Terrorist attacks in Mumbai

India under attack

A terrorist attack in Mumbai kills at least 100 people

THE sheer scale and audacity of the assault were staggering. Gangs of well-armed youths attacked two luxury hotels, a restaurant, a railway station and at least one hospital. Gunfire and explosions rang through Mumbai overnight on November 26th-27th and through the next morning. By Thursday November 27th more than 100 people were reported to have been killed, and the toll seemed likely to rise. Several foreigners, including some from America, Japan and Britain, were among the dead. So were over a dozen policemen, including Mumbai’s chief counter-terrorism officer. Up to 100 hostages, including selected American and British guests, were alleged to be held hostage inside a hotel.

Even in a city—and country—with a grim record of terrorist violence, these were extraordinary scenes. The attacks started at around 10.30pm on Wednesday, when gunmen started shooting and throwing grenades at Mumbai’s main Chhatrapati Shivaji Terminus railway station. Television footage showed two men shooting at random as they drove through nearby streets in a stolen police jeep.

Around the same time, a bomb was reported to have exploded in a taxi parked near the city’s main airport. More or less simultaneously, gunmen speaking Hindi and Urdu, the language of many north-Indian Muslims and of neighbouring Pakistan, stormed two hotels—the Taj Mahal and the Trident Oberoi—and Café Leopold, a restaurant popular with tourists. Police outside the Taj Mahal, India’s most famous hotel, lapped by the Arabian Sea, said gunmen arrived there by inflatable dinghy. In the early hours, a gunfight erupted on Marine Drive, the scenic coastal road seen in so many Bollywood films, in which another Mumbai police chief was killed.

As dawn broke, flames were rising from the domed roof of the Taj Mahal. Navy and army commandos, who had retaken the hotel’s lower floors and killed two terrorists, reported bodies in many rooms and perhaps half a dozen terrorists still living. A trickle of terrified employees and guests, some with gunshot wounds, continued to flee the building. One fugitive, Amit, a hotel-restaurant manager, said his chef had been hit by three bullets and many colleagues remained inside. A few badly-injured survivors were wheeled from the hotel on brass luggage-trolleys. By midday on Thursday most of the hostages were reported to have been released from the hotel, although there were reports of further shooting.

Meanwhile at the nearby Trident Oberoi, as many as 100 hostages were reported still to be held. Gunfire and explosions were reported from the upper storeys of the building.

There seemed little doubt that the attackers were Muslim militants of some description, but their exact provenance was unclear. Responsibility was claimed by a previously little-known group called the Deccan Mujahideen. Speaking to Indian television by telephone, a gunman holding hostages in the Trident Oberoi demanded that Muslim prisoners, including those captured in Kashmir, should be released from Indian jails. “Release all the mujahideens, and Muslims living in India should not be troubled,” he said.

In the past five months India has suffered from a spate of Islamist militancy, with bomb-blasts in half a dozen cities, including Delhi, Bangalore and Jaipur. A home-grown Muslim terrorist group, the Indian Mujahideen, has been blamed for the spree, in which over 150 people were killed. In a chilling, 14-page admission of responsibility for the Delhi bombings in September, the Indian Mujahideen castigated the counter-terrorism efforts of Mumbai’s police, and promised Mumbaikars future “deadly attacks”.

As India’s first indigenous Muslim terrorist group—so they have often been described—the Indian Mujahideen are a worrying sign. They seem to have evolved from a decade-long campaign by Pakistan-based militants, including many fighting an insurgency in Kashmir, to incite India’s 140m Muslims to revolt. These groups have been held primarily responsible for half a dozen major terrorist attacks in Mumbai in recent years. In 1993 local Muslim gangsters backed by Pakistan-based militants set off 13 near-simultaneous bomb-blasts in the city, killing more than 250 people. In 2006 another co-ordinated bombing spree on Mumbai’s railway killed over 180 commuters. A Pakistan-based group, Lashkar-e-toiba, was blamed at the time.

This week’s attacks in Mumbai seemed different, however. Attacks by bands of gunmen on numerous targets, instead of the mere laying of bombs, and the seizure of so many hostages, led to speculation, unsupported by evidence, that local militants in India could not have mounted the attacks without considerable foreign help. And the targets chosen—world famous hotels and Western tourists—was a new phenomenon for India, despite being a pattern familiar from attacks directed or inspired by al-Qaeda elsewhere in the world.

