>> OH TERESA?

The "Mother" of All House Parties
The East Bay for Kerry/MoveOn House party on December 7th combined the forces of two grass-roots organizations based in San Francisco East Bay Area. We had 200 guests eating, drinking, and watching the MoveOn Documentary "Uncovered" featuring Joseph Wilson and Rand Beers from the Kerry campaign.

When Teresa Heinz-Kerry arrived, she handed me a pin that read in the center: "Asses of Evil" with "Bush", "Cheney", "Rumsfeld" and "Ashcroft" surrounding it. She met, greeted and talked to a jam-packed room of Kerry supporters and others who came for the MoveOn documentary. Many were curious, others undecided, or belonging to other candidate camps.

Teresa talked about her life as the daughter of a physician in Africa, about life during a repressive regime, to life inside Washington DC, and a brief intimate glimpse into her courtship with John. She told a rapt crowd about how they met and their first date, and that he did not call again for six months, adding, "He was slow on the uptake". Just as she was about to add more to the story, the phone rang. It was the Senator.



The synchronicity of this call was not lost on the crowd. We all laughed. John then spoke about the Medicare Bill recently signed by the president that effectively forces people into expensive HMO plans and prevents Medicare from using its formidable consumer base to drive the bulk purchase of expensive prescription drugs down. He also spoke about the recent Bush Thanksgiving visit to our military in Iraq, carrying a platter laden down with a fake turkey, smiling for a photo op.

People were hungry for the food we had prepared, but more so, hungry for John's message of hope. After the call, Teresa took questions from the crowd. One of the questions was about grass-roots organizing, and the effect it had on the current presidential campaigns. Teresa responded that grass-roots has to happen at EVERY level, from the Internet, to canvassing and meeting people, to letter writing and phone calling. She reminded us that this was the way to connect with others and to get the message out.

A PBS producer working on a documentary on MoveOn interviewed Teresa. He asked, "Just as radio was for Roosevelt, and television was for Kennedy, the Internet has been defined as the new political grass-roots organizing tool for this era. What is your reaction to that?"

Teresa said, "The Internet is a great grass-roots organizing and political tool; but it is still an adjunct." The producer asked her to clarify. Teresa responded, "Until EVERYONE has access to a computer and knows how to access the Internet, it will still be an adjunct political grassroots organizing tool".

It was hard for Teresa to stay on schedule. The lovely voice of opera singer, Susan Gundunas was on hand to sing a few tunes, and that kept Teresa with us a while longer than expected. Before saying goodbye, she took with her some "Condoleezza Rice Crispies Bars" and "No Child Left Behind Chocolate Chip Cookies", sold to generate donations to the cause. She left with a lilt to her step, a warm smile, and some new converts, some of whom were uncommitted and undecided, and some who were definitely committed, but came over to our camp. Because of her.

She gave us a bit of what she does best, connecting us as a community with her heart, compassion, and willingness to fight throughout all her life for the good of all of us. As her husband, John Kerry has throughout his life. Teresa completed the picture many people had unfinished about John Kerry. Now they know they have a "Real Deal". From baking cookies, gathering food donations, staying up late cooking chicken wings, putting up artwork, and decorating that beautiful rambling modern home in the Oakland Hills, we at East Bay for Kerry did our job because we believe grass roots efforts include all of these finer, human details. We brought in more than 80 people to John's birthday party the next night, bringing the room to capacity at 350 the following night

Thanks to Teresa, we kept the party going on, and she helped us here at East Bay for Kerry, throw the Mother of All House Parties.

Fe Bongolan - December 11, 2003
East Bay for Kerry - Berkeley, CA



OFFICIAL 'KERRY FOR PRESIDENT' WEBSITE RIDDLED WITH OBSCENITIES

**Exclusive**
Sen. John Kerry's official election website is riddled with obscenities, the DRUDGE REPORT can reveal.
The Democrat nominee-in-waiting recently said radio stations are within their right to pull Howard Stern off the air if they object to the shock jock's racy show.
But an investigation reveals Kerry's own website is filled expletives, setting the standard for a new wave of 21st Century campaigning!
MORE
A sampling of web pages featured on Kerry's official site reveal:
"Bush f**ked up Afghanistan... Did I expect George Bush to f**k it up as badly as he did... cutting all your f**king legs off at the knees... Where the f**k is he?... scare the living s**t out of me... He has a pig-in-s**t grin on his face, he wanted to get into the s**t... doesn't play s**t in my book..."
In fact, typing in the terms "F**k" or "S**t" in the search box of the official Kerry For President site directly links the reader to the action!
A campaign source tells the DRUDGE REPORT that "John Kerry For President" online simply contains published material, and the senator was simply unaware on Sunday that the expletives were being carried on his own Internet server. [A search on the official Bush/Cheney re-election revealed no such curse words.]
"I think you'll see the offensive words removed," the top campaign source said.
Unlike over the air broadcast, there are no known foul language rules for official campaign websites.
Developing...

Filed By Matt Drudge
Reports are moved when circumstances warrant
http://www.drudgereport.com for updates
(c)DRUDGE REPORT 2004
Not for reproduction without permission of the author



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>> CONVERSATION WITH A KNOWING IRAQI...
http://www.speakingoffaith.org/programs/2004/03/04_islaminiraq/
Ahmed H. al-Rahim teaches Arabic language and literature at Harvard University. He's also a founding member of the American Islamic Congress, and has served as an advisor to American forces in Iraq.
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THE UNITED STATES, in Iraq and elsewhere, should cease promoting a secular civil society as the only alternative to a Taliban-like Shia theocracy. We cannot quell the religious yearnings of millions of Iraqis (and many others elsewhere) merely by fostering strong political and economic institutions and the sound values they embody -- to wit, democracy and capitalism. The most effective way to counter a theocracy is to include moderate, liberal religious elements in the civil society we are helping to erect.

The First Amendment's disestablishment clause is not a foreign policy tool, but a peculiarly American conception. Just because the American government is banned from promoting religion within the United States does not mean that the State Department and the Pentagon cannot promote religion overseas in societies that are undergoing profound societal changes. This last point is crucial: Overseas we are participating as a key architect and builder of new institutions; we are in what social scientists call "the design business." This is quite distinct from what we do at home: shoring up a solid social structure designed two centuries ago, careful not to rock the foundations or undermine the pillars on which it stands. In Iraq, Afghanistan, and many other Third World countries, we participate in the ground-breaking, foundation-laying stage, one in which elements we can take for granted at home -- such as a thriving religious life within civil society -- must be provided.

The current U.S. position reflects, whether deliberately or unwittingly, the "end of history" conception that all ideologies are on their last legs as the world embraces the American (or Western) ideals of democracy, human rights, and free markets. This notion, in turn, is but an extension of the Enlightenment conceit that modernity is based on rational thinking, which religion is not, and hence religion is "history" while secularism (reason, science) is the future. Accordingly, societies in which religion is "still" playing a key role are considered behind the times, underdeveloped. As we are learning, however, all over the world people have spiritual needs that cannot be addressed, let alone satisfied, by Enlightenment ideals.

We are witnessing an explosive growth of Christianity in East Asia (in 2000, China had 3.5 million Catholics, up from less than half a million in the mid-1980s); on the Korean peninsula, where nearly a quarter of the population is Christian, a 4,000 percent increase from the early part of the twentieth century; and in Africa (360 million Christians in 2000, compared to 10 million in 1900). We find an "outpouring of pent-up religious [fervor]," as sociologist Alan Aldridge put it, in Russia (which nearly doubled the number of adherents to the Russian Orthodox Church from 1970 to 2000) and other former communist nations in Eastern Europe. And there has been a rise in Islam not only in countries that were never modernized, but even in those that have had extensive secular, modern periods -- such as, most tellingly, Turkey. In the United States, although there are continuous debates over the depth of American religious commitments and the possibility of a religious revival, no one doubts that religion is a major force in American life and that important elements of our civil society are faith-based. We should export to Iraq -- and to other countries challenged by fundamentalism -- our mixed secular and religious civil society.

The reason religion cannot be suppressed, why religion is reasserting itself where it was formerly stifled or thriving where it was never held back, is that it speaks to profound questions to which many millions of people seek answers. These are transcendental questions such as why we are cast into this world, why we are born to die, and what life's purpose might be. In addition, there are moral questions such as what we owe to our children, to our elderly parents, and to our friends, communities, and nations. Neither democracy nor capitalism speaks to these issues. Secular humanism does provide some answers, but not ones all find compelling; the answers deal largely with moral issues but much less with the truly transcendent ones.

The quest for spiritual answers of one kind or another is evident both in former communist countries and in Islamic countries in which the theocracy is breaking down (such as Iran) or has been ended (e.g., Afghanistan). In all these countries, the breakdown of tyranny precedes an explosive growth of new kinds of anti-social behavior. (I write new kinds of anti-social behavior because other kinds -- corruption or spying on one's friends, co-workers, and neighbors, for instance -- were, of course, quite common in the pre-liberation days.) These countries experience sharp rises in drug abuse, HIV, divorce, and crime. The New York Times Magazine published a particularly distressing account of the reemergence of pedophiles in Kabul, who did not dare act out during the Taliban days.

The reason is obvious: Once police terror as the source of social order is removed, it must be replaced by some other source or else moral and social anarchy will arise. Order in a free society rests primarily on people choosing to refrain from anti-social behavior because of their moral upbringing and the informal enforcement of social norms. No free society can make police the mainstay of its social order; law enforcement's proper place is as a backup to an order largely undergirded by morality. Sending the military police into newly freed countries and training local cops are of course necessary, but they will not curb anti-social behavior unless accompanied by a new moral code. Religion has been and very much still is one major source of such mores. The religion we should promote is compatible with democracy and not oppressive in its own terms and institutions. Call it a "soft" religion.



I KNOW A BIT about how receptive Shiites are to a non-Wahhabi, moderate, soft Islam because they laid out their position during a three-day meeting in Iran that I attended a year ago. It ended just as the holiday commemorating the martyrdom of Imam Hossein began. Although the reformers -- headed by Dr. Seyyed Ataollah Mohajerani of the International Centre for Dialogue Among Civilizations -- organized the meeting, several hardliners also participated. The main point, repeatedly stressed during the meeting, was that both Shia camps -- the hardliners and the reformers -- want to live in an Islamic society. The main difference between them is that the prevailing hardliners are committed to enforcing the religious code through morality squads, secret police, and jails -- in short, the government -- while the reformers favor encouraging people to be devout rather than forcing them to abide by the Prophet's dictates. The line most often repeated was: "If you do not force people to come, they will want to come."

A similar approach was laid out by professor Muqtedar Khan of Adrian College in Michigan, who writes:

Moderate Muslims aspire for a society -- a city of virtue -- that will treat all people with dignity and respect. There will be no room for political or normative intimidation. Individuals will aspire to live an ethical life because they recognize its desirability. Communities will compete in doing good and politics will seek to encourage good and forbid evil. They believe that the internalization of the message of Islam can bring about the social transformation necessary for the establishment of the virtuous city. The only arena in which moderate Muslims permit excess is in idealism.

Many have attempted to outline the features of a soft Islam in recent years, resulting in several typologies of liberal, modest, modern, and Euro-Islam that are contrasted with militant, virulent, and fundamentalist Islam. Naturally, there is no agreement about the interpretation of relevant texts and traditions. Nor is it possible (or necessary) to review this large body of literature here. Rather, I seek to list several key features of the sort of Islam the United States should support in those parts of the world where it must counter Muslim fundamentalism.

Soft Islam, as the Islamic legal theorist Khaled Abou El Fadl has described it, differs from the fundamentalist version in that it draws on the members of the community for consultations (sharia) rather than relying on rulings from the mullahs. The concept of sharia has been traced to the pre-Islamic era, when tribal councils decided important public issues through consultation. Professor Forough Jahanbakhish of Queen's University in Canada adds that most modern scholars hold that such consultative bodies should be composed of representatives of the whole community, and not just elites.

In 2001, President Mohammad Khatami of Iran, the leader of the reformers, stated that "the constitution [of Iran] states that the rule is Allah's... but it also states that this Divine rule is based on people's opinions. Man is Allah's representative on earth and the right to rule does not refer to any specific person. Rather, it refers to all those who participate in elections and set the government's agenda." Another principle discussed by some -- including Abou El Fadl in his book And God Knows the Soldiers: The Authoritative and Authoritarian in Islamic Discourse (University Press of America, 2001) -- is one attributed to the Prophet: that "every mujtahid [the person exerting effort in deducing the law] is correct." This means, according to Abou El Fadl, that "one must search for the law without fear of failure" and that while humans strive to discover the Divine Will, "no one has the authority to lay an exclusive claim to it."

Others have stressed that the Koran is open to different interpretations rather than commanding one strict, rigid, by-the-book line. As Khan writes in his essay "Who Are Moderate Muslims?":

Ijtihad narrowly understood is a juristic tool that allows independent reasoning to articulate Islamic law on issues where textual sources are silent. The unstated assumption being when texts have spoken reason must be silent. But increasingly moderate Muslim intellectuals see Ijtihad as the spirit of Islamic thought that is necessary for the vitality of Islamic ideas and Islamic civilization.... For moderate Muslims, Ijtihad is a way of life, which simultaneously allows Islam to reign supreme in the heart and the mind to experience unfettered freedom of thought. A moderate Muslim is therefore one who cherishes freedom of thought while recognizing the existential necessity of faith.

Abou El Fadl, a professor at UCLA, provides examples of conflicting Koranic interpretations in And God Knows the Soldiers. The Koran, he explains, commands believers, "Do not take a life which God has forbidden unless for some just cause." Yet what constitutes "just cause" is susceptible to debate. The Koran also instructs, "And do not kill yourselves." But whether smoking, for example, is a form of killing oneself is also a matter of debate. Regarding the veil or headscarf (hijab) worn by many Muslim women, Abou El Fadl writes:

Most importantly, the historical setting and the complexity of the early context do suggest that the inquiries into the juristic basis of the hijab cannot be considered heretical. In this sense, labeling the hijab as a part of the usul [the foundations of the faith upon which disagreement is not tolerated], and using that label as an excuse to end the discussion in the matter, is obscenely despotic. It might very well be that this is yet another legal issue where the law of God is pursuant to the convictions of the pious adherent.

That last comment is particularly important. When religions are moderated, whether the reforms include praying in the vernacular or allowing men and women to worship together, there is a common fear that the whole construction will unravel. Hence, drawing a distinction between an inviolate core and the other elements is crucial to fostering the sense that one can reinterpret the various religious dictates while maintaining the religion's essence. Soft Islam builds on this difference between the core and the rest; rigid Islam denies the existence of such a distinction. Thus, the Iranian historian and reformer Hashem Aghajari has addressed the question of the mullah's religious authority in this way:

The Protestant movement wanted to rescue Christianity from the clergy and the Church hierarchy -- [Christians] must save religion from the pope. We [Muslims] do not need mediators between us and God. We do not need mediators to understand God's holy books. The Prophet [Jesus] spoke to the people directly.... We don't need to go to the clergy; each person is his own clergy.

A particularly important case of divergent interpretations of Islam, one antithetical to a civil global society and one very supportive of it, is found in the debate over the meaning of "jihad." Some Muslims interpret jihad to mean "holy war." A group of sheikhs in Cairo, expressing this view, has determined that, "According to Islamic law, if the enemy steps on Muslims' land, jihad becomes a duty of every male and female Muslim." Before the recent conflict, Iraqi Imam Omar Hussein Asengawy issued a fatwa -- an authoritative religious ruling -- holding that all Muslims were obligated to wage war against the United States in the event of an attack on Iraq. "Let's wage jihad together," he told his coreligionists last December, "to face the enemy and the infidel." At the heart of the "holy war" viewpoint is the presumption that all nonbelievers are lower-grade human beings, contemptuously referred to as kaffir.

In other, civil interpretations, jihad is conceived as a solely spiritual struggle. Abou El Fadl writes, "Jihad-- means to strive, to apply oneself, to struggle, and persevere. In many ways, jihad connotes a strong spiritual and material work ethic in Islam." Islamic scholar Seyyed Hossein Nasr explains in The Heart of Islam (Harper San Francisco, 2002) that "jihad is therefore the inner battle to purify the soul of its imperfections, to empty the vessel of the soul of the pungent water of forgetfulness, negligence, and the tendency of evil and to prepare it for the reception of the Divine Elixir of Remembrance, Light, and Knowledge."

These writings represent a small sample of a huge body of literature, yet they illustrate the basic character of a soft Islam. Such an Islam seeks to educate and encourage good conduct rather than coerce it, is open to reinterpretation on all matters but its core, welcomes participation by the members of the community rather than dictates from the mullahs, and spreads spiritually rather than by the sword.



ISLAM, LIKE JUDAISM but unlike Protestantism, is much more a behavioral and less a theological religion. Promoting soft Islam in Iraq and elsewhere cannot be accomplished solely through scholarly symposia on the meaning of moderate Islam or by creating anthologies and delivering lectures, although these activities all have their place. We must turn to policy. The most effective way to develop such a conception is to embody it in new institutions for the whole world to see. Moreover, as we remain knee-deep in rebuilding Iraq, concrete questions -- not just matters of theory -- must be faced.

Schools provide an especially suitable environment in which to start to examine the third way between theocracy and a secular civil society. Education in several Islamic countries is carried out in madrasas. These are the places where young people are drilled in Wahhabi Islam and anti-Western principles and pumped full of rigid interpretations of religious texts, learning by rote, with next to no exposure to science and the liberal arts. Madrasas are common in theocracies such as the Taliban's Afghanistan, Iran, Saudi Arabia, and northern Pakistan. If the dominant Shiites in Iraq have their way, these schools will be introduced in that country as well. In place of the madrasas, Delaware Senator Joseph Biden has suggested that we should promote secular, American-public-school-like institutions.

Another alternative is to provide two tracks of education within public schools. One track would be essentially secular (although children would learn about religion), and the other would dedicate a significant proportion of the teaching -- say, 20 percent -- to religious subjects. (We may not wish to advertise to Iraqis that this approach is followed in Israel, but that example shows that the approach is feasible.) In Malaysia, in which there is a large Muslim population but a relatively moderate one, both secular and religious education are provided: Muslim children can attend secular school in the morning and religious classes in the afternoon.

To ensure that the religious part of public schooling is used for soft religious teachings rather than for fundamentalist indoctrination, the teachers, although as a rule from a given religious group (Shiites in southern Iraq, for example), need to be qualified and selected by the school rather than by religious groups, and the teaching material must be approved by the ministry of education.

This is a sound educational system for several reasons: It prevents fundamentalist education; ensures that all children will acquire the rudiments of modern education; allows those parents who seek it to secure a significant amount of religious schooling for their children with the costs covered by the state; and ensures that children of different backgrounds -- secular and religious -- will mix, an outcome that is prevented when some of the children go to segregated religious schools. Above all, such a two-track system allows a government to promote moderate religions without preventing anyone who (or whose parent) wishes to have secular education from gaining it. Thus, it is a prime example of how a government can promote religion and still ensure that it will be liberal.

The institutionalization of a civil society with religious elements may also proceed through the provision of social services. In several parts of the Islamic world (in southern Iraq, for instance), various religious bodies provide social services. In France, social services -- including health care, welfare, and child care -- are provided largely by the secular arms of the government. A third way would be to continue to utilize whatever governmental and secular voluntary social services are available and to expand them while also drawing on religious services -- the way it is done in the United States. Despite America's uncommonly strong commitment to disestablishment, the U.S. government relies to a significant extent on voluntary religious groups to provide many social services. This is done either by contracting with various religious groups for the provision of social services or by allowing religious institutions -- Catholic or Jewish hospitals, for example -- to receive Medicare and Medicaid payments via individuals who choose to be served by them. As of 2001, 75 percent of the funding for the Jewish Board of Family and Children Services came from government sources. Catholic Charities' programs receive about 66 percent of their funding from government grants and contracts, and Lutheran Services in America receives more than 33 percent of its annual budget from government funds. Indeed, the United States is expanding its reliance on faith-based institutions following the Charitable Choice Act of 1996 and the Bush administration's faith-based initiative. All this could be applied to Iraq, relying on what amounts to two-track social services -- those provided by government agencies and those provided by faith-based institutions. Here too the government would impose some limitations on the ways in which religious groups can use public funds. Specifically, it would require that the funds be used fully for social services and not for political action or fundamentalist indoctrination.

Finally, a government keen on promoting a two-track civil society might pay the salaries of the Muslim clergy and the maintenance costs of mosques. To Americans this may seem highly controversial and a gross violation of the separation of church and state, but it is a common practice in many democracies: In Catholic countries such as Spain and Italy, for instance, as well as in Scandinavia and Germany. (In some countries, this is done indirectly; in some cases, the government collects a special church tax from those who attend church, but the net effect is that the clergy are publicly supported and not dependent on passing the plate.) Once the government pays for clergy, it is free to determine who qualifies as such. Fundamentalist preachers will surely not be banned from practicing, but they will not do so on public dollars. A group of moderate clergy may advise the government on who is qualified to serve in the public religious sector.

One may ask, "But what about Christians and other religious groups?" The same arrangements would apply to them. Social services could be delivered by these religious communities, their clergy compensated, and two-track teaching provided. Lest this sound too abstract, one should note that despite our insistence on the separation of state and church, we in effect are a two-track society; this reality is well illustrated by the fact that we allow various religious authorities to conduct marriages that are recognized by the state and also enable people to be married in a civil ceremony without any religious trappings.

