Category: Asia360 News (Singapore)

The freefall in the rupee has been arrested but don’t expect a full recovery this year

(20 January 2012) — The worst is over for the rupee after India’s central bank injected more than US$4 billion over three months in late 2011 to arrest the currency’s freefall, which was triggered by global risk aversion as investors started to pull funds out of India.

The Reserve Bank of India sold US$2.9 billion in November alone, the month that saw the rupee tumbling nearly 7%, its worst fall in 16 years, to hit a record low of 52.40 rupees to the dollar.

The November dollar sale was a massive increase from the US$845 million and US$943 million sold in September and October respectively, according to the central bank’s latest bulletin on January 12. This was also the highest quantum of sales in 32 months.

The significant intervention by the central bank is contrary to popular belief that it was following a hands-off approach. Experts close to the bank believe that the intervention had actually become necessary.

“Ideally the market forces should drive the exchange rate and there should be minimum interference (from either the the central bank or the government). However, when the exchange rate reaches a juncture where it starts causing distortions to the general economy, it should be addressed,” Madan Sabnavis, chief economist at Credit Analysis & Research Limited, India’s second-largest credit rating agency, told Asia360 News.

That juncture arrived in 2011 when the rupee, the worst-performing Asian currency, lost more than the 19% of its value against the US dollar between August and November. The loss was equivalent to the rupee’s total depreciation in the 2008-9 global financial meltdown.

On top of selling dollars, the central bank put in place measures to monitor the daily positions of banks and the purpose for which they were buying currencies. To curb speculation, it curtailed by as much as 75% the overnight limits for banks, which is the maximum amount of currency positions that can be carried over to the next trading day. The authority also banned the cancellation and rebooking of forward contracts, which allows the purchase and sale of an asset at a specified future time at an agreed price.

Within three weeks over October-November 2011, India’s foreign exchange reserves fell by US$12 billion, the steepest drop since the Lehman Brothers collapse in 2008. The massive depletion was a fifth of the $65 billion that India lost during the entire 2008-9 financial crisis.

“Rupee woes began with the eurozone crisis causing a dollar liquidity squeeze in the Indian markets both on the debt and equity capital markets. During this time, importers stayed uncovered on future dollar payables while exporters stayed fully covered on future receivables; thus setting the market in a heavily dollar oversold position. It was one-way street with excessive dollar demand and very limited supply,” Moses Harding, head of economic and market research at IndusInd Bank told Asia360 News.

The Indian economy was also beset by low growth, high inflation, tight liquidity, high interest rates, high fiscal deficit, and a big trade gap.

“It is difficult to defend currency weakness when the investment inflow into debt/equity capital account is not adequate to bridge the current account gap. In a way, India was exposed of its dependence on external liquidity to ensure exchange rate stability,” Harding said.

The mass pull-out of funds from India left the country’s foreign institutional investor inflow at almost zero in net terms for 2011, against nearly US$30 billion annually in the past.

To push foreign investment, the Indian government decided in November to raise foreign investment limits by $5 billion each for government and corporate bonds, to reach $15 billion and $20 billion respectively. The window for the raised limits ended on January 13.

Improved market sentiment this year has helped the rupee recover somewhat. A furious bout of trading in the final hours of January 13 sent the Indian currency to a five-week high of 51.29 rupees to US$1, ending the day at 51.53 to the dollar. The general improvement in global risk sentiment contributed to the dollar inflow in January, as did steps by the Indian government in December to re-invigorate the economy. The government liberalised the single-brand retail sector (a similar decision on multi-brand retail had to be put on the backburner amid political furore) and deregulated the interest rate on non-resident bank deposits.

However, many experts believe that the rupee may not make a full recovery in 2012 to return to the pre-fall levels of July 2011.

“Rupee fundamentals continue to stay weak. The economic dynamics has shifted from moderate growth and high inflation to low growth and moderate inflation. The resultant shift of monetary stance from anti-inflation to pro-growth will add to pressure on rupee,” Harding said.

