The Crisis in Caucasus – will the French-served peace last?

It was a time when the whole world was waiting for the spectacular unveiling of the 2008 Beijing Olympics. The U.S. President George Bush and Russian Prime Minister Vladimir Putin were just inches away fro each other, watching the greatest show on earth. However, this physical nearness was overwhelmed by the political distance in the Caucasus region where Russia launched a military operation in response to a rather ‘silly’ adventure of Mikheil Saakashvili, the president of Georgia. In a week long exchange or military wrath, Georgia is found to have paid a heavy price. Although there was a declaration of cessation of military operations, hostilities in the region are far from a complete end.

But why waging this unnecessary war? Both sides of Georgia and Russia have their own logics about the legitimacy of the conflict. Many critics would argue that it was due to a test-drive of the U.S. administration to assess the military capabilities, determination and power of Russia; Georgia by far has a reputation of being American ally in the region. But the conflict in the Caucasus seemed much overdue since the birth of the breakaway semiautonomous provinces of South Ossetia and Abkhazia. A brief look back would help understand the backdrop of the events that made quite a movement in the recent international politics -

Twilight of Soviet Union saw a number of separatist movements – Georgia being the principal. With a rising pulse of separation in 1989 in Tbilisi, South Ossetia too, made its intention clear of being separate from Georgia. This resulted in violent clashes between Georgians and South Ossetians in Tskhinvali (capital of South Ossetia).

In 1990, South Ossetia with its 70,000 strong population (majority being Russians) declared its intention to secede from Tbilisi government which again escalated the conflict. Soviet forces were stationed in the region to keep a peace that ultimately seemed futile.

With the demise of Soviet Union and Georgia becoming independent in 1991, nothing happened in South Ossetia in Georgia’s favor. The intent of breaking away from Tbilisi did not die down in South Ossetia. A year long sporadic violence continued in the region till an agreement was reached for a deployment of Russian-Ossetian-Georgian peacekeeping force. A political impasse continued over the issue of South Ossetia’s independence during Georgian president Eduard Shevardnadze’s period till his ousting by ‘Rose Revolution’ in 2003. With a landslide victory in the election that followed in 2004, Mikheil Saakashvili, the new president of Georgia held the reins with a commitment to heel the breakaway regions namely Abkhazia and South Ossetia.

Nevertheless, Mikheil Saakashvili’s proposal of dialogue and conditional autonomy was vehemently opposed by the separatist especially those of South Ossetia.

An unrecognized referendum in 2006 portrayed the rejuvenated demand of independence by South Ossetians which was offset by a similar referendum by Georgian minority in South Ossetia who preferred to stay with Tbilisi administration. Since then sporadic clashes continued. Russia’s supportive posture to Tskhinvali along with the facts like most South Ossetians carrying Russian passports and using Rouble for trade caused an increasing anger in Tbilisi. It is no wonder that Georgia always wanted to release her dogs of war at some point of time.

In early August, this year, clashes mounted between South Ossetian separatist forces and Georgian troops and climaxed with Georgia launching aerial bombardment and land offensive against the breakaway region on 7 August. By 8 August, Georgian troops were in control of the South Ossetian capital Tskhinvali that ultimately lasted for hours only. Inaccessible terrain and approach conditions from the north to South Ossetia left Georgians happy and oblivious of fast moving Russian military forces. Soldiers, tanks and vehicles poured in at the same time when Georgian military control was established over Tskhinvali. The control soon became fragile and ultimately broke down completely when Russian air and ground attacks continued not only on Georgian forces in South Ossetia but other important parts of Georgia. At the end of what lasted for a week, Georgians paid higher price in terms of human and infrastructural casualties. Little sense of relief started to prevail in South Ossetia after Georgian troops pulled out of Tskhinvali.

Blame-game continued from the beginning of the hostilities between Georgian and Russian forces. Military and government version of logics behind Georgian offensive against Tskhinvali was for ‘restoring constitutional order’ by ‘neutralizing separatist fighters attacking civilians’. Russian authorities see their counter-offensive as a measure to protect their people in the region who are allegedly targeted by Georgian military. Russia even linked this hostile act of Georgia as a disqualification for NATO membership – a matter to Russia’s discomfort being long discussed amongst existing NATO members. As a presidential decree to declare ‘state of war’ got approved in the Georgian parliament on 9 August, Russian president expressed his commitment in forcing Georgians to peace duly supported by his prime minister Vladimir Putin’s claim of Georgia’s act of genocide.

