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This blog post should have been made on Monday morning. Since then, Indonesia released its 2011 and 4Q2011 GDP growth figures. In an eerie similarity to Chinese data and analysts’ ability to get the numbers down to the second decimal place, Indonesian GDP growth figures matched analysts’ expectations with a remarkable degree of precision.  Other than that, the rest of what follows has not become outdated.

In the week that just ended, economic data from Australia and from Korea stand out. In Australia, house prices slid 4.8% in the fourth quarter from a year ago. Building approvals were down 24.5% year to date in December. Australian economy is beginning to reap the whirlwind of its credit and housing boom just as the US and the UK did in 2008-09. The Reserve Bank of Australia meets this week and the market expects it cut the overnight cash rate down to 4.0% from 4.25%. We think so too. Speculators continue to be in love with the Australian dollar. They have failed to pay heed to domestic economic warning signals. They are bound to be wrong footed in the course of the year.

South Korean industrial production has been down in five of the last six months and it dropped 0.9% for the third month in a row in December. Consensus opinion had anticipated a bounce-back. That was not there. On top of that, Korean exports contracted for the first time in more than two years in January. Korean exports fell 6.6% in January based on provisional data. Therefore, one does not expect Korea to hike rates this week when the Bank of Korea meets to decide on monetary policy. Markets anticipate no change. A surprise rate cut should not be that much of a surprise, actually.

But, more than the implications for Korean monetary policy, what matters is the signal content of Korean IP and export data for the health of regional economies, particularly China’s. One can go a step further and reflect on the information content of Korean (and Taiwan exports) for global growth.

Singapore’s Purchasing Managers’ index dropped further to 48.7 from 49.5 in January. Singapore economy is cooling. There is no doubt about that. The question is how long it would take for it to register in the heads of property developers and speculators.

The week ahead sees the usual parade of Chinese macro data that would hit consensus estimates or vice-versa. Not that much meaning should be attached to them at any time but we should be doubly indifferent to the data this time. The early arrival of the Lunar New Year in January itself should further increase the noise-to-signal ratio in Chinese macro data. The translated article from China’s Economic Observer (courtesy of Paul Cavey of Macquarie Securities) on the breakneck speed of development in Pingtan in Fujian province is a reminder of the difficulty in rebalancing Chinese economy with its poor to non-existent economic and price signals. In any case, we will not hear either from analysts or from government officials on the difficulties faced by the Chinese economy. Expect mainstream economists to waste a lot of ink (and your time as well as theirs) in return for too little insight on the true state of the Chinese economy. Of course, that is business as usual.

Indonesia will report its fourth quarter GDP and GDP growth for the year 2011 this coming week. Bank Indonesia meets to decide on monetary policy. The policy rate should be left unchanged at 6.0% and there should be no special surprises in the GDP growth data either. Both the annual and the quarterly GDP growth figures should be slightly above 6%. Indonesia has the potential to do better and will do so in the years ahead. But then, asset prices already well and truly reflect that confidence or hope.

The least bad option for targeting jehadis in Pakistan

Drone strikes by the US inside Pakistani territory are controversial, to say the least. The opinions on these strikes are heavily polarised. Those opposing drone strikes make the following arguments. One, these drone strikes kill innocents. Two, these strikes violate the sovereignty of Pakistan. Three, they send a wrong message to Pakistanis and create more terrorists. All these arguments have merits till we examine them closely.

Pakistani society is at such a state that nothing that the US does or doesn’t do seems to send the right message to Pakistanis. Pakistani media (rated 151 out of 175 in world free press index) can be trusted to twist any story to direct the public anger towards the US. That these drone strikes create more terrorists is an attractive idea but remains unproven by any factual research or ground reportage. Even if there were no drone strikes, there are enough grudges against the US — from Iraq or Afghanistan — that can be exploited by the jehadis to lure more young men into jehad.

