religious and ethnic fanaticism, homegrown and international terrorism, ongoing regional insurgencies, and increasing economic disparities.

Related Links:

Mumbai Eyewitness Accounts

Mumbai's Slumdog Millionaire

Mumbai's Economic Impact

World Reacts in Horror

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Wednesday, November 26, 2008

Indian Cricketers Join Major League Baseball

While the Indian Navy is going after the pirates in the Gulf of Aden, two Indian youngsters are joining the Pirates in the United States.

Rinku Singh and Dinesh Patel are two 20-year-old pitchers with million dollar arms. Neither had picked up a baseball until earlier this year. Both have now signed free-agent contracts with the Pittsburgh Pirates, the prestigious five-times winners of the Major League Baseball World Series. They were the top finishers in “Million Dollar Arm,” an Indian reality TV show that searched for potential Major League Baseball talent in the country with millions playing cricket. They are believed to be the first athletes from India to sign professional sports contracts outside their country in a sport other than cricket. These contracts open up new and lucrative opportunities for South Asian cricketers beyond India's new cricket leagues.

The faster of the pair, Patel has clocked at 91-92 mph pitching speed, significantly slower than Pakistan's Shoaib Akhtar's 100.3 mph considered the world's fastest bowling speed in cricket. The pirates see a lot of potential in both Singh and Patel as successful pitchers for their team.

"This is really big news," said JB Bernstein, a promoter and marketing agent who created the "Million Dollar Arm" contest in India that brought attention to the Indian boys. "I think when the boys return to India, that's when it will really reach its crescendo."

Singh and Patel will soon return to India for a 10-day visit. They haven't seen their families since the beginning of May, when both moved to the U.S. to train under University of Southern California pitching coach Tom House.

The signing got special attention from the US ambassador to India and the ambassador called a press conference to talk about it. The Indian media are now covering the story and their return to India is expected to generate a lot of enthusiasm.

It all started with an idea from Bernstein to see what type of baseball talent could be found in India. He developed the idea for a contest for boys and men between the ages of 16 and 21. The parameters were simple: see who could throw a baseball faster than 85 mph and for strikes.

Patel and Singh were among more than 37,000 people to try out, and both quickly emerged as finalists. The winner of the contest was set to receive a $100,000 prize and the opportunity to train with House.

The American Baseball sports agents have long been sourcing talent from Cuba, Dominican Republic and Japan. The inclusion of Indian players appears to be a way to open the vast Indian market for US Major League Baseball. Indian MLB franchise teams could potentially significantly enlarge the current $6b revenue opportunity to the South Asian and international media market. The MLB World Series games have been shown live in many countries of the world, including India. In October of this year, the Major League Baseball International broadcast the Fall Classic in 13 languages to 229 countries and territories around the world.

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Thursday, November 20, 2008

Will Barack "Barry" Obama Surrender His Blackberry?

Will President-elect Barack Obama be allowed to keep his favorite Blackberry when he takes office on January 20, 2009? This question is being raised in Washington by those who see a conflict between the US law and the use of technology by a US president. The need to answer such a question did not arise because all of the US presidents to date have not been tech savvy. It is alleged that George W. Bush did have an email account prior to becoming president but he gave it up at the insistence of secret service. Pointing out the dangers of presidential isolation, Jonathan Alter of Newsweek puts it as follows: "Bush foolishly listened to the security people who made him give up his e-mail account in 2001. The result was that old friends suddenly found they had no way to get through to the president. More than a few watched in horror as he drove the country over the cliff."

Why the Conflict?
Variously described as Barackberry or Crackberry, president-elect Obama is reportedly addicted to the smart phone he uses for keeping in touch with his friends, supporters and campaign staff and to surf the Internet. The US law, however, imposes several restrictions on the communications of the president of the United States. In addition to email security, there is the Presidential Records Act, which puts all presidential correspondence in the official record and ultimately up for public review. A laptop might be permissible in the Oval office but it is still uncertain.

