MUKILTEO, Wash., April 23 (UPI) -- During a recent private meeting with Pakistani leader Pervez Musharraf, Secretary of State Colin Powell reportedly delivered not only a polite thank you for cooperation in the war on terror, but a warning. The ultimatum, according to White House officials but unconfirmed by the State Department, warns that if Pakistani forces can't control their own country's territory, U.S. Marines and CIA-sponsored paramilitary forces will.
The ultimatum reportedly lists no specific date by which the "success" it seeks must be achieved. But it was generally understood from Powell's conversation with Musharraf that U.S. "assistance," whether objected to or not, might follow soon after another failure by combined U.S., Afghan, and Pakistani forces to nab Al Qaeda. That failure took place last month as the Pakistanis allowed the terrorist group's top leadership to escape the allied net around it and move further north in the Pakistani-Afghan tribal region where sympathy for Moslem extremism, and a resentment of Western forces, remains high.
Investors in Pakistan and the region must figure out not only if the warning was really delivered -- but if so, if the likely impact is to chasten Musharraf into helping nab the al-Qaida leadership, or if the U.S. will be forced to send its own troops into the country in a humiliating demonstration that Pakistan can't deliver the Bin Laden goods.
A month ago, "Bottom Line" reported on the under-reported likelihood of a Bin Laden capture and was accordingly bullish for equities in Pakistan and such other allies and Arab moderates as the Philippines, Israel, Egypt, and Turkey. ("Powell surrounds Bin Laden," March 25.) The investment advice has gone well, with those countries enjoying a 10-percent-plus rally in the weeks following. Even Pakistan's market remains more than 5 percent above its March 25 levels, though with considerable pullback in recent days.
The anticipated good news it was based on, however, failed to materialize. And the prospect of a new tension in U.S. relations with the country creates new risk to the down side. This is a time for taking profits and reducing positions in the scud belt by about 25 percent generally, and actually going short on Pakistani equities in what may be a turbulent six months.
It's not clear whether the continued failure of Pakistani troops to capture the prize reflects a willful look the other way by Musharraf, or simple weakness -- an inability to control his own national terrority. There may be elements of both. In a sense, it doesn't matter. The Bush administration's desire to kill or capture Bin Laden and his top aides rises daily as November's election approaches. Its patience with Musharraf declines.
Furthermore, the Bush administration has a pretty good track record of carrying through on threats. Obviously, the president would prefer that the Pakistanis get their act together and capture Bin Laden themselves, or allow U.S. forces to expand their already existing operations in Pakistan in order to complete the job themselves. But with the base for a U.S. landing already now established, and plans for a 25,000 to 35,000 air drop already on the board, it is possible that Bush will follow take action on his own between now and June.
Politics may give the administration an added push. Democratic Presidential nominee John Kerry is said to be carefully considering an effort to move to the hawkish side of Bush on one or two key issues on the war on terror.
Of course, the senator has been generally critical of Bush's emphasis on Iraq, and failure to prosecute the war against al-Qaida fully. But such comments, though, have little traction absent a willingness to advocate a tougher line on Pakistan and, potentially, Iran. Both countries have apparently harbored Bin Laden within the last 18 months.
If Bush "should" be after Bin Laden, doesn't it follow he "should" be willing to trespass into Pakistan or Iran if necessary? As he ponders the matter, aides say Kerry may be willing to take the matter that far in the coming weeks.
Pakistan has an ultimatum of its own, delivered recently to the tribesmen believe to still have Bin Laden and the leadership within their region. But the threat doesn't seem to be working. And why should it?
In the event of a sudden breakthrough by Pakstani forces, those short the market will suffer a one-day hit as the market rallies 8-10 percent and positions are covered. In the far more likely event of an agonized period of months in which Pakistan is on the hot seat, but unable to perform, the country's equities should underperform the region through summer and into the fall. The bottom line: Short.
Gregory Fossedal manages international investements for Emerging Markets Group in Washington, DC. His clients may (and usually do) hold long and short positions in many of the investment securities and opportunities mentioned in his reports. "The bottom line" is compiled from sources we believe to be reliable, but no representation is made that they are necessarily accurate or complete. Investors should perform their own due diligence and consult their own professional advisor before buying or selling any securities. Mr. Fossedal's opinions are entirely his own, and are not necessarily those of UPI or EMG. Futhermore, they are subject to change without notice. Email: [email protected].
