Cash is a great lubricant in diplomatic intercourse

The tossup this morning is between Pakistan President Ali Zardari attending the NATO summit in Chicago, the declining rupee and General Motors quitting as a Facebook advertiser. So rather than choosing one, let me write about all three.

A spokesman for the Pakistani embassy in Washington has confirmed that Zardari will attend the summit whose primary focus will be Afghanistan. Incidentally, my spokesman has also confirmed that I will be attending the summit on behalf of the IANS wire and South Asia Monitor.

The immediate task for the NATO countries, particularly the United States, is to persuade Pakistan to reopen the border route so that overland supplies into Afghanistan can be resumed. Pakistan has enforced a blockade ever since US airstrikes killed 24 Pakistani soldiers in November last year. The blockade has come to symbolize the breakdown in bilateral relations between the two countries.

Pakistan’s change of heart about lifting the blockade is as much prompted by its wish to remain a key player in Afghanistan’s strategic future as hard cash. Washington is said to have guaranteed some 1.1 billion dollars to Islamabad to fight the militants once the Afghan border route is reopened. Islamabad could not be unmindful of its fast depleting cash since November. Cash is a great lubricant to smoothen a squeaky diplomatic intercourse. Pay cash, will open seems to be the logic.

I cannot help but point out the absurdity of some 60 countries coming together in McCormick Place, “the premier convention facility in North America” here in Chicago, to discuss the future of a country that lies 6961 miles or 11,204 kilometers to its east. Equally ironic is The New York Times story by Mathew Rosenberg today about how Afghanis trained by the US military are turning against the latter.

I cannot think of any option other than the NATO countries, particularly the United States, clearly deciding to leave Afghanistan to Afghanis with an explicit warning that any future attack against their interests emanating from Afghani soil would invite decisive military response. However, the problem with such a warning is that we all know how the current decisive response has turned out after ten years of occupation.  One does not expect the NATO leaders to admit that by and large the Afghan campaign has been colossally mishandled by an alliance of arguably the world’s mightiest fighting forces.

For Zardari, the visit to Chicago is mainly about its optics because most of the actual decision making about such matters lies well outside his office and influence. Afghan President Hamid Karzai, who is also expected to attend, has to be aware how short his own writ runs within his country. On balance, the NATO summit cannot do much better than reaffirming that they cannot do much better for Afghanistan than what they have done so far.

****

The Indian rupee’s sharp decline in recent weeks (it fell to 54.43 rupees to the dollar today) reminds me of what some currency analysts have been saying for a while now. They have argued that the rupee is overvalued against the dollar and it should ideally be between 60 and 70.

I don’t understand all the complexity that goes into determining currency values but India is concerned at the decline. Finance Minister Pranab Mukherjee is already talking about enforcing austerity to achieve fiscal consolidation while his political opponents are wondering whether the country is reliving its 1991 economic and foreign exchange reserves crisis. It was that very crisis that forced India to embark on sweeping economic reform and liberalization.

Two decades down cynics may feel emboldened to ask whether it was worth doing all that if the rupee has weakened to a record low. It now has the dubious distinction of being the worst performing Asian currency having eroded 20 percent against the dollar in the last nine months.

It is amusing when skeptics invoke the 1991 crisis to describe India’s current predicament. In 1991, the country barely had foreign exchange reserves enough to cover two to four weeks of imports. As of May 4, 2012, the country’s central bank, the Reserve Bank of India reports foreign exchange reserves of a little over $293 billion which could easily cover seven to eight months of imports. It might help to remember that India’s population in 1991 was about 850 million compared to 1.22 billion now and yet it has managed to strengthen a lot of its economic fundamentals.

The point is the rupee value is a function of the currency market (oftentimes some currency traders pull the value out of their ass—literary exaggeration) which is important but cannot be the only determinant. If the rupee is falling, it only means that gravity likes it better than the dollar.

****

General Motors (GM) has decided to quit advertising on Facebook. This reportedly represents a loss of $10 million for Facebook at a time when the company is preparing for its blockbuster IPO this week. More than the money it is the public relations of the GM withdrawal that could hurt the social network giant.

Reports say GM does not seem to get enough “Likes” on Facebook. I think the company has figured out that all that the Facebook users do is sit in their unlaundered pajamas and post silly updates without even once thinking about buying a GM car.

Advertisements

About chutiumsulfate

South Asians can infer from my name what I am. View all posts by chutiumsulfate

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: