The Tribune, Chandigarh, India

Worries over rupee
Foreign capital moving out

ALTHOUGH most free-floating global currencies are sliding against the dollar, the rupee’s plunge has been one of the sharpest. It has become Asia’s worst and the world’s third worst-performing currency this year, according to The Wall Street Journal. Only Turkey’s lira and Kenya’s shilling have fallen more than the rupee’s decline of 14 per cent. After the Indian currency touched a 32-month low of 51.34/35 a dollar on Friday, experts do not rule out the possibility of the rupee testing the all-time low level of 52.20 in the near future.

The chances of the rupee continuing its downward trend have further increased with the RBI refusing an immediate intervention. Deputy Governor Subir Gokarn has expressed reluctance to use the foreign reserves, currently estimated at $314 billion, to stabilise the rupee. The reserves, he says, are not enough. These provide an import cover for just eight-nine months. The importers, who are the worst sufferers, are pressing the government for RBI help. About 70 per cent of them are without any cover against currency fluctuations. The government itself is a major loser in the currency war as the cost of oil imports has gone up substantially. The oil companies import crude worth $6 billion every month. Exporters, who should have normally rejoiced at the windfall from the rupee’s plunge, have been hit by troubles in the Eurozone and the US.

The reasons for the rupee’s descent are well known. During a global crisis investors convert their assets into dollars, which is the safest of all currencies. As India’s growth falters due to high interest rates and inflation, foreign investors are selling their stock holdings. Fresh foreign investment is not coming in to keep the balance. Indian firms too are investing abroad due to a poor business environment here. India’s equities have attracted foreign buying of just $663 this year compared to $29 billion last year. The government is resuming reforms to woo foreign direct investment in aviation and retail but the process has just started and will take time.

Pak Memogate crisis
Survival of Zardari threatened

PRESIDENT Asif Zardari remains in the news more than any other leader of Pakistan but mostly for the wrong reasons. Nowadays he is the subject of a heated debate for having allegedly approached the then US Joint Chiefs of Staff, Admiral Mike Mullen, to prevent an Army coup that he feared could be staged after the killing of Osama bin Laden at Abbotabad, near Islamabad, in May by US Seals. Mr Zardari’s secret message has been made public by an American businessman of Pakistani origin, Mr Mansoor Ijaz, who, as he claims, delivered a memo in this regard to Mr Mullen allegedly prepared by Pakistan Ambassador in Washington Hussain Haqqani. Mr Mansoor has revealed the startling development through an article in a London daily, though Mr Haqqani, who has offered to resign, continues to deny his involvement. But the memo making the rounds as Memogate did reach Mr Mullen according to his own admission.

The Memogate controversy has taken a more serious turn with Mr Mansoor having provided more proof in support of his claim. Prime Minister Yousuf Raza Gilani is trying to douse the political fire but without much success so far. Former Prime Minister and Pakistan Muslim League (N) leader Nawaz Sharif has demanded a thorough probe to punish the guilty, whosoever he may be. After all, the memo talks of major concessions President Zardari was prepared to give to the US for its help in saving the civilian government from getting toppled by Army chief Gen Ashfaque Parvez Kayani.

More than anything else, the development must have widened the rift between President Zardari and General Kayani who have always been suspicious of each other’s intentions. The image of both is bound to suffer. Most Pakistanis may believe that Mr Zardari, going by his track record, might have indulged in the kind of tactics the memo talks of. Going by Pakistan’s history dominated by military coups, people may also believe that the top General might have given indications of capturing power. The Pakistan Army provided enough proof of feeling humiliated after the Abbotabad incident more than any other institution in that country. If more facts relating to the memo controversy are revealed, one of the two key figures may have to go, most probably Mr Zardari.

Thought for the Day

Vulgarity in a king flatters the majority of the nation.

