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Friday, April 2, 2010
KARZAI'S COMPLICATED STRADDLE - HOW TO DEAL WITH AFGHANISTAN?
The Washington Post presented the attached article on Afghanistan's president Hamid Karzai. Karzai spoke in tough words about the Western influence on his country in general and the general elections in particular. UN and EU observers had earlier made it clear that the elections were full of fraud. Karzai is now blaming Galbraith and Morillon, the leading UN and EU observers, for that.
Less than a week after Obama's surprise visit to his country, the Afghan president - who would be nowhere without Western support (both at the military and monetary level) - spoke out strongly before the Afghan parliament. A parliament mainly filled with 'friends, family and tribe' members just like his cabinet.
Obama wants him to add at least 11 (out of 25) cabinet members based on merit. He also wants Karzai to come up with a plan for reintegration of former Taliban foot soldiers into Aghan society.
Nice plans, but notwithstanding the fact that the US and its allies will send additional soldiers the bottom-line remains: the Westerners are temporary guests FOR SURE and the role of the Taliban MIGHT BE temporary too, but it is DEFINITELY longer-term than the Western presence. Especially when we add to that that the Taliban is far more popular in the rural outback.
Therefore: on the one hand Karzai knows that without the West he and most of his government allies would be dead meat. This is the role of Western support as put option. On the other hand, he tries to transform that 'put' into a call by seeing how far he can go. Straddles are interesting option instruments, when continuing this metaphor. More expensive of course, since you have to buy two options. But interesting in that they generate value when the situation changes either due to external factors or - in his case - self-made change.
However: option markets have another characteristic. They apply and generate value when parties obey to the rules of the option game. One of the main underlying parties in the Afghan situation - the Taliban - don't and that is the problem here. As long as we don't have them at the table, be it directly or indirectly (by getting Iran at the table), we cannot expect this option market to be very effective.
We all know that, and the Russians have already warned us for that after their terrible Afghan campaign 20 years ago.
Afghanistan will be a battle with only losers as long as we don't find a solution that incorporates key players. Accepting Iran as a key player and not just as key enemy should be step 1. And this is not about being on their side or against them: it is about effective negotiations and warfare. You don't destroy terrorists by attacking them UNLESS you are really able to destroy them. The Russians found out a few days ago that they didn't succeed, not even after years of clashes with Chechen rebels and control of the Caucasus. We will find it out too, as the Russians already predicted based on their own Afghan experience. And let's be frank: Americans know it too, based on their Vietnam experience.
Full stomachs and economic growth are the main enemies of terrorists and definitely not brute force UNLESS we are dealing with a small-scale terrorist army of extremists that lack support by the people. And that is definitely not the case here, just like it isn't in the Caucasus, Palestine, Nigeria/Niger, Pakistan etc.
Principal at LMG Emerge. LMG is an internationally operating independent financial consultancy firm headquartered in Zeist, The Netherlands.
Our clientele consists of institutional and high net-worth private investors (investment advice) and corporates (valuation advice, risk analyses).
Our areas of activity include: Asset Allocation, Selection of Financial Providers/Asset Managers and Emerging Markets advice.