Inauspicious Start
If Mr. Obama does surrender his Blackberry, it will represent a rather inauspicious start for America's first "technology" president. Obama understands the difference that online networking technology made in raising record amount of $700m for his campaign, and energizing the young people to get involved as campaign organizers, workers and voters. He must continue to promote and use the online media to reach out to the American people and inspire them to bring real change in America. Obama campaign has talked about appointing a Chief Technology Officer (CTO) to oversee US technology policy investments in the incoming Obama administration. The cabinet-level CTO’s mandate would be different from the lower level Cybersecurity czar appointed under the Bush Administration. Bush’s czar helped defend against cyber threats. Obama’s CTO, by contrast, would ensure government officials hold open meetings, broadcast live webcasts of those meetings, arrange President Obama's fireside chats online, and use blogging software, wikis and open comments to communicate policies with Americans, according to the plan. Such broad use of online media by the US government will benefit Silicon Valley high-tech businesses and encourage the use of technology by state and local governments in the US and other parts of the world.

Outreach via Technology
The use of technology will keep a lot of young people, who were energized by Obama, engaged in discussion and help solve major national issues. "Obama understood the intersection of demographics and technology and promised engagement and interaction," Don Tapscott, best-selling author and researcher, said in an interview recently. "But if he now says to young people, 'Thanks, now go passive for four years until my re-election,' there will be outrage. It will make the reaction of the 1960s generation look like kid stuff." The technology exists for Mr. Obama to improve government transparency and pursue the online relationships with his under-thirty supporters. However, Mr. Obama will have to make sure that people he surrounds himself with in the White House can take advantage of it and the laws are suitably amended to make the White House technology friendly.

Obama's Change Agenda
If Obama does manage to use the modern online technology and social media applications to maintain close contact with supporters just as he did during his highly effective campaign, he can potentially go over the heads of the established legacy media, the powerful Washington lobbyists and the obstructionist US Congressmen to energize and sustain support for his ambitious agenda of change.

Here is a video clip of Obama's speech on technology at Googleplex in Mountain View, CA:

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Modern India: 21st Century's Economic Power House

The pre-British, early 19th century Moghul India, described as caste-ridden, feudalistic and unmodern, was economically ahead of the rest of the world,including Britain and the US, according to S. Gururmurthy, a popular Indian columnist. The Indian economy contributed 19 per cent of the world GDP in 1830, and 18 per cent of global trade, when the share of Britain was 8 per cent in production and 9 per cent in trade, and that of US, 2 per cent in production and 1 per cent in trade. India had hundreds of thousands of village schools and had a functional literacy rate of over 30 per cent. In contrast, when the British left, India’s share of world production and trade declined to less than 1 per cent and its literacy was down to 17 per cent. And yet, in 1947, India had large Sterling reserves, no foreign debt, and Indians still had an effective presence in such trade centers as Singapore, Hong Kong, Penang, Rangoon and Colombo.

For decades after independence, however, the Indian economy remained moribund. While Nehru's Congress party government made significant investments in higher education under Education Minister Maulana Azad by establishing institutions of higher learning such as IITs (Indian Institutes of Technology), the pervasive License Raj hampered the entrepreneurial spirit of India. Fortunately, that began to change with the reforms initiated in 1991 by then Indian prime minister P. V. Narasimha Rao and his finance minister Manmohan Singh (now prime minister) in response to a balance-of-payments crisis. These reforms limited the scope of the License Raj (investment, industrial and import licensing) and ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors. Subsequent governments of both major parties sustained and extended the reform process and accelerated India's economic growth.

Early investments by Nehru administration are now beginning to pay dividends. India has a large pool of English speaking college graduates. The nation is second only to the United States in production of doctors, engineers, and PhDs. Many of the world's top CEOs and business leaders are alumni of India's prestigious institutes of technology and management. With the large presence of IIT graduates in places such as Silicon Valley, India has become a highly respected brand name as a source of top talent around the world. What began as the massive but temporary Y2K work for India around the turn of the century, the country has now become a preferred destination for high-tech and business process outsourcing from the United States and Europe.

