Al Qaeda and Terrorism post 9/11

Terrorism across the globe has taken a new meaning post the 9/11 attacks on the twin towers in the US. The in-famous Al Qaeda once know as one of the most globalized terrorist organization is losing its shine post the assassination of Osama Bin Laden and capture of some of the middle and senior leadership in the cohort. US intelligence has spent years tracking down the world's most influential terrorist organization. Out of 48 terrorist organizations identified by the US intelligence, Al Qaeda is the only organization that has a global presence and rest all have a domestic agenda. However during the period, Al Qaeda did strengthen its presence by affiliating with terrorist groups in Egypt, Algeria, Somalia, Libya, and now Syria. For about a decade and half , right from its existence, this strategy of merger and acquisition did work for the group. But what has changed in the last decade or so is the change in ideologies and the definition of terrorism among the affiliates. The core of Al Qaeda has always been US focused but the affiliates, who sprung to life in the last decade and leadership changes in some of the old terrorist organizations have redefined their mission and have secured different ideologies for themselves. Most of the affiliates now have a local agenda and are failing to align with the core of Al Qaeda in fighting against the western world. The focus is also seen to be changing from concentrating on western world to strengthening communities (Shiite v/s Sunnis). However what Al Qaeda has done to the terrorist organizations in the Middle East is establishing the need for securing the Arab Peninsula.

After its establishment in the late 80s, Al Qaeda under the leadership of Laden strengthened itself as a global Jihadist group by recruiting and training. The group was motivated by hatred and resilience against US and its allies in particular Israel. Laden was successful in building a safe haven in Afghanistan and training camps in Pakistan. He was instrumental in pumping enormous amount of money to carry out operations and new tactics came to design the attacks. Laden was also the leading force in tie-ups with terrorist groups in Northern African countries that were resource rich and thus helped the group in funding its operations. However post the demise of Laden, and demolition of the safe havens in Afghanistan, the motive of Al Qaeda has changed to securing a safe haven for training and continuing operations and winning the faith of Arab world. Part of the reason was because of what happened in Iraq. Al Qaeda setup Iraqi operations in 2004 with an aim of eradicating the US supported Shiite population and  bringing in the the Sunni regime but in the course many civilians died. The guerrilla war tactic employed by Al Qaeda during their resistance in Iraq was highly condemned by its affiliates. This to a large extent has troubled the group in wining the confidence of the Arab peninsula and also its affiliates. In the past, most of the affiliates, even if they were linked to the core of Al Qaeda, had a local fight in addition to contributing the the parent group. However this is changing in the recent past with the terrorist organization in Libya and Tunisia discovering the confusion this multiple agenda is leading them to. The groups in Algeria and Somalia are facing continued strikes from military from Ethiopia and neighboring countries and forced to concentrate on their sustenance than to follow the parent organization. The decade has also seen the progress in the Middle East with a few countries such as Egypt and Tunisia marching towards democracy while uncertainty prevailing in Libya and continued protests in Syria, Lebanon, and Yemen. But what this has meant to Al Qaeda is drought in funds and freeze of recruitment because the affiliates no longer share the similar thought process as Al Qaeda. Jihad for a long time has been expensive and for any mammoth operation such as the 9/11 to work will require extensive investment and the terrorist organization is unable to plan for any such attacks. In addition, the group is losing support from its affiliates who are busy with operations in their own country. In a way the independent business units (affiliates) have their own business strategy and is not aligned to the corporate strategy (Al Qaeda). This just goes to show that the competitive advantage of Al Qaeda over its peers (affiliates) was its leadership and sheer planning and probably the affiliates now feel that the global terrorist group has lost its advantage after the demise of Laden and some of his associates. In addition, the core competence of Al Qaeda for a long time was planning and executing massive attacks and this required huge financial assistance. Now with disintegration of the terrorist group, drought of funding mechanisms, and lack of strong leadership, the affiliate organizations started to feel that the once competence of the parent group is now slowly shading away.