The trouble is that so far, we have been approaching Iraq as if we favor only secular institutions. The 13 points released by the U.S. Central Command headquarters in Qatar in mid-April state that Iraq must be a democracy, that the rule of law must be paramount, and that the role of women must be respected -- all of which are fine, but all speak to the secular elements of the future Iraq. A two-track approach to constructing a civil society in Iraq, one that provides ample room both for soft Islam and for secular institutions, not only would serve better in countering fundamentalism than sheer secularism, but also would respond to a wider array of human needs.

MUCH OF THE recent literature on Islam focuses on the question of whether Islam is or can be made compatible with a democratic regime, an inquiry closely related but not identical to the question of whether there is a soft Islam that can serve as an antidote to Islamic fundamentalism. Can Islam live with free elections, tolerate a free press, grant equal rights to women, tolerate secular authorities, and the rest? Although there is little agreement on this subject, one of the earmarks of soft Islam is that it can coexist with democratic political institutions.

To provide but one example: Treating women as men's equals in moderate Islamic societies, instead of in the demeaning and abusive way of Islamic fundamentalism, draws on two rather different principles. One is respect for the U.N. Universal Declaration of Human Rights and other more general, secular liberal political theories, which extol the virtues of individual dignity and individual rights. Another is a soft interpretation of Islam based on arguments such as those made by Forough Jahanbakhish in Islam, Democracy, and Religious Modernism in Iran, 1953-2000 (Leiden, Netherlands: Koninklijke Brill, 2001): Previous generations have misinterpreted Islamic sources, and the inferior status of women is a product of the social conditions at the time of the Koran, not the moral teachings of it. In Nine Parts of Desire: The Hidden World of Islamic Women (Anchor Books, 1995), Geraldine Brooks questions whether rules that were clearly meant to apply only to the Prophet's wives, such as seclusion, should have been extended to all Muslim women.

The significance of the difference between these approaches is that if one draws, for political legitimacy, merely on respect for the U.N. Declaration and the ideals associated with it -- that is, on Locke and Kant, the Founders, and the Federalist Papers -- one in effect presumes that support for democracy must be secular. If one also draws on soft interpretations of Islam, one finds that Islam can be made compatible with democracy so that promoting religion as an essential element of civil society will not hinder the development of a liberal democracy. As Daniel Pipes, a scholar of the Middle East, has put it, "militant Islam is the problem, and moderate Islam is the solution."

It follows that by promoting soft Islam we get two for the price of one: We promote a religion that is compatible with liberal democracy as well as one that can serve as an effective antidote to the fundamentalists. I take it for granted that Iraq should have a democratic form of government. But it should be one that does not treat religion per se as a threat but, potentially, as a mainstay of civil society, and hence as something that should be promoted -- that is, to be sure, in its soft, moderate forms.

This article first appeared in the October-November 2003 issue of Policy Review. Reprinted with the permission of the journal and the author. Amitai Etzioni is a University Professor at George Washington University and author of the autobiography My Brother's Keeper: A Memoir and a Message (Rowman & Littlefield, 2003). Amitai Etzioni's book From Empire to Community: A New Approach to International Relations, in which a version of this essay appears, will be published by Palgrave Press in April, 2004.

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IAEA to meet on Iran, Libya nuclear programs
www.chinaview.cn 2004-03-08 13:11:10

VIENNA, March 8 (Xinhuanet) -- The governing board of the International Atomic Energy Agency (IAEA) will start a five-day meeting on the nuclear programs of Iran and Libya on Monday, during which two resolutions will be discussed.
Libya has agreed to dismantle its program under the supervision of the IAEA. But Iran, though claiming its innocence, has long been accused by the United States of using its atomic energy program as an excuse to build a bomb.
According to the IAEA's recent report on Iran, its inspectors had unearthed designs and parts for the advanced "P2" uranium enrichment centrifuge, capable of producing bomb-grade uranium, and uncovered experiments process in the creation of plutonium andpolonium, which can be used in nuclear weapons.
As to the report, Iranian Foreign Ministry Spokesman Hamid RezaAsefi denied the existence of the advanced nuclear equipment, describing those reports as "unfounded." He stressed that Iran's nuclear activities are intended for peaceful purposes and the country has not pursued and still does not pursue any nuclear weapons program.
On Sunday, Iranian Supreme National Security Council secretary Hassan Rohani said through state television that it was time for the IAEA to close the 13-month investigation into Iran's unclear program.
In an effort to dispel suspicion over its nuclear program, Iransigned an additional protocol to the Nuclear Non-Proliferation Treaty (NPT) last December, allowing unfettered UN inspections to its nuclear facilities. Enditem
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Saudi Arabia, China sign natural gas deal
www.chinaview.cn 2004-03-08 11:38:53
BEIJING, Mar. 8 (Xinhuanet) -- The Saudi government signed on Sunday morning a deal on natural gas drilling and production with the China National Petrochemical Corp (SINOPEC), according to a SINOPEC official.
The deal was inked by Saudi Minister of Petroleum and Mineral Resources Ali Bin Ibrahim Al-N'aimi and chief of SINOPEC Wang Jiming.
The agreement, covering an area of 40 square kms in the south of Saudi Arabia's Rub Al Khali Province, was also signed by the chairman of the leading Saudi Arabia oil provider, Arabian American Oil Company (ARAMCO), Wang told reporters after the signing ceremony.
Wang said the project was a landmark in the Sino-Saudi ties in general and in the bilateral economic and trade co-operation in particular.
He hailed the deal as a strong link which further cements the full-fledged relations between China and Saudi Arabia, saying he is confidence in the success of the deal and the project would hopefully bear fruits for both sides when it goes into operation.
He disclosed the total spending in the first phase of the project was set to be US$300 million, adding that SINOPEC has already made contacts with several banks over the funding of the scheme and some Saudi banks showed willingness to step in.
He said on January 27, SINOPEC secured an international tender staged by the Saudi government for gas excavation and production at the contracted zone.
Under the deal, SINOPEC and ARAMCO will launch a company for drilling and production at the contracted zone with ARAMCO holding a 20 percent quota.
Meanwhile, Al-N'aimi is also expected to sign two similar deals here in the day with the Russian Lock Oil on one hand and the Italian Iny and the Spanish Ribsol on the other.
Lock Oil will drill and produce natural gas at the A zone which covers 30,000 sq m and the two European partners will work at the 52,000 square km C zone, both at Rub Al Khali.
Last November, Saudi Arabia clinched deals for natural gas drilling and production with the international Shell and Total and the national ARAMCO groups. The three companies were offered concession terms up to 25 years and concession area of 210,000 square kms at Rub Al Khali too.
The projects were part of the Saudi government's reform and opening up policies in the economic field. Enditem
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Saudis deny political motive in gas deals
Riyadh |By A Staff Reporter | 08-03-2004
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Saudi Arabia yesterday ruled out any political motive in its choice of partners as it put the final seal on a series of groundbreaking gas deals with foreign companies.
The kingdom, which has the world's fourth largest deposits of gas, put pen to paper on contracts with Russia's Lukoil, China's Sinopec and an Italian/Spanish consortium.
The agreements marked Saudi Arabia's first invitation to foreign groups to make competitive bids for rights to explore for its gas.
Equally surprising was its choice of partners. None of the four winning bids came from an American company. But Saudi Oil Minister Ali Al Naimi played down any significance in that. "We actually chose the best bidders, and we are in fact very pleased at this diversification," he said yesterday in Riyadh.
Saudi Aramco took a 20 per cent share in each of the three contracts awarded. Although it announced the awards in late January, the deals did not become official until now.
The kingdom wants to use its undeveloped gas as fuel for an ambitious range of planned industries, including plants to treat and desalinate water and factories to make petrochemicals, steel and cement.
Despite Naimi's denials Martin Purvis of Edinburgh consultancy Wood Mackenzie said the auction's outcome appeared to be "a political play" concerning Russia and China.
Russia is Saudi Arabia's main oil rival. China, meanwhile, is a major buyer of Saudi crude. Its rapid economic growth will make it a still bigger market in the future.
Saudi Arabia hopes to build closer ties with both countries. There is, Naimi said: "No question in my mind that strengthening the economic relations will strengthen other areas of cooperation."
Sinopec's vice chairman Wang Jiming agreed, saying his company's involvement in the Saudi gas business would "help further to promote the country-to-country political relationship" between China and Saudi Arabia.
To find gas, Saudi Aramco's foreign partners must each explore an area larger than Kuwait.
Lukoil president Vagit Alekperov said his company was prepared to invest $3 billion over the life of its contract, and Sinopec suggested that it would consider investing a similar sum.
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>> AAAHH THE UMMAH...

Two private enterprises have signed an agreement to transport some 250,000 cubic metres of liquefied natural gas (LNG) daily in tanks from Northwest China's Xinjiang Uygur Autonomous Region to the southern coastal city starting in June.
The project will save tens of millions of yuan a year for power plants and some industrial companies in the city's suburban Bao'an District, which will continue to use diesel as a major source of fuel before the LNG pipelines reach the area in 2006.
Shenzhen Tianmin Ltd, a privately funded company involving LNG trade and transportation, said its partner, Xinjiang Guanghui Group Ltd, will provide 60 million cubic metres of LNG annually in the beginning.
The first phase of Guanghui's LNG project, which is located in Tuha in Xinjiang, is expected to reach a daily output of 1.5 million cubic metres, or an annual production of about 500 million cubic metres.
Tianmin has invested 100 million yuan (US$12.0 million) to enable and ensure the safe transportation of 250,000 cubic metres of LNG from Xinjiang to Shenzhen - a 4,300 kilometre trek, said Wu Yihao, deputy general manager of Tianmin. He said this would be done with the use of advanced professional vehicles equipped with a container for cryogenic liquid as well as a Global Position Satellite system (GPS).
The company's annual transportation capacity will reach 300 million cubic metres, or about 820,000 cubic metres daily, by the end of this year, he added.
In 2005-06, China's first two LNG terminals are expected to be employed in Guangdong and Fujian, carrying liquefied natural gas from Australia and Indonesia.
Source: China Daily
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Japan, S.Korea Agree to Cooperate on N.Korea Issue
Sun Mar 7, 2004 09:06 AM ET
TOKYO (Reuters) - Japan and South Korea agreed on Sunday to work closely to persuade North Korea to abandon its nuclear arms ambitions, but gave only a passing attention to thorny bilateral issues.
Visiting South Korean Foreign Minister Ban Ki-moon held talks with his Japanese counterpart Yoriko Kawaguchi in which they stressed that their countries should cooperate on the North Korean issue, a Japanese official said.
The discussions followed six-country talks in Beijing last month on ending North Korea's nuclear weapons programs.
"At the last round of the six-party talks, Japan, the United States and South Korea worked well in closer cooperation with one another and moved a step forward," the official quoted Kawaguchi as telling Ban.
The February talks involving the United States, North and South Korea, Japan, Russia and China ended only with an agreement to set up a working group and hold a third round of discussions in the Chinese capital before the end of June.
But there was little evidence that those talks had narrowed the gulf between North Korea and the United States.
Washington has accused North Korea of pursuing a uranium enrichment program to make nuclear weapons.
North Korea repeated in Beijing its denial that it had a clandestine enriched uranium weapons program in addition to the plutonium-based bomb-making project it is offering to freeze in exchange for energy aid and diplomatic concessions.
"It is important for us to continue to urge North Korea to accept the complete, verifiable and irreversible dismantlement of its nuclear weapons programs," the Japanese official quoted Ban as telling Kawaguchi.
Ban flew to Tokyo only days after a row flared between Japan and South Korea over postage stamps showing a group of islets claimed by both states in a long-standing territorial dispute.
A group of Japanese lawmakers applied Friday to be allowed to buy customized stamps showing the group of islets, under a system where customers can have stamps made with their favorite images.
The row over the rocky outcrops, known as Takeshima in Japan and Tokto in South Korea, flared in January when Seoul issued stamps featuring the flora and fauna of the islands, despite protests from Tokyo.
The dispute over the islets, uninhabited except for a garrison of South Korean soldiers, has run since the end of World War II.
During Sunday's meetings, the Japanese and South Korean foreign ministers did not discuss the stamp issue, the Japanese official said.
The official also said the two ministers did not touch on another thorny issue -- visits by Japanese Prime Minister Junichiro Koizumi to Tokyo's Yasukuni shrine, which honors war criminals as well as ordinary war dead.
Since taking office in 2001, Koizumi has outraged Japan's Asian neighbors four times with visits to the shrine, seen as a symbol of the militarist regime that led Japan into war.
Kawaguchi and Ban stressed that the two Asian neighbors should deal with bilateral issues "sensibly" to prevent the feelings of the peoples from running high, the official said.
Many Koreans still harbour bitter memories of Japan's colonial rule of the Korean peninsula from 1910 to 1945.


? Copyright Reuters 2004. All rights reserved.
----------------------------------------------------------
>> PENTAGON WATCH...
>> NOT THAT ABRUPT? CONVERSATIONS....
Abrupt Climate Change
PART 1: Severe storms in the Netherlands and a prolonged drought in Europe leading to unprecedented human migration -- these are some of the scenarios laid out in "Imagining the Unthinkable," a report recently issued to the U.S. Department of Defense on the possible worst-case effects of abrupt climate change. Host Steve Curwood talks with Peter Schwartz, one of the co-authors of the report, about the human consequences of such a scenario.
PART 2: Living on Earth continues the conversation on abrupt climate change, as host Steve Curwood talks with Leon Fuerth, former national security advisor to Vice President Al Gore, about the military and economic implications in the event of a rapid shift in global climate.
PART 3: National security and politics aside, the paleo-record of climate change shows strong evidence that an abrupt shift in climate could be headed our way. Host Steve Curwood talks with Daniel Schrag, professor of earth and planetary sciences at Harvard University, about the science behind abrupt climate change.

CURWOOD: From the Jennifer and Ted Stanley studios in Somerville, Massachusetts, welcome to Living on Earth. I'm Steve Curwood.

[MOVIE TRAILER MUSIC]

CURWOOD: For moviegoers across the country, Memorial Day marks the release of a film based on a concept of abrupt climate change. It's Mother Nature gone wild, in the much-anticipated disaster flick, "The Day After Tomorrow."

[SHRIEKS OF PANICKING PEOPLE]

MALE 1: [LIVE NEWSCAST] Lower Manhattan is literally inaccessible.

[ROAR OF TERRIFIED CROWD]

MALE 2: [LIVE NEWSCAST] There's a wall of water coming towards New York City...

CURWOOD: Tornadoes dismantle Los Angeles, hail the size of grapefruit pummel Tokyo, and Manhattan freezes over in a single day as abrupt climate change makes its debut on the big screen.

MALE: Save as many as you can.


New York City gets hit hard in a global ecological catastrophe
in the movie "The Day After Tomorrow."
(? and ? 2003 Twentieth Century Fox)


CURWOOD: This Hollywood scenario may seem far-fetched, and the science of the flick is a bit wobbly. But a recent report to the Pentagon, based on an assessment from the National Academy of Sciences, points out abrupt climate change may be a very real threat to national and international security. "Imagining the Unthinkable," as it's called, outlines a worst-case-scenario in the event of a massive and abrupt shift in global climate - shifts that have happened in the relatively recent past.

One of the authors of the Pentagon report is Peter Schwartz, a future scenario planner. He frequently consults for the Defense Department. Peter Schwartz, welcome to Living on Earth.

SCHWARTZ: Thank you. Glad to be here.

CURWOOD: Now, your work makes you no stranger to the Defense Department, but - I have to ask you - you've been a consultant for Hollywood, right?

SCHWARTZ: Yes.

CURWOOD: What are some of the movie projects you've worked on?

SCHWARTZ: Well, the first one was a film called "War Games" back in 1981, then another one called "Sneakers," both computer hacker movies. Then another one called "Deep Impact," also a kind of worst case scenario, if you will, given what we're going to talk about, of a comet coming toward the earth and how you might respond to it. I worked with a good friend Walter Parks on all three of those, and then with Steven Spielberg on "Minority Report."

CURWOOD: And I can't help but ask you then, what's your take on this upcoming movie "The Day After Tomorrow"? And were you involved in its production in any way?

SCHWARTZ: I wasn't, but I was asked to be. I chose not to be, mainly because this is pure entertainment. They weren't really interested in making a realistic view. I think they were enamored of a number of the images that turn up in the movie. And that's okay, this is pure entertainment.

CURWOOD: Now, you and some of your partners at your office recently drafted a report for the Pentagon entitled "Imagining the Unthinkable," which is a worst case scenario for abrupt climate change. Why paint such a scenario in the first place? Why is climate change a military concern?

SCHWARTZ: Well, this begins, first of all, with the National Research Council report called "Abrupt Climate Change," which looked at the possibilities for a scenario of abrupt climate change. The Pentagon, not surprisingly, read that report, the senior staff there, and said `we should consider whether this might have some national security implications.' That's what triggered our study.

And so it was an exercise in thinking the unthinkable. And from their point of view, the unthinkable means `could this happen soon, and could it be much more severe than most climatologists would say?' So, if you think back to just only a few years ago, you might have wished that somebody had thought about what might happen if terrorists would send airplanes into tall buildings and buildings in Washington. It's in that spirit. It isn't trying to predict the future, it was trying to say `what if?'

CURWOOD: Now, there's a lot of information in the 22 pages you put together here, Peter Schwartz. Can you give us the bullet points of what you found?

SCHWARTZ: Well, most significantly, it is this: what we're saying is that, while it is unlikely, the most extreme case would be a scenario of fairly rapid warming in the near future - the next, say, decade or so - that would in turn trigger rapid cooling. What would happen is that the ice in the poles would begin to melt, as we're already seeing some of. Glaciers would begin to retreat. Both of these would release fresh water into the North Atlantic. Increased precipitation associated with all of that might also lead to rivers producing more fresh water to the North Atlantic. That freshening of the North Atlantic, which we have been seeing, would then trigger a collapse of the Gulf Stream. It would move several thousand miles south. It would no longer bring warm water to the North Atlantic, warming, particularly, Europe, parts of the northeastern United States and Canada.

And that would be part of a larger shift of a similar nature in a number of parts of the world in the kind of heat balance mechanisms, particularly of the ocean currents. So that's the kind of mechanism that triggers first warming and then cooling. The cooling would be something on the order of, over the northern hemisphere, of about five degrees or so over a decade or so. In fact, what we are describing is a picture of a world very similar to what happened 8,200 years ago, when the world's temperature, particularly in the northern hemisphere, dropped a similar five degrees in roughly a decade, stayed down for a century, and came back up for a decade.

CURWOOD: Let me just ask you one more thing on the science. People talk in terms of global warming. How do you explain to them that you see a cooling here?

SCHWARTZ: Well, global warming is another possible scenario. We have a fair amount of uncertainty about what's likely to happen. In fact what we could see - and as we emphasized, this is the worst case scenario - more likely is that you might see 50, 75 more years of warming that then could trigger a cooling. Or the cooling might never happen. I am personally of the mind that the more likely scenario that history tells us, is that we will get some sustained warming, and then we will experience abrupt cooling. The history of climate change is more often abrupt change, and it has frequently been large scale over very long periods of history.

CURWOOD: For the moment, let's assume that the worst case scenario that you were asked to conjure up is happening. Could you lay out a timeline for us, what would be happening in the United States over the next few decades?

SCHWARTZ: Sure. The immediate effects would be you'd start to see more variability in the weather. You'd see more severe storms, you would see more torrential rainfall, you might see very short winters, very little snow, more rain. One of the impacts that is plausible, but hard to predict, would be a shift in the location of tornadoes. There is believed to be a belt of tornadoes off-shore in the south. You might see more coming on-shore. So those would be some of the kinds of symptoms of a kind of disruptive change under a way in the warming phase.

In the cooling phase what you would see is more severe winters, the kind of thing that you're experiencing right now. But the more important thing you would see is a gradual diminishment of rainfall and then a movement into what we're calling mega-droughts, i.e. they would probably be regional, in what we've thought, more likely, would be the southeast. But it could also be the Midwest or the far West as well. You know, again, think the 1930s here. This is similar to that. It's not much worse, except for one important detail, which I'll come back to in a moment. But - extended droughts over years, five, six, ten years even. And leading therefore to significant fall in reservoirs, in rivers, and so on.

And the thing that is importantly different in terms of its consequences this time, as compared to the 1930s, was that in the 1930s we still had substantial reserves of groundwater we could tap. And while the effects were severe, they were ameliorated in part by the groundwater. We no longer have those reserves. That water is all committed, or used up in some cases. That is, the big aquifers of America are now fully committed. So we don't have spare capacity to deal with the rapid drop in rainfall. So that's the kind of trajectory we're talking about.

CURWOOD: In terms of conflict in the United States, what could happen with our neighbors? Like, what happens with Canada, for example?

SCHWARTZ: That's a very good question. I can imagine a scenario where things got so bad in Canada that some people might want to head south, but frankly I don't think the issues will be to the north. More likely they'll be to the south. And we have two key bodies of water, namely the Colorado and the Rio Grande that, in effect, we share with Mexico. And we already have issues about managing both of those. And in this scenario that could be very severe and produce pressure for migration northward, on the one hand, and disruptions to the management of the water and conflicts over water that we share with Mexico.

But another one that we've already begun to experience some issues over is fishing rights in the Atlantic. We've already seen struggles between Spain, Portugal, and France over fishing rights there, ourselves with respect to the Europeans and the Canadians in the Grand Banks. This could be a really significant issue, because, of course, the fish move with changing temperature of the seas as well. When the ecosystems of the seas change, the locations of the fish change. And we have now become dependent on various fish populations in both sides of the Atlantic. And you can imagine conflicts over access to fishing.

CURWOOD: Now, what are some of the geopolitical things that you forecast here in your scenario? What happens to people and politics under the scenario that you paint?

SCHWARTZ: Well, we see, for example - right now, an example of something that is the kind of consequence we might have to deal with and the kid of political issues - the unraveling of Haiti, and should we intervene or not. One of the possible disruptions is to water supplies in the Caribbean and Central America. The United States has already several times been hit by waves of refugees from that part of the world. And it is not at all implausible that we could be doing better, and others worse, and we could be hit - immediately in our environs, from the Caribbean, Central America, maybe even Mexico, but especially Central America and the Caribbean - with very large numbers of people headed our way. How do we cope with it? Should we intervene in advance? Should we send them water supplies rather than let them come here? There's all kinds of important political questions, technical questions and so on that would have to be resolved. And we're suggesting thinking about those kinds of things in advance, rather than having to improvise in the moment.

CURWOOD: Now, you write also that a possible reaction here in this country to abrupt climate change might be to turn inward, committing our resources to feeding our own population, shoring up our borders and managing increasing global tension. But how does the United States manage this global tension if at the same time it's closing itself off to the rest of the world? I mean, wouldn't this create even more tension?

SCHWARTZ: You're exactly right. I mean, that is the heart of the issue. That's part of why we're warning of this. We have an instinct to kind of stay at home, as it were. And under these circumstances you can imagine much of the population, particularly if there are significant disruptions and high costs domestically, saying, you know, let's take care of our own. Meanwhile you can imagine a political leadership looking around the world and saying, God, there are really terrible things, we've got to be helpful. And if we don't, that will still some home to us eventually one way or the other, and we better deal with it over there than over here. Now caught between a populace reluctant to intervene and the necessity of intervention. And we've been there before. And that kind of situation, I think, is not at all implausible in this circumstance.

CURWOOD: What happens to your report now that you've handed your findings over to the Pentagon?

SCHWARTZ: Well, unfortunately this has gotten a lot of negative publicity, in the sense that particularly The London Observer both implied that the Pentagon tried to suppress the report on the one hand, and secondly that they exaggerated our conclusions, made it a prediction rather than a worst case scenario. And then turned it around and said, well, see, this proves that the Bush administration is wrong. So, in fact, the likelihood is that very little will happen as a result of it. Had it been able to proceed in a more appropriate fashion, it would have been considered along with many other possible scenarios regularly considered by the office of net assessments and the Secretary of Defense's office - that they consider as the routine part of their thinking in the long run.

CURWOOD: So, let me see if I understand this right. Because the public and the press has kicked this around in perhaps, from your perspective, an overly dramatic fashion, it means that the Pentagon can't think about this at all?

SCHWARTZ: It means that this kind of thing gets suppressed for a while. It will come back up again. But it means that this is a taboo topic because you have a meeting about it, and it leaks out to the press again, and it just keeps the storm going, if you know what I mean.

CURWOOD: Peter Schwartz is a future scenario planner and chairman of the consulting firm Global Business Network, part of the Monitor Group. Peter, thanks for speaking with me today.

SCHWARTZ: My pleasure.

CURWOOD: Coming up, we'll continue the climate change conversation with two perspectives on the science and security implications of global warming. We'll be back in a minute, stay tuned. I'm Steve Curwood, and you're listening to NPR's Living on Earth.

[MUSIC: Pan American "Starts Friday" PAN AMERICAN (Kranky - 1998)]

CURWOOD: Welcome back to Living on Earth, I'm Steve Curwood. We've been talking about abrupt climate change, and "Imagining the Unthinkable," as a recent report to the Pentagon is titled. This document outlines a worst-case scenario of abrupt climate change that would cause massive disruptions in agriculture, the economy, and international diplomacy.

So far, the Pentagon has had no public comment on the report of its consultants. But soon climate change may be a hot topic on the national security agenda. With me to talk about the security implications of abrupt climate change is Leon Fuerth, Professor of International Affairs at George Washington University, and the former national security advisor for Vice President Al Gore. Leon Fuerth, welcome.

FUERTH: Thank you.

CURWOOD: Well, we've heard from a consultant to the Pentagon that an abrupt shift in climate could turn out to be a critical issue of national security if it should occur. I'm wondering if you could tell me from your own experience, working as a national security advisor here in the United States, Leon Fuerth, what do you think would happen strategically around the world? What changes, what imbalances in strategic alliances would happen, do you think?

FUERTH: I think what would happen is that the world as you knew it, organization as you knew it, relationships among states as you understood them, the rules of economics as you had understood them would all be shifting. I mean, our territory would remain inviolable, but our business may go to hell. At the level of strategic alignments, one of the continents that would experience the greatest dislocation would be western Europe, where the place would become much, much colder, possibly with the effect of severely damaging the economy of the northern tier of countries and causing a lot of people to try to move south, and creating tremendous internal migration problems for the European Union at the time.

CURWOOD: If there is a country in the world that the United States has a lot of business to do with in the diplomatic sense, in the world power sense, it has to be China. The scenario says that China's going to have pretty serious water problems, and that means food problems. It's a quarter of the world's people, and today they're rich and technologically savvy. What might happen between the United States and China in such a world?

FUERTH: Interesting question. One of the determinants is do we continue to need to borrow half a trillion dollars a year to finance the debt of the federal government of the United States, most of which has been coming from China. And it works out in a giddy sort of way. They lend to us so that we can buy their products.

Now if, let's say, two administrations from now, all of a sudden the climate patterns in China begin to shift drastically, it's natural to believe that trade, economy, and other issues are going to also be disturbed.

So, one of the things I think the United States should do in its own interest is to make itself less dependent on the scale of borrowing than we have been. Because if any of our creditors, for any reason, finds themselves unwilling or unable to continue to lend to us at this rate, then that house of cards can come down.

CURWOOD: So, Leon Fuerth, if you were the national security advisor today, what steps would you advise that the United States take to deal with the possibility of such a climate scenario?

FUERTH: First of all, I think we need a major effort to acquire better modeling in order to be able to calculate as accurately as possible, and in real time, what some of the effects might be. I would begin having people work out planning scenarios, including some of the social, economic, and political consequences in parts of the world where, let's say, the agricultural cycle is disturbed. Better to have people playing these mind games over what might occur while we still have time to think about action than to wait until the evidence is on hand that we're in the middle of it.

CURWOOD: What do you suppose is going on in the Pentagon now and in the Bush administration in the aftermath of this report?

FUERTH: Not much. I mean, what's interesting about this is that this is not like Orson Wells "War of the Worlds," where what you had was a fantasy that was put out there, which inadvertently frightened the public. What you have here is a response to a request from the Department of Defense for a scenario - imagine something. But what they did was imagine a thing on the basis of an event they considered quite possible. And so what it carries is a message, which is: it's time to get real about this while we still have the luxury of time and resources and allies to work the problem.

CURWOOD: Leon Fuerth is professor of International Affairs at George Washington University, and the former national security advisor for Vice President Al Gore. Thanks for taking this time with me today.

FUERTH: Thank you.

CURWOOD: We've been talking about the economic and political consequences of abrupt climate change, in light of a recent report to the Pentagon called "Imagining the Unthinkable." The authors stress that the scenario they paint "pushes the boundaries of current research on climate change." With me to talk about what we do know within the boundaries of climate science today is Daniel Schrag, professor of earth and planetary sciences at Harvard University. Hello, sir.

SCHRAG: Good day.

CURWOOD: What should you as a scientist - let's say the Defense Department calls you up and says, Professor Schrag, as part of our national security assessment, we are on the lookout for signs of abrupt climate change. What do you look for?

SCHRAG: There are a few possible modes of abrupt climate change that we've seen in the past, in the geologic past, that we could look for in the future. The most obvious one would be an instability in the large ice sheets on Greenland or Antarctica. So, if the West Antarctic ice sheet or if the Greenland ice sheet started to exhibit some very unusual behavior, and we thought that a large amount of ice might slide off the continent and into the ocean, this could cause a very abrupt rise in sea level. And would damage coastal cities around the world, devastating world economies.

CURWOOD: Hm, hmm. Now, Professor Schrag, the Defense Department is worried about this. They tend to have a short-term view of things. The effects that you've been talking about so far seem to be decades away. I'm confused - why is the Defense Department so concerned, apparently over the short-term here?

SCHRAG: Well, what I'm talking about may take years to decades to actually happen, and no one knows exactly when these sorts of things can occur, but one shouldn't think that these effects are just decades away. The truth is no one knows. We are already experiencing a world that is substantially warming because of human activities. We know this from the melting of ice in the tropics up at high altitudes, Kilimanjaro and in the Andes, and a lot of other pieces of evidence that tell us global warming is happening now.

CURWOOD: Now why does melting of ice in the tropics indicate global warming?

SCHRAG: Well, this is a really powerful piece of evidence that climate change is happening now. The middle of the troposphere, the middle of the atmosphere near the equator, is a very stable region of the atmosphere. There's very little weather there, there's very little variability. And so, as a result, if one starts to see warming there you know that it's a global signal, because there's very little variability normally.

In the case of these tropical glaciers, Lonny Thompson, from Ohio State University, has shown that these glaciers are melting for the first time in thousands of years. So that proves that it's not a 100-year cycle, or a 500-year cycle. This is truly an extraordinary event coincident with the enormous rise in carbon dioxide from burning fossil fuels. And to me, that's the most compelling evidence that climate change is happening now.

Now, when we cross certain thresholds that lead to abrupt change, no one has any idea. We don't think that Greenland or West Antarctica are going to melt and drop into the sea in the next 10 years. On the other hand, if they suddenly crossed an instability and started to collapse over a period of a few years, it would be too late to do anything about it. And no one knows exactly when that happens. So to me it makes sense that the Pentagon is planning for all sorts of possibilities, just like an insurance company.

CURWOOD: What kind of shape is the West Antarctic ice sheet in right now?

SCHRAG: Well, it's hotly debated. Some scientists think that the West Antarctic ice sheet is so large and massive that it's insulated from all changes, and that it takes thousands of years for the ice sheet to adjust to the warming that we're experiencing now. Other scientists think that there are mechanisms that we don't understand very well, whereby the ice sheet can actually move and adjust very rapidly. And if that's correct then we are in danger of that amount of ice falling into the ocean. And that amount of ice represents a substantial amount of sea level change.

CURWOOD: On the order of?

SCHRAG: On the order of six meters or so.

CURWOOD: 18 feet of more water.

SCHRAG: And that would pretty much wipe out every coastal city in the U.S.

CURWOOD: And how soon could that happen?

SCHRAG: Well, if it went in over a period of even a hundred years it would mean devastation. You can't even begin to calculate the amount of damage that that would do to the U.S. economy. And to the global economy. And if it went faster than that, which is possible, we'd really be in trouble. I think that really gets to one of the points about climate change. We're doing an experiment on the earth that hasn't been done in millions of years, and no one knows what's going to happen. And if we suddenly decide that a disaster's going to befall us, we may not be able to turn back the clock. Because the system has so much momentum, and is so powerful, we can't just assume that we can fix it.

CURWOOD: You folks who look at the changing climate often use computers to model. In fact that seems to be the basis of a lot of the predictions of the warming that's coming. How well do these models work when you look back at these other changes thousands and millions of years ago? How well do these computers predict something we already know the answer to?

SCHRAG: That's a very good question. It turns out that the answer is that sometimes they work very well, and sometimes they don't work very well. And of course a model is most interesting when it doesn't work well, because it tells us that something's missing. Remember that the models are only as good as the physics that we put into the model. And therefore the models reflect our understanding of the climate system based on modern observations, primarily over the last 50 years or so. Now, we're entering into a mode of climate with high atmospheric carbon dioxide that we haven't been in for tens of millions of years. So nobody has the right set of observations to completely describe the climate system in this mode.

What's interesting is about 50 million years ago, the earth was very warm. We think that carbon dioxide was high. We don't know exactly how high, we think maybe 1,000 to 3,000 parts per million, which is not that far off from where we're going to be 100 to 200 years from now. Now, at that time there were crocodiles living up in Greenland, there were palm trees in Wyoming. Palm trees can never have cold winters, and there were palm trees thriving in Wyoming, where today it gets very cold. Antarctica was a pine forest. Sea level was about 150 meters high than today. It was a completely different world. And the question is, can these models produce it? And when you try to put high carbon dioxide in the models and let them try to simulate the climate, it turns out they don't do a very good job. They actually don't get the world warm enough. There's something missing in the models that is a positive feedback that amplifies the effect of the carbon dioxide. But if that effect kicks in, the warming could be much more severe than the models are predicting.

CURWOOD: Yeah, I was going to say, you're starting to scare me here.

SCHRAG: Well, we should be scared.

CURWOOD: You're saying the models that are predicting this rather large shift don't predict these biggest shifts from the past. Therefore, we're missing something here.

SCHRAG: You know, we've been hearing in the debate about climate change in the public a lot of rhetoric that says because the climate scientists aren't certain, we should wait and not do anything about it. For me it's exactly the opposite. It's our lack of certainty, which is why we should do something now. Because the answer could be much worse than we expect. Climate change could be much more severe than anyone thinks.

CURWOOD: This summer there's going to be a movie out of Hollywood. I think it's called "The Day After Tomorrow." It paints an apocalyptic scene of, actually, the northeastern United States pretty much freezing over.

SCHRAG: I know. I get a lot of pleasure from looking at the preview. I show it in some of my talks. Unfortunately, I think that's probably a very unlikely scenario. I think the idea comes from the idea that the Gulf Stream will somehow collapse when the thermohaline circulation of the Atlantic stops. And therefore this will lead to an ice age and everything will freeze. The truth of the matter is that if the thermohaline circulation stops, it will affect a region around Britain and Scotland, but will probably not affect New York much at all. The movie was by the maker of "Independence Day," and I think after destroying Washington, D.C., he wanted to destroy New York City, and he found a way to do it.

CURWOOD: Why now all this attention to the question of abrupt climate change? The Greenland ice core samples that you told us about have been around for a long time, demonstrating that it didn't take more than a few decades to change a lot of temperature. And yet today, folks like the Defense Department, folks in Hollywood, are suddenly paying attention to the question of abrupt climate change. Why is that happening?

SCHRAG: I think there are powerful forces in our society that have a lot of economic stake in our current energy technology, and are resistant to change. And therefore have promoted the idea that this was just a theory, that climate change was just an idea that scientists had that they weren't sure about, and discouraged action on this front.

And I think a variety of different sectors of our society are beginning to wake up to the fact that we can't just put our head in the sand and hope that it goes away. We know that climate change is a serious risk. The probability of it being dramatic is very high, probably greater than 50 percent. And yet we're willing to spend almost nothing to protect ourselves. We need to buy at least some insurance. And to me, the minimum insurance policy is that we actually should have the technological capacity to do something about it. At the very least, we should be able to change our behavior if we want to. Right now we can't even do that.

CURWOOD: Daniel Schrag is a professor of Earth and Planetary Sciences at Harvard. Thanks for taking this time with me today.

SCHRAG: Thank you.
-----------------------------------------------------------------------
Scientist 'gagged' by No 10 after warning of global warming threat
By Steve Connor and Andrew Grice
08 March 2004


Downing Street tried to muzzle the Government's top scientific adviser after he warned that global warming was a more serious threat than international terrorism.

Ivan Rogers, Mr Blair's principal private secretary, told Sir David King, the Prime Minister's chief scientist, to limit his contact with the media after he made outspoken comments about President George Bush's policy on climate change.

In January, Sir David wrote a scathing article in the American journal Science attacking Washington for failing to take climate change seriously. "In my view, climate change is the most severe problem we are facing today, more serious even than the threat of terrorism," he wrote.

Support for Sir David's view came yesterday from Hans Blix, the former United Nations chief weapons inspector, who said the environment was at least as important a threat as global terrorism. He told BBC1's Breakfast with Frost: "I think we still overestimate the danger of terror. There are other things that are of equal, if not greater, magnitude, like the environmental global risks."

Since Sir David's article in Science was published, No 10 has tried to limit the damage to Anglo-American relations by reining in the Prime Minister's chief scientist.

In a leaked memo, Mr Rogers ordered Sir David - a Cambridge University chemist who offers independent advice to ministers - to decline any interview requests from British and American newspapers and BBC Radio 4's Today .

"To accept such bids runs the risk of turning the debate into a sterile argument about whether or not climate change is a greater risk," Mr Rogers said in the memo, which was sent to Sir David's office in February. "This sort of discussion does not help us achieve our wider policy aims ahead of our G8 presidency [next year]." The move will be seized on by critics of Mr Blair's stance over the Iraq war as further evidence that he is too subservient to the Bush administration. It will also be seen as an attempt to bolster the Prime Minister's case for pre-emptive strikes to combat the threat of international terrorism, which he outlined in a speech on Friday.

Sir David, who is highly regarded by Mr Blair, has been primed with a list of 136 mock questions that the media could ask if they were able to get access to him, and the suggested answers he should be prepared to give. One question asks: "How do the number of deaths caused by climate change and terrorism compare?" The stated answer that Sir David is expected to give says: "The value of any comparison would be highly questionable - we are talking about threats that are intrinsically different."

If Sir David were to find himself pushed to decide whether terrorism or climate change was the greater threat, he was supposed to answer: "Both are serious and immediate problems for the world today." But this was not what Sir David said on the Today programme on 9 January when the Science article was published.

Asked to explain how he had come to the conclusion that global warming was more serious than terrorism, Sir David replied that his equation was "based on the number of fatalities that have already occurred" - implying that global warming has already killed more people than terrorism.

The leaked memo came to light after a computer disk was discovered by an American freelance journalist, Mike Martin, at the annual meeting of the American Association for the Advancement of Science in Seattle, where Sir David gave a lecture.

"The disk was lying on the top of a computer in the press room and I popped it into the machine to see what was on it," said Mr Martin, whose own article is published on the ScienceNow website, an online service operated by Science.

Mr Rogers' memo, written a few days before the Seattle conference, was aimed at limiting his exposure to questions from US and British media. While in Seattle, Sir David sat on a panel of scientists at one carefully stage-managed press conference, but his press office said he was too busy to give interviews afterwards to journalists.

Lucy Brunt-Jenner, Sir David's press officer, said she could not comment on internal government documents but said it would be wrong to suggest that Sir David was in any way muzzled. "Sir David had a press conference and he was available to the media at three times," Ms Brunt-Jenner said.

But Norman Baker, the Liberal Democrats' environment spokesman, said: "It's a clear attempt by the Prime Minister to keep Sir David quiet. The Government's chief scientist is the nation's chief scientist and I'd expect him to say what he thinks."
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Missing Gulf War pilot's family wants to interview Iraqis
Associated Press
JACKSONVILLE, Fla. -- An attorney representing the family of missing Navy pilot Scott Speicher is asking for permission to interview captured Iraqi officials to see if she can determine what happened to the pilot who was shot down 10 years ago in the first war with Iraq.
In a letter faxed to U.S. Sens. Pat Roberts, R-Kan., and Bill Nelson, D-Fla., attorney Cindy Laquidara said she had independent evidence placing Speicher in the custody of the man known as Chemical Ali, former Iraqi Gen. Ali Hassan al-Majid.
Al-Majid, captured by coalition forces in August, was considered to have been Saddam Hussein's hatchet man and the one who ordered a gas attack that killed 5,000 Kurds in 1988.
Laquidara also wants the government's help in locating Iraq's former ambassador to the United Nations, Mohammed Aldouri, for additional questioning.
In 2002, Laquidara traveled to New York and met with Aldouri. When Saddam Hussein was ousted, he left New York.
"We either are not capable of closing this matter following a war or we do not choose to pursue the answer," Laquidara's letter said. "Either is unacceptable."
Nelson's office said copies of the letter were given to Secretary of State Colin Powell and Defense Secretary Donald Rumsfeld.
Calls to Laquidara's office Thursday were not returned.
At a recent briefing, Nelson learned the Defense Department was now not planning to offer the reward of up to $1 million that was authorized by Congress to learn the fate of the Jacksonville-based pilot.
Nelson wrote a letter to Rumsfeld asking him to not reconsider his earlier decision on offering a reward.
"I believe such an action would be a mistake," Nelson said. "At the very least, it would send a clear signal that finding out what happened to Scott Speicher is no longer a top priority."
Pete Contosgavlos, a Nelson aide, said, "Rewards in countries like this can be effective."
Earlier this week, Adm. Vern Clark, the chief of naval operations, said investigations in Iraq since the fall of Baghdad have found no evidence that Speicher was held in captivity after being shot down on the first night of the 1991 Gulf War.
The Iraqi government under President Saddam Hussein maintained from the start that Speicher died in the crash on Jan. 17, 1991, although his body was not recovered.
Speicher was 33 when he was shot down. He held the rank of lieutenant commander at the time; he has since been promoted to captain.
Speicher's family lived in the Kansas City area and moved to Florida when he was a teenager.

Blair's 'international community' doctrine

By Paul Reynolds
BBC News Online world affairs correspondent

To intervene or not to intervene? That is the question increasingly on the minds of world leaders at the start of the 21st century.

To President Bush's doctrine of pre-emptive action, we now have to add British Prime Minister Tony Blair's doctrine of "international community."
This is a kind of half-way house between the freedom of action Mr Bush seeks to preserve and the rules of the United Nations Charter which allow intervention only in certain circumstances, such as reversing an act of aggression.

It is highly unlikely that the UN would want to go too far down the interventionist path. The UN exists to try to make individual action unnecessary.

And to some a doctrine of international community is a doctrine of international interference.

'Serbia' precedent

But the old rules are already under strain.

Nato's attack on Serbia over Kosovo in 1999 established the rule of a humanitarian intervention. It followed the worldwide guilt felt at the failure by the UN, or anyone else, to intervene in Rwanda.

Now Mr Blair wants to take the process further.

International terrorism post-11 September and the spread of weapons of mass destruction require a further redefinition of the rights of a nation-state, he argued in a speech on Friday.