The economic reforms in India have unleashed the talent and the energies of its people at home and abroad to help build its economy and restore its place in the world as a major force. Many entrepreneurs of Indian origin (NRIs) are now setting up shops in India to do heavy-duty research and development as well as some manufacturing. With them, they are bringing US foreign direct investments ($13b in 2007 and growing) from large investors and Fortune 500 corporations to their home country, which helps create jobs and sustain the virtuous cycle of intellectual and economic development. Last year, the Indian GDP grew 9% and it is expected to grow another 7% this year, in spite of the current global economic crisis.

A recent Indian government advertisement in Fortune magazine explains the reason why India's economy has remained relatively unscathed by the global economic crisis. It says: India has taken a generally conservative approach to globalization, moving slowly to open its markets to the rest of the world. Moreover, the domestic Indian market has remained strong. The ad quotes Ron somers, president of US-India Business Council, as saying, "India's internal market is so massive that it can sustain shocks better than many countries." The fact is that India's economy does not depend much on exports to the rest of the world. It is, therefore, relatively less connected to the problems in the developed world. In fact, it stands to benefit from a dramatic reduction in commodity prices, such as oil, due to the world-wide economic slowdown.

While the Indian advertisement and government leaders present a very rosy picture of India's prospects, it is important for Indians and others to understand that there are significant risks in India. For example, the extreme Hindu Nationalists are continuing to stir up trouble in many parts of India. According to All India Christian Council, the 2008 violence has affected 14 districts out of of 30 and 300 Villages in the Indian state of Orissa, 4,400 houses burnt, 50,000 homeless, 59 killed including at least 2 pastors, 10 priests/pastors/nuns injured, 18,000 men, women, children injured, 2 women gang-raped including a nun, 151 churches destroyed and 13 schools and colleges damaged. The violence targeted Christians in 310 villages, with 4,104 homes torched. More than 18,000 were injured and 50,000 displaced and homes continued to burn in many villages. Another report said that around 11,000 people are still living in refugee camps.

People like Shiv Sena chief Bal Thackeray, BJP leader L.K. Advani and Gujarat Chief Minister Narender Modi represent the ugly underbelly of Indian democracy and a threat to India's secular constitution. Modi is currently in power in Gujarat, in spite of overwhelming evidence of his participation in 2002 anti-Muslim riots resulting in the massacre of thousands of Muslims. Mr. Advani has been held responsible for the destruction of Babri mosque and subsequent anti-Muslim riots. Mr. Thackeray is considered responsible for major anti-Muslim riots in Mumbai and continues to terrorize any one who disagrees with him.

The BBC reported yesterday on the "Hindu Terrorist" plot involving Indian military officers, a female priest and a little-known Hindu outfit called Abhinav Bharat (Young India).

The report said: It was in the aftermath of the 29 September bomb blast in the predominantly Muslim town of Malegaon in the western state of Maharashtra that the term "Hindu terrorism" or "saffron terrorism" came to be used widely. That was because the state police's Anti-Terrorism Squad (ATS) arrested 10 Hindus following the blasts and has said that it wants to arrest several more.

One of those detained was a female priest, Sadhwi Pragya Singh Thakur, aged 38, who has been accused by the ATS of being involved in the Malegaon blast. Her detention shocked members of the faith. So too did the arrest of a serving Indian army officer, Lt-Col Prasad Srikant Purohit, who the ATS says is the prime accused in the case.

According to an Indian writer Yoginder Sikand, some in India's Muslim minority have been radicalized by the actions of the Hindutva groups and their allies in the state and local governments. America's 'global war on terror' has provided a convenient cover to these Hindu groups and to fiercely anti-Muslim elements within the Indian state machinery to launch a concerted campaign of terror against Muslims. Large numbers of Muslims in various parts of India continue to languish in jails on trumped-up terror charges, suffering brutal torture as well as routine insults to their religion by police officials.

A rudimentary study of world history suggests that if the Indian political system can not find a way to marginalize and isolate Thackeray, Advani, Modi and other fanatics like them, India will continue to face threats to its secular constitution, its political stability, and its economic growth.