The case against Iran for attacks on Israel’s foreign interests is far from air-tight, as inconsistencies come to light

An Israeli embassy car carrying the wife of a defence attaché was targeted in a terror attack in New Delhi on February 13. On the same day, in the Georgian capital Tbilisi, police defused an explosive device attached to a vehicle belonging to a citizen working for the Israeli embassy. And a day later, three blasts rocked Bangkok.

It was in the Thai capital that suspicions became clearer. Two Iranians were arrested for plotting to attack Israeli diplomats stationed there.

On the face of it, the three incidents seem to establish a straightforward case of a well-organised international plot by Tehran against its bitter enemy, Israel. Many suspect it was a boastful tit-for-tat campaign designed to rattle Tel Aviv for allegedly assassinating Tehran’s nuclear scientists on its own soil.

But a closer inspection of the incidents produces more questions than answers.

If the perpetrators were indeed state-backed operatives, why were they so inept? The New Delhi bomb was stuck on the opposite side to the petrol tank; the car explosives in the Tbilisi case were detected by their intended victim before they went off; and the Bangkok assailants blew up their house accidentally with the explosives meant for their mission.

“The attacks in India, Georgia and Thailand have all been highly amateurish,” Will Hartley, an analyst with the US-based private intelligence service IHS Jane’s, told Bloomberg on February 15.

The New Delhi attack car bomb no doubt resembled the method used — allegedly by Israeli intelligence agency Mossad — to kill Iranian nuclear scientists in recent months. A copycat bombing may have been Tehran’s attempt to demonstrate that it could not only match Israel in the deadly game but even expand the playground.

But throwing that theory up in the air is the fact that the attack took place in India, a nation with which Iran has had historically amicable relations. The two countries are also currently in delicate negotiations to establish a payment method for oil, in an attempt to circumvent American sanctions against Iran’s energy sector.

Also, India is one of the very few nations that has the requisite diplomatic clout to facilitate a rapprochement between Iran and the West. Tehran can ill-afford to lose a friend like that in exchange for the life of an Israeli diplomat.

These inconsistencies reduce the likelihood that it was a series of assassination plots sponsored by Tehran, at least in New Delhi. Authorities in India too seem to be in no rush to arrive at any conclusions. New Delhi police spokesman Rajan Bhagat said at a news conference a day after the attack, “We don’t yet have the evidence to point the finger at anybody. We are exploring all possibilities.”

One of those other possibilities could be the that of an international terrorist organisation acting independently.

While this is somewhat improbable in the India case, since groups like Hezbollah which are sympathetic to Iran do not have a known operational presence in the country, it is a stronger likelihood in the Bangkok incident.

Maria Ressa, author-in-residence at the International Center for Political Violence and Terrorism Research in Singapore, told Asia360 News  that “Hezbollah has been present in Southeast Asia for a long time now. The group, in the past, has hatched plans to hit the Israeli and the American interests, especially the embassies, in Singapore and Thailand. There were even many arrests related to the cause.”

In January this year, Thai police detained a Lebanese-Swedish man, Atris Hussein, for his alleged links with Hezbollah militants. Hussein led authorities to a stockroom, just outside Bangkok, filled with more than 4,000 kilograms of urea fertilizer and many gallons of liquid ammonium nitrate, which experts said were the “initial chemical materials [for producing] bombs”.

But the shoddy execution of the recent attacks, especially in Thailand, has also left many security experts questioning the involvement of a highly trained organisation like Hezbollah in the attacks, never mind a state-backed group.

Like the India authorities, Thai police declined to make any link between the February 14 explosions and the January arrest of Atris Hussein.

Hezbollah itself has denied having any role in the incidents. In an age when terror groups fall over each to claim credit for an act of terror anywhere in the world, the denial by Hezbollah is telling.

The remaining possibilities include fringe groups exploiting the lax security apparatus in the region to carry out the attacks for their own, as yet unknown, agendas.

Some believe that it is quite possible that the complete picture may never emerge and that Iran and Israel would forever keep blaming each other for the incidents.