Al-Qaeda has often threatened to launch strikes on India. In 2006 Arab terrorists belonging to the organisation were foiled in an attempt to set off bombs in Goa, India’s main destination for foreign tourists. Among the targets of the latest attacks was a Jewish religious centre in southern Mumbai which was reported to have been attacked by the gunmen. Police said that an Israeli rabbi and his family were among a group being held as hostages in a nearby apartment block.

Despite these worrying signs, Indian officials have so far resisted suggestions that Indian Muslims are being radicalised and joining a global jihad. Many refer approvingly to the observation of George Bush that Muslims from India have not in general turned up to fight the infidels on the battlefields of Iraq and Afghanistan. But security analysts have meanwhile despaired at the unpreparedness of India’s security agencies to counter a domestic Islamist threat. Whether or not al-Qaeda was behind the latest attack, that happy complacency must now have ended.

Deflation Warning Is No Cause for Alarm in Japan: William Pesek

Nov. 27 (Bloomberg) — Deflation is destined to make an untimely return to Japan.

The second-biggest economy faces the most acute threat of falling prices among industrialized nations, the Organization for Economic Cooperation and Development said on Nov. 25. Sound gloomy? The OECD may be overly optimistic to think deflation won’t reemerge until the second half of 2009.

Things aren’t as dire as they seem. In fact, a return of deflation may offer benefits to Japan’s outlook. That also could go for other developed nations experiencing mild price drops. Japan’s latest inflation figures will be released tomorrow.

Deflation was the unheralded catalyst behind the restructuring that fueled Japan’s longest postwar recovery. Officials in Tokyo have been quick to blame the U.S. credit crisis for Japan’s recession. An explanation that deserves equal weight is that the positive side effects of deflation didn’t have enough time to assert themselves.

To make such an argument is to delve into the territory of economic heresy. It’s true that falling prices are rarely, if ever, good for the broader economy. They are a nightmare for debt holders and property owners. They can hurt corporate profits, cut wages and eat into government tax revenue.

Yet Japan benefited from deflation in two ways. First, it offered a kind of stealth tax cut for consumers, who gained more purchasing power between the late 1990s and mid 2000s. Second, it forced major change in the bloated, inefficient economy.

Deflation’s Benefits

China’s rise was among the forces that prompted Japanese executives once and for all to restructure. Companies streamlined a labyrinthine distribution system that involved many middlemen and inflated prices. Banks also realized in the early 2000s that they couldn’t grow their way to health. They stepped up efforts to dispose of bad loans.

There’s a reason, though, why Japan’s political and corporate establishments were so frightened by deflation and obsessed about ending it. It was an uncertain and destabilizing force they couldn’t control or understand.

Policy makers wasted several years acting as if deflation was the cause, not a symptom, of Japan’s malaise. It was more about a malfunctioning credit system and increased global competitiveness. Whether officials know it or not, Japan’s growth in recent years owes much to deflation.

Inflation’s Return

The return of inflation, albeit mild price increases, in recent years prompted the popping of champagne corks from Tokyo to Washington. It also took pressure off the government to continue efforts to modernize the economy.

As deflation threatens to make a comeback, officials in Japan and elsewhere need not panic. The key is to keep the trend modest. Aggressive drops in consumer prices won’t help business or investment confidence. And they certainly wouldn’t bode well for stock markets.

Like it or not, falling prices are something with which governments around the globe will need to grapple. Hungary, Iceland, Ireland, Spain and Turkey will experience “severe” economic declines, many because of housing slumps that “still have a long way to go,” the OECD said. It added that deflation has become a greater risk than inflation.

Deflation in China is certainly a threat if the global crisis gets worse. In Japan, Taro Aso certainly won’t appreciate being remembered as the prime minister who oversaw the return of deflation. And yet he’s taking very doctrinaire steps to stabilize growth, like fiscal pump priming.

Changing World

Lacking in Tokyo these past couple of years has been long- term planning to prepare for an aging population and boost entrepreneurship. The Bank of Japan also is reluctant to take more drastic steps to fight deflation — such as returning interest rates to zero from today’s 0.3 percent.