— George Bernard Shaw

ARTICLE

UNESCO’s activism on Palestine
It’s a sounding board for world’s conscience
by S. Nihal Singh

IT is a curious fact that UNESCO, the United Nations’ cultural organisation, has repeatedly emerged as the bellwether of the UN system, rather than its august and powerful Security Council. In granting the Palestinians full membership, the first UN agency to do so, it has shown yet again that it is more in tune with the world’s aspirations than other organs.

It is even curiouser that UNESCO cannot discharge one of its two main briefs, of giving the world intellectual leadership, by the simple fact that there cannot be any honest intellectual debate by delegates representing their governments in an ever-expanding United Nations. Each delegate seeks to score points or watch his backside in the less than glorious traditions of free speech their countries represent. UNESCO executive board members became the direct representatives of their governments only in 1954.

Indeed, UNESCO has been engaged with the question of Israeli occupation of Palestinian land over many years. Although the UN General Assembly decreed that “Zionism is a form of racism and racial discrimination” in 1975, the first move against Israel’s part in the UN system was made by UNESCO at least one year earlier. In the Paris conference of 1974, the Arabs spearheaded three resolutions which were passed, including a condemnation of Israel for “its persistence in altering the historical features of the City of Jerusalem and undertaking excavations which constitute a danger to its monuments, subsequent to the illegal occupation of this city”. American retribution was swift in the form of withholding contributions to UNESCO under a Congressional injunction.

In 1976, there emerged the most controversial debates in UNESCO on the New World Information Order, an issue of much heat and rhetoric under the director-generalship of the Senegalese Amadou-Mahtar M’Bow. In a sense, the US and the African countries in particular were arguing at cross-purposes. It merged in the American mind with a process of strangling free media with government-aided projects while the priority in the minds of the developing world was in gathering the wherewithal to receive support in new technology and the basics of journalism.

Once the liberal establishment in the US, UNESCO’s predominant constituency, had convinced itself of what it viewed as an attack on free media, the die was cast. America gave notice of withdrawal from the agency and left at the end of 1984, depriving it of essential funds, slavishly followed by Britain and opportunistically by tiny Singapore. But the US government had a wider agenda. It was to make an example of UNESCO in the UN system. It was testing new ideas on weighted voting, later to be taken up in the parent United Nations, and to reassert a leadership role in multilateral fora.

I had then asked a US delegate to UNESCO why his government was picking on UNESCO, called the weakest link in the UN system. His answer was sharp: “What is wrong in picking on the weakest link?”

This time the Palestinian issue has deprived UNESCO of 22 per cent of its budget, the US share; Israel retaliated with withholding its 3 per cent contribution. The United States is hoping that it would not have to use its veto in the Security Council yet again to save Israel because intense lobbying will probably prevent the Palestine resolution from receiving the needed nine votes. Later, when the issue comes to the UN General Assembly, it will find overwhelming approval, giving Palestinians an upgrade in status falling short of full membership.

The voting figures in UNESCO were striking: 114 for, 14 against, 52 abstentions and 21 absentees. America’s Pavlovian response to granting Palestinian rights is as understandable as it is indefensible: the American-Israeli lobby exercises a vice-like grip on the US political establishment whoever the President may be.

But UNESCO’s activism on the Israeli-Palestinian issue has come at a cost. The anti-Israel resolutions of 1974 led to a boycott by Ionesco, Sartre and Iris Murdoch, among others. Today it would be difficult to find a person of world eminence on the executive board. As a Western ambassador told me in the early 1980s, “We, in the conference and the executive board, are civil servants trying to do our job. But there isn’t one notable intellectual – writer, painter or thinker – amongst us. And take the secretariat. M’Bow is not an intellectual…”

Incapable of achieving its intellectual mission, UNESCO does serve a purpose as a sounding board for the world’s conscience. While the US and other major powers are quibbling over minutiae on the rights and wrongs of particular moves while Israel triumphantly gobbles up more and more of occupied Palestinian land on the West Bank and in occupied Palestinian East Jerusalem, there is one UN agency that raises a finger for the Palestinian cause.