The sovereignty question is again a very attractive proposition in theory. But not in practice, if you look a little closer. Pakistan’s sovereignty was not violated by the US Navy Seals team at Abbottabad but by Osama bin Laden who stayed in that city for a decade. Similarly, US would not need to fire missiles from its drones if Pakistan had the will, willingness or the capacity to act against al Qaeda and other jehadis who have formed a base in Pakistan’s tribal areas. Till 2007, al Qaeda had actually grown stronger by basing itself in these areas before US drones started disrupting its leadership. If Pakistan would have been able to uphold the sovereignty of its land against al Qaeda and other terror groups, the question of US violating Pakistan’s sovereignty would never arise.

A major source of angst and anger is over the death of innocent civilians. Some innocents are surely dying in the missiles fired by these drones. But no one has made a cogent case so far that the US is deliberately targeting innocent civilians in tribal areas. They are, to use the unfortunate military term, “collateral damage”.

But all of this still misses the fundamental point of this debate. What is the alternative to these drone strikes? Bombing raids by fighter aircraft, strafing by helicopter gunships, use of missiles or pounding by artillery fire. These are the methods used by Pakistan in Balochistan and in tribal areas against the ‘bad’ jehadis. They have all the disadvantages of drone strikes, and worse. They are far more inaccurate, more visible and would be more violative of Pakistan’s sovereignty than any pilotless aircraft.

Of course, there is another option. To leave the tribal areas of Pakistan completely untouched so that al Qaeda and its affiliates can base themselves there and spread terror across the globe. While Pakistan may be comfortable with that, the rest of the world doesn’t share that view. Countries like India, who have particularly borne the brunt of terror over the years, may not be publicly welcoming the use of US drones but would be glad that the jehadis in Pakistan’s tribal areas are unsettled due to the fear of missiles raining from the sky.

by Somnath Mukherjee

The editorial today in the Indian Express captures some element of the damage to India’s relations with Bangladesh caused by Mamata Bannerjee’s caper over the Teesta river treaty. What it leaves unsaid is the severe damage to India’s neighbourhood outreach strategy in general this has done.

Its somewhat ironic that Indian governments have been far more capable of defying local political opposition for key foreign policy initiatives farther ashore than for those concerning our immediate neighbours. Succcessive governments, both Congress and BJP, defied opposition in Kerala to the FTA with Thailand. On the other hand, India’s Sri Lanka policy has been held hostage to Tamil Nadu politics for the last two decades.

Manmohan Singh made his policy on South Asia a lynchpin of his foreign policy paradigm. No other leg of the initiative got as much of a “leg up” as Bangladesh when Sheikh Hasina came to power. The new outreach of the Bangladeshi government to India came as a welcome ballast to Indian efforts to build a new cooperative architecture with Bangladesh. Bangladesh shed years of a “sulking neighbour” attitude to openly embrace a new relationship, starting with the rounding up of North Eastern insurgents enjoying sanctuary there. India reciprocated, first during the BDR revolt, and then again during the attempted coup of retired and serving Army officers against the Hasina government.

But the big idea is still missing. Congress’s weakness at the Centre and Mamata Bannerjee’s attempt to carve out a different (regional) niche for herself has made the big idea of Bangladesh policy hostage to West Bengal politics.

Given the state of Centre’s influence over allies and policymaking currently, one can only hope that better wisdom dawns upon Mamata and this doesnt become an encore of India’s Sri Lanka policy and enable China to deepen its access and influence in this important neighbour of India.

When Prof. Matthew Herbst mentioned that this was the most kick ass book he had ever recommened in his teaching career, I had to read it. This is a short retelling of Ramayana by Sanjay Patel, a Pixar animator. The book is heavy on graphics and has short paragraphs of text on each page. Though the book is short and quick,  it took him four years to illustrate this book  and that labor of joy is seen on each page;  the style is quite different from the Amar Chitra Katha style we have got used to. Sanjay never lived in India, but grew up with Ramayana due to his parents. So he treats it with reverence and does not do a Nina Paley on it. He is also the author of another book The Little Book of Hindu Deities: From the Goddess of Wealth to the Sacred Cow