Caught in the middle of the conflict, hundreds of civilian lives were lost, while thousands fled the ruined South Ossetia and Georgian town of Gori. Material losses were high on the side of the Georgians with certain areas of Tbilisi, Gori, and Port of Poti being damaged by Russian air bombardment.

Although Georgia started to pull out of South Ossetia as early as 10 August, Russian forces continued to advance beyond South Ossetia into her main land. Russian advances and operations inside Georgia provoked the U.S. only to make cautionary statements against Russia – an act that utterly disappointed a pro-U.S. Georgia in view of her anticipation of U.S. active involvement. Meanwhile diplomacy by EU intensified and a French-brokered peace plan was served to both the countries in dispute. The six point peace plan outlined:

-    Complete end of use of force
-    Granting free access to humanitarian aid
-    Return of Georgian forces to places of permanent deployment
-    Return of Russian forces to pre-conflict positions
-    Complete cessation of military actions.
-    Resumption of international talks on the future status of Abkhazia and South Ossetia.

Following the U.S. Secretary of State Condoleezza Rice’s four hour long meeting, President Saakashvili signed the agreement on 15 August. Initially it was rejected by Russia probably because it still wanted to consolidate her gains in posing a substantial threat to Georgia being inside her territory for days already. However, finally on 16 August, Russian President Dmitry Medvedev signed the agreement. This agreement includes a provision that allows Russia to make additional security arrangements till the arrival of international observers to monitor the ceasefire.

Current situation in the Caucasus portrays a scene that is far from a lasting peace. It is a fact that with both sides signing the French-served peace plan, tensions have dropped substantially in the region. But with Russia’s intention of staying back till ‘additional security measures’ are in place and Mr. George Bush’s August 16 statement of ‘no room for debate’ on South Ossetia and Abkhazia, two very fundamental points out of those six served, seem to be in distress. Without a complete withdrawal of Russians from South Ossetia and Georgian main land, Georgia remains under a threat. With an opposing U.S. attitude to the promised international talks on South Ossetia and Abkhazia, separatist movements in these two breakaway regions may get reenergized throwing the entire Caucasus region in a volatile situation in future.

The international community will nervously watch the events that follow in next few days and weeks.

Contributor: Mohammad Yousuf

The al-Qaida threatens to attack North Africa

The al-Qaida threatened that it will attack “infidels” in North Africa and asked Muslims to stay away from possible targets. It plans to launch attacks with all means of detonation, bombing and demolition.

The threat came through a Islamic website.

A 17 October statement posted on an Islamist website claims to be from the Tawhid and Jihad group led by Abu Musab al-Zarqawi. It begins with a personal pledge of allegiance from Zarqawi and his fighters to Osama Bin Laden. But what is the evidence for his relationship with al-Qaeda – and for his status as the mastermind of the Iraq insurgency? The statement has not been authenticated and verifying the author of web postings is almost impossible.

In February 1998, al-Qaeda issued a statement under banner of “The World Islamic Front for Jihad Against the Jews and Crusaders” saying it was the duty of all Muslims to kill US citizens—civilian or military—and their allies everywhere. Al-Qaeda would merge with Egyptian Islamic Jihad (Al-Jihad) of Ayman al-Zawahiri in June 2001.

The Al-Qaeda is labeled as a terrorist organization by the UN Security Council, the North Atlantic Treaty Organization, the EU, the US, Australia, Canada, Israel, Japan, the Netherlands, the United Kingdom, Russia, Sweden, and Switzerland.

Laos’s coup defendants plead not guilty

Ten people accused of plotting to overthrow the communist government of Laos were pleaded not guilty by an US court. Last week, a grand jury accused Vang Pao, a 77 year old ex-general in the Royal Army of Laos and nine other members of California’s Hmong community. Among the charged, was Harrison Jack, a former Army Ranger who worked with Hmong fighters during the Vietnam War.