He even mentioned the Treaty of Westphalia in 1648. That basically ended the religious wars in Europe and began the modern system of the nation-state, whose rights, he suggested, should be further curtailed.

He wondered whether international law should not be developed to avoid situations where "a regime can systematically brutalise and oppress its people and there is nothing anyone can do, when dialogue, diplomacy and even sanctions fail, unless it comes within the definition of a humanitarian catastrophe".

Tony Blair in fact first mentioned his doctrine of international community (and world figures like to be known for their doctrines) in a speech in Chicago in 1999. It was at the time of the Kosovo war

'Five rules' for intervention

It was a speech which Saddam Hussein should have read. It illustrated Mr Blair's inclination for action.

He outlined five rules for intervention - be sure of your case, exhaust all other options first, ask if military operations can be "sensibly" undertaken, prepare for the long-term and identify if your interests are involved.

Ideally, Mr Blair suggested in both speeches, the UN would lead the way. But the implication is that individual countries should act if the UN did not.

His problem of course is that "intervention" for some is "aggression" for others. His speech is also under attack from his critics for being too much of a justification of the war in Iraq.

UN's 'wise men'

Meanwhile, the UN itself is also trying to redefine intervention.

All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state
Article 2 of the UN Charter
Last September, the UN Secretary General, Kofi Annan, set up a committee of "wise men and women" to make recommendations about the UN's future role. It will report this December.

There are 16 members of the committee, an array of the international great and the good (and some say the deja vu).

The members include President Bush senior's National Security Adviser Brent Scowcroft, who opposed the latest war against Iraq, and former Norwegian Prime Minister Gro Harlem Brundtland, who always has the interests of the developing world at heart.

It is not a panel likely to recommend pre-emptive military action.

Lord Hannay, a former senior British diplomat and another member, indicated the limits of the committee's aims.

"The UN should get involved with countries under stress," was how he put it to the BBC.

'Different perceptions'

"We support a collective response to stop a state from sliding down the slope," he said.

Lord Hannay pointed out that there were "different perceptions" about what a threat was in different parts of the world. To some, poverty and Aids were the problem, not terrorism.

The thorn the committee may or may not grasp is the UN's Article 39 which itself accepts that the UN can act in advance of an overt act of war by one state against another.

"The Security Council shall determine the existence of any threat to the peace, breach of the peace, or act of aggression and shall make recommendations, or decide what measures shall be taken," it states.

This article means that the UN can take its own collective pre-emptive action - and of a military kind. It could one day declare that, say North Korea, is a "threat to the peace."

That is really what Mr Bush and Mr Blair are on about. If the UN does not act, they argue, then individual states may do so themselves.

That in turn would be a long way from Article 2 of the UN Charter which says: "All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state."

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/uk_news/politics/3539125.stm

Published: 2004/03/06 15:08:17 GMT

? BBC MMIV

Russian Engineers Reportedly Gave Missile Aid to Iraq

March 5, 2004
Russian Engineers Reportedly Gave Missile Aid to Iraq
By JAMES RISEN
WASHINGTON, March 4 -- A group of Russian engineers secretly aided Saddam Hussein's long-range ballistic missile program, providing technical assistance for prohibited Iraqi weapons projects even in the years just before the war that ousted him from power, American government officials say. Iraqis who were involved in the missile work told American investigators that the technicians had not been working for the Russian government, but for a private company. But any such work on Iraq's banned missiles would have violated United Nations sanctions, even as the Security Council sought to enforce them. Although Iraq ultimately failed to develop and produce long-range ballistic missiles and though even its permitted short-range missile projects were fraught with problems, its missile program is now seen as the main prohibited weapons effort that Iraq continued right up until the war was imminent. After the first Persian Gulf war in 1991, Iraq was allowed only to keep crude missiles that could travel up to 150 kilometers, or about 90 miles, but the Russian engineers were aiding Baghdad's secret efforts illegally to develop longer-range missiles, according to the American officials. Since the invasion last March, American investigators have discovered that the Russian engineers had worked on the Iraqi program both in Moscow and in Baghdad, and that some of them were in the Iraqi capital as recently as 2001, according to people familiar with the intelligence on the matter. Because some of the Russian experts were said to have formerly worked for one of Russia's aerospace design centers, which remains closely associated with the state, their work for Iraq has raised questions in Washington about whether Russian government officials knew of their involvement in forbidden missile programs. "Did the Russians really not know what they were doing?" asked one person familiar with the United States intelligence reports. A spokesman for the Russian Embassy in Washington denied any knowledge of the allegations of recent Russian technical support for Iraq's missile effort. "The U.S. has not presented any evidence of Russian involvement," said Yevgeny Khorishko, a spokesman for the Russian Embassy. Russia and the former Soviet Union were among Iraq's main suppliers of arms for decades before Iraq invaded Kuwait in 1990, leading to the first gulf war. The Bush administration has previously said it had uncovered evidence that Iraq had unsuccessfully sought help from North Korea for its missile program, but had not disclosed the evidence that Iraq had also received Russian technical support. C.I.A. and White House officials refused to comment on the matter, and people familiar with the intelligence say they believe that the administration has been reluctant to reveal what it knows about Moscow's involvement in order to avoid harming relations with President Vladimir V. Putin. "They are hyper-cautious about confronting Putin on this," complained one intelligence source. In his public testimony last week about the worldwide threats facing the United States, George J. Tenet, the director of central intelligence, restated Washington's longstanding concerns about Russia's controls over its missile and weapons technology, without mentioning the evidence of missile support for the Hussein government. "We remain alert to the vulnerability of Russian W.M.D. materials and technology to theft or diversion," Mr. Tenet said. "We are also concerned by the continued eagerness of Russia's cash-strapped defense, biotechnology, chemical, aerospace and nuclear industries to raise funds via exports and transfers -- which makes Russian expertise an attractive target for countries and groups seeking W.M.D. and missile-related assistance." The Iraq Survey Group, the United States team that has hunted for evidence of Iraqi weapons of mass destruction, also found indications that Baghdad had received assistance from sources in Ukraine, Belarus and Serbia, according to American officials. In an interim report on the progress of the Iraq Survey Group made public in October, David A. Kay, then the C.I.A.'s chief weapons hunter, reported that his group had found "a large volume of material and testimony by cooperating Iraq officials on Iraq's effort to illicitly procure parts and foreign assistance for its missile program." It listed several examples detailing assistance from foreign countries, but apart from North Korea, no other countries were identified. More than 10 months after the end of major military operations in Iraq, American teams have still not found conclusive evidence that Iraq had any chemical, biological or nuclear weapons, raising doubts about one of the Bush administration's main arguments for going to war. Since he resigned from his post last month, Dr. Kay has said he believes that Iraq largely abandoned the production of weapons of mass destruction after the first gulf war, and that it gradually destroyed its remaining stockpiles during the 1990's. But Dr. Kay has said the evidence shows that Iraq tried to keep upgrading its ballistic missiles even as its other weapons programs were stalling out. In interviews with Iraqi scientists, examinations of documents and other sources, the Iraq Survey Group has determined that Iraq was actively seeking ways to upgrade its crude missile abilities in order to try to build a rocket fleet that could become a regional threat, reaching American forces based in neighboring countries. American officials now say that the United Nations restrictions that allowed Iraq to keep missiles with ranges of up to 150 kilometers had anunintended effect. From the Iraqi perspective, it meant that it was still legal for Baghdad to continue some missile development activities, since short-range missiles were permitted. By contrast, United Nations sanctions completely banned Iraq from keeping any chemical, biological or nuclear weapons, and it now seems that Iraq eventually abandoned those programs. Taking advantage of the loophole permitting short-range missiles, Iraq sought foreign advice on such technical matters as guidance and airframe systems in order to develop missiles with greater range and accuracy than its previous missiles, according to officials familiar with the intelligence. In his October interim report, Dr. Kay said Iraqi detainees and other sources had told American investigators that beginning in 2000, Mr. Hussein approved efforts to develop ballistic missiles with ranges from 400 to 1,000 kilometers. Still, the evidence gathered by the Iraq Survey Group suggests that Iraq's missile development efforts were poorly organized and ultimately unsuccessful. "They had too many scattered programs, and so they didn't focus their efforts on any one missile," said one person familiar with the intelligence on the matter. When United Nations weapons inspectors returned to Iraq in late 2002 just before the war, they found that Iraq had produced short-range Samoud 2 missiles that had slightly longer ranges than the United Nations sanctions allowed. In the weeks before the war, Iraq agreed to destroy many of those missiles, but those highly publicized actions were not enough to convince the United States that Iraq was in compliance with United Nations sanctions. In fact, the evidence suggests that Iraq was seeking to upgrade to missiles with greater range and accuracy than the older, Scud-based Samoud. After the war, the Iraq Survey Group found evidence that Iraq had agreed to pay North Korea $10 million for technical support to upgrade its ballistic missile program in violation of the sanctions. But American officials believe that North Korea never actually delivered anything to the Iraqis, even though it apparently kept Iraq's $10 million. By contrast, the Iraq Survey Group found evidence that the Russian missile engineers actually did provide technical support for the Iraqis for years. The Bush administration's reluctance to raise publicly the issue of Russian support for Iraq's missile program appears to stem from the White House's effort to cultivate better diplomatic relations with Moscow, particularly in the wake of last year's tensions over the war in Iraq. Russia opposed the war, but President Bush and Mr. Putin have still developed a good personal relationship, and there seems much less residual tension between Washington and Moscow over the war than there does between the United States and France and Germany. Since the Sept. 11 attacks on the World Trade Center and the Pentagon, the United States has also appeared more willing to view Russia's fight with separatists in Chechnya as part of the global war on terror.


Copyright 2004 The New York Times Company

How Bush can destroy Kerry fast

The Democratic Party chose a nominee Tuesday who probably cannot win the White House in November.

In opting for Sen. John Kerry of Massachusetts and turning down Sen. John Edwards of North Carolina, Democrats have broken from the pragmatism and moderation that dominated their party's profile under Bill Clinton and Al Gore in the 1990s.

Their party has now moved back to the liberal extremism of Walter Mondale and Michael Dukakis that characterized the 1980s -- with the same predictable result.

It is now up to President Bush to take advantage of this by implementing a three-part strategy in the coming campaign.

First, his paid media must attack Kerry's voting record to define him as an ultraliberal. There are likely those in the White House who are urging Bush to run positive ads. That won't work. Even if positive ads produce a small, short-term bounce for Bush, events soon will come to dominate, and the impact of those ads likely will evaporate.

But if Bush uses the next eight months to educate voters on Kerry's opposition to the death penalty, his vote against the 1991 Iraq war, his poor attendance record in the past year and his opposition to the Defense of Marriage Act, he could put this election away by defining Kerry right now.

Kerry has not been tested. He was nominated by running in the shadow of Howard Dean. Throughout the fall, all eyes were on the former Vermont governor. When he crashed and burned in late January, Kerry, as the liberal heir apparent, inherited his disappointed voters.

Meanwhile, Edwards never got the money or the momentum to run a decent race against Kerry because Gen. Wesley Clark -- remember him? -- crowded the field. By the time Edwards got Kerry one on one, the number of primary states stretched his resources to the point where he could not afford it.

But now, Kerry is a fair and inviting target. Bush has to zero in on him and push him to the left right now. Whether Kerry ever consorted with Jane Fonda is beside the point, but Kerry's voting record is not.

Second, while his anti-Kerry ads are running, the president himself needs to make Americans understand that the war on terror is still atop our national agenda. He needs to elevate the sense of threat so that his advantage as a war president begins to count.

Kerry has also made a big mistake in backing the criminal-justice approach to terrorism, seeking to transform the war on terror into a series of DEA-style busts. Voters recognize that Bush is right when he says that this is a war against nation-states that sponsor terror, not a hunt for criminal bands in the mountains.

Pundits say that Kerry's admirable war record makes national security irrelevant as a campaign issue. They couldn't be more wrong. His efforts to defund the CIA and his opposition to the funding of the Iraq war are all key targets for Bush.

Some of those who have Bush's ear may urge him to speak more about the economy and less about terror. This would be a big mistake. Bush must use his profile as president to make Americans understand how crucial staying the course in the war on terror is to our safety. Bush has lost a lot of support among women with the war in Iraq. But he can restore that support by stressing the need to make America safe from terror attacks and to stress how important it is to stick to this task.

Finally, Bush must begin to pull American troops out of Iraq after the handover in June. He should leave a sufficient number there, in safe, secluded bases, to intervene if the bad guys try to come back in power. But the daily drip of casualties must end.

President Johnson kept the troops in Vietnam and lost. President Nixon was withdrawing them, and he won.

If Bush's ads and surrogates savage Kerry while the president raises the profile of the war on terror and his foreign-policy team brings the troops home, this race could be over long before either Bush or Kerry is officially designated as the standard bearers of his respective party.


Dick Morris is the author of Off With Their Heads: Traitors, Crooks, and Obstructionists in American Politics, Media, and Business.


? 2004 The Hill
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John Kerry's Waffles
If you don't like the Democratic nominee's views, just wait a week.
By Michael Grunwald
Posted Wednesday, March 3, 2004, at 2:46 PM PT



Head to head

Last week, President Bush offered a wry critique of his Democratic challengers. "They're for tax cuts and against them. They're for NAFTA and against NAFTA. They're for the Patriot Act and against the Patriot Act. They're in favor of liberating Iraq, and opposed to it. And that's just one senator from Massachusetts." Now that John Kerry is the presumptive Democratic nominee, Republicans are sure to focus the spotlight on his history of flip-flops. Kerry did vote for the Patriot Act, the No Child Left Behind Act, and the war in Iraq, even though he constantly trashes the Patriot Act, the No Child Left Behind Act, and the war in Iraq. He voted against the Defense of Marriage Act, which limited marriage to a man and a woman, but he now says marriage should be limited to a man and a woman. (Although he also points out that he once attended a gay wedding.) And those are just the better-known issues on which Kerry has "evolved."


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Here, then, since John Edwards was too polite to mention them (though President Bush won't be), is a guide to some of Kerry's other reversals on substantive issues. This list doesn't include quickly withdrawn gaffes, such as Kerry's recent suggestion (retracted after an uproar from Jewish groups) that he might make James Baker or Jimmy Carter his Middle East envoy. It doesn't include long-renounced youthful indiscretions, such as his proposal after returning from Vietnam to eliminate most of the CIA. It doesn't include less clear-cut sins of omission and opportunism, such as his stirring denunciations of companies caught in accounting frauds, even though he supported a 1995 law protecting those companies from liability. And it doesn't include the inevitable fund-raising hypocrisies that accompany all modern campaigns, such as his donations from some of the "Benedict Arnold" companies he routinely rips on the trail, or his bundling of contributions from special interests despite his high-minded rejection of PAC money. Even so, the list is long, and it isn't all-inclusive. Kerry's supporters cite his reversals as evidence of the senator's capacity for nuance and complexity, growth and change. His critics say they represent a fundamental lack of principles. Either way, we'll be hearing a lot about them over the next eight months.

Issue Kerry's Original Position Kerry's Revised Position
Welfare Reform In 1988, Sen. Kerry voted against a proposal to require at least one parent in any two-parent welfare family to work a mere 16 hours a week, declaring the work requirement "troublesome to me." During his 1996 re-election campaign, when his Republican challenger, Gov. William Weld, was calling him soft on welfare, Kerry voted for the much stricter welfare reform law that Clinton signed into law.
Mandatory Minimums In 1993 and 1994, the senator from liberal Massachusetts voted against mandatory minimum sentences for gang activity, gun crimes, drug trafficking, and drug sales to minors, explaining in an impassioned speech that long sentences for some dealers who sell to minors would be "enormous injustices" and that some convicted drug offenders were "so barely culpable it is sad." He also said congressionally imposed mandatory minimums made no sense and would just create turf battles between federal and local prosecutors. Today, presidential candidate Kerry strongly supports mandatory minimum sentences for federal crimes, including the sale of drugs to minors.
Affirmative Action In 1992, Kerry created a huge stir among liberals and civil rights groups with a major policy address arguing that affirmative action has "kept America thinking in racial terms" and helped promote a "culture of dependency." Today, Kerry's campaign Web site vows to "Preserve Affirmative Action," noting that he "consistently opposed efforts in the Senate to undermine or eliminate affirmative action programs, and supports programs that seeks to enhance diversity." It doesn't mention any downside.
Death Penalty During one of his debates with Weld in 1996, Kerry ridiculed the idea of capital punishment for terrorists as a "terrorist protection policy," predicting that it would just discourage other nations from extraditing captured terrorists to the United States. Kerry still opposes capital punishment, but he now makes an exception for terrorists.
Education Reform In a 1998 policy speech the Boston Globe described as "a dramatic break from Democratic dogma," Kerry challenged teachers unions by proposing to gut their tenure and seniority systems, giving principals far more power to hire and fire unqualified or unmotivated teachers. Today, Kerry once again espouses pure Democratic dogma on education. His Web site pledges to "stop blaming and start supporting public school educators," vowing to give them "better training and better pay, with more career opportunities, more empowerment and more mentors." It doesn't mention seniority or tenure.
Double Taxation In December 2002, Kerry broke with Democratic dogma yet again in a Cleveland speech, calling for the abolition of the unfair "double taxation" of stock dividends in order to promote more investment and more accurate valuations of companies. Five weeks later, after President Bush proposed a second round of tax cuts that included an end to this double taxation, Kerry changed his tune. He voted against the dividend tax cuts that were ultimately enacted by Congress and now hopes to roll them back as president, along with Bush's other tax cuts for upper-income Americans.
Gas Taxation In 1994, when the Concord Coalition gave Kerry a failing rating for his deficit reduction votes, he complained that he should have gotten credit for supporting a 50-cent increase in the gas tax. Today he no longer supports any increase in the gas tax.
Social Security During the 1996 campaign, when I was a Globe reporter, Kerry told me the Social Security system should be overhauled. He said Congress should consider raising the retirement age and means-testing benefits and called it "wacky" that payroll taxes did not apply to income over $62,700. "I know it's all going to be unpopular," he said. "But this program has serious problems, and we have a generational responsibility to fix them." Kerry no longer wants to mess with Social Security. "John Kerry will never balance the budget on the backs of America's seniors," his Web site promises.
Trade Kerry has been a consistent supporter of free trade deals, and as late as December, when reporters asked if there was any issue on which he was prepared to disagree with Democratic interest groups, Kerry replied: "Trade." Slate editor Jacob Weisberg came away impressed by the depth of Kerry's commitment to the issue: "Unlike Edwards, he supports international trade agreements without qualification." But that was three months ago! In recent weeks, when Kerry has talked trade, he has talked nothing but qualification, calling for "fair trade" rather than "free trade," claiming to agree completely with the protectionist Edwards on trade issues, and vowing to "put teeth" into environmental and labor restrictions in agreements like NAFTA.


Michael Grunwald is writing a book about the Everglades.
Confidence Man
The case for Bush is the case against him.
By William Saletan
Posted Thursday, March 4, 2004, at 4:24 PM PT



Let his record speak for itself

"I know exactly where I want to lead this country," says George W. Bush in one of his new campaign ads. The ad, along with three others that began airing today, concludes with his official campaign theme: "President Bush. Steady leadership in times of change." In the revamped stump speech he has delivered twice in the last two weeks, Bush calls the election "a choice between an America that leads the world with strength and confidence, or an America that is uncertain in the face of danger."

And how does Bush view his challenger, John Kerry? The title of the attack ad posted on Bush's campaign Web site says it all: "Unprincipled."


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Kerry thinks it's the other way around. He's been telling Democrats Bush is "the biggest say-one-thing, do-another" president ever. Yesterday Kerry's campaign responded to Bush's ads by accusing the president of "unsteady leadership." In the Democratic primaries, this accusation worked for Kerry, because liberals think Bush is a liar. But most voters don't, for a good reason: It isn't true. If Kerry makes the election a referendum on Bush's honesty, Bush will win.

How can Kerry persuade moderates to throw out Bush? By turning the president's message against him. Bush is steady and principled. He believes money is better spent by individuals than by the government. He believes the United States should assert its strength in the world. He believes public policy should respect religious faith. Most Americans share these principles and think Bush is sincere about them. The problem Bush has demonstrated in office is that he has no idea how to apply his principles in a changing world. He's a big-picture guy who can't do the job.

From foreign to economic to social policy, Bush's record is a lesson in the limits and perils of conviction. He's too confident to consult a map. He's too strong to heed warnings and too steady to turn the wheel when the road bends. He's too certain to admit error, even after plowing through ditches and telephone poles. He's too preoccupied with principle to understand that principle isn't enough. Watching the stars instead of the road, he has wrecked the budget and the war on terror. Now he's heading for the Constitution. It's time to pull him over and take away the keys.

Bush was right to go to war against the terrorists who struck us on 9/11. He was right to demand the overdue use of force against the scofflaw Iraqi regime. But he couldn't tell the difference between the two threats. He figured that since both Saddam Hussein and Osama Bin Laden were evil, they had to be connected. Saddam must have helped orchestrate the 9/11 attacks. He must have built weapons of mass destruction to sell to al-Qaida.

In recent months, congressional hearings and document leaks have unearthed a disturbing history. Again and again in 2001 and 2002, U.S. intelligence agencies sent signals that Bush was wrong. The FBI and CIA debunked putative links between Iraq and al-Qaida. The CIA rejected the claim that Iraq had tried to buy uranium from Africa. In its National Intelligence Estimate, the CIA calculated that it could take Saddam up to five years to make a nuclear weapon and that he would transfer WMD to terrorists only if he were invaded. The Defense Intelligence Agency advised the administration that there was "no reliable information on whether Iraq is producing or stockpiling chemical weapons." The Air Force disputed the suggestion that Iraq had developed aerial drones capable of delivering chemical or biological toxins. Analysts questioned whether the White House was right that Saddam's aluminum tubes were designed for building nukes, or that two trucks the White House found suspicious were designed for making biological weapons.