But whoever was responsible for the current chain of violence, the perception that Iran is behind the mayhem has “undoubtedly exacerbated the already mounting tensions surrounding Iran’s nuclear program, and international efforts to curtail it,” said Will Hartley, head of the Terrorism & Insurgency Center at IHS Jane’s in London.

Israel is insisting that India help sponsor a resolution against Iran in the United Nations Security Council condemning the attack on its diplomats in New Delhi, as well as the incidents in Tblisi and Bangkok.

But it is way too early at the moment to connect the dots; and establish the spread of the Iran-Israel conflict to lands far away from their borders.

Global nuclear summit largely fails to make the world a safer place

Hopelessly hijacked by North Korea’s rocket launch plans, the recent Nuclear Security Summit in Seoul failed to move beyond a symbolic solidarity against nuclear proliferation.

The biggest nuclear meeting in the world, the March 26-27 summit saw prominent heads of states representing around 80% of the world’s population and 90% of the global economy. But the high-profile attendance produced no binding requirements, focused on matters not on its agenda, and failed to address issues urgently in need of attention, analysts said.

The summit’s goal is to combat nuclear terrorism and strengthen the security of fissile material — material used in reactors and explosives to generate a chain reaction of nuclear fission. But it fell so far short of its goal that some critics warn that the 2014 summit in the Netherlands could well be the last.

Delegates politely applauded progress such as Italy’s pledge to dispose of its fissile material. But by the second day, the agenda had veered off course when Japanese Prime Minister Yoshihiko Noda urged the international community to demand that North Korea abandon the planned April launch of a satellite that many believe is a cover for a missile test.

Many nations supported Japan’s call, but the fact remains that North Korea’s weapons programme was off the table during the summit itself.

Noda’s decision to ignore diplomatic and summit protocol reflected Japan’s frustration with the failure of the six-party talks between the two Koreas, the US, Russia, China and Japan to denuclearise the Korean peninsula, said Professor Srikanth Kondapalli at New Delhi’s Jawaharlal Nehru University, in an interview with Asia360 News.

North Korea walked out of the talks three years ago after the United Nations Security Council condemned its launch of a long-range rocket. Within weeks of abandoning the talks, North Korea had conducted a nuclear test.

This type of behaviour certainly makes Pyongyang a nuclear threat, along with Iran. However, neither of these nations was invited to the summit.

The one thing the summit got right was choosing Seoul as a venue, analysts said, given the risks of nuclear proliferation in North Asia.

“Asia is the most likely region in the world to witness cascading nuclearisation in the near future,” said Robert E Kelly, an assistant professor in the political science and diplomacy department of Pusan National University in Busan.

“If North Korea does halt its nuclear programme, it would become difficult for South Korea and Japan to avoid going nuclear themselves in future. Nuclear weapons matter more in Asia than any other part of the world,” he told Asia360 News.

Pakistan, another nuclear trouble spot, was ignored by the summit.

“When the first summit in Washington was conceived, it was of everyone’s knowledge, though not stated publicly, that the idea was to keep Pakistan’s nuclear stock away from terrorist groups like Al-Qaeda,” Rajiv Nayan, senior research associate at the Institute for Defence Studies and Analyses in New Delhi, told Asia360 News.

But, he added: “Pakistan is not even being discussed at a nuclear security summit, despite the revelation about the relationship between the Pakistani establishment and terrorists like the late Osama bin Laden.”

Nayan concluded that the US and other North Atlantic Treaty Organisation (NATO) nations had attempted to shield Pakistan from criticism due to its importance to their “war against terror”.

In addition to failing to confront rogue nuclear states, the summit secured only slight progress on problems outlined in its charter.

While the US and Russia have made recent progress in cutting nuclear stockpiles, India, China, Japan and South Korea remain at odds over how best to reduce their own inventories.

China has expressed a strong will to reduce its nuclear warheads. It is believed to possess at least 200 warheads although Beijing maintains it only has a “handful” of nuclear weapons.