The world is changing faster than Japan’s policy makers can adjust. The return of deflation will make it harder to remove structural impediments to growth with lax monetary and fiscal policies or a weak currency. Such measures offer short-term gains at the expense of long-term prosperity.

The good news is that Japan’s deflation didn’t turn into the global nightmare the U.S. feared. In October 2002, for example, Nikkei English News reported that the Central Intelligence Agency was investigating the effects of Japan’s deflation.

It had all the makings of a Tom Clancy novel and showed just how concerned the U.S. was about the dynamic hurting American consumers. Now, of course, economists are left wondering if the U.S. is headed toward deflation.

Japan is the more immediate risk. The BOJ didn’t formally end its deflation-fighting policy of pumping extra cash into the economy until March 2006. It’s worth noting that it took record increases in oil and food prices to produce a bit of inflation.

Now, “there is a high probability that Japan’s economy will slip into deflation in the third quarter of 2009” as core consumer prices turn negative, says Kyohei Morita, chief economist at Barclays Capital in Tokyo.

It could happen sooner if the global outlook turns even gloomier in the months ahead. While not good news for Japan’s leaders, history shows that may not be the disaster it seems.

Obama to Boost Stimulus With Funds for Roads, Energy (Update1)

Nov. 25 (Bloomberg) — President-elect Barack Obama, encouraged by congressional Democrats, will propose early next year an economic-stimulus package three times larger than one he was discussing only weeks ago, with the main focus on infrastructure, aides and lawmakers said.

The package, aimed at ending the worst U.S. economic slump in at least a quarter-century, probably won’t be submitted until January, giving up any chance of passing a stimulus plan during a lame-duck session of Congress next month.

An infusion of as much as $700 billion is warranted, according to Senator Dick Durbin of Illinois, the No. 2 ranking Democrat in the Senate and Obama’s closest ally in Congress. The plan would create jobs and boost sales at companies including Caterpillar Inc., the largest maker of construction equipment, and engineering firm Fluor Corp.

“You better stimulate with a number that will create measurable economic growth,” Durbin said in an interview.

Obama, who said during a press conference yesterday that he had to deal with an “economic crisis of historic proportions,” declined to give a range for the new package he favors. Still, he made Durbin’s point that it will have to be big enough to restore confidence.

The spending will be “of a size and scope that is necessary to get this economy back on track” and “significant enough that it really gives a jolt to the economy,” he said.

Obama will hold another press conference today to discuss overhauling government spending, during which he will announce Peter Orszag, head of the Congressional Budget Office, as his budget director, according to a Democratic aide.

Fueling Jobs, Growth

During the presidential campaign, Obama, 47, proposed a $175 billion plan with tax-rebate checks for consumers as well as spending on school repairs, roads and bridges, aid to states, and tax credits for job creation.

Since the Nov. 4 election, the government reported the jobless rate climbed to 6.5 percent in October, the highest since 1994, with retail sales and consumer prices plunging the most on record. Federal Reserve policy makers now expect the economy to contract through the middle of 2009, with analysts forecasting the worst recession since at least the early 1980s.

Aides to Obama say Lawrence Summers, named yesterday as director of the National Economic Council, favors spending as much as possible to spark growth.

Many Democrats say much of the money should be used to jumpstart federal infrastructure projects because that would create jobs and fuel economic growth.

‘The Big Number’

Laura Tyson, an economic adviser to Obama, said a program may be used to finance highway projects, alternative-energy initiatives, tax cuts, education programs and aid to state governments struggling to balance their budgets.

Tyson said the package could total as much as $600 billion over the next two years as the administration seeks to offset a decline in consumer spending. She said the size of the proposed stimulus has grown as the economic outlook has worsened.

“If the economy is faltering at a faster pace than expected, which does seem to be the case right now, then you want to go for the big number — you want to go for the $600 billion range,” Tyson, who previously served as President Bill Clinton’s top economic adviser, said in an interview with Bloomberg Television.

Caterpillar, based in Peoria, Illinois, has said the U.S. needs as much as $700 billion in new roads, bridges, airports and ports to remain competitive with countries such as China. Public projects account for about 30 percent of total construction spending in the U.S., and may help blunt declines in residential building, Ann Duignan, an analyst with JPMorgan Chase & Co. in New York, wrote in a note yesterday.