Bush ignored every one of these warnings. They couldn't be true, because they didn't fit his theory. He couldn't stand the complexity of the facts or the ambiguity of intelligence. "Until we get rid of Saddam Hussein, we won't get rid of uncertainty," he told aides in November 2002. Four months later, on the eve of his invasion of Iraq, he declared, "Intelligence gathered by this and other governments leaves no doubt that the Iraq regime continues to possess and conceal some of the most lethal weapons ever devised." After the war, when Diane Sawyer asked Bush about the discrepancy between what he had said--"that there were weapons of mass destruction"--and what U.S. inspectors had found--"the possibility that [Saddam] could move to acquire those weapons"--Bush replied, "What's the difference?"

That's Bush all over: Certainty. No doubt. No difference. But it makes a difference to Britain, France, and Mexico, which no longer trust our requests, based on U.S. intelligence, to cancel flights to the United States. And it makes a difference to China, which refuses to accept our report, based on U.S. intelligence, that North Korea is operating a highly enriched uranium program. Bush's overconfidence--reflected in a series of exaggerations wholly unnecessary to the punishment of Saddam for his noncompliance with U.N. inspections--has trashed our credibility and cost us vital help with other terrorist and WMD-related threats.

Bush was right to propose tax cuts in 1999. The economy was booming. The surplus was ballooning. Liberals were itching to spend the money on new programs, despite Bill Clinton's promises to pay down the national debt. Bush wanted to get the money out of Washington before that happened. That's why, under his plan, the size of the tax cut was to grow from year to year. The point was to keep the surplus from piling up, refunding more and more money as it poured in from a growing economy. That's also why Bush cut taxes across the board instead of targeting middle-class families who would spend the money immediately. He wasn't trying to stimulate the economy. He was trying to give the money back to the people who had paid it in, which meant largely the rich.

Then everything changed. The stock market tanked, and the economy slowed. Sept. 11 shook the nation's confidence and drastically altered military budget projections. Bush didn't need to drain a surplus anymore. He needed to fund national defense and stimulate the economy. He needed to get rid of his back-loaded across-the-board tax cut and replace it (as Jonathan Chait has explained) with front-loaded tax cuts aimed at consumers. Instead, Bush claimed that his original tax-cut elixir was just as good for the new malady as for the old one. The deficit exploded, the economy failed to recover the jobs it had lost, and much of the country remained unprotected from terrorism. The world changed, but Bush couldn't.

When Bush banned federal funding of research on new embryonic stem cell lines, he said sufficient research could proceed because "more than 60 genetically diverse stem cell lines already exist." Bush's HHS secretary, Tommy Thompson, said of the 60 lines, "They're diverse, they're robust, they're viable for research." In truth, nobody knew whether the cell lines were diverse, robust, or viable. To date, only 15 have been made available, and no one knows how many more will turn out to be usable. But Bush hasn't budged.* Last fall, in the name of human life, he signed into law a bill that required any doctor performing a second-trimester abortion to cut up the fetus inside the woman instead of removing it intact. Good principle, atrocious policy. His initiative to fund faith-based social programs has been a classic liberal misadventure, adding religious mini-bureaucracies to various Cabinet departments despite a study last year that showed faith-based job training programs were no more effective, and in some ways less effective, than regular job training programs.

Now, to save the family, Bush proposes to monkey with the Constitution. Why is this necessary? Because conservative states might be forced to honor gay marriages performed in liberal states, says Bush. But didn't the Defense of Marriage Act void that requirement? Yes, Bush argues, but DOMA might be struck down. Unwilling to wait for a ruling on DOMA, Bush prefers to circumvent the court system and local democracy by reopening the nation's founding document. He seeks to impose a permanent federal definition of marriage on "any state or city," regardless of what the voters in Boston or San Francisco want.

President Bush. Strength and confidence. Steady leadership in times of change. He knows exactly where he wants to lead this country. And he won't let facts, circumstances, or the Constitution get in his way.

Correction March 5, 2004: The article originally and incorrectly indicated that Bush overstated the number of "existing" stem cell lines. In fact, he did not. What Bush and HHS Secretary Tommy Thompson overstated was the number of cell lines known to be diverse, robust, and viable. (Return to the corrected item.)


William Saletan is Slate's chief political correspondent and author of Bearing Right: How Conservatives Won the Abortion War.

Businessman under scrutiny 25 years ago after ordering unusual supplies
Owen Bowcott, John Aglionby and Ian Traynor
Friday March 5, 2004
The Guardian
Allegations that Peter Griffin has been involved in providing equipment for Pakistan's clandestine project to develop a nuclear bomb first surfaced 25 years ago. He has always denied any wrongdoing. A company of which he was then a director, Weargate Ltd, was reported to have been involved in trying to ship ?1.25m worth of electrical equipment - inverters, which ensure continued supply of electrical current - to Pakistan.
The shipment was supposedly destined for the Special Works Organisation in Rawalpindi, the agency responsible for coordinating Pakistan's nuclear weapons. That programme was run by Abdul Qadeer Khan, the man now known as the father of Pakistan's nuclear bomb.
Last month Khan admitted that as well as heading Pakistan's nuclear programme, he had also set up a black market in nuclear technology, selling equipment on to Iran, Libya and North Korea. He has been granted clemency but has been under house arrest.
When Weargate was named, the company denied it was being used to procure equipment for the Pakistani nuclear industry. Simon Henderson, a Financial Times journalist who interviewed Mr Griffin at the time, recently reported that the businessman told him: "I am not helping Pakistan make a nuclear bomb, but why shouldn't Pakistan have a nuclear bomb anyway?"
The allegations surrounding the Weargate case nonetheless triggered public alarm about the way in which Pakistan was seeking "dual use" equipment, which might be used for military or civilian purposes, and could be exploited to construct a nuclear programme. The Department of Trade and Industry announced it would tighten up trade restrictions to include inverters - which were also then used by the British nuclear industry - in the list of controlled export items.
It is alleged that Mr Griffin first developed links with Mr Khan in the late 1970s and that he was in charge of procurement.
Mr Griffin first operated from his home, a rambling Victorian pile just outside Swansea. The British government became suspicious, partly because officials were alerted by small, highly skilled companies informing them that Mr Griffin was ordering unusual supplies. Mr Griffin, who travelled regularly around the world - including to Pakistan, according to various sources - did not export anything illegal.
In the early 1980s Mr Griffin moved most of his sourcing to Switzerland from where, officials believe, he had obtained supplies for years. It was probably during this period that Mr Griffin consolidated his relationship with a Swiss engineer, Urs Tinner, who often worked as the team's point man on the various factory floors checking specifications and overseeing product development.
It is unclear how long Mr Griffin remained in Switzerland or where he went next but in June 2000 he established Gulf Technical Industries (GTI) in Dubai as his next company with his son, Paul, and a local partner, Ahmad Hassan Rashid Ahmad al Abbar.
Dubai was where a trusted lieutenant of Mr Khan's, BSA Tahir, was based. Mr Tahir has been identified by both investigators from the International Atomic Energy Authority (IAEA) and President Bush as a key operator who helped extend the smuggling network.
Mr Tahir was senior executive with SMB Computers in Dubai. The firm, a computer supply company, has strenuously denied that it was aware of Mr Tahir's other activities outside his normal work, such as trading in nuclear equipment.
The Griffins were thrust into the limelight again last month following Mr Khan's public confession that he had pursued black market dealings with Libya, Iran and North Korea. Mr Tahir, a Sri Lankan national, both the Griffins and Mr Tinner all featured prominently in a detailed Malaysian police report about a factory run by Scomi Precision Engineering (Scope) in Shah Alam, 40 minutes drive from the centre of Kuala Lumpur.
The plant was said by Malaysian police to have been commissioned to manufacture components for centrifuges that could be used to enrich uranium. Scomi insisted it had no idea that the parts were for nuclear plants; it believed they were for the oil industry.
Addressed to GTI in Dubai and then reshipped to Libya, the components were seized by the Italians and American investigators en route to Libya last October. The Malaysian report is said by officials at the IAEA in Vienna to be "credible and accurate". According to sources in Malaysia and Vienna, the shipment of nuclear equipment on board the intercepted ship, the BBC China, was the last of four sent to Libya over a period of 10 months.
Around the same time, according to the Malaysian police report, Mr Griffin organised the creation of a plant in Libya for making centrifuge parts. He is alleged "to have supplied the lay-out plan for a workshop to enable Libya to produce centrifuges". He was also said to have sup plied machinery and a furnace and arranged to have Libyan engineers trained in Spain, the police report added.
Ahmad Hassan Rashid Ahmed al Abbar, the co-director of GTI, told the Guardian in Dubai he was the "local sponsor" for the company but denied knowing anything about its trading in nuclear technology products. "I have seen the reports about the Libyans but I have never met any Libyans," he said. "Mr Griffin and Mr Tahir knew each other quite well. I met Tahir once through Mr Griffin, a social event when they were opening an SMB computer office."
Swiss authorities have opened an investigation into whether Mr Tinner broke Swiss law by knowingly contributing to the production of nuclear weapons. The family has admitted that Urs Tinner's father had known Mr Khan since the 1970s but denied that they had broken any laws.
Both Peter and Paul Griffin have strenuously denied breaking the law in any way. Paul Griffin has previously told the Guardian that he has been "framed" and insists that all his exports have been cleared with the Department of Trade and Industry. Peter Griffin now lives with his wife in a villa in the south of France. Contacted by the Guardian, she said: "He is not making any comment."
The Guardian sent him a series of questions about his alleged involvement with AQ Khan. His wife yesterday replied: "I'm sorry but Peter Griffin has been advised not to answer any questions along these lines at the present time. He is expecting to release a press statement within the next 10 days."
Christopher Mills, a solicitor with Clyde and Company of Dubai, which is representing Paul Griffin, was also sent the questions. He told the Guardian: "Given where we are in our investigations we are not able to make any comment. When we are ready we are going to contact the press. There are matters that are out of our control and we don't know when we are going to get what we are going to get. We can't make any further comment for fear of prejudicing the work we are trying to do."

-------------------------------------------------------------------
Nuclear trails and trials By IKRAM SEHGAL


It is becoming increasingly difficult for Pakistan to distinguish between friend and foe, with even former PM Ms Benazir Bhutto who one would hope would be a friend and as a former PM more propriety, choosing to hunt with the hounds rather than helping us run like hares. Because of his "nuclear moonlighting", Dr Abdul Qadeer Khan (AQK), our hero cum villain combined, is an albatross around Pakistan's neck that has brought us to ground zero of world public opinion. While the internal lapses must be investigated thoroughly so that more skeletons do not appear on an already hot tin roof, those wishing Pakistan ill are targeting Pakistan (and the Army) on all sorts of counts, giving lip service only to AQK's illegal activity but ignoring the foreign network of companies and the personalities involved.
BSA (Bashir?) Tahir, a trusted Sri Lankan businessman confidante of AQK, was actively involved in supplying centrifuge components for Libya's uranium-enrichment programme. Tahir used SCOPE, a Malaysian subsidiary of SCOMI GROUP BHD, a Malaysian company involved in the petroleum services industry. Tahir, whose Malaysian wife was one of three of SCOPE's sponsor directors (she subsequently sold the shares to one of the other sponsors, PM Badawi's son), told the Malaysian Police that his involvement with AQK started sometime in 1994/1995 during Ms Benazir's government when AQK used Tahir's services to transship two containers with used centrifuge units through Dubai to Iran. US$ 3 million was paid in UAE Dirham by the Iranians, two briefcases of cash being kept in an apartment used as a guesthouse by AQK whenever he visited Dubai. Libya contacted AQK in 1997 (again during Ms Benazir regime), to obtain help and expertise in the field of uranium-enrichment centrifuge as well as supply centrifuge units for Libya's nuclear programme. Several meetings between AQK (accompanied by Tahir) and representatives from Libya represented by Mohamad Matuq Mohamad and another person known as Karim took place in early 1997 in Istanbul, subsequently in Casablanca and in Dubai. Project Machine Shop 1001 was meant to set up a workshop in Libya to make centrifuge components which could not be obtained from outside Libya. The machines for the workshop were obtained from Spain and Italy, the middleman involved in this project was Peter Griffin, a British citizen, owner of Dubai-based Gulf Technical Industries (GTI). Earlier Griffin arranged to send 7 to 8 Libyan technicians to Spain to learn how to operate the machines, he also supplied an Italian-made furnace to Libya for the workshop.
Late Heinz Mebus, a Swiss engineer, was involved in discussions between AQK and Iran to supply centrifuge designs. Gotthard Lerch, a German citizen residing in Switzerland, once worked for Leybold Heraeus, a German company that is alleged to have produced vacuum technology equipment. Gotthard Lerch is alleged to have tried to obtain supplies of pipes for the Project Machine Shop 1001 by sourcing from South Africa but failed to obtain it even though payment had been made by Libya earlier. Selim Alguadis, an engineer from Turkey, known to AQK since the 80s, supplied electrical cabinets and power supplier-voltage regulator to Libya. After the police action against the ship BBC China in Taranto, Italy on 4 Oct 2003, a consignment sent by Gunas Jireh, a Turkish national who supplied `aluminum casting and dynamo' to Libya for its `Project Machine Shop 1001'. Tahir is alleged to have arranged the transshipment of electrical cabinets and power supplier-voltage regulator to Libya through Dubai on behalf of Selim Alguadis. Swiss citizen Friedrich Tinner the President of CETEC and mechanical engineer, had dealings with AQK since 1980s and is reported to have prepared certain centrifuge components, including safety valves, sourcing many of the materials from several companies in Europe, arranging for the supply to reach Dubai and then on to Libya. Urs Friedrich Tinner, the son of Friedrich Tinner, was the consultant arranged by Tahir to set up the SCOPE factory in Malaysia, and was actively involved in manufacturing operations of the factory.
Nearly all the personalities/corporate entities in the nuclear smuggling/procurement racket were foreign nationals with various expertise. A vast majority of domestic critics are blissfully ignorant of not only the facts but also the horrible consequences for Pakistan if there really was an official "smoking gun". Not entirely blameless in failing to exercise stricter security controls, the government of the day is certainly far less culpable than the earlier civilian regimes when AQK first started to run amok. Remaining under very strict official controls during the regimes of late Zulfikar Ali Bhutto and Gen Ziaul Haq, AQK cleverly exploited the ambiguity and used his absolute authority to do what he pleased for the subsequent illegal "export" activities. When the executive controls and security safeguards became somewhat of a grey area between the military with advent of civilian regimes since 1989.
Unconfirmed reports had appeared in the media in the early 70s about Col Qadafi's cheque for US$ 5 million in late Zulfikar Ali Bhutto's name for our proposed nuclear program. This cheque being deposited with UBS in Switzerland and the purchase of gold thereof became a matter of subsequent in-family contention in the 90s as to the legal heirs. The recent nuclear contact with the Libyans is recorded between 1994 and 1997 during the period of Ms Benazir's regime, therefore her present diatribe against Gen Musharraf and the military could be a pre-emptive strike to ward off the charges of nuclear proliferation against her. Even without any direct "smoking gun", she is street-smart enough to be apprehensive that any such "nuclear taint" in the present post 9/11 environment would well be a "kiss of death" as far as her relations with western nations are concerned. Ms Benazir has made the astounding claim that during her first regime she set forth the BENAZIR DOCTRINE, officially disallowing exports of nuclear knowledge and material from Pakistan. What was the necessity for such a "doctrinaire" unless there were specific requests (and by whom?) for nuclear exports, indeed why has no one ever heard about the BENAZIR DOCTRINE for the last 15 years given that there was no apparent reason to keep this a secret and in fact every reason to make such a pledge public? During recent TV interviews Ms Benazir alleged that "Gen Pervez Musharraf is responsible for the nuclear exports to Libya", does she really believe this outrageous canard? With the President already treading a fail-safe line for Pakistan, it was extremely disappointing to see our former PM pursuing crass political objectives well knowing she was causing immense damage to the country. As an admirer of Ms Benazir's political talents and charisma, one expected her to uphold the national interest "even to the peril of her life".
Ms Benazir has a "crying wolf" history of going in for pre-emptive strikes to ward off corruption (and other) allegations, etc. Even her father went on and on about his making public the "Tashkent secret", four decades later we still do not know what it was! Wonderfully eloquent and media-wise, she has an inherent ability to state things straight-faced she knows to be patently wrong e.g. the Swiss money-laundering case which she denies ad nauseam even exists. Comparing herself to her late illustrious father "Zulfikar Ali Bhutto", the acknowledged "father of Pakistan's clandestine nuclear program", she claims the title of being the "mother of Pakistan's missile program". The best one can acclaim her is as the "mid-wife of the Taliban", they came into being under her regime's initiative in 1994 when the respected Maj Gen NK Babar was Interior Minister and Lt Gen Javed Ashraf Qazi, the then DG ISI. The government should trot out Qazi to detail on primetime TV as to the nexus between Ms Benazir and the Taliban. She may have more charisma than her father had, Ms Benazir does not display the same vision. While one does not question her patriotism, it is certainly sad that she did not exercise better judgment in leaving the Army alone, particularly at this critical time. Regretfully she is not the only one taking pot shots at us while we are staggering along on the nuclear trail while facing trial thereof in the kangaroo court of international public opinion.

>> THE "FLYING CARPET" SCANDAL CONTINUED...


FIRST WHIFF OF SCANDAL HITS IRAQ GOVERNMENT
AN INVESTIGATION IS LAUNCHED OVER MYSTERY PLANE FULL OF CASH
1.5 TONS OF NEW IRAQI DINARS, WORTH $20 MILLION
By Eli Lake
New York Sun

BAGHDAD, Iraq - Authorities here are investigating how a plane loaded with almost $20 million worth of the new Iraqi dinars managed to take off from Baghdad International Airport and land in Beirut.
The mysterious aircraft and the 1.5 tons of cash landed on January 15 in Lebanon. There, Lebanese customs agents seized the plane and the money and arrested three Lebanese citizens who were aboard the plane.
Now, Treasury agents attached to the Iraq Survey Group, the umbrella American intelligence organization that has its headquarters here, are trying to get the money back and determine if someone was trrying to steal it. The Iraqi Governing Council is wondering if all that money made its way from Iraq to Lebanon without at least some American involvement.
The affair has the potential to balloon into a scandal that could damage the acting Iraqi interior minister, who was involved. It also could feed complaints pushed by congressional Democrats in America, including Senator Kerry, that President Bush and his Coalition Provisional Authority have mishandled the postwar situation in Iraq.
One person asking questions is Iraqi Governing Council Member Muwaffek al-Rubai, who sits on the council's legal and financial committees investigating the contract. "The question to the CPA is, who has the 19.5 billion Iraqi dinars?" he told The New York Sun. "If you transfer such a container of cash, the transport company and security company has to know what is inside it. They transported the money from Baghdad International Airport to Beirut. They are in charge of the security of the airport."
"People are very mad about this," Mr. al-Rubai said. "I see poor, miserable people with no Mr. food to live on, who have no salary and no job, who have nothing, who are barefoot, in the south. And these people are playing with billions."
After the plane was seized, Iraq's interior minister, Nuri Badran, sent an urgent fax to his counterpart in Beirut asking for the release of the men and the cash.
One issue in the investigation is whether a contract from Iraq's new Interior Ministry to purchase electronic anti-jamming equipment and automobiles from a Cyprus-based concern called Laru Ltd. was in fact an intricate scheme to launder money. The contract has never been shown to the Iraqi Governing Council, nor have the goods been delivered to the Interior Ministry.
Depending on what the Treasury agents and the Iraqi Governing Council conclude, the position of Mr. Badran could be in jeopardy.
Mr. Badran sent an envoy on January 11 to a branch of the Rafidan Bank in northern Baghdad to make sure that a check for 19.836 billion dinars would be cashed when a Lebanese man presented it to the teller the next day, according to the manager of the bank, who spoke to The New York Sun on the condition that he not be named. This source said the money, which was paid in 25,000- and 10,000-dinar notes, was loaded at 10 a.m. on January 12 into three pick-up trucks guarded by American mercenaries armed with machine guns. On January 14, the Lebanese man, who the bank manager identified only as Akil, returned and cashed another check for 164 million dinars.
On the evening of January 15, all of cash was loaded onto a cargo plane flown by Flying Carpet Airlines at Baghdad International Airport, two Baghdad sources with knowledge of the affair told the Sun.
Unlike Royal Jordanian, which handles regular flights in and out of Baghdad, Flying Carpet's routes are notregularly scheduled. According to one American official who works on on logistics at the airport, "they call us when they are coming in and we don't ask any questions."
Shepherding the cash on the flight were a Lebanese businessman, Muhammad Issam abu Darwish; a former member of Lebanon's security services, Richard Jreisati, and Michael Mukattaf, a Lebanese currency exchanger whose father in law is the former president of Lebanon, Amin Gemayel.
The three men were detained when they arrived in Beirut by two Lebanese customs officials, Major Ibrahim Shams Eddin and his supervisor Ahmand Sulli, according to a legal statement from the office of the Lebanese Prosecutor General summarizing the incident. On that evening, Mr. Badran faxed a letter to the Lebanese Interior Ministrysaying the men were on official Iraqi business and that the money was part of a contract for security equipment. Two days later, a photograph of the fax including Mr. Badran's personal cell phone number, showed up in Lebanon's leading newspaper, An-Nahar.
The security contractor in charge of the airport, which is also an American military base, is Custer Battles LLC, a Virginia based security company whose executive board boasts former members of the American special forces and the CIA. When the Sun asked Don Ritchie, the chief of security for the airport and an employee of Custer Battles, what he knew about the January 15 flight to Beirut, he said,"According to corporate counsel, we should not talk about this at all." Indeed, the contract between Custer Battles and the Coalition Provision Authoritypledges that the contractor not to talk to the press.
One reason why Mr. Ritchie might not be talking is because after a hasty investigation by the Coalition Provision Authority's inspector general, Robert Dawes, that concluded there was no wrongdoing, a financial task force attached to the Iraq Survey Group is still asking questions. As on senior American official said," We are looking to make sure the funds were not absconded with; the funds are fleeing in essence. We don't want funds being used by insurgents to kill our soldiers or coalition soldiers. It's worth a second look."
The first look from the Coalition Provision Authority was quite cursory. According to two members of the Iraqi Governing Council who asked not to be named, less than two days after the Lebanese authorities seized the aircraft, the chief of the authority, L. Paul Bremer, told the Iraqi Governing Council in closed session that his staff had looked into the transaction and found nothing wrong. When Mr. Dawes did get around to investigating the matter, he only looked into whether CPA officials were in any way involved. But that investigation did not ask whether contractors like Custer Battles or other government agencies, like the CIA,may have played a role in helping transfer the money to Lebanon. Nor did this investigation examine whether Mr. Badran was engaged in legitinate business with Laru.
Mr. Badran is the son-in-law and close associate of an Iraqi Governing Council member, Ayad Alawi. Mr. Alawi's Iraqi National Accord has received CIA funding since the early 1990s. After the liberation of Baghdad, the INA offices were briefly in the same building as the CIA station in Baghdad. Since then the INA offices have moved to the building that once housed the national Baath Party headquarters, where Mr. Badran's main offices are in his duties as interior minister. Mr. Badawi declined repeated requests to be interviewd for this story.
An American spokesman for the Interior Ministry, Shane Wolfe, said there appeared to be nothing wrong. He said, "In this case the contract called for the payment in new Iraqi dinars. Since the contractor needed to pay most of his suppliers in dollars he needed a way to convert the money. The difficulties in transfering money and opening bank accountsplayed a role in this."
Despite an agreement from Lebanese authorities to return the money, the dinars have not yet made their way back to Baghdad.
--------------------------------------------------------------------------------------

>> CHARTS
http://www.heritage.org/Research/MiddleEast/bg1730.cfm

Models and Policies for Oil Production, Revenue Collection, and Public Expenditure: Lessons in Iraq
by Ariel Cohen, Ph.D.
Backgrounder #1730


March 4, 2004 | Executive Summary | |



Countries in both the developed and the developing worlds rely on a stable and secure supply of oil. However, abuses and misallocations of oil revenues often lead to social and political instability and, at times, armed conflict. The broader the political cooperation and public consensus, and the greater the transparency in the management of oil revenues, the greater the chance that the supplier will remain stable.