In real terms, Palestinians’ full membership of UNESCO might not amount to much, but it does make a moral point. And in a world in which realpolitik often triumphs over injustice, there is at least one UN agency that has made a statement. The UNESCO director-general, Irina Bokova, is left with the problem of cutting the agency’s programmes, given the loss of US contribution, but in an unintended sense, while UNESCO cannot surmount its deficiencies as an intellectual organisation, it can still say ‘no’ to American-supported Israeli power. In a sad footnote, Germany voted against the resolution, teaming up with the United States.

It is well to recall the fervour of the plenary meeting of November 16, 1945. The opening preambular paragraph of UNESCO’s constitution says, “Since wars begin in the minds of men, it is in the minds of men that the defences of peace must be constructed”. Paragraph 1 of Article I began with the statement: “The purpose of the organisation is to contribute to peace and security…” Not all were equally enthusiastic. Leon Blum said, “The war (World War II) that has just ended…has shown us how education, culture (in the strictest sense) and science itself may be distorted against the common interests of humanity.”

S. Nihal Singh, a senior journalist, is the author of a study, “The Rise and Fall of UNESCO”.

MIDDLE

Courageous and capricious
by R.C. Rajamani

IT used to be said of Indira Gandhi that she was the only ‘man’ in her Cabinet during her heyday. As the nation remembered her on her 94th birth anniversary on Saturday, what was discussed more than any other attribute in her personality was her courage in times of crises. She displayed courage in crucial moments. It was her courage that helped her challenge the Old Guard in the Congress party and emerge as the undisputed leader in 1969. It was her courage that helped her take on US President Richard Nixon at the height of the Cold War during the early 1970s. It was her courage that helped her win a decisive victory over Pakistan in the 1971 war that gave birth to Bangladesh.

Perhaps no one paid for the folly of understanding her courage more dearly than the then Pakistani military ruler, Yahya Khan, who boasted to a group of Western journalists, “If that woman thinks she is going to cow me down…I refuse to take it. If she wants a war I will fight it.” This was on November 27, 1971. Within two weeks the General lost the war that the military junta forced on India. Pakistan lost its eastern wing.

Just sample the Sunday Times (London) correspondent’s description of Yahya Khan as he spoke to journalists over dinner a few days before the full-scale war broke out in December 1971: “Range and sweet reasonableness alternated in Yahya’s rambling confidence, ever returning to that woman! To a tough man like Yahya, being caught in a relentless trap and waiting helplessly for the next turn of the screw is bad enough; to a Muslim General the idea that the screw is being turned by a Hindu in sari is clearly agonising.”

But Indira remained somewhat of an enigma during her lifetime. If she had courage, Indira displayed caprice too. If she displayed statesmanship during the Bangladesh war, a few years later she showed her sense of insecurity over losing power. She clamped the Emergency, going by the advice of her son Sanjay Gandhi and a coterie around him. She did not resign after the Allahabad High Court unseated her from Parliament. She did not want to hand over the baton to a senior leader like Jagjivan Ram because of her distrust of her colleagues.

Whatever her faults, Indira’s strength lay in her fierce nationalism and secular values. After Operation Bluestar of June 1984 it was suggested that she should change the Sikh security guards at her residence. “Are we not supposed to be secular?” she retorted and overturned the suggestion. Ironically, she was returning the smiling “greetings” of the security guards when they felled her in a hail of bullets on the fateful wintry morning of October 31, 1984. Her assassination led to today’s elaborate security rigmarole — the SPG, Black Cats, et al.

Those journalists who were witness to the security-free era can only long for the good old days, but cannot hope to get them back in today’s environment! As a Special Correspondent for PTI, I often saw Indira Gandhi go in and out of Parliament House, accompanied only by her private staff. In that act, journalists often came face to face with her. And if she knew someone personally, she spent a few moments with him/her. This is something unimaginable today unless one encounters the Prime Minister in the Central Hall of Parliament.