As Jawaharlal Nehru University’s Kondapalli points out: “When countries are debating the starting point itself, how much hope can there be of reaching the destination any time soon?”    AR

There have been some setbacks but the Indian government will continue to push for economic reform

(3 February 2012) — India is a nation of shopkeepers. Retailing accounts for 15% of its gross domestic product, employs 40 million people, and at US$450 billion, is one of the top five retail markets in the world. No wonder global retail giants want to get a foot in the door.

But the country is also keen to protect its millions of small retailers. Politicians and the public are divided on whether letting major foreign retailers into the market would destroy jobs or boost the wider economy. The government, led by economic reformer Prime Minister Manmohan Singh, believes that retail liberalisation is a necessity. Opposition parties disagree — perhaps playing to local fears of jobs losses. Single-brand retailers like Ikea were, until recently, required to set aside 49% of their equity for local investors. For now, the big multi-brand retailers, such as Walmart and Carrefour, are entirely barred.

Just last week, the government announced its decision to formally clear the decks for full equity ownership — up from the earlier 51% investment cap — in the single-brand retailing sector. This would set the stage for global single-brand retail firms to proceed with investments in the country.

“Globally, single-brand retail follows a business model of 100% ownership and global majors have been reluctant to establish their presence in a restrictive policy environment,” the department of industrial policy and promotion said when announcing the move. But foreign firms still have to meet 30% of their sourcing needs through local suppliers.

For Ikea, this requirement is an obstacle to the company’s expansion into India and needs reviewing, company chief executive, Mikael Ohlsson told the Financial Times.

Single-brand retail accounts for 25-30% of the US$26 billion organised-retail market in India and will grow to about US$20-25 billion in five years, according to Technopak Advisors, a retail consultancy firm.

Other reforms

In the past year, India has liberalised foreign investment regulations in many of its key sectors. The foreign ownership limit in public-sector refineries, for example, has been raised to 49% from 26%. The government also decided to allow commodity exchanges up to 26% in foreign direct investment (FDI) and 23% in foreign indirect investments, provided no single entity holds more than 5% of the stake.

Sectors like credit information companies, industrial parks, and construction and development projects have also been opened up to more foreign investment. Keeping India’s civilian nuclear ambitions in mind, India has also allowed 100% FDI in the mining of titanium, a mineral abundant in the country.

Also, in another major announcement, the government of India on January 17 announced that foreign airlines will soon be allowed to acquire a stake of up to 49% in domestic carriers — leading to the likes of AirAsia expressing an interest in launching an Indian subsidiary.

And on January 26, the government removed a mandatory clause that investments once announced, cannot be cancelled for three years. Foreign firms will be encouraged to look more closely at investing in India if they know their investments will not be tied up for a minimum period of time.

The slew of reforms would give the impression of a reform-obsessed government on overdrive. But the truth is more restrained. The recent decision to allow 100% FDI in single-brand retail is part of a wider government effort to push its economic liberalisation programme, which began in 1991.

Riding on measures by the government and the central bank, overall FDI into India  in 2011 was US$26 billion compared with US$19 billion in 2010.  And according to a recent Ernst & Young report, FDI in India is set to soar, even as investors struggle to come to terms with a lack of transparency, poor infrastructure and policy paralysis. The report also noted that overseas investment in Asia’s third-largest economy rose for the first time in three years in 2011, as global investors put their faith in rising salaries, an expanding middle class, and a large and cheap labour force.

An opportunity?
Despite the progress, liberalisation of the multi-brand retail sector remains a thorny issue because of the size of the market and the potentially wide-ranging social impact. Any decision on multi-brand retail would affect much of India, from the man on the street to the conglomerates. Foreign multi-brand retail giants would be able to sell to most of Indian’s 1.2 billion people.

Small-shop owners, who account for more than 90% of India’s US$450 billion retail sector, oppose the entry of foreign players. They fear that they would be put out of business.

Supporters of liberalisation, such as the former US ambassador to India Timothy Roemer, believe that opening the sector to foreign investors would create millions of jobs for local Indians. Infrastructure would improve, food prices would drop and there would be more opportunities for associated small and medium enterprises as well.