Prime Minister Manmohan Singh himself has called the Maoist insurgency emanating from the state of Chhattisgarh the biggest internal security threat to India since independence. The Maoists, however, are confined to rural areas; their bold tactics haven't rattled Indian middle-class confidence in recent years as much as the bomb attacks in major cities have. These attacks are routinely blamed on Muslim militants. How long will Maoists remain confined to the rural areas will depend on the response of the Indian government to the insurgents who exploit huge and growing economic disparities in Indian society.

In 2006 a commission appointed by the government revealed that Muslims in India are worse educated and less likely to find employment than low-caste Hindus. Muslim isolation and despair is compounded by what B Raman, a hawkish security analyst, was moved after the most recent attacks to describe as the "inherent unfairness of the Indian criminal justice system".

According to Pankaj Mishra, the author of Temptations of the West: How to Be Modern in India, Pakistan and Beyond, the names of the politicians, businessmen, officials and policemen who colluded in the anti-Muslim pogrom in Gujarat in 2002 are widely known. Some of them were caught on video, in a sting carried out last year by the weekly magazine Tehelka, proudly recalling how they murdered and raped Muslims. But, as Amnesty International pointed out in a recent report, justice continues to evade most victims and survivors of the violence. Tens of thousands still languish in refugee camps, too afraid to return to their homes.

Based on a quick review of India's current status and great potential, including its strengths and weaknesses, I strongly believe India is clearly on the road to greatness it deserves with its rich heritage as one of the oldest civilizations on earth and the world's largest modern democracy. India's challenge will continue to be in how well it negotiates the obstacles and potholes created by internal strife from growing religious and ethnic fanaticism, ongoing regional insurgencies, and increasing economic disparity.

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Friday, November 14, 2008

Fraudulent Mortgages in US Triggered International Financial Crisis

An Indian-American investor and producer of Bollywood movies has been convicted of mortgage fraud in the United States. How did he scam US banks and investors? How did US mortgage money end up funding Bollywood? To answer these questions, let's look at the broader story of US mortgage fraud and its impact on the international financial markets and the world economy.

The French stock market triggered worldwide shares selloff in August 2007 after BNP Paribas, the largest publicly traded bank in France, suspended investors’ ability to remove money from three funds that had invested in American mortgage securities. The bank said it had become temporarily unable to place a value on the funds, which have turned sour as increasing numbers of homeowners have defaulted on their loans.

The news came as a shock to many who mistakenly believed the damage from the US mortgage crisis was limited to the US financial markets. How did this happen? The answer lies in how the mortgage business has changed over the last decade. Until the 1980s, the mortgage lenders kept the loans on their own books and assumed full risk of default. The loan officers either knew the borrowers or checked them out carefully before approving the loans. All of this changed with the advent of securitization of debt that allowed the original lenders to offload their loans and pass the risk on to investors, including large foreign institutions such as BNP Paribas, who bought US mortgage-backed securities as investments. The rating agencies jumped into the opportunity to make money by giving AA and AAA investor grade ratings to some of the riskiest of securities backed at least partially by shaky or sub-prime mortgages issued to less credit-worthy, even fraudulent, customers. Others such as AIG created the appearance of lower risk to investors by issuing credit default swaps to ensure such securities.

Many of the subprime loans were issued to unsuspecting borrowers lured by dishonest mortgage brokers. These loans were based on false information such as exaggerated claims of income, inflated property appraisals, and given at very low teaser rates. Some of the borrowers knowingly took advantage of easy credit by falsifying information on their applications. Mortgages brokers and banks made enormous profits by issuing such mortgages which were then sold as securitized debt to investors. Needless to say, many of the borrowers started to default as soon as their rates and payments increased after the initial period of teaser rates.

Last month, I actually met a technician in Silicon Valley who came to do some work at my newly-purchased home. He asked me if I had bought my home through short sale or foreclosure. I said no. Then he proceeded to tell me that he had had two of his homes foreclosed recently. When I said I am sorry to hear that, he said it's no big deal. It turns out that he had borrowed 125% of the value on each of those homes at low teaser rates and pocketed the extra cash after paying for the homes. He rented the homes and then used the cash to buy two brand new cars and took a vacation. When the rates increased, he did not keep up with the payments and lost both homes. But he kept the cars, enjoyed his vacation and the kept leftover cash.