OPED — WORLD

What price the new democracy
While ordinary people fret about austerity and jobs, the eurozone’s corridors of power have been undergoing a remarkable transformation
Stephen Foley

THE ascension of Mario Monti to the Italian prime ministership is remarkable for more reasons than it is possible to count. By replacing the scandal-surfing Silvio Berlusconi, Italy has dislodged the undislodgeable. By imposing rule by unelected technocrats, it has suspended the normal rules of democracy, and maybe democracy itself. And by putting a senior adviser at Goldman Sachs in charge of a Western nation, it has taken to new heights the political power of an investment bank that you might have thought was prohibitively politically toxic.

This is the most remarkable thing of all: a giant leap forward for, or perhaps even the successful culmination of, the Goldman Sachs Project.

It is not just Mr Monti. The European Central Bank, another crucial player in the sovereign debt drama, is under ex-Goldman management, and the investment bank’s alumni hold sway in the corridors of power in almost every European nation, as they have done in the US throughout the financial crisis. Until Wednesday, the International Monetary Fund’s European division was also run by a Goldman man, Antonio Borges, who just resigned for personal reasons.

Even before the upheaval in Italy, there was no sign of Goldman Sachs living down its nickname as “the Vampire Squid”, and now that its tentacles reach to the top of the eurozone, sceptical voices are raising questions over its influence. The political decisions taken in the coming weeks will determine if the eurozone can and will pay its debts - and Goldman’s interests are intricately tied up with the answer to that question.

A shared world-view

Simon Johnson, the former International Monetary Fund economist, in his book 13 Bankers, argued that Goldman Sachs and the other large banks had become so close to government in the run-up to the financial crisis that the US was effectively an oligarchy. At least European politicians aren’t “bought and paid for” by corporations, as in the US, he says. “Instead what you have in Europe is a shared world-view among the policy elite and the bankers, a shared set of goals and mutual reinforcement of illusions.” This is The Goldman Sachs Project.

Put simply, it is to hug governments close. Every business wants to advance its interests with the regulators that can stymie them and the politicians who can give them a tax break, but this is no mere lobbying effort. Goldman is there to provide advice for governments and to provide financing, to send its people into public service and to dangle lucrative jobs in front of people coming out of government. The Project is to create such a deep exchange of people and ideas and money that it is impossible to tell the difference between the public interest and the Goldman Sachs interest.

Mr Monti is one of Italy’s most eminent economists, and he spent most of his career in academia and thinktankery, but it was when Mr Berlusconi appointed him to the European Commission in 1995 that Goldman Sachs started to get interested in him. First as commissioner for the internal market, and then especially as commissioner for competition, he has made decisions that could make or break the takeover and merger deals that Goldman’s bankers were working on or providing the funding for. Mr Monti also later chaired the Italian Treasury’s committee on the banking and financial system, which set the country’s financial policies.

International advisers

With these connections, it was natural for Goldman to invite him to join its board of international advisers. The bank’s two dozen-strong international advisers act as informal lobbyists for its interests with the politicians that regulate its work. Other advisers include Otmar Issing who, as a board member of the German Bundesbank and then the European Central Bank, was one of the architects of the euro.

Perhaps the most prominent ex-politician inside the bank is Peter Sutherland, Attorney General of Ireland in the 1980s and another former EU Competition Commissioner. He is now non-executive chairman of Goldman’s UK-based broker-dealer arm, Goldman Sachs International, and until its collapse and nationalisation he was also a non-executive director of Royal Bank of Scotland. He has been a prominent voice within Ireland on its bailout by the EU, arguing that the terms of emergency loans should be eased, so as not to exacerbate the country’s financial woes. The EU agreed to cut Ireland’s interest rate this summer.