The challenge of devising optimal models and policies for oil production in developing or transitional economies is formidable. Resource-rich countries tend to fall behind non-oil economies in economic development, rate of growth in gross domestic product (GDP), GDP per capita, and human development.1 Oil often derails democratic development and causes civil strife and civil war. Other problems such as graft and "rent-seeking behavior" regularly accompany oil exploration and exploitation.

Many have noted that lagging institutional development, democratic deficiencies, and rampant corruption are the downside of the windfall profits from large-scale oil production. Political control of those natural resources makes political power paramount. Thus, politics becomes a competition for a near total control of wealth, resulting in a zero-sum game with devastating results for democratization and civil society.2

Simply put, unstable countries make poor oil suppliers. The examples abound, from Iraq to Iran to Venezuela.

Moreover, experience and research demonstrate that private ownership of any industry increases production and reduces costs anywhere in the world.3 Thus, consumers of energy should advocate privatization of the oil and gas sector worldwide. However, because of the industrial economies' thirst for oil, it is likely that Western governments and international institutions will remain quiet on privatization while denouncing the excesses of producers and abuses of natural resource property rights and revenue.

This paper analyzes current models of ownership and revenue management in the hydrocarbon sector, as well as their political implications, and suggests policies on property rights, tax collection, and public expenditure. The achievements in making the rule of law and transparency a paramount public policy and business value in the oil and gas industry have been limited at best.

Finally, this paper addresses some challenges that the Coalition Provisional Authority (CPA) and the Iraqi Governing Council (IGC) face in restoring and managing Iraqi oil production. It also offers recommendations for the Iraqi oil industry and public sector.



Production Mode: Privatization Versus State Management
The Iraqi oil industry is a case in point. Saddam's predatory dictatorship succeeded in bankrupting the country with the world's second largest oil reserves (after Saudi Arabia). The oil sector formerly provided more than 60 percent of Iraq's GDP and 95 percent of its hard currency earnings. Yet Iraq's GDP for 2001 was estimated at only about one-third its 1989 level. Iraq is also hobbled by $200 billion in foreign debt and reparation claims. This fiscal devastation is the result of a number of factors, including nationalization of the country's oil sector in the 1970s, extensive central planning of industry and trade, the 1982-1988 war with Iran, the 1990 invasion of Kuwait and subsequent Gulf War, and the U.S.-led war in 2003.

According to senior Iraqi Oil Ministry officials, Saddam ran the oil industry as his private kitty--with devastating results for the infrastructure and the treasury.4 Moreover, Saddam's disastrous policies led to Iraq's OPEC quota being taken over by other producers, primarily Saudi Arabia and Venezuela.

Importance of Privatization
Critics point out that centralized, state-owned industrial capacity in the oil sector is less successful than wholly owned private industry or public-private partnerships in attracting investment, integrating new technology, introducing international accounting standards and practices, boosting productivity, and observing environmental standards.5

Moreover, as many of the OPEC members exceed their production quotas, leading to a greater supply of oil and lower prices, it is not clear whether the countries that follow the centralized planning model are indeed maximizing their oil revenue.



Political Factors
Political underpinnings are crucial in forging a workable political model for oil exploration and exploitation. In the Iraqi case, the future model will probably need both to be popularly accepted and to be incorporated into the new constitution. Otherwise, civil strife may develop.

Oil disputes played a large part in the Biafra war in Nigeria in the 1960s, in which 1 million-3 million civilians were starved to death or bombed.6 Recently, tribal unrest in Nigeria resulted in Western and local oil workers being taken hostage.7 Secession movements in Indonesia parallel the distribution of oil, as the country's smaller and potentially oil-rich islands attempt to secede from overpopulated Java.8 Such conflicts should be avoided in Iraq, which is a relatively new political entity created by the British Empire after the defeat of the Ottoman Empire in World War I.

Since the creation of Iraq, relationships between the Kurds, the Sunni Arabs, and the Shi'a Arabs have been uneasy at best and murderous at worst. The Sunni Arabs have dominated Iraq since the Ottoman and British eras.

Beyond ethno-religious strife, clans and families are the smallest political units, and their interests may need to be taken into account in devising a stable political solution that allows equitable and sustainable sharing of oil revenues. Thus far, the process involved in drafting an Iraqi constitution has been a painful one, and there is no date certain by which agreement will be reached and the document will be ready.9 As Iraq develops its own constitution, principles of protection of private property must be extended to the oil industry and oil reserves.

Property Rights in Iraq
The launch of the Iraqi oil industry in 1925 was undertaken by a private consortium, the Iraq Petroleum Corporation, owned in equal shares (23.75 percent) by British Petroleum and Shell, Companie Francaise de Petroles, and two constituent parts of Exxon Mobil. Nubar Gulbenkian, the famous "Mr. Five Percent," owned the remaining 5 percent. The consortium was expropriated in 1964 and fully nationalized in 1972.10

Theoretically, if the property rights of the original consortium were restored, new companies would participate in bids for new field projects and the rehabilitation of existing oil infrastructure. In addition, the future government of Iraq might recognize some of the contracts concluded by the Saddam Hussein regime, such as the Russian Lukoil West Qurna concession, as valid. The Iraqi government could also examine other production-sharing agreements that Saddam's regime signed with China, France, and other countries.



Economic Efficiency
Partial privatization, which the CPA and the Provisional Council are pursuing, and low taxation are the right policies to follow. However, more needs to be done to achieve eventual privatization of reserves and extraction. As Iraqi needs for reconstruction are high, one way to increase the cash flow up-front is to sell off the reserves and tax the future oil revenues. This would better address the immediate needs of the Iraqi people without giving up natural resource royalties and rents.

The United States--through its senior representatives of the Departments of State and Defense in the CPA and its advisers on the ground, with the assistance of the International Monetary Fund (IMF), World Bank, and other international and non-governmental organizations (NGOs)--should begin advising the leaders of Iraq's three primary ethnic groups to establish policies that would lead to a thriving modern economy. These policies should be based on "best practices" developed around the world during the largest government privatizations in history, during the 1980s and 1990s.

Institutional Development and Controls
One of the greatest challenges in privatizing Iraqi oil and attracting foreign investment (in addition to building political consensus and building the institutions to implement it) will be ensuring equity, transparency, and the rule of law. To accomplish these goals, Iraqi political and government institutions, donor representatives, and international agencies should coordinate their activities while each plays its distinct role.

Courts, parliamentary committees, commissions, government accounting offices, ombudsmen, and chief prosecutors' offices may have competing jurisdictions on privatization. (Regrettably, this was often not the case in the great 1990s privatization in post-communist countries.) Legal and administrative challenges may increase public control while simultaneously miring the process in numerous court hearings and investigations. While such involvement, especially of Iraqi institutions, may increase transparency and public "buy-in," it may also slow down the process and open it to frivolous challenges. Indigenous NGOs and media also have a role. However, it is all too easy for politicians and unprofessional journalists to denounce and undermine privatization through demagoguery.

The Eastern European experience demonstrates that a strong executive branch with political commitment and a public mandate for privatization, combined with meticulous insistence on open and competitive bidding, can carry the day. In that respect, the process could be facilitated by inviting private foreign companies and officials with experience in the German Privatization Agency (Treuhandanstaldt), Estonian Privatization Agency, and similar organizations to serve as advisers to the Iraqi government.

Revenue Collection and Distribution Mode
Best management practices and financial controls in the taxation and expenditure stages of oil revenue accrual and disbursement are essential. The history of oil-rich states, from Saudi Arabia to Nigeria, provides ample evidence of a cycle of high revenue/high expectations/high expenditure followed by an oil market slump, a decline in revenue, and social unrest caused by fiscal and budgetary adjustments.11

These states, however, failed to use centrally managed oil revenues to jump-start development and prevent precipitous declines in their GDP per capita. Saudi GDP per capita peaked in 1981, when both the U.S. and Saudi Arabia had a per capita GDP of about $28,600. In 2001, U.S. GDP per capita was $36,000, while Saudi Arabia's was less than $7,500. According to the U.S. Embassy, "Per capita income [in Saudi Arabia] will continue to decline unless economic growth increases significantly and/or the birth rate drops."12

Political Factors
Iraqi policymakers should be aware of a "dual hazard" in politics of revenue taxation and expenditure. On the one hand, Iraq has a large, growing, and impoverished population whose basic needs are still unmet. Their representatives are likely to press for higher tax rates and deficit budgets and to lobby for borrowing against future oil receipts. Even with projected increases in oil production and revenue growth, Iraq will still be in the poor category or in the low end of the medium-income developing countries. However, if the Iraqi poor, especially the Shi'a, are excluded from budgetary decisions, such factions as Islamist Shi'a radicals (often connected to Iran), Sunni Islamists connected to al-Qaeda, and Ba'athists can be expected to use this exclusion as a pretext for agitation against the Iraqi Government Council and its pro-American successor.13

Iraq's challenge is to educate the political and technocrat classes, and the elites in general, on the dangers of high taxation and unbridled expenditure. Macroeconomic instability and a negative investment climate can be as damaging in the long term to a national economy as corruption.

Institutional Development and Controls
As Terry Lynn Karl wrote:

When states do not have to depend on domestic taxation to finance development, governments are not forced to formulate their goals and objectives and the scrutiny of citizens who pay the bills.... Excessive centralization, remoteness from local conditions, and lack of accountability stem from this financial independence.14
Under Saddam, Iraq was a good case in point. The dictator and the Ba'ath elites in Baghdad made all the economic decisions, such as nationalizing oil assets and using revenues to pay for the military, including programs to build weapons of mass destruction.

In post-Saddam Iraq, institutional controls on the revenue stream are vital. These should include creation of competent and independent central fiscal and budgetary bodies; a strong police force, including organized and white-collar crime divisions to prevent oil smuggling; and a tax collection agency sophisticated enough to prevent and investigate tax evasion. Such services need to be strong enough to stand up to the Iraqi national oil company and the international oil companies, which will handle an increasing number of exploration and extraction projects.

Since the Iraqi state most likely will remain weak and fractious after the U.S. transfers sovereignty on July 1, 2004, it should divest itself from providing most nonessential services, which can be delivered by the privatized non-government sector. Market demand, not government programs, is more likely to reflect the needs of the Iraqi people. Since government revenues can be generated up-front from privatization, keeping tax rates low (around the current 15 percent) is advisable.

The government can shift provision of services to the private sector while building a constitutional barrier to keep budget deficit spending below a certain level, such as 3 percent of GDP. Such a safeguard would keep the budget within reasonable limits, make the Iraqi dinar more stable, and instill both fiscal and budgetary discipline among the elite. Without such discipline, the state will attempt to use expenditures to buy its legitimacy.

Given the fragility of the Iraqi state--the combined result of Saddam's regime, the current conflict, and deep ethno-religious fissures--state dependence on oil revenues should be avoided. As in many other countries that have experienced cyclical oil wealth, windfall oil revenues can be stored in non-dinar, off-shore accounts--an Iraqi oil fund.

What Should Be Done
The Coalition Provisional Authority and the Iraqi Governing Council should:

Initiate a broad public debate about development of the rule of law and property rights, including mineral rights. This debate should include Western economists, Iraqi officials, and the public and should cover the future of oil production, taxation, and the distribution of income. As part of the debate, the CPA and IGC should conduct a comprehensive public campaign aimed at privatization of oil and gas industry assets and reserves, as well as broad institutional reform. Many Iraqi officials and other members of police and media elites are not aware of the macroeconomic factors that support privatization, keeping the oil revenue out of government's hands, and instituting publicly accountable and transparent decision-making processes on oil production.
Bolster property rights and the rule of law, including enabling legislation and regulations on oil and gas production that allow private ownership of all productive assets and minerals. This includes fostering an independent judiciary, training judges to handle complicated civil litigation such as energy law, and allowing international arbitration, including enforcement of arbitral awards.
Conduct a comprehensive audit of state-of-the art techniques of oil privatization, revenue generation, and management. This information should then be disseminated to the Iraqi political leadership, management of the oil and financial sectors, and broader elites. U.S. institutions (e.g., the CPA and U.S. Agency for International Development), major oil companies, nonprofit organizations, the IMF, and the World Bank should all be involved in this undertaking.
Ensure that the privatization process is transparent and perceived as being conducted in the interests of the Iraqi people.
Develop safeguards to prevent smuggling and diversion of oil and refined products from "well to wheel" and create a law enforcement climate in which the diversion for private use and theft of crude oil, refined products, or revenue is reported, prosecuted, and punished.
Improve revenue collection, such as taxation of oil sales, by establishing independent audit procedures, supporting public supervision by bona fide NGOs, and developing an independent media.
Assist in creation of a national, private, professionally and independently managed oil fund. A modified version of the Alaska arrangement, allowing for direct deposits of revenues into the private bank accounts of the Iraqi people, would go a long way toward legitimizing the future Iraqi government and privatization of oil assets.
Develop political legitimacy and transparency of oil revenue expenditure through open budgetary and legislative processes. As part of the open budgetary process, budgetary drafts prepared by legislative and governmental budgetary offices should be publicly available and discussed openly in the legislature before the final vote. Budget-watching indigenous NGOs should be allowed to participate in such discussions, thus enhancing the development of civil society in Iraq. Once the security situation improves, both the government and non-government sectors should be provided international technical assistance on budgetary issues.
Oil Revenue Management and International Energy Security
A private and transparently managed oil and gas sector is vital to global energy security and thus in the national interest of the United States. Returning Iraq to the international oil markets is important for the Iraqi people, the United States and other Western countries, and the global economy. This would provide locally generated revenue to finance post-war reconstruction, provide an additional 2 million-4 million barrels per day to the oil market, and relieve the U.S. of the financial burden of Iraqi reconstruction.

Iraq's output prior to the Gulf War was 3.5 million barrels per day, while the oil discovery rates (50 percent to 75 percent) on new projects in the 1990s were among the highest in the world. Given Iraq's own output projections, it may be capable of pumping as much as 6 million barrels (by 2010) to 7 million barrels (by 2020) per day--more than double current production levels. In view of demand projections, especially increased demand from the large Asian economies such as India and China, the global market can easily absorb such an increase. The U.S. Energy Information Administration forecasts that oil consumption in Asia will grow by 55 percent from 2003 to 2025 and that natural gas consumption will increase by 100 percent.15

Generating, accounting for, managing, and expending this revenue for the Iraqi people is a huge responsibility that is complicated by the state-owned and state-managed infrastructure, poorly defined property rights, absence of a functioning legal system, a shattered public service, lack of consensus on how to own and exploit the oil reserves, and the large number of Iraqi poor with pressing needs.

Privatization should be undertaken only after a public education campaign and a good-faith effort to build a consensus among the Iraqis that private ownership of industrial assets, including commodities, is economically more efficient than a government-owned system.

Oil revenue from Iraqi oil should be transparently managed, adequately taxed, and protected from government abuse and corruption. To facilitate this process, creating a professionally managed oil fund should be seriously considered. Such a fund would protect oil revenues from the long hands of the Iraqi politicians. As in the Alaska model, part of the revenue should be distributed directly to the bank accounts of every Iraqi.

These are only some of the answers and challenges facing state oil revenue management. Those tasked with solving these problems owe the people of Iraq their best efforts not to repeat the abuses of the past.

Ariel Cohen, Ph.D., is Research Fellow in Russian and Eurasian Studies and International Energy Security in the Kathryn and Shelby Cullom Davis Institute for International Studies at The Heritage Foundation. This paper is based in part on a paper presented by the author at the Seminar on Public Policy of Oil Finance and Revenues Management, CSIS/Baker Institute, in Washington, D.C., on November 20, 2003. The author would like to thank Heritage Foundation research assistant Will Schirano for his asssistance in preparing this paper. He is also grateful to his colleagues Marc A. Miles and James Phillips for their helpful comments.


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1. Svetlana Tsalik, "The Hazards of Petroleum Wealth," in Caspian Oil Windfalls: Who Will Benefit? (New York: Open Society Institute, 2003), p. 1.

2. Benn Eifert, Alan Gelb, and Nils Borje Tallroth, "Managing Oil Wealth," Finance and Development, Vol. 40, No. 1 (March 2003), at www.imf.org/external/pubs/ft/fandd/2003/03/eife.htm (November 11, 2003). According to the authors, "Work on the theory of rent-seeking behavior illustrates how rent reorients economic incentives toward competition for access to oil revenues and away from productive activities, especially in nontransparent environments characterized by political discretion and unclear property rights."

3. World Bank, "Privatization: Eight Lessons of Experience," Policy Views from the Country Economics Department, July 1992.

4. Interviews with Mutasam Akram Hasan and Dr. Mussab H. Al-Dujayli, Istanbul, Turkey, January 29, 2004. Thus, for example, forcing high production levels without investment in modern technology and maintenance has resulted in massive penetration of water into the Kirkuk oil fields.

5. Ariel Cohen and Gerald P. O'Driscoll, Jr., "The Road to Economic Prosperity for Post-Saddam Iraq," Heritage Foundation Backgrounder No. 1633, March 5, 2003, at www.heritage.org/Research/MiddleEast/bg1633.cfm.

6. Federation of American Scientists, "The Biafra War," at www.fas.org/man/dod-101/ops/war/biafra.htm (November 11, 2003).

7. Oronto Douglas, Von Kemedi, Ike Okonta, and Michael Watts, "Alienation and Militancy in the Niger Delta: A Response to CSIS on Petroleum, Politics, and Democracy in Nigeria," FPIF Special Report, July 2003, at www.fpif.org/papers/nigeria2003.html (November 16, 2003). See also "Hostages from 4 Countries Head Home from Nigerian Oil Rigs," CNN.com, August 5, 2000, at www.cnn.com/2000/WORLD/africa/08/05/nigeria.hostages.reut (November 11, 2003), and "Nigeria: Forces Head for Oil Rigs," Africa Online, May 1, 2003, at www.africaonline.com/site/Articles/1%2C3%2C52870.jsp (November 11, 2003).

8. "Aceh's Rebel Chief Demands Full Independence from Indonesia," CNN.com, November 10, 1999, at 216.239.41.104/search?q=cache:G-37xS6574wJ:www.cnn.com/ASIANOW/southeast/9911/09/indonesia.aceh.03/
+aceh+independence+oil&hl=en&ie=UTF-8 (November 11, 2003). See also Embassy of Indonesia (Ottawa), "Rebels Urge Mobil Oil to Leave Aceh Province for Safety Reasons," January 4, 2001, at www.indonesia-ottawa.org/news/Issue/Aceh/010401_IO_01.htm.

9. "Iraqi Constitution Delayed," BBC World, October 1, 2003, at newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/2/hi/middle_east/
3153732.stm (November 12, 2003).