During a meeting with global retail heads at the World Economic Forum in Davos, Indian Commerce Minister Anand Sharma told delegates that the desired 51% foreign ownership of multi-brand outlets “could not be implemented because of the compulsions of coalition politics and also partisan opposition. It is just a pause. The decision has only been put on a temporary halt”.

This is the first time US and German retail executives have met Indian ministers after the government was forced to suspend its plans last December. The government has reportedly restarted the consultation process with political and economic stakeholders, in a fresh attempt at opening up multi-brand retail to foreign investment.

With sagging consumer demand in the developed economies, India is fast becoming one of the most attractive untapped markets for the global retail giants.

High-profile arrest galvanises Bangladesh’s 1971 war crimes trial

DHAKA (20 January 2012) — Dancing broke out in the streets of Bangladesh after the prominent arrest of a man the state prosecutor alleges is “the mastermind” of war crimes commited during Bangladesh’s 1971 liberation war, when it seceded from Pakistan.

The development is “a significant step forward in the trial of those accused of crimes against humanity”, said Syed Badrul Ahsan, executive editor of news daily The Daily Star.

“Now that Ghulam Azam has been taken into custody, our expectations of a proper, fair and full trial of the war criminals of 1971 take a newer, happier dimension,” Ahsan wrote in his January 18 column.

Azam denies the charges, and his supporters say the case against him is politically motivated.

Azam, 89, was chief of the religious Jamaat-e-Islami party and later a leader of the political opposition in Bangladesh. He was arrested on charges of orchestrating crimes against humanity during the war — including murder, arson, rape and looting. His hearing will start on February 15.

He is also alleged to have created and led pro-Pakistan militias like the Peace Committee (Shanti Committee), Razakar, Al-Badr, and Al-Shams, which  carried out numerous murders and rapes during the nine-month war.

“He was the mastermind of all crimes against humanity during 1971,” state prosecutor Syed Haider Ali alleged in an AFP report.

Media reports described people coming out in the streets on January 13, a holiday in Bangladesh, dancing and chanting “we want capital punishment for Ghulam Azam”.

Wheelchair-bound Azam applied for bail on health grounds but this was rejected by the International Crimes Tribunal, the government-constituted court conducting the trial.

Azam is one of the most high-profile Islamists to have been arrested since the Awami League government set up the tribunal on March 25, 2010, as part of its 2008 election promise to bring all war criminals to trial. In November 2011, another Jamaat-e-Islami leader, Delawar Hossain Sayedee, became the first of seven suspects to face the tribunal on charges relating to the 1971 war.

But the 1971 war crimes trial is proving to be a challenge for Prime Minister Sheikh Hasina, as many of the key defendants are also her bitter political enemies. Jamaat-e-Islami is a key constituent of a political alliance led by former prime minister and opposition leader Khaleda Zia. Two leaders in Zia’s Bangladesh Nationalist Party (BNP) face similar charges. Both the BNP and Jamaat-e-Islami have rejected the tribunal as a government “show trial”.

Worryingly for the government, many international rights groups have also expressed similar views about the tribunal.
New York-based Human Rights Watch and other similar groups have asked the government of Bangladesh to clarify the definition of “charges” and to allow the accused to question the tribunal’s impartiality — not allowed under Bangladeshi law.

Law Minister Barrister Shafique Ahmed on January 16 reiterated that the war crimes trials are fair and up to international standards.

“We want to ensure fair justice, so nobody should doubt the prosecution of the war crimes trial. I want to assure that it’ll be of international standard,” he said at a roundtable in Dhaka organised by Bangladesh based inter-governmental organisation, the Centre on Integrated Rural Development for Asia and the Pacific.

“I request the international community not to be misled by false allegations by lobbyists engaged by those accused in the war crimes trial,” he said, adding that nobody would be prosecuted for political revenge.