Rebates Ineffective

Terex Corp., the third-largest maker of construction machinery, also stands to benefit, while demand for raw materials may lift companies that manufacture the mining equipment such as Joy Global Inc. and Bucyrus International Inc. Fluor, the largest U.S. publicly-traded engineering company, and Jacobs Engineering Group may win contracts under the stimulus, analysts have said.

The plan’s components are likely to remain essentially the same as the $175 billion package Obama initially advocated, said a person familiar with the presidential-transition team. Spending focused on “shovel-ready” infrastructure would be ratcheted up because the Obama team believes it has great job-creating potential, the person said.

A $168 billion package passed in February emphasized tax rebates. Democratic economists say that, because consumers tended to save a large chunk of that money, rebates aren’t as effective in stimulating economic activity and creating jobs as is direct spending on infrastructure projects.

‘Runaway Spending’

The Obama plan, which the president-elect said will be his economic team’s first priority, will be focused on creating and preserving 2.5 million jobs. “If we do not act swiftly and act boldly, most experts now believe we could lose millions of jobs next year,” Obama said yesterday.

He stressed the urgency of passing legislation quickly, adding that “we do not have a minute to waste.” Yet it is unlikely Congress will produce a stimulus bill in December, a person inside his camp said.

Some Republicans in Congress aren’t enthused.

“Growing Washington with runaway spending is not change, it’s more of the same,” Senator Jim DeMint, a South Carolina Republican, said in a written statement. “If federal spending actually created economic growth, our economy would be booming right now. We are trillions of dollars in debt and Obama’s massive new spending program threatens to send our nation over a fiscal cliff, leading to higher taxes and fewer jobs.”

DeMint, a member of the Joint Economic Committee, said “it’s time to stop the failed bailouts and end the wasteful spending” and called for more tax cuts.

Rare Consensus

President George W. Bush has expressed opposition to any stimulus bill heavy on government spending, preferring tax cuts and rebates.

Obama voiced optimism over the prospects for a stimulus during yesterday’s press briefing, painting it as a measure with broad support.

“We have a consensus, which is pretty rare, between conservative economists and liberal economists, that we need a big stimulus package,” he said. “Across the board, people believe that this stimulus is critical.”

He said the plan would address both near-term concerns and far-reaching ones by investing in clean energy projects and education in addition to projects designed to create jobs immediately.

“Not only do I want this stimulus package to deal with the immediate crisis, I want it also to lay the groundwork for long- term, sustained economic growth,” Obama said.

Durbin said that in addition to more infrastructure spending, he would favor more money for the Amtrak train system as “a national priority.”

That may not be a hard sell in an Obama administration. Vice President-elect Joe Biden commuted almost daily from Washington to Wilmington, Delaware, on Amtrak throughout his years in the Senate.

European Stocks Advance for Fourth Day; Asian Shares Increase
Nov. 27 (Bloomberg) — European stocks rose, sending the Dow Jones Stoxx 600 Index to its fourth straight gain, as investors speculated government efforts to shore up banks and the economy will support profits.

Barclays Plc and Siemens AG rallied more than 4 percent. President-elect Barack Obama yesterday picked former Federal Reserve Chairman Paul Volcker to head an economic advisory board and said he will implement a plan to bolster growth on “day one.” Air Berlin Plc climbed 15 percent after posting a better- than-estimated 43 percent jump in third-quarter profit.

The Stoxx 600 added 1.6 percent to 201.95 at 1:23 p.m. in London, extending this week’s advance to 11 percent. The index is still down 45 percent in 2008, headed for its worst year since records began in 1987, as economies from Germany and the U.K. to the U.S. slip into recession.

“Investors see the market as discounting a truly cataclysmic event,” said Chirin Gill, a London-based fund manager at Daiwa SB Investments, which has about $60 billion. “They are gaining reassurance from governments and central banks who are beginning to understand the severity of the situation.”

Trading may be slower than normal today with U.S. markets closed for the Thanksgiving holiday.

The MSCI Asia Pacific Index rose 1.8 percent, with China Vanke Co., the country’s biggest builder, and Aluminum Corp. of China climbing more than 3 percent.