10. Martin Hutchinson, "What to Do with the Oil," United Press International, March 24, 2003.

11. Tsalik, "The Hazards of Petroleum Wealth," p. 7.

12. Embassy of the United States (Riyadh), "Saudi Arabia 2002 Economic Trends," May 2002, at riyadh.usembassy.gov/wwwhet02.html (November 16, 2003).

13. Herbert Docena, " No Money, No Play: US on the Brink in Iraq," Asia Times, October 10, 2003, at www.atimes.com/atimes/Middle_East/EJ10Ak01.html (November 16, 2003).

14. Terry Lynn Karl, The Paradox of Plenty: Oil Booms and Petro-States (Berkeley: University of California Press, 1997), p. 190, quoted in Tsalik, "The Hazards of Petroleum Wealth," p. 7.

15. Indo-Asian News Service, "India, China Will Drive Global Energy Use Increase," Asian Tribune, May 2, 2003, at www.asiantribune.com/show_news.php?id=4059 (November 16, 2003).

? 1995 - 2004 The Heritage Foundation
All Rights Reserved.
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Restarting the Flow: Restoring Iraqi Oil Production
by Ariel Cohen, Ph.D.
Backgrounder #1693

October 1, 2003 | |





The Iraqi people desperately need to have their oil flowing again to the global market. Restarting the flow of Iraqi oil would be a win-win proposition, as not only the Iraqis, but also consumers around the world would benefit from bringing the Iraqi oil supply back on line.

The main impediment to increasing Iraqi oil production at this point is lack of security--terrorist sabotage and looting. The recent attacks on pipelines and power stations are disrupting the flow of Iraqi oil and are clearly aimed at further impoverishing the Iraqis and even further disrupting their lives.

Since the end of major hostilities, saboteurs have bombed Iraqi pipelines more than eight times, causing $7 million per day in lost revenue.1 The culprits, including the remnants of Saddam Hussein's Ba'ath party and Islamic radicals, are following the old Leninist adage, "the worse, the better." They are betting on an upsurge in resistance to the U.S. presence in Iraq if they can severely disrupt the country's gasoline, electricity, and cooking gas supply. Saddam loyalists, local Islamist militants, and foreign jihadis who come to Iraq to fight the "infidels" believe that by escalating Iraq's suffering they can drive the Americans back across the ocean.

It is also true that the lack of security, the scarcity of gasoline and other fuels, and the intermittent supply of electricity are impeding the post-war reconstruction. Today, Iraq is producing less than half as much oil as it pumped before the war.

Saving Iraqi Oil Production
The attacks on the oil infrastructure are part of a premeditated campaign by the remnants of Saddam's regime and radical Islamist mujahideen organizations to stop the flow of Iraqi oil, harm the people of Iraq, and disrupt global oil markets. A secret memo dated January 23, 2003, reportedly issued by Saddam's security services, found in Iraq after the war, and published in the London-based Saudi daily Al-Hayat, directs pro-regime elements to destroy power generating stations and the water supply.2 It is likely that Saddam supporters and other terrorists are applying the same tactics to the oil industry.

Iraq is pumping 900,000 barrels per day--considerably less than the pre-war production level of 2.2 million-2.4 million barrels per day. The target of achieving pre-war production by the end of 2003 is in jeopardy, with further increases also in question. While Halliburton subsidiary Kellog, Brown and Root (KBR) and the U.S. Army Corps of Engineers are rehabilitating the Iraqi oil infrastructure, their mandate does not include providing pipeline security.3

The Iraqi oil ministry has begun paying tribal leaders in the south to keep saboteurs and thieves away from the pipelines.4 However, in at least one case, Sheikh Hatem Al Obeidi, an influential tribal leader who was on the government payroll to prevent attacks, instead abetted sabotage and was arrested by U.S. troops.5 Without security, neither the U.S. nor the Iraqis can repair the damage caused to Iraq's oil industry by the war or rehabilitate Iraq's infrastructure, which had fallen into a state of grave disrepair under Saddam.6

Meanwhile, the continued attacks are hurting both the Iraqi and Western economies. The West is still suffering from relatively high oil prices, as the economic recovery remains tenuous, and the Organization of Petroleum Exporting Countries has cut production by 900,000 barrels a day.7 As a result of the drop in Iraqi oil production and the Iraqi fiscal shortfall, U.S. taxpayers will need to subsidize 50 percent of the $6 billion Iraqi budget for fiscal year (FY) 2004.

On September 7, President Bush announced that he would request $87 billion for assistance to Iraq and Afghanistan for FY 2004, with the lion's share going to Iraq.8 A boost in oil production would remedy the Iraqi economic crisis, give the Iraqi people hope, and decrease levels of needed U.S. assistance funding.

Sabotage and Looting
The key impediments to reconstructing the Iraqi oil industry and raising its oil revenues are attacks on the 4,350-mile-long pipeline system and the 11,184-mile-long electric grid.9 The northern pipeline, which runs from Kirkuk to the Turkish port of Ceyhan, was attacked twice in June,10 twice in August, and twice again in September. After an attack on August 16, the pipeline burned for more than 48 hours. The pipeline from the giant Rumeila field in the south has also been bombed twice.

Security analysts divide these attacks into two distinct categories. The first is looting and plunder of the oil infrastructure, including fields, pumping stations, pipelines, and refineries. Organized crime is also raising its head, as demonstrated by the recent interception of a barge with 1,000 tons of stolen Iraqi oil.11 Smugglers usually ship oil to Iran, which reflags and re-exports it.

A much more serious threat, however, comes from groups opposing the U.S. and coalition presence, U.N. involvement, and the elements of Iraqi society participating in the Governing Council.

Thus far, senior U.S. officials, the Coalition Provisional Authority (CPA), and the the U.S. military have not publicly identified the main culprits in the pipeline attacks, which suggests that intelligence is insufficient.12 The ferocious terrorist bombings against personnel and the infrastructure continue.

The main threat comes from three types of groups:

Networks of the old regime operating underground, such as Ba'ath party officials, Iraqi intelligence officers, and Fedayeen Saddam militia.
Radical Sunni groups, such as the predominantly Kurdish Ansar al-Islam; Vanguard of Muhammad's Army; and others whom President Bush has characterized as "Al-Qaeda type fighters" and who are part of the international jihad movement.13 In his September 7 address to the nation, President Bush called Iraq "the central front of the war against terrorism."14 Anti-Western fighters are crossing into Iraq from Syria and the adjacent Gulf states, including Saudi Arabia.15 Funding for their movements comes from rich individuals and foundations in these same Gulf states and from the global radical Islamic community.
Extremist Shi'a groups, affiliated with Mullah Muqtada Sadr, suspected of attacks on leading Shi'a clerics.16 As the result of the assassinations, a militia called the Badr Brigade--the armed wing of the Supreme Council for the Islamic Revolution in Iraq--was allowed to operate after attempts to ban it by the coalition. Elements of the Lebanon-based Hizballah, an organization on the U.S. terrorism list, and other radical pro-Iranian groups and agents are also present in Iraq.


Key Iraqi pipelines have been paralyzed repeatedly by terrorism. On August 13, the day Iraq started pumping oil to the Turkish port of Ceyhan, terrorists attacked the Northern Kirkuk-Ceyhan pipeline. The same pipeline was attacked again on August 30.17 The pipeline, with a throughput capacity of 1 million barrels of crude per day, was attacked four times between May and September.18 Attacks occurred near the towns of Haditha and Hawja, which are close to the largest Iraqi oil refinery at Bayji.

Iraqi oil production is also suffering from years of centralized, state-run management of the oil sector, long-term lack of investment, and inadequate technical maintenance of the oil fields under Saddam. The absence of hard currency reserves to repair and restart the oil industry is slowing production. However, no investment and expansion are possible unless the physical security of the vast Iraqi oil infrastructure can be assured.

Pipeline Security: Planning and Execution
The military component of seizing Iraq's oil infrastructure during the war was brilliantly planned and executed. Unlike during the Gulf War, when Saddam succeeded in setting hundreds of Kuwaiti oil wells on fire, fewer than 10 wells were ignited in Iraq. U.S. and British troops seized and secured the oil fields, refineries, and pipeline infrastructure with minimal casualties and material damage. The final draft of an internal post-war report for the Joint Chiefs of Staff gave high marks for pre-war gaming and combined operations during the time of combat.

However, the post-war planning received the lowest grade, with "capabilities that fell short of expectations or needs, and need to be readdressed through new initiatives."19 CPA Administrator Paul Bremer has admitted that the U.S. forces are "stretched thin."20 Securing the oil infrastructure was an important part of post-war objectives, but the plans for post-war occupation of Iraq were not ready when the war started, and the Pentagon was forced to alter its original plan as the post-war violence escalated.21 Thus, it is not surprising that 80 percent of the damage to Iraq's oil infrastructure occurred after the war ended.22

Five months after the war, the U.S.-led coalition force in Iraq consists of 140,000 American troops and 20,000 international troops, including one British division and one Polish-led division. They are aided by over 54,000 Iraqi security personnel, including 37,000 police, 12,000 facility guards, and 5,000 border police and civil defense corps.

On September 4, in Baghdad, Secretary of Defense Donald Rumsfeld called for putting up to 75,000-100,000 former Iraqi officers and soldiers back in uniform to protect their country and fight its enemies. He also criticized Saudi Arabia and Syria for not doing enough to seal Iraq's borders.23

Faced with attacks on oil pipelines, the CPA is working to expand the Iraqi force charged with infrastructure protection. During this past summer, it discussed the provision of training to this security force with Kroll Associates and other private U.S. companies.24 With more international troops coming to Iraq, they can also assume responsibility for guarding the pipelines and infrastructure and training the Iraqi security forces, which will be tasked with protecting the pipelines in the future. As long as security is not restored, however, the American taxpayer will pay for this security force.

Criticism on the Hill and Beyond
Senators and Representatives, including prominent Republicans, as well as retired senior military officers have criticized the planning, numbers, and troop deployments in Iraq. Senator Richard Lugar (R-IN), chairman of the Senate Foreign Relations Committee, stressed his criticism of the planning done for post-war deployment but called on his colleagues to "rejoice" that the plan has been corrected. Representative Curt Weldon (R-PA), vice chairman of the House Armed Services Committee, expressed reservations about the planning for the war last winter.25

Senator Kay Bailey Hutchison (R-TX), Senator John McCain (R-AZ), columnist George Will, and Weekly Standard editor William Kristol--all outspoken proponents of Saddam's removal--have criticized the Administration for post-war mishaps.26 It is less surprising that Democrats, including Senators Joseph Biden (D-DE), ranking Democrat on the Senate Foreign Relations Committee, and Jack Reed (D-RI), a West Point graduate who served with the 82nd Airborne, are also criticizing the Administration for mistakes in post-war planning and deployment.

Among senior generals critical of the post-war performance in Iraq is General Anthony Zinni, the former head of the U.S. Central Command who has extensive experience in the Middle East and serves as a consultant to the U.S. State Department.27 The most prominent proponent of a bigger Army and a greater deployment in Iraq is General Eric Shinseki, the recently retired Army Chief of Staff, who called for "several hundreds of thousands of soldiers on the ground" and warned against a "twelve division strategy for the ten division army."28

Even if the actual size of the U.S. Iraqi deployment is not increased, it has to be refocused on intelligence and training of the Iraqi forces, while the number of coalition troops from other countries must go up, according to General John Abizaid, the current head of Central Command.29 This is also the opinion of the pre-eminent British military historian, John Keegan.30 Increased intelligence collection, anti-terrorist operations, and training should become the focus of the U.S.-led force in Iraq.

Protecting Iraqi Oil Revenue
The Bush Administration has issued an executive order barring claims in U.S. courts against Iraqi oil or proceeds from it.31 It has also coordinated with other permanent U.S. Security Council members--the United Kingdom, France, China, and Russia--on the imposition of a moratorium on Iraq's national debt.

The U.S. should further coordinate its actions with companies and sovereign claimants (states) to delay reparations for Gulf War damages and other claims. Iraq needs breathing space in order to restart its cash flow and get its oil industry up and running again.

Providing Security for the
Iraqi Oil Infrastructure
Iraq's oil reserves are the third largest in the world after Russia and Saudi Arabia. However, only 15 of its 73 discovered giant and large fields have been developed.32 Vast parts of the country remain unexplored.

According to current estimates, the investment needed to bring Iraqi production to about 3 million barrels a day will exceed $3 billion over the next two to three years. Over the next 10 years, $35 billion-$40 billion will be needed to boost production from the current 1.2 million-1.4 million barrels per day (MBD) to the pre-1979 production level of 5-6 MBD.

Before serious reconstruction work can begin, however, the physical security of the infrastructure needs to be achieved. To this end, the Bush Administration, including the CPA, and the Iraqi Cabinet should:

Conduct an assessment of security needs to provide for infrastructure protection in conjunction with the Iraqi oil ministry. Before serious reconstruction of the oil industry can begin, the coalition and the Iraqi cabinet must be able to assure physical security of Iraqi energy infrastructure.
Increase the number of Iraqi guards as needed to provide security. However, the rank-and-file and all officers must be adequately screened to root out Saddam's hard-core supporters and Islamic radicals.
Utilize coalition forces, especially the British, to train Iraqi security forces, including pipeline security units. British instructors have earned high marks the world over providing security and military training.
Hire an international security company to administer pipeline security and train the Iraqi security forces tasked with protecting the pipelines to complement military training.
Train the guards for the task at hand; deployment without training is self-defeating. The CPA has cut the training time for Iraqi police from 12 weeks to eight, and the quality of this force leaves much to be desired.33 Similar shortcuts in training for pipeline protection forces could lead to undesirable results.
Develop and conduct a public information campaign explaining to the Iraqis the importance of pipeline security and the resultant oil revenue. Such a campaign should emphasize the direct link between oil revenue and the provision of basic services and the growth in living standards.
Design a technological package to enhance infrastructure security, using satellite imaging, unmanned aerial vehicles/drones, video cameras, and sensors. This package would be integrated with the security provider (state or private).
Provide additional funding to repair the oil infrastructure. The rundown state of the oil infrastructure will require significant investment: up to $3 billion per year to get it up and running again. These funds can be provided on credit to the Iraqi Governing Council or the oil ministry, to be repaid from future oil revenues.
Work with the Iraqi oil ministry leadership appointed by the Coalition Provisional Authority and the Council to intensify the purge of former Ba'ath officials from the oil ministry and the oil industry.
Conclusion
Without adequate security, Iraqi oil will not reach global markets. Rebuilding the Iraqi oil sector through Western investment will not work as long as terrorists and looters are able to target technical personnel, pipelines, power lines, and other assets necessary for restarting oil production.

By liberating Iraq, the U.S. undertook an immense responsibility. Without Iraqi oil, the U.S. taxpayer will have to foot the bill for the occupation and reconstruction of Iraq. U.S. consumers will pay higher prices at the pump, and the U.S. and global economies will endure an indirect tax by paying higher energy prices. The alternative to restoring Iraqi oil production--misery for the Iraqi people and victory for the terrorists--is not an option.

Ariel Cohen, Ph.D., is Research Fellow in Russian and Eurasian Studies in the Kathryn and Shelby Cullom Davis Institute for International Studies at The Heritage Foundation.34


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1. Radio Free Europe/Radio Liberty, "Iraq: Pipeline Fire Costing $7 Million a Day," August 18, 2003, at www.rferl.org/nca/features/2003/08/18082003075830.asp. See also Walter Rodgers, Nic Robertson, and Jason Bellini, "3 U.S. soldiers killed in ambush near Tikrit," CNN.com, September 18, 2003, at www.cnn.com/2003/WORLD/meast/09/18/sprj.irq.main. The most recent explosions occurred on September 8 and 18.

2. This document was translated by the Middle East Media Research Institute in its Special Dispatch Series No. 538, July 17, 2003. Available at http://memri.org/bin/articles.cgi?Page=archives&Area=sd&ID=SP53803

3. Energy Intelligence Group, "Oil Flows at Kirkuk as KBR Begins Damage Assessment," Eye on Iraq, May 1, 2003, at www.energyintel.com/EyeOnIraq.asp (subscription required).

4. Bassem Mroue, "Oil Ministry and U.S. Troops Take Measures to Protect Iraq's Main Pipeline from Thieves and Saboteurs," Associated Press, July 4, 2003, at www.enn.com/news/2003-07-04/s_6207.asp.

5. "Iraq Tribal Sheikh Arrested Over Oil Blasts," Agence France-Presse, August 31, 2003, at www.ptd.net/webnews/wed/cs/Qiraq-oil-blast-sheikh.RMbd_DaU.html.

6. Energy Intelligence Group, "Oil Flows at Kirkuk as KBR Begins Damage Assessment." War damage included the bombing of the K3 pumping station at Haditha and a number of pipelines that crossed the Tigris around Tikrit.

7. John W. Schoen, "OPEC Cuts May Crimp Economy," MSNBC, September 24, 2003, at www.msnbc.com/news/
971120.asp?0sl=-23.

8. George W. Bush, "President Addresses the Nation," September 7, 2003, at www.whitehouse.gov/news/releases/2003/09/
20030907-1.html.

9. Pamela Hess, "CPA Speeding Police Training in Iraq," The Washington Times, September 2, 2003, at www.washtimes.com/
upi-breaking/20030902-012831-9370r.htm.

10. Lamia Radi, "Fires Blaze on Iraq Oil Pipeline After Twin Bomb Attacks: Residents," Agence France-Presse, June 13, 2003, at iafrica.com/news/worldnews/244870.htm.

11. Pacific Disaster Management Information Network, "Iraq Humanitarian Assistance Report," August 11, 2003, p. 3, at www.who.int/disasters/repo/10470.pdf.

12. Douglas Jehl and Dexter Filkins, "Rumsfeld Eager for More Iraqis to Keep Peace," The New York Times, September 5, 2003, at www.nytimes.com/2003/09/05/international/middleeast/05RUMS.html.

13. See also Genaro C. Armas, "Troops Called Not an Answer," Associated Press, August 25, 2003.

14. George W. Bush, "President Addresses the Nation."

15. Secretary Donald H. Rumsfeld and General John Abizaid, "DoD News Briefing," August 21, 2003, at www.defenselink.mil/
transcripts/2003, /tr20030821-secdef0604.html. See also Stephen Schwartz, "Reading Najaf," The Weekly Standard, September 3, 2003.

16. Aparisim Ghosh, "Terror at a Shrine," Time, September 8, 2003, p. 30. See also Tarek Al-Issawi, "Previously Banned Militia Patrols Iraqi Holy City, with Coalition's Blessing," Canadian Press, September 6, 2003, at www.canada.com/news/world/story.asp?id=517B3E75-E27D-42A2-BD33-E47782C941A6. The Badr Brigade was previously disbanded by the coalition, but after the murder of Ayatollah Muhammad Bakr al-Hakim and an earlier attack on his uncle, it is now being allowed to function again.

17. "Iraqi Oil Pipeline Ablaze," News24, at www.news24.com/News24/World/Iraq/0,,2-10-1460_1409548,00.html, and "Iraq Council Makes Security Demands," MSNBC News, August 30, 2003, at www.msnbcnews.com/news/959639.asp?cp1=1.

18. "Iraqi Oil Pipeline Sabotaged," Agence France-Press, August 13, 2003; see also Joseph Logan, "Bomb, Tech Problems Hit Iraq Pipeline," Reuters, August 16, 2003, and Celcan Hacaoglu and Bruce Stanley, "Iraq Resumes Pumping Oil from Northern Oil Fields through Turkish Pipeline," Canadian Press, August 13, 2003, at www.canada.com.

19. Rowan Scarborough, "Joint Chiefs Report: U.S. Rushed Post-Saddam Planning," The Washington Times, September 3, 2003,
p. 1.

20. Armas, "Troops Called Not an Answer."

21. Ibid.

22. Bruce Stanley, "Security the Top Priority for Iraqi Oil Industry As Looting Continues," Oil and Gas Reporter, May 27, 2003, at www.oilandgasreporter.com/stories/052703/ind_20030527006.shtml.

23. Douglas Jehl and Dexter Filkins, "Rumsfeld Eager for More Iraqis to Keep Peace," The New York Times, September 5, 2003.

24. Douglas Jehl, "U.S. Considers Private Iraqi Force to Guard Sites," The New York Times, July 18, 2003, at query.nytimes.com/gst/abstract.html?res=F30C17FC3B580C7B8DDDAE0894DB404482.

25. Amy Fagan and Rowan Scarborough, "Post-Saddam Planning Failures `Unforgivable,' Democrats Say," The Washington Times, September 4, 2003, at washingtontimes.com/national/20030903-115853-1572r.htm.

26. Sig Chrstenson, "Some Republicans Doubt Progress on Iraq," San Antonio Express-News, August 31, 2003, at
news.mysanantonio.com/story.cfm?xla=saen&xlb=180&xlc=1048090.

27. Thomas E. Ricks, "Ex-Envoy Criticizes Bush's Postwar Policy," The Washington Post, September 4, 2003, at
www.washingtonpost.com/wp-dyn/articles/A27846-2003Sep4.html.

28. Mark Thompson and Michael Duffy, "Is the Army Stretched Too Thin?" Time, August 24, 2003, at www.time.com/time/magazine/printout/0,8816,477891,00.html.

29. Rumsfeld and Abizaid, "DoD News Briefing."

30. Jack Kelley, "Troop Strength Debate Ranging," Pittsburgh Post-Gazette, August 23, 2003, at www.post-gazette.com/pg/03235/214252.stm.

31. George W. Bush, "Executive Order Protecting the Development Fund for Iraq and Certain Other Property in Which Iraq Has an Interest," May 22, 2003, at www.whitehouse.gov/news/releases/2003/05/20030522-15.html.