What this technician's story represents is only the tip of the huge mortgage default mess and massive investor losses. Yesterday's Washington Post reports that Vijay K. Taneja, a well-known Bollywood investor, has admitted to mortgage fraud in Virginia. Taneja pleaded guilty in U.S. District Court in Alexandria to a fraud enterprise that cost banks at least $33 million, the largest mortgage fraud case in Virginia in almost 20 years and among the largest nationally. Prosecutors said he created bogus mortgage loans, sold legitimate loans to more than one buyer and pocketed the proceeds of refinancings.

Taneja's recent movie, "Aap Ka Suroor" featuring Himesh Reshammiya, was released in June of this year. His concert "Incredibles" , featuring big Bollywood stars, toured the US earlier this year.

According to Washington Post, prosecutors told the judge that Taneja invested millions of his mortgage proceeds in Indian films and theatrical productions through one of his companies, Elite Entertainment, and that they are still trying to untangle the financial web. "He has millions of dollars unaccounted for," Assistant U.S. Attorney Stephen Learned said as he asked Hilton to order Taneja to be electronically monitored to ensure that he doesn't flee before sentencing. "There's so much money, and it's difficult to figure out where it all went."

The above two examples are just the beginning of the anecdotal evidence of fraudulent mortgages that are at least partly responsible for the international financial crisis we find ourselves in. The Federal Bureau of Investigation is investigating 19 major corporate fraud cases related to the mortgage crisis. The targets of most of those investigations have not been disclosed. In addition, the F.B.I. has 1,380 small mortgage fraud investigations now open in field offices around the country, a sharp increase over previous years, according to FBI officials. Other culprits include inadequacy of the risk models, lack of regulation of financially engineered products, and the actions of the US rating agencies. The US origins and the global nature of the problem requires concerted international investigation of the current crisis to develop a new regulatory regime and enforcement mechanisms that cover financially-engineered products such as securitized debt and credit default swaps and better oversight of the rating agencies.

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Thursday, November 6, 2008

Obama Technology Policy and Impact on South Asia

Technology will likely get significant attention by President-elect Barack H. Obama, in spite of the more urgent issues of two wars, a sputtering economy and ballooning US national debt. While there will be the usual rush by various special interest groups in the high tech world to try and influence US technology policy to favor their particular sectors or products, it is important for the new administration to see each technology in the broader context of national challenges such as government transparency, climate change, energy independence, delivering cost-effective healthcare broadly, and overcoming major national economic challenges.

Obama understands the difference that online networking technology made in raising record amount of $700m for his campaign, and energizing the young people to get involved as campaign organizers, workers and voters. It can be expected that Obama will continue to promote and use the online media to reach out to the American people and inspire them to bring real change in America. Obama campaign has talked about appointing a Chief Technology Officer (CTO) to oversee US technology policy investments in the incoming Obama administration. The CTO’s mandate would be different from the Cybersecurity czar appointed under the Bush Administration. Bush’s czar helped defend against cyber threats. Obama’s CTO, by contrast, would ensure government officials hold open meetings, broadcast live webcasts of those meetings, and use blogging software, wikis and open comments to communicate policies with Americans, according to the plan. Such broad use of online media by the US government will benefit Silicon Valley high-tech businesses and encourage the use of technology by state and local governments in the US and other parts of the world. It'll also keep a lot of young people, who were energized by Obama, engaged in discussion and help solve major national issues. "Obama understood the intersection of demographics and technology and promised engagement and interaction," Don Tapscott, best-selling author and researcher, said in an interview recently. "But if he now says to young people, 'Thanks, now go passive for four years until my re-election,' there will be outrage. It will make the reaction of the 1960s generation look like kid stuff." The technology exists for Mr. Obama to improve government transparency and pursue the online relationships with his under-thirty supporters. However, Mr. Obama will have to make sure that people he surrounds himself with in the White House can take advantage of it.

Matt Marshall of Venture Beat has published details of Obama’s new technology policy and plans, which cover everything from providing new subsidies for internet broadband access to increased permanent visas for immigrants needed by the high-tech industry.