The charges created a fear among California’s Hmong community, which includes thousands who fled following the 1975 takeover of Laos by the communists. On 18 June, a crowd of up to 1,500 people who feel that the US government has not done enough to stop the harassment of Hmong in Laos, demonstrated outside the federal courthouse in Sacramento and demanded a fair trail.

All 10 are charged with conspiring to violate the Neutrality Act against a nation with which the US is at peace; conspiracy to kill, kidnap and maim; conspiracy to possess firearms and destructive devices; and conspiracy to export munitions without a State Department license. The indictment says that alleged conspirators were meeting with a person they believed was a weapons broker but who actually was an undercover federal agent at a Thai restaurant in Sacramento last February. According to the indictment, after the meeting, they examined a truckload of weapons that contained samples of AK-47s, M-16s, C-4 explosives, anti-tank rockets, rocket-propelled grenades and Claymore mines.

Judges have refused to set bail during previous hearings, saying the defendants could be a flight risk or pose a danger to society. Federal prosecutors say the defendants intended to buy nearly $10 million worth of weapons. Earlier this year, Jack, a former California National Guard officer, sent an e-mail to friends suggesting the Lao government was planning mass killings of Hmong remaining in the country. That apparently was the origin of the alleged 10’ planning to overthrow the government

The Hmong, a mountain people, helped US forces during the Vietnam War. Those who stayed behind after Laos fell to the communists have been subject to severe persecution. Many have fled to Thailand, where they live in refugee camps. Those who came to the US are concentrated in California, Minnesota and Wisconsin.

Vang Pao was confident of broad support in Laos for a coup, including from former military officers. He foresaw gathering 1,284 battle-ready troops and another 10,000 unarmed opposition party members. His plan included bombing government buildings, shooting down military aircraft and shutting down transport links. Martial law would have led to the establishment of a temporary government, giving way to elections after two years.

The US tightens up military exports to China

Despite protests from some major corporations, the US government tightened regulations on exports of aircraft engines, high-performance computers and other technologies that possible have military uses to China.

The Commerce Department of the US added 31 new products requiring special export licenses in hopes of keeping them out of the hands of China’s military, which is growing in a high rate. The licenses, which companies complain are complicated to obtain, try to assure that technology sold to civilian companies doesn’t end up being used to improve Chinese missiles and other weapons.

This move is because the US is trying to balance economic needs with growing concerns about the communist nation’s rapid military modernization and access to advanced Western technology. But the US corporations say the new rules, proposed last summer and sharply criticized since, won’t be effective because China can buy many of the so-called ‘dual-use’ products easily from other countries. What the regulations will do, companies fear, is drive away Chinese business at a time when the US trade deficit with the world’s most populous nation is towering.

The trade deficit reached a record high of $233 billion in 2006. The rules change further puts US companies at a disadvantage. The long-term impact will be people dropping out of the Chinese market and less trade. Because of the rapid growth of its economy and military, China is one of the largest foreign markets for exports that require licenses. In 2006, nearly 10 percent of all US export licenses were for sales to China, worth about $2.4 billion. US companies exported $55 billion in licensed and unlicensed goods, which include such wide-ranging products as iPods and soybeans, to the country last year. Federal officials listened to some of the criticism and trimmed the number of new products on the list by about a third.

The US government categorizes countries by their potential security threat, and then limits the export of products that can be used for purposes such as waging terrorism, building missiles or developing nuclear weapons. Dozens of products already are restricted for sale to China. In many cases, those items also have harmless civilian uses such as high-powered computers, for example, are used in advanced weather forecasting — and U.S. officials allow the exports if companies can prove the technology won’t end up in the wrong hands.

In July 2006, the Commerce Department’s Bureau of Industry and Security proposed requiring licenses for the sale of 47 additional products to China. Among them were types of computers, aircraft, semiconductor equipment, navigation systems and telecommunications components. To offset the effect, the bureau proposed a new program that would exempt sales to Chinese companies that undergo special clearance reviews validating they do not deal with the military.

The regulations affected companies such as The Boeing Co., Sun Microsystems Inc. and Applied Materials Inc. Companies submitted evidence about products on the new list that were easily available from other countries or even in China.