“Anyone who is questioning the International Crimes Tribunal is questioning the national judicial system [of Bangladesh] and therefore, the very sovereignty of the country,” Professor Mizanur Rahman, chairman of the National Human Rights Commission, told the roundtable.

The war crimes trial is not an ordinary trial, but an act that might define the future of the nation, Rahman said. Warning the liberal voices of Bangladesh, he said that “if you fail to complete the trial, darkness will never end and nobody will come to protect you”.

Azam went into exile after Pakistani soldiers surrendered to a joint force led by India on December 16, 1971. He was a permanent resident of England until 1978, when he returned to Bangladesh on a Pakistani passport. He maintained Pakistani citizenship until 1994 because the Bangladeshi government refused to grant him citizenship.

India’s main opposition party shoots itself in the foot by taking in graft-tainted politician

NEW DELHI (13 January 2012) —The opposition Bharatiya Janata Party’s (BJP) decision to admit a corruption-tainted politician to its ranks ahead of the February elections in the state of Uttar Pradesh (UP) has significantly damaged its prospects in the upcoming elections. And the man in the centre of the controversy has now left the party too.

Babu Singh Kushwaha, who was wooed by the BJP in a bid to draw support for the party at the upcoming elections, asked the BJP party chief Nitin Gadkari on January 7 — four days after his induction — to put his party membership on hold until he cleared his name of all corruption charges.

Political experts see the “offer” by Kushwaha, who was expelled from both UP’s ruling Bahujan Samaj Party (BSP) government and the BSP in November 2011 over allegations of misappropriation of federal government funds, as BJP’s attempt to wriggle its way out of the controversy.

BJP had hoped that Kushwaha, who commands substantial influence over the “backward” caste community that he belongs to, would help the party garner votes in the caste-based electoral politics of UP. Kushwaha’s community, which forms 9% of the votes in the state, is known to vote en bloc along caste lines.

But the decision by the party president Nitin Gadkari was met with reservations by senior leaders who were against the party becoming associated with a tainted person — especially when the party was projecting itself as a serious anti-corruption political force in the country.

Many other BJP leaders from UP expressed displeasure with the decision, with Uma Bharti, who is entrusted with leading the UP election campaigning, announcing to her intention to take a pause in her responsibilities on January 6.

Sensing the BJP’s troubles, the Congress party, the biggest constituent of the ruling federal coalition government, went on an immediate offensive against their rivals.

“The Youth Congress exposed him [Kushwaha] and his corrupt practices. He approached Congress and pleaded to take him in the party and save him. But, we refused and said, we would not save you. You will be sent to jail,” Congress party leader Rahul Gandhi said at an election rally in the eastern UP district of Gorakhpur on January 6. The BJP soon started facing derision in media reports too.

Senior political commentator Seema Mustafa, writing in the Daily News & Analysis a leading English daily, said that “the BJP has twisted its knickers by quietly bringing in a couple of nasty, corrupt ministers kicked out by the BSP”. Amid mounting criticism and the fear of likely political reversal in the politically vital state of UP, the BJP eventually, and ironically, reached out to Kushwaha to bail it out.

Unfortunately for the BJP, the matter did not end with the “resignation” of Kushwaha from the party.

Ramashish Rai, former youth wing leader of the party, alleged that a backroom financial deal was involved in the admission of Babu Singh Kushwaha into the BJP.

“Kushwaha had a deal with some leaders of the party and it seems monetary help was taken from him for contesting elections,” Rai claimed while talking to reporters in UP’s capital Lucknow on January 9.

A day later, Team Anna, the group leading India’s anti-corruption movement, decided it would no longer differentiate between the BJP and its original target, the Congress Party. It said it would hold both parties to equal account in upcoming elections in five states.

Many analysts believe that the Kushwaha fiasco has done irreparable damage to the BJP’s chances in the UP elections. With less than a month to go before voting, there may not be enough time to come up with a political platform other than the “anti-corruption” ticket.

Over 110 million voters of Uttar Pradesh will vote for a new legislature in a seven-phase poll staggered between February 8 and March 4 this year. The term of the present State Legislature is set to expire on May 20.