The president-elect has often talked about energy policy and dealing with its impact on climate change as a priority. He wants to create five million new jobs by strategically investing $150 billion over the next ten years to catalyze private efforts to build a clean energy future. Transformation in the way people and businesses use technology could reduce annual man-made global emissions by 15 per cent by 2020 and deliver energy efficiency savings to global businesses of over $ 800 billion, according to a new report published by independent non-profit The Climate Group and the Global e-Sustainability Initiative (GeSI). The choice of the CTO by Obama must reflect this priority. In addition to the CTO, the Obama administration should seriously consider appointing Nobel laureate Al Gore as a high-profile and high-powered ambassador to inspire and lead a global green revolution.

During his campaign, Obama has displayed protectionist tendencies in response to the middle class concerns for well-paying jobs being moved to countries such as India. In his speech to the Democratic National Convention, Obama pledged to halt tax sops to companies that ship jobs overseas. If Obama sticks to this promise, it will mean trouble ahead for India's IT industry. India's software and services exports stood at about $40 billion during the financial year 2008, a growth of 29%, with US as its largest market. Can Obama really curb outsourcing? It seems unlikely.

As the emerging economies in Brazil, Russia, India, China and the rest of the world try and emulate the US pattern of production and consumption, it is clear that this development model will not be sustainable for long. What is needed is a fundamental change in how we produce, market, distribute and consume various products and services. An accelerated change away from fossil fuels to renewable sources of energy is absolutely urgent. Such a fundamental change in architecture of our industrialized society will require a significant focus and commitment of human intellectual capital by the US.

Changing the economic incentives and transforming the industrial architecture will not be easy. The powerful lobbies of auto, steel, industrial equipment, farmers, financial services and information technology industries will likely resist any major changes that affect how they do business. Each of them will use their power and influence in Washington to get a larger share of funds in terms of tax credits or corporate welfare for themselves, at the expense of dealing with the larger national challenges. If Obama can inspire and lead such an effort to change how people produce, consume and live, the rewards are potentially very large in terms of creating millions of new jobs, enabling a healthier environment, persuading and supporting the emerging economies to limit carbon emissions, and saving the earth and the human race from total destruction.

Here's a November 2007 video clip of Obama talking about technology, Pakistan, Middle East, Africa, war and peace and other matters:

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Monday, October 27, 2008

Democrats and Republicans Must Share Blame for Financial Crisis

The Bush administration has been the target of attacks by Democrats for the international financial crisis that began on Wall street earlier this year. The critics' main argument is that the Bush-era anti-regulation environment allowed unregulated derivatives contracts, called "weapons of mass destruction" by Warren Buffett, to grow into a mushroom cloud.

While it is true that the dramatic growth of derivative contracts such as credit default swaps happened on Republicans' watch, the fact is that the seeds of the current crisis were sown during Clinton years. It all began with an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000. And the bill was a big favorite of the financial industry it would eventually help destroy.

It not only removed derivatives and credit default swaps from the purview of federal oversight (on page 262 of the legislation), Congress prohibited the state and local governments from enforcing existing gambling and bucket shop laws against Wall Street.

As the recent CBS 60 Minutes segment explained, "In retrospect, giving Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century should have given lawmakers pause, but on the last day and the last vote of the lame duck 106th Congress, Wall Street got what it wanted when the Senate passed the bill unanimously." Though CNN has only picked Senator Phil Gramm as one its top 10 Culprits of Collapse, the entire senate is responsible for it.

Clearly, the unanimous Senate passage of the Commodity Futures Modernization Act of 2000 demonstrated the power of Wall Street over both Republicans and Democrats. In fact, the data of the financial services industry's recent campaign contributions shows that two of the top three recipients of the largess from Wall street are Democrats Barack Obama and Hilary Clinton. John McCain is in a distant third position. Overall, Sen Obama's campaign is awash with record, massive cash contributions.

Since the current financial crisis has its roots in easy, plentiful mortgages and the housing bubble facilitated by the Democrats' unabashed and reckless support for home ownership via Fannie and Freddie and community re-investment legislation, a larger share of the blame for the current crisis should be assigned to the Congressional Democrats such as Barny Frank and Chris Dodd.

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