Change in strategy

Much has changed in the last decade. Once upon a time, Laden used to group his men in Kandahar and offer training for even today Al Qaeda men are considered one of the best when it comes to operations planning and implementation. However over the course of time, due to problems discovered above, the group started remote communication and use of multimedia and internet has surfaced. So today, the possible recruit in to the group could be from anywhere in the world as long as the individual shares the common hatred for the western influence in the Arab world. Iraq and Algeria for almost half a decade were the funding and operational ground for Al Qaeda but post 2010, the group is on a look out for locations similar to Iraq. Northern Africa has its own problems with military from Ethiopia and Nigeria countering terrorism in Somalia and so the terrorist group in Somalia that was once considered to be the closest affiliate to Al Qaeda is struggling to maintain its presence domestically. The terrorist organizations in Egypt believe that the road to Jerusalem has to be through Cairo so in other words, they started to believe that before countering the world, they will need to succeed in their home country. Probably this has also forced Al Qaeda in changing its focus from being US centric to region centric. Currently Al Qaeda is looking at Syria however the different rebel groups within the FSA (Free Syrian Army) share different ideologies and definition of Jihad. Some of them are pro and a few anti Al Qaeda after what happened in Iraq. So it will be hard to say if Al Qaeda will be successful in this strategy however there are close to hundreds of Al Qaeda terrorists in the rebel group and this could be seen from the recent change in tactics adopted by the rebels (suicide bombings and car bombs, which were tactics designed by Al Qaeda during their efforts in Iraq). In the recent past, Al Qaeda has been instrumental in getting its people from neighboring countries such as the Iran and Lebanon to support the ongoing fight against the Syrian Military. So the group is gaining recognition but it is still far from gaining any ground in Syria. Involvement of Al Qaeda in Syria could also be a reason why US is not very open in supporting the conflicts in Syria. 

It is very clear that the strategy of Al Qaeda has changed from centralization to decentralization and making the affiliates powerful however it is hard to believe that the group is able to inspire and control its allies. This was possible during the Laden leadership but is fast dying. It is also very clear that Al Qaeda is losing its focus and the values on which it was setup for now its main aim is to creating a ground for itself. It is also clear that we might not see any more massive attacks such as the 9/11 however terrorism post 9/11 has grown so much that it pretty much spans across eastern Europe, the entire Middle East, the Northern Africa, and Pakistan. Even more so these groups are gaining strength day by day and have different values for their existence. I think we have reached a stage where countering terrorism is out of possibility and all that super powers can do is to understand their involvement and safe guard their interest. This is largely because, we are in a world where "one size fits all" is no longer working and this is applicable to eradicating terrorism as well. As of the local governments, we are likely to see more and more struggles in these deprived economies for no one knows what the solution is.

Repo rate to battle liquidity in India!

Recently RBI has increased repo rate by 25 basis points and there is a huge cry in the market that RBI is targeting price containment. Repo rate is a rate at which central bank lends money to commercial banks only in the event of shortfall of funds or liquidity. 

This to me has very less bearing for less than 2% of the total capital that banks use for lending is being lent by RBI to commercial banks. On the other hand, MSF (Marginal Standing Facility - also referred to as overnight rate) has been reduced by about 75 basis points. It is a no brainer - if i borrow from central bank at repo rate, this means it is more of a long term borrowing and i will have to stick to certain conditions laid down by the central bank. On the other hand, if i can borrow overnight from central bank at a higher rate, i don't need to contain myself. So banks typically go for overnight borrowings because their business of lending and investing is not dependent on how much or at what rate they can borrow from Central bank rather it depends on the deposits, the deposit rate (which is always higher than MSF to attract more deposits otherwise people can invest in government bonds and schemes such as PPF that offer rates on par with MSF), and provision for credit loss. So as long as the deposits are healthy and there is not much fear of NPA (Non performing assets), liquidity should not be a concern (baring for one odd glitches here and there). In addition, there is also inter bank lending (i think in India, we follow Mumbai inter bank lending rate which is correlated with LIBOR) so there is very limited reason why a commercial bank would reach out to RBI for borrowings. Having done some good research on how banks are evaluated (at least here in Canada while speaking to a few banks here), i can say that repo rate barely affects the lending scenario for it largely depends on deposit rates offered by individual banks. So this means that price containment using repo rate adjustment is barely going to work!