India halted trading of stocks, bonds and the rupee today for the first time in more than three years after terrorist attacks killed 101 people in Mumbai’s financial hub. Stock-index futures and rupee forwards fell, while credit-default swaps rose.

Cutting Rates

Futures on the Standard & Poor’s 500 Index dropped 0.9 percent today. The S&P 500 climbed 11 percent in three days.

Stocks rallied worldwide this week after China cut borrowing costs by the most in 11 years and the Federal Reserve’s pledge to buy $600 billion of debt sent mortgage rates down by the most in at least seven years.

Citigroup Inc. has jumped 87 percent since the U.S. government injected $20 billion of capital into the bank at the start of the week and guaranteed $306 billion of its mortgages and other troubled loans.

More than $30 trillion has been wiped off the value of global equities this year as credit losses and writedowns approached $1 trillion in the worst financial crisis since the Great Depression.

‘More Constructive’

“We have reached a bottom,” said Jacques Porta, who helps manage $180 million at Ofivalmo Patrimoine in Paris and has been buying shares of Hewlett-Packard Co. and Alstom SA. “There is a slight change of feeling in the newsflow we are getting, relative to what we saw in October. The problems are far from over, but the newsflow is more constructive.”

Barclays gained 4.1 percent to 166.5 pence today. Siemens, Europe’s largest engineering company, rose 5 percent to 49.10 euros. Daimler AG, the world’s second-biggest luxury-car maker, advanced 1.7 percent to 25.11 euros.

Analysts have slashed earnings estimates this year as the credit turmoil spread. Profit for companies in the Stoxx 600 will slide 12 percent in 2008, compared with 11 percent growth forecast at the start of the year, Bloomberg data show.

“We are not that brave yet” to buy stocks, said Alan Beaney, who manages about $2 billion as head of investments at Principal Investment Management in Leeds, England. “Analysts’ expectations for profit forecasts are too high. We need to see these earnings numbers come down,” he told Bloomberg Television.

Earnings Reports

Earnings for the 324 companies in the Stoxx 600 that have reported results since Oct. 7 declined 15 percent on average, trailing expectations by 6.4 percent, Bloomberg data show.

Air Berlin surged 15 percent to 3.44 euros. Europe’s third- biggest discount airline reported earnings before interest and taxes of 89.1 million euros ($115 million), beating analysts’ expectations of 71.9 million euros.

In Asia, stocks rallied for a third day on speculation China’s rate cut will boost demand for homes and commodities.

China Vanke climbed 3.1 percent to 7.01 yuan. Aluminum Corp., China’s largest producer of the metal, jumped 3.5 percent to HK$3.30. Inpex Corp., Japan’s biggest oil explorer, surged 10 percent to 573,000 yen.

Irish Life & Permanent Plc and Allied Irish Banks Plc rallied after the Irish Association of Investment Managers approached the government about investing in the country’s banks to boost Tier 1 capital ratios. The ratio indicates a bank’s ability to cushion bad debts.

Irish Banks

Irish Life & Permanent, the nation’s largest mortgage lender, soared 17 percent to 1.58 euros, while Allied Irish Banks, the biggest bank by value, rose 14 percent to 2.74 euros.

Separately, the Irish Times reported today that U.S. private equity companies Texas Pacific Group and Kohlberg Kravis Roberts have held talks with Bank of Ireland about a possible investment. The bank was already contacted by a consortium that includes J.C. Flowers & Co, the paper said.

Intesa Sanpaolo SpA advanced 2.2 percent to 2.4475 euros. JPMorgan Chase & Co. upgraded the stock to “overweight” from “neutral,” saying the shares have underperformed since the company reported earnings for the third quarter. The brokerage has a price estimate of 3.1 euros.

Kingfisher Plc dropped 4.9 percent to 113.7 pence after Europe’s biggest home-improvement retailer said consumer confidence has been “shaken” in all its markets and reported a 4 percent decline in third-quarter profit.

ArcelorMittal added 3.9 percent to 19.495 euros. The world’s largest steelmaker said it may cut as many as 9,000 jobs globally after reducing output on falling demand.