32. Emma Clark, "Iraq `Needs Foreign Oil Companies,'" BBC News, July 24, 2003, at news.bbc.co.uk/2/hi/business/3075521.stm.

33. Pamela Hess, "CPA Speeding Police Training in Iraq," The Washington Times, September 3, 2003, at www.washtimes.com/
upi-breaking/20030902-012831-9370r.htm.

34. The author would like to thank William Schirano, Research Assistant in the Kathryn and Shelby Cullom Davis Institute for International Studies, and Anita Greco and Irene Gorelik, interns at The Heritage Foundation, for their assistance with researching this paper. The author also wishes to thank Heritage Foundation colleagues Peter Brookes, James Phillips, and Jack Spencer, as well as Ed Badolato, Executive Vice President of the Shaw Group, and Dr. Gal Luft, Director of the Institute for Analysis of Global Security, for discussing concepts contained herein and commenting on the paper.



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? 1995 - 2004 The Heritage Foundation
All Rights Reserved.
Bolster Freedom, Not Dependence, in Iraq
by James Phillips and Marc A. Miles, Ph.D.
Executive Memorandum #900

September 19, 2003 | |





President George W. Bush has called on Congress to approve an $87 billion supplemental appropriations request, most of which is earmarked for Iraq. Congress should approve the Administration's request, which is sorely needed to stabilize Iraq, improve security against terrorist attacks, and finance reconstruction. But in the long run, only the Iraqi people can assure the successful transition to a secure and stable Iraq. Thus, Iraqis must be liberated from the restrictive economic system imposed by Saddam Hussein's dictatorship, just as they have been liberated from Saddam's tyrannical political system. As The Heritage Foundation's Index of Economic Freedom shows, countries with free and transparent economies are the ones best able to grow and prosper.

Saddam Stifled Private Enterprise
Saddam's regime inserted a number of restrictions into the Iraqi constitution and legal statutes that stifled private enterprise and assured state domination of the economy. The result was a sluggish economy increasingly dependent on the state-owned oil sector, which served the interests of Saddam's socialist Baath Party. In fact, Article 1 of the 1990 interim constitution, Iraq's most recent constitution, proclaims that the promotion of a socialist system is one of the basic goals of the state. Article 13 prohibits private ownership of natural resources and the "basic means of production." Article 18 prohibits foreign ownership of immovable property (land, buildings, and other permanent structures). Companies Law No. 21 of 1997 requires that all founders, shareholders, and partners of Iraqi companies must be Iraqi nationals or citizens of other Arab countries.

The net effect of these legal restrictions was to suffocate private enterprise, reduce job opportunities for Iraqis, perpetuate state monopolies over many sectors of the economy and discourage private investment. These distortions hurt the interests of the Iraqi people but enabled Saddam Hussein to appropriate Iraq's huge oil wealth to maintain himself in power, reward his supporters, and fund his grandiose ambitions to claim leadership of the Arab world and dominate the Middle East. Iraqis would be far better served by shaking off the dead hand of Saddam's Baathist commissars and undertaking free market economic reforms to jumpstart their limping economy.

Removing barriers to private Iraqi and foreign investment would also lower the burden on American taxpayers for rebuilding Iraq, which is projected to cost $50 billion to $75 billion. While Ambassador L. Paul Bremer, the Administrator of the Coalition Provisional Authority, has taken some steps to move Iraq toward a free market economy, including suspending tariffs and import fees, many laws that severely restrict free enterprise remain in effect.

To energize Iraq's moribund economy and help stabilize Iraq by giving Iraqis hope for a more prosperous future, the United States should:

Immediately abrogate the Iraqi constitution and legal edicts that obstruct economic reforms. The 1990 interim constitution, which was never approved by the Iraqi people through a free vote, was designed to prop up Saddam's Baathist regime by giving it total control over the country's economy. Ambassador Bremer should void the constitution and other harmful laws and strongly encourage the Iraqi committee charged with writing a new constitution to eliminate restrictions on private ownership of property. Setting aside these economic diktats would free Iraqis to own property, engage in private enterprise, and attract foreign investment that will help accelerate economic recovery.
Encourage the development of a modern legal system that recognizes property rights and is conducive to privatization. Protection and enforcement of property rights are important for fostering economic growth and foreign investment. Such guarantees are necessary to encourage Iraqis to take the risks necessary to invest in their own future. Iraqi laws should not discriminate against foreign or non-Arab nationals.
Prepare Iraqis for comprehensive structural reforms and privatization. The United States should encourage the Iraqi Governing Council to hire Iraqi expatriates and Western-educated technocrats who understand the benefits of economic freedom. The emerging Iraqi government should then launch a public information campaign to educate and prepare the people for structural reforms and privatization, particularly in the energy sector, which dominates the Iraqi economy. Suspending tariffs, freeing capital markets, and creating and protecting property rights is not enough. As the Index indicates, the Iraqi government should also sell state-owned enterprises, permit both foreign and local banks to do business with minimal regulation, reduce bureaucratic red tape, minimize labor laws, and implement low, flat taxes. Together, these reforms will create the basis for a strong market economy in Iraq.
Prepare a comprehensive economic reform package. Once the public is educated about reforms, the government must follow through. The U.S. government should continue to work closely with the Iraqi Governing Council to implement systematic economic reforms, including price deregulation; privatization of state assets in the utility, transportation, energy, and other sectors; liberalization of trade policy and seeking entry into the World Trade Organization; and a commitment to keep taxes, tariffs, and inflation low.
Conclusion
For more than three decades, Saddam Hussein's regime imposed severe political and economic restrictions on the Iraqi people. While the Iraqis have been liberated from Saddam's political repression, they continue to be hamstrung by Baathist-inspired economic repression. The United States should void these restrictions immediately and encourage the nascent Iraqi government to advance economic freedom to reinvigorate the economy. The sooner Iraqis are free to own property, invest private capital as they see fit, freely borrow from banks, set up businesses with minimal red tape, and trade products freely across the Iraqi border, then the sooner the Iraqi economy will revive, living standards will improve, and Iraqis will take ownership of their political future.

James Phillips is Research Fellow in Middle Eastern Studies in the Kathryn and Shelby Cullom Davis Institute for International Studies and Marc A. Miles, Ph.D., is Director of the Center for International Trade and Economics at The Heritage Foundation.



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? 1995 - 2004 The Heritage Foundation
All Rights Reserved.



The Road to Economic Prosperity for a Post-Saddam Iraq
by Dr. Ariel Cohen and Gerald P. O'Driscoll, Jr., Ph.D.
Backgrounder #1594
http://www.heritage.org/Research/MiddleEast/bg1594.cfm

September 25, 2002 | Executive Summary | |



As the Bush Administration and Iraqi opposition groups plan the future of a post-Saddam Hussein Iraq without its menacing arsenal of weapons of mass destruction (WMD), economic issues loom large. Iraq's economy has been grossly mismanaged for 40 years, and its people desperately need an alternative strategy to supplant the failed policies of its dictator. Sound economics are needed to help them rebuild their lives and their country after two decades of wars and four decades of repression under the current regime.
Saddam Hussein's regime has succeeded in bankrupting the country even though it boasts the world's second largest oil reserves after Saudi Arabia. Gross domestic product (GDP) for 2001, at the market exchange rate, is estimated to be only about one-third the level in 1989.1 Iraq also is hobbled by its $140 billion foreign debt.2 This devastation was wrought by such policies as the nationalization of the country's chief export commodity, oil; extensive central planning of industry and trade; the 1982-1988 war against Iran; and the invasion of Kuwait, which precipitated the 1991 Gulf War. And Saddam still stubbornly refuses to meet the terms for lifting the economic sanctions that the United Nations has imposed on his regime.

Saddam also has succeeded in diverting at least $6.6 billion--primarily in revenues from smuggled oil and kickbacks--to his program to develop nuclear, chemical, and biological weapons and platforms for their delivery. He continues to support terrorist organizations, such as Hamas and the Popular Front for the Liberation of Palestine (PFLP), which the U.S. Department of State includes on its list of state sponsors of terrorism.3 Presumably, a post-war U.S. military presence in Iraq and Iraq's future security forces will ensure that the new Iraqi government does not continue to develop WMD and support terrorism.

The future of Iraq depends not only on the ouster of the repressive regime, but also on the ability of the new Iraqi leaders to reverse the damage through policies that will spur real economic growth. The sooner the threat from Saddam's WMD programs ends and the Iraqi economy recovers, the sooner the United States and the other security forces will be able to depart.

A double strategy of ensuring security and enabling economic growth will need international support. The Bush Administration should help Iraqi opposition leaders to develop an economic reform package for their country. The new post-Saddam federal government should develop a modern legal system that recognizes property rights and is conducive to privatization; create a public information campaign that prepares the people for structural reforms and privatization; hire expatriates and Western-educated Arabic speakers with financial, legal, and business expertise for key economic positions; deregulate prices, including prices in the utility and energy sectors; prepare state assets in the utility, transportation, pipeline, energy, and other sectors for privatization; keep the budget balanced and inflation, taxes, and tariffs low; liberalize and expand trade; and launch an effort to join the World Trade Organization (WTO).

The Tough economic Road Ahead
Iraq's Lifeblood: Oil
As Chart 1 and Chart 2 show, the Iraqi economy is dominated by the oil sector, which provides more than 60 percent of Iraq's GDP and 95 percent of its hard currency earnings.4 The economic sanctions imposed by the U.N. in the past decade to try to force Saddam to give up his weapons of mass destruction not only have not worked, but have helped to depress foreign trade.


According to the U.S. General Accounting Office (GAO), however, oil smuggling and illegal surcharges of 25 cents to 50 cents a barrel on legal oil purchases bolster Saddam's regime. These illegal activities during 1996-2002 have provided unaccounted revenues of at least $6.6 billion,5 which Saddam has been free to spend to develop WMD and support terrorism.6 How much Saddam is actually spending on his deadly arsenal is hard to tell. The lack of information is so pervasive that the international financial institutions (IFIs), foreign government agencies, and private businesses that provide country economic analysis and data do not publish any official economic statistics or estimates for Iraq.7

This means that no recent data on Iraqi government consumption of GDP are available. In 1993, the most recent year for which data are available, government consumption amounted to 13.9 percent of GDP. According to the Economist Intelligence Unit,

Oil revenue has been the mainstay of government income since the 1950s. In 1968 the oil-based nature of the economy was reinforced by the introduction of a centralized socialist system, with the government regulating all aspects of economic life other than peripheral agriculture, personal services and trade.... Meanwhile, the state's centrality to the economy has increased because the vast majority of imports and foreign exchange have been controlled by the government.8
The socialist Ba'ath government has demonstrated gross mismanagement of the oil sector. During the 1960s, exploration stopped and the sector was nationalized, which bred corruption and mismanagement. Oil production has barely increased since 1980. In 2001, oil production stood at approximately 2.8 million barrels a day. Today, Saddam's regime controls oil exploration, extraction, refining, pipelines, ports, and all utilities, but oil export prices are set by the U.N. sanctions regime.

Taxing Imports, But Not Smugglers
The Economist Intelligence Unit notes that direct taxation has never been a preferred means of raising revenue in Iraq.9 As the International Monetary Fund (IMF) reports, "imports are restricted by [U.N.] sanctions. All imports subject to import duty are also subject to a customs surcharge.... Imports of commodities are normally handled by the public sector."10 Although the government of Iraq inspects and regulates all imports, a small private sector is involved in considerable smuggling and black market currency exchange activities.

Tough Investment Environment
Even though Iraq has permitted some foreign investment in its oil industry and private sector, mainly to help it rebuild from the damage of the Gulf War, it discourages most capital inflows. The legal system does not guarantee contracts. Inflation in Iraq remains high. From 1994 to 2001, Iraq's weighted average annual rate of inflation was 80.4 percent; for 2001-2002, the rate has ranged from 60 percent to 70 percent.11

The government controls almost all prices, and rationing is the norm for items like food. The regime continues to distribute imported goods in what is essentially a highly centralized command economy structure, although it does retain the ability to skew the distribution of food and other items as a way to favor cronies.

There is no application of modern property rights protected by legislation and enforced through the courts. The Revolutionary Command Council (RCC) of Iraq holds all executive, legislative, and judicial authority. The RCC's chairman, Saddam Hussein, appoints a council of ministers who are theoretically vested with executive authority, but in fact they are able only to rubber-stamp the decisions of the RCC and its chairman. The judiciary is not independent; consequently, there is no check on Saddam's power to override any court decision.



AFTER Saddam: The outlook for Iraq and World Energy Markets
One thing is clear: Saddam's regime, obsessed with control and coercion, is destroying the wealth of the Iraqi people. After liberation from this regime, it will be important for the Iraqi people to rebuild their economy, especially the oil sector, increase GDP and improve the standard of living, attract foreign investment, and improve government services through privatization.

The Cost of Rebuilding

The cost of rebuilding the country will be high. If Operation Desert Storm reconstruction costs are used as the basis for estimation, the cost of rebuilding Iraq after Saddam's regime falls will be in the $50 billion to $100 billion range.12 Together with repaying the Iraqi foreign debt, the more realistic figure is $200 billion.13 However, as long as structural economic reforms are undertaken, Iraq's vast oil reserves are more than ample to provide the funds needed to rebuild and boost economic growth.

The United States, through its executive directors at such IFIs as the IMF and World Bank, and other international governmental and non-governmental organizations, should begin to advise the future leaders of Iraq's three primary ethnic groups to establish policies that will lead to a thriving modern economy. These policies should be based on "best practices" developed around the world in the 1990s, when the largest government privatizations in history occurred.

During the Iran-Iraq War and the post-Gulf War sanctions period, Iraqi petroleum production declined significantly. Saudi Arabia filled the void, generating a net profit of $100 billion. The funds it generated represent monies that should have benefited the Iraqi people.14 (See Chart 3.)



Following the demise of Saddam Hussein, it is unlikely that the Saudi kingdom would transfer a fraction of its production quota under the Organisation of Petroleum Exporting Countries (OPEC) regime to Iraq to compensate for those lost profits and facilitate its rebuilding. Iraq will need to ensure cash flow for reconstruction regardless of OPEC supply limitations. Combined with the potential privatization of the oil industry, such measures could provide incentive for Iraq to leave the OPEC cartel down the road, which would have long-term, positive implications for global oil supply.

Potential Benefits of Leaving the OPEC Regime

An Iraq outside of OPEC would find available from its oil trade an ample cash flow for the country's rehabilitation. Its reserves currently stand at 112 billion barrels, but according to the U.S. Energy Information Administration, it may have as much as 200 billion barrels in reserve.15 Iraqi officials estimate even more: According to oil minister Amir Muhammad Rashad16 and Iraqi Senior Deputy Oil Minister Taha Hmud, the reserves can be as high as 270 billion to 300 billion barrels, making them equal to Saudi Arabia's.17

Iraq's 1990 output prior to the beginning of the Gulf War stood at 3.5 million barrels a day, while oil discovery rates on a few new projects in the 1990s were among the highest in the world: between 50 percent and 75 percent. Given Iraq's own output projections, it may be capable of pumping as much as 6 million barrels (by 2010) to 7 million barrels (by 2020) a day, more than doubling current production levels.18 (See Chart 4.)



Depending on the dynamics of global economic growth and world oil output, Iraq's increase in oil production capacity could bring lower oil prices in the long term. An unencumbered flow of Iraqi oil would be likely to provide a more constant supply of oil to the global market, which would dampen price fluctuations, ensuring stable oil prices in the world market in a price range lower than the current $25 to $30 a barrel. Eventually, this will be a win-win game: Iraq will emerge with a more viable oil industry while the world will benefit from a more stable and abundant oil supply.

PRIVATIZATION:
Learning from the past
Boosting oil exports and oil industry privatization by itself still may not be sufficient for growth over the long haul. To rehabilitate and modernize its economy, a post-Saddam government will need to move simultaneously on a number of economic policy fronts, utilizing the experience of privatization campaigns and structural reforms in other countries to develop a comprehensive policy package.

Several lessons from other countries' privatization experiences are particularly relevant to Iraq's situation. Specifically:

LESSON #1: Privatization works everywhere

Between 1988 and 1993, 2,700 state-owned businesses in 95 countries were sold to private investors.19 In 1991 alone, $48 billion in state assets were privatized worldwide.20 Privatizations led to higher productivity, faster growth, increased capacity, and cheaper services for consumers.

In one study, the World Bank reviewed 41 firms privatized by public offerings in 15 countries. This review demonstrates that privatization will increase the return on sales, assets, and equity. As privatized firms grow, they often increase their workforces. In another study, the World Bank reviewed 12 privatization efforts in four countries, and its findings also demonstrate why privatization is good for the economy as a whole, no matter where it is implemented.21

LESSON #2: Privatization works best when it is part of a larger structural reform program

Privatization needs to be accompanied by reforms to open markets, removal of price and exchange rate distortions, reductions in barriers to entry, and elimination of monopoly powers. In addition to these policies, governments should enact legislation that protects consumer welfare.22 Such successful structural reform and privatization programs were implemented in the 1990s in Poland, Hungary, the Czech Republic, and the three Baltic States, particularly Estonia.

LESSON #3: Privatization of large enterprises requires preparation

Successful privatizations of large enterprises may necessitate such advance actions as breaking them into smaller competitive units, recruiting experienced private-sector managers, adopting Generally Accepted Accounting Principles (GAAPs), settling past liabilities, and shedding excess labor.23

LESSON #4: Transparency and the rule of law are critical

Opaque privatization and allegations of corruption and cronyism provide political ammunition to the opponents of market-based policies. To eliminate those problems and be successful in its privatization efforts, the government must adopt competitive bidding procedures, objective criteria for selecting bids, and protocols for hiring independent privatization management firms, and establish a privatization authority with minimal bureaucracy to monitor the overall program.24

LESSON #5: A minimal safety net is necessary to support laid-off workers and prevent social unrest

Buyouts of the state-owned enterprise's management and labor force, as well as distribution of some of the privatized firm's shares to its management and labor force, can go a long way toward alleviating social tensions that might undermine public support for privatization.

LESSON #6: Privatization is taking place in the Middle East

Privatization is no longer an affair of affluent or middle-income countries. From Margaret Thatcher's Great Britain, privatizations of state-owned assets and structural reform policies spread to many countries in Africa, Asia, and Latin America, including the Philippines, Malaysia, Jamaica, and Sri Lanka. An internal study of World Bank managers in the Middle East and North African department found that many were enthusiastic in supporting privatization efforts in their regions.25 A number of Middle Eastern states, including Iraq's neighbors Turkey26 and Kuwait,27 are pursuing privatization of their telecommunications, transportation, utilities, and oil sectors and services, while others, such as Iran and Saudi Arabia, have declared their intentions to privatize assets and are in the policy discussion stage.28

Lessons from Oil and Gas Privatizations
Oil privatization remains a politically painful issue in many countries. Economic nationalists claim oil is a "national patrimony,"29 whereas socialists and radical Islamists call private and foreign ownership of natural resources "imperialist" and other such pejoratives. Such rhetoric has one goal: to keep a precious and profitable resource in the hands of the ruling elite, be it a communist party politburo, a dictator, or a group of mullahs.

In fact, oil is a commodity and should be managed according to the laws of economics and best business practices. Even a country as fiercely nationalist as Russia recognizes this and is undertaking the largest oil sector privatization in history. The lessons from past experience in oil privatizations are also positive. Specifically:

ENERGY SECTOR LESSON #1: First "entitize," then privatize

The Conservative government of Margaret Thatcher successfully privatized some British oil assets in the 1980s. In the early 1990s, Russia carved up its state-run oil ministry into regional monopolies. It created joint stock companies, later selling stock to the Russians, first, and then to foreigners. The Ministry of Privatization distributed some stocks to managers and workers in order to smooth the path to privatization. Since privatization, many of these stocks, such as in LUKoil, Tyumen Oil Co. (TNK), and Yukos, have risen in price considerably.

The Russian government did not go all the way, however. For example, it did not privatize Transneft, a company that controls its pipeline infrastructure, or fully privatize some oil companies, such as Slavneft and Zarubezhneft and GAZPROM, the giant natural gas monopoly that boasts the world's largest natural gas reserves and controls a 90,000 km pipeline network.30 The partial privatization effort has led to friction between state-controlled entities and the privatized-publicly held companies over pipeline access.

ENERGY SECTOR LESSON #2: Oil privatization generates high economic efficiency and market capitalization

The results of Russian oil privatization are fascinating: While the privatized Russian oil companies significantly expanded their production and exports and significantly increased market capitalization, GAZPROM did not. The government-controlled pipeline operator also has had difficulty providing adequate pipeline capacity to the quickly developing oil sector.

Meanwhile, privatized Russian companies not only have attracted Western portfolio investment, but also have been more successful than GAZPROM in attracting capital for foreign direct investment. Several leading Russian publicly traded oil companies also transformed their antiquated, Soviet-era accounting practices to the GAAP standard, hired Western managers, and became centers for dissemination of Western management and accounting skills across Russia's industrial sectors. Moreover, Russia's largest oil companies, such as LUKoil and Yukos, are fast becoming major global oil players. LUKoil recently purchased 1,300 Getty gas stations in the United States, and LUKoil and Yukos are selling American Depository Receipts (ADRs) on the New York Stock Exchange.

ENERGY SECTOR LESSON #3: Keep it clean, and keep it profitable

The major problem with the Russian oil privatization effort has been its relative opacity, especially in the early 1990s. Scandals included the oil-for-shares debacle in which Boris Yeltsin's government took loans from banks in exchange for shares of the oil companies. The government never repaid the loans, and the companies became the property of politically connected banks.31 The insider dealing provoked a political row that discredited privatization in the public's eyes.

Other problems in Russia have been privatization through vouchers and