Now what has this MSF got to do with lending rates. I think with the introduction of MSF (in 2011), RBI has clearly laid instructions to the banks (in directly) that you cannot lend below this rate (MSF set by RBI). In fact this has brought about some transparency to the entire system. Earlier banks used to lend at different rates to different individuals and they still continue to do so. However the difference has largely come down. So going by the practicalities, if RBI has reduced MSF rate by 75 basis points, doesn't it mean that it's strategy is not liquidity containment and as a result price stability but rather growth. However by increasing the repo rate, it is signaling the world that price stability is it main agenda. 

In India, banks barely have problem with deposits although the loan to deposit ratio is looming but most of the banks have a very healthy capital to risk bearing asset ratio and their operating efficiency is above the global average. One factor that could distort this scenario a bit is Non performing assets (NPA). Should the economy progress at the same snail pace, banks might experience rising NPAs. In addition, the concern now in India is rising deposit rates (has crossed 10% - offered by some banks) and this means your loans are getting even costlier. But the income levels of businesses and individuals are not growing at same pace and so banks are starting to lend at higher tenures and also have removed the pre-payment penalties. This to some extent could counter NPA but the larger question remains as to who is actually defaulting on the loans. If it is the common man, extending the tenure and giving flexibility of pre payment might help.

Mr Rajan, way to go! Just open up the banking reforms and issue the licenses that were due for some time. This will increase banking access to larger population because as of now in India, only 35% of the population has a bank account as against 50% world average. Already we have seen that you have removed some regulatory hurdles for commercial banks while setting up branches (previously commercial banks had to file a document with RBI seeking permission and now you have removed this hassle), which will for sure increase reach. 

Healthcare shuts down US

Affordable Care Act (ACA - popularly known as Obama care) is the center stone for government shutdown. US spends about $ 2.5 trillion (on the GDP list, it would rank fourth just behind Japan) on healthcare and the cost is rising faster than GDP growth. Even after this spending, the average life span of an American is lesser than one in Sweden, UK, or some of the European countries. In fact US is ranked one of the lowest among the OECD countries when it comes to life expectancy. It is hard to pick something and say this is the problem. US has the world's best healthcare with respect to technology (an average individual spends less time in the hospital in US than in any other country in the world). US has one of the best access to healthcare (Denmark, Sweden, and Finland edge over US). However when it comes to cost, US is a complete outlier. Whatever may be the reason, output of a healthcare system should be longevity in life expectancy and certainly it is not seen here.  

More than 15% of the US population is uninsured (In Canada, pretty much everybody is insured for the coverage is offered by government) and even those who are insured are not insured for quite a few services that they have to manage out of pocket. So there is significant out of pocket spending that goes in to Healthcare (not as surmounting as in India where out of pocket spending to public spending is 2.3:1). In Canada, out of pocket expense is virtually zero. 40% of the healthcare spending in the US is contributed by hospitals and as a result, individuals feel comfortable staying away from any sort of care than to consider some care and go bankrupt. If this was not bad enough, ACA is one such black box about which even the creators have no much idea. I am not here to criticize Obama Care for not just me but much of US is unaware of what's in it. As per this act, all citizens should be insured by 1st of January 2014 and if they are not, a fine of $95 will be levied on them. In addition, the act requires all employers employing more than 50 full time employees to provide insurance to its staff. Already fast foods and retail, which are one of the largest employers in US, have started to push much of its workforce from full time to part time thus keeping the number below 50. Now neither these employees fall below the poverty line nor they have capacity to buy the insurance from the exchanges even though it is offered at subsidy. A recent poll indicated that majority of US citizens are not in favor of Obama Care. In fact some economists fear that this new act will force physicians to drive away those individuals covered under Obama care for they have to wait for the government to pay them the discounted fee for the care provided. So is Obama Care bad for US? Democrats feel that it is going to bring down the budget deficit drastically for one of the key reasons behind US budget deficit is healthcare. On the other hand, Republicans feel that this is going to be the last nail on whatever growth the economy is experiencing for it might result in job losses. Whoever may be right, the entire world that includes pharmaceutical companies, Payers, and Hospitals is watching how this drama is going to unfold and so am I. 

I am not one who would favor government providing universal healthcare and so i am not advocating for Nordic countries or countries such as Canada. However if the government has taken the responsibility, we got to see the results. About 10% of world's GDP goes in to healthcare (I think second to Agriculture.. Not much sure about Defense). This has inspired me to pen this post.