Wednesday, November 26, 2008

Troops confront Mumbai attackers

Indian army snipers climb up scaffolding on the historic Gateway of India

Indian army snipers climb scaffolding opposite the Taj Mahal Palace hotel

Indian security forces have been exchanging fire with gunmen holding dozens of hostages in two luxury hotels in the Indian city of Mumbai (Bombay).

Troops surrounded the premises shortly after armed men carried out a series of co-ordinated attacks across the city, killing 101 people and injuring 287.

The hotels were among several locations in the main tourist and business district targeted late on Wednesday.

Police say four suspected terrorists have been killed and nine arrested.

The situation is still volatile in two of the most high-profile targets of Wednesday’s attacks – the Taj Mahal Palace and Oberoi Trident hotels, where armed men are believed to be holding about 40 hostages.

There are reports of intermittent exchange of fire between security forces and the assailants barricaded inside both hotels.

Correspondents say security personnel have so far not stormed the premises perhaps for fear of endangering the lives of hostages, some of whom could be Westerners.

Flames and black smoke billow from the Taj Mahal Palace hotel, Mumbai

The city’s main commuter train station, a hospital, and a restaurant popular with tourists were among at least seven locations caught up in the violence on Wednesday.

Assaillants used grenades and automatic weapons. Police say the dead include six foreigners, 14 police officers and 81 Indian nationals.

Eyewitness reports suggest the attackers singled out British and American passport holders staying at the hotels.

If the reports are true, our security correspondent Frank Gardner says it implies an Islamist motive – attacks inspired or co-ordinated by al-Qaeda.

A claim of responsibility has been made by a previously unknown group calling itself the Deccan Mujahideen. Our correspondent says it could be a hoax or assumed name for another group.

In other developments:

• Fire crews evacuated people from the upper floors of the Taj Mahal Palace, where a grenade attack caused a blaze

• Israel says it is concerned for the safety of its citizens in Mumbai, as a rabbi and his family are feared captured by gunmen

• The head of Mumbai’s anti-terrorism unit and two other senior officers are among those killed, officials say

• The White House held a meeting of top intelligence and counter-terrorism officials, and pledges to help the Indian government

• India’s Bombay Stock Exchange and National Stock Exchange markets are closed, as the authorities urge local people to stay at home

• There are unconfirmed reports that five gunmen have taken hostages in an office block in the financial district of Mumbai.

Gunmen opened fire at about 2300 local time (1730 GMT) on Wednesday at the sites in southern Mumbai.

Local TV footage with commentary by the BBC’s Sanjeev Srivastava

“The terrorists have used automatic weapons and in some places grenades have been lobbed,” said AN Roy, police commissioner of Maharashtra state.

Local TV images showed blood-splattered streets, and bodies being taken into ambulances.

One eyewitness told the BBC he had seen a gunman opening fire in the Taj Mahal’s lobby.

30 October: Explosions kill at least 64 in north-eastern Assam
30 September: Blasts in western India kill at least seven
27 September: Bomb blasts kills one in Delhi
13 September: Five bomb blasts kill 18 in Delhi
26 July: At least 22 small bombs kill 49 in Ahmedabad
25 July: Seven bombs go off in Bangalore killing two people
13 May: Seven bomb hit markets and crowded streets in Jaipur killing 63

“We all moved through the lobby in the opposite direction and another gunman then appeared towards where we were moving and he started firing immediately in our direction.”

One British tourist said she spent six hours barricaded in the Oberoi hotel.

“There were about 20 or 30 people in each room. The doors were locked very quickly, the lights turned off, and everybody just lay very still on the floor,” she said.

There has been a wave of bombings in Indian cities in recent months which has left scores of people dead.

Most of the attacks have been blamed on Muslim militants, although police have also arrested suspected Hindu extremists.

The BBC’s Sanjeev Srivastava says the timing and symbolism of the latest attacks could not have been worse.

By choosing to target the richest district of India’s financial capital in such a brazen and effective manner, he says those behind the attacks have perhaps dealt the severest blow to date to the morale and self esteem of the Indian authorities.

The attacks have come amidst elections in several Indian states and exposes the governing coalition to the charge that it has failed to combat terror, our correspondent says.

Aerial map of Mumbai showing sites of shootings
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