Picking up well-connected policymakers on their way out of government is only one half of the Project, sending Goldman alumni into government is the other half. Like Mr Monti, Mario Draghi, who took over as President of the ECB on 1 November, has been in and out of government and in and out of Goldman. He was a member of the World Bank and managing director of the Italian Treasury before spending three years as managing director of Goldman Sachs International between 2002 and 2005 - only to return to government as president of the Italian central bank.

Mr Draghi has been dogged by controversy over the accounting tricks conducted by Italy and other nations on the eurozone periphery as they tried to squeeze into the single currency a decade ago. By using complex derivatives, Italy and Greece were able to slim down the apparent size of their government debt, which euro rules mandated shouldn’t be above 60 per cent of the size of the economy. And the brains behind several of those derivatives were the men and women of Goldman Sachs.

Cross-currency swap

The bank’s traders created a number of financial deals that allowed Greece to raise money to cut its budget deficit immediately, in return for repayments over time. In one deal, Goldman channelled $1bn of funding to the Greek government in 2002 in a transaction called a cross-currency swap.

On the other side of the deal, working in the National Bank of Greece, was Petros Christodoulou, who had begun his career at Goldman, and who has been promoted now to head the office managing government Greek debt. Lucas Papademos, now installed as Prime Minister in Greece’s unity government, was a technocrat running the Central Bank of Greece at the time.

Goldman says that the debt reduction achieved by the swaps was negligible in relation to euro rules, but it expressed some regrets over the deals.

Gerald Corrigan, a Goldman partner who came to the bank after running the New York branch of the US Federal Reserve, told a UK parliamentary hearing last year: “It is clear with hindsight that the standards of transparency could have been and probably should have been higher.” When the issue was raised at confirmation hearings in the European Parliament for his job at the ECB, Mr Draghi says he wasn’t involved in the swaps deals either at the Treasury or at Goldman.

It has proved impossible to hold the line on Greece, which under the latest EU proposals is effectively going to default on its debt by asking creditors to take a “voluntary” haircut of 50 per cent on its bonds, but the current consensus in the eurozone is that the creditors of bigger nations like Italy and Spain must be paid in full. These creditors, of course, are the continent’s big banks, and it is their health that is the primary concern of policymakers.

Austerity consensus

The combination of austerity measures imposed by the new technocratic governments in Athens and Rome and the leaders of other eurozone countries, such as Ireland, and rescue funds from the IMF and the largely German-backed European Financial Stability Facility, can all be traced to this consensus.

“My former colleagues at the IMF are running around trying to justify bailouts of € 1.5trn- € 4trn, but what does that mean?” says Simon Johnson.

“It means bailing out the creditors 100 per cent. It is another bank bailout, like in 2008: The mechanism is different, in that this is happening at the sovereign level not the bank level, but the rationale is the same.”

So certain is the financial elite that the banks will be bailed out, that some are placing bet-the-company wagers on just such an outcome. Jon Corzine, a former chief executive of Goldman Sachs, returned to Wall Street last year after almost a decade in politics and took control of a historic firm called MF Global. He placed a $6bn bet with the firm’s money that Italian government bonds will not default.

When the bet was revealed last month, clients and trading partners decided it was too risky to do business with MF Global and the firm collapsed within days. It was one of the ten biggest bankruptcies in US history.

The grave danger is that, if Italy stops paying its debts, creditor banks could be made insolvent. Goldman Sachs, which has written over $2trn of insurance on peripheral eurozone countries’ debt, would not escape unharmed, especially if some of the $2trn of insurance it has purchased on that insurance turns out to be with a bank that has gone under. No bank - and especially not the Vampire Squid - can easily untangle its tentacles from the tentacles of its peers. This is the rationale for the bailouts and the austerity, the reason we are getting more Goldman, not less. The alternative is a second financial crisis, a second economic collapse. — The Independent