Spanish assistance in Argentina’s debt crisis

Argentina reached an agreement with Spain to pay off US$982.5 million debt against them to Spain over the next six years. Argentine President Nestor Kirchner said that the Spanish government made a gesture by giving Argentina loans in difficult times and now Argentine government will repay this debt as it should. President also said that Argentina wants to fulfill its obligations.

The agreement was first reached verbally in November 2006 when Kirchner met with his Spanish counterpart, Jose Louis Rodriguez Zapatero, during the Ibero-American Summit held in the Uruguayan capital of Montevideo. The agreement anticipates a 10 percent payment in 2007, another 15 percent in 2008, 20 percent in 2009 and other payments by 2012.

Spain had responded to Argentina’s call for funds back in March 2001 in an unsuccessful bid to avoid the economic crisis, which triggered a run on banks by panicked depositors, street riots, and a more than 70-percent devaluation of Argentina’s peso, which had been attached at parity with the US dollar for nearly 11 years.

Spain is one of Argentina’s biggest investment partners. Major Spanish investments in Argentina involve the Spanish-Argentine oil and gas giant Repsol YPF, as well as Spanish banks, telecommunications company Telefonica and several gas and electric utilities.

It is five years since Argentina devalued its currency and defaulted on its debt, bringing to a shattering end a decade during which the country had often been viewed as a poster child of International Monetary Fund-backed market reform. By early 2002, with the economy sinking and the country wracked by political crisis, it was widely assumed that it would take many years for an isolated and impoverished Argentina to recover. But already, Argentina is prospering again. Néstor Kirchner, its popular centre-left leader, has presided over four successive years of expansion above 8 per cent and is expected to win a second term at elections due this year. Kirchner, who took office in 2003, has kept the peso fix at three per dollar, a competitive exchange rate that has fueled a flow in exports and triggered booms in country’s tourism, construction and several other industries. Argentina has also restructured some $100 billion in public debt owed to private creditors.

Inflation is considered one of the biggest risks in Argentina’s economy, which has expanded rapidly since the debt default and devaluation five years ago. Inflation had roughly doubled annually since 2003, reaching 12.3 per cent in 2005, but the introduction of a heterodox policy of price controls helped push inflation down to 9.8 per cent in 2006.

It appears that credit is also returning to Argentina. The Inter-American Development Bank in Washington announced on late January 2006, a $1.5 billion credit line to improve housing for the poor in Argentine cities that were battered by the financial meltdown. The money is to be loaned out over 24 years.

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Focus Iraq

The war in Iraq was between two nations when the US invaded the country to overthrow Saddam Hussein’s government. After accomplishing this mission, there was an American occupation in Iraq and armed Iraqi groups opposed the move. The insurgency gradually developed into a civil war between Iraqi factions when decade long dispute between Sunnis, Kurds and Shiites started in full pace with the US force supporting the appointed government. Fighting against the US as an occupying power also continued.

Pattern of insurgency changed for worse since the first heady days after the US invasion. Reality in Iraq is that, civilians are massacred by car bombs and by the raiding death squads every day. Foreign soldiers are shot at by Sunnis when they try to defend Shiites and by Shiites when they try to defend Sunnis.

A new business that is of ‘arms supply’ is forming a major concern in the country. Now that Sunnis are fighting daily clashes with the better-equipped Shia ministry of interior forces, they obviously needed new sources of weapons and money. Locals are taking this opportunity to make a tidy profit selling weapons and ammunition to them. Some of the arms suppliers have good connections because they worked as interpreters with the US army in Baghdad before. A small box of AK-47 bullets is $450 and the taxi drivers who transport the ammo get $50 for each shipment. The price of a Kalashnikov rifle has risen from $300 to $400 in just a span of 1 year time. The inflation in arms prices reflects Iraq’s plunge toward civil war but, largely unnoticed by the outside world. The pattern of Sunni insurgency has also changed drastically towards the worst. Arguably, supply of arms comes from the foreign contacts.

Sunnis have stronghold in west Baghdad. They spent the last three years fighting the Americans but now willing to talk to them, not because they wanted to make peace but because they saw the Americans as the lesser of two evils. In Ramadi there was still jihad against the Americans because there was no Shia to fight, but in Baghdad, Sunnis militant group only attacks the Americans if they were seen with Shia army forces.

Every time security forces arrest a Shia, Sunnis take their car / belongings / valuables and sell it to fund their fighters. The mosque sheik or the local commander collect the money and then distribute it among the fighters; some get fixed salaries, others are paid by “operations”, and the money left is used for ammunition.

Iraq’s Interim Constitution serves as a baseline for a united Iraq. It includes several measures recognizing the rights of minorities, including the recognition of the Kurdish language, along with Arabic, as an official language and the listing of several important “fundamental rights” that may not be taken away even by the act of the legislature. If all these three parties obey this constitution, the situation of being in civil war will diminish.
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Iran situation

After several months of prolonged negotiations, the 15 members of the UN Security Council collectively passed a resolution which limits Iran’s trade in material and technology that it could use to create a nuclear weapon. UN Resolution 1737 prohibits the sale of any materials to Iran that could be used in their “enrichment related, reprocessing or heavy water related activities”. It also imposes restrictions on the movements of twenty-two people or entities involved in the nuclear program. The resolution froze the assets of 10 Iranian companies and 12 individuals related to those programs. This is arguably the first time in history of the Security Council that an entire nation is being punished based not on actual violations of international law, but on pure speculation on the part of some powerful countries, regarding its hypothetical future conduct.

Iran’s stand on the sanction:
Iran from the start denied that it seeks to build atomic weapons, saying its nuclear program is limited for generating electricity; it opposes the idea of obtaining nuclear weapons and wants to use nuclear technology under the framework of the Nonproliferation Treaty as the same technology used for producing fuel for nuclear power can be used for producing fuel for a nuclear explosion.

Iran feels the imposition of sanctions is rather ill-advised and unhelpful to peaceful dialogue. Iran said, this action not only take away Iranians’ inalienable rights enjoyed by all other nations, but also exposes the irresponsible way in which the international body is being used as a tool to satisfy militant warmongers in US and the West. Iran’s top nuclear envoy, however, warned that Tehran’s commitment to the peaceful use of nuclear technology will change if the country is threatened in any way or the other.

Iranian President Ahmadinejad said that sanctions won’t stop Iran from enriching uranium.

Territory full of disputes:
Western powers fear that Iran secretly wants to develop either a nuclear bomb or the ability to make one, even if it has not decided to build one at the moment. So from stopping Iran from any enrichment now is a step to the idea “precaution is better than cure”. History of the Middle East is fearful and precaution is well justified as several countries in the territory have international dispute at the highest level. Iran openly criticized Israel’s activities and in some cases threatened it with military actions.

Affects of the sanctions:
Iran now cannot get letters of credit for trade and therefore has had to forego work on most oil and gas development projects. Banks UBS and Credit Suisse have retreated from involvement in Iran while European financial institutions like ABN Amro, HSBC and Standard Chartered had halted new loans and investments. Japan pulled out it’s involvement of the Azadegan oil field and the Japan Bank for International Cooperation halted new financing of projects until Iran suspended enrichment.

Date back:
International Atomic Energy Agency reported in 2003 that Iran is hiding a uranium enrichment programme for last 18 years. Members of the IAEA then called on Iran to commit it to stopping all enrichment activities permanently, but Iran refused to do so. The conflict escalated in February 2006, when the IAEA reported Iran to the Security Council. Tehran later defied the council by ignoring a 31 August deadline to halt enrichment as a precondition to negotiations. The IAEA later reported that Iran had started a new round of uranium enrichment just days before the UN deadline.

Diplomatic stand in favor of Iran:
China, a close ally of Iran asked Tehran to give a “serious response” to the UN Security Council resolution that imposed sanctions for refusing to suspend uranium enrichment. Chinese leader Hu added that “China continues to believe the Iranian nuclear issue should be resolved through diplomatic negotiation.”

State-owned China National Petroleum Corp. announced recently that it will invest $3.6 billion in Iran’s South Pars gas field despite US pressure for China to cancel the deal. The US views the planned investment by the Chinese state-run company as sending the wrong signal to Tehran but China’s Foreign Ministry spokesman, Liu Jianchao, said China has every right to do business with Iran, and the US has no right to comment on the two countries’ dealings.

Russia, hungry for energy to feed its booming economy, has close relations with Iran, and has called for diplomacy rather than confrontation to resolve the nuclear dispute.

Venezuela expanded its cooperation with Iran to create an anti-US strategic alliance and signed 11 new bilateral agreements and pledged to boost the price of oil.

The United Arab Emirates has reassured Iran that it will not allow the United States to use its territory to spy on the Islamic Republic as Tehran faces mounting pressure over its atomic programme.

End notes:
The West says that Iran cannot be trusted because it long secreted an enrichment programme and the sanctions were inevitable as Iran acted aggressively rather than working for peaceful solutions. Resolution 1737 however only allows for economic sanctions but not the use of military force. Countries that have strategic long-term relationships will Iran will not change their strategic relationships because of tactical issues. It has to be understood by both the parties that sanctions and aggressive stand in favor of enriching uranium can not destroy ‘non-existent nukes’ or ‘fictitious weapons programs’, but they can destroy peace of the region.
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Asian Central banks warn against capital inflow risks

Asian central bank governors recently warned against risks from growing capital flows into the region, a phenomenon they said could be the biggest challenge to face because of the impact on currency fluctuations and economic policies.

The governors attending a conference to mark the 10th anniversary of the region’s currency crisis also noted their success in getting the economy on a sound footing and strengthening the financial system since the end of the crisis, during which a flight of foreign capital sent Asian currencies tumbling in 1997/98. The foreign exchange and financial markets are much more stable now and the currencies sometimes face upward rather than downward pressure. But with the globalisation of the world’s financial markets, large capital flows will continue to have a strong impact on the open economies.

Bank of Thailand Governor Tarisa Watanagase, who also faced turmoil in Thai markets late last year, expressed caution about rapid moves in capital flows. The Bank of Thailand implemented capital controls to restrain the Baht’s rise in December but made an abrupt partial reversal of the decision later after the move alarmed foreign investors, triggering a near 15 percent plunge in the stock market. “Rapid movements of capital flows have caused exchange rates to be vastly out of line with the underlying economic fundamentals and have negative impacts on the export or the import sectors,” Tarisa said. “The recent surge in capital inflows has caused a one-way appreciation of the Baht relative to regional currencies” that is detrimental to the nation’s export competitiveness, she added.

Philippine Central Bank Governor Amando Tetangco said foreign investment in the Philippines has risen significantly because of an improved macroeconomic environment, prompting a sharp increase in capital inflows that is challenging current economic policies. Potential risks include an appreciation in the domestic currency that could hurt the nation’s exports, he said. The dramatic growth in capital inflows could also affect the nation’s inflation outlook, he added. “We remain watchful of potential risks of sustained acceleration of liquidity with the view to acting pre-emotively to address threats to price stability,” Tetangco said.

The head of the International Monetary Fund (IMF), speaking at the symposium, said sharp capital inflows can be disturbing at certain times in any economy. IMF Managing Director Rodrigo Rato added that several steps can be useful in coping with the associated risks, including strengthening Asian financial systems and deepening regional financial integration. In a report on Asia’s economic outlook released last September, the IMF said net private capital flows to Asia could increase to $88 billion in 2006 from $60 billion in 2005. But the report said portfolio flows would moderate as investors expect Asian monetary tightening to end soon and spreads between Asian and U.S. interest rates to remain near zero well into 2007.

Rato said greater flexibility in China’s exchange rate system will also help Asian economies cope with potential risks posed by sharp capital inflows. “We think the movement we’ve seen in the (Chinese) currency in recent months, and the recognition by the authorities that not only nominal but also effective exchange rates have to be considered, are steps in the right direction,” Rato said. The Yen has gradually gained against the dollar since it was unhooked from a dollar peg in July 2005.

It appears that ten years after the currency crisis, everything is different. New strategies with new outlook are required and all the Central Banks of the region are ready for it. It is, and will surely be, the most difficult task for any monetary authorities to maintain the stability of foreign exchange rates, the free flow of capital and the independence of monetary policy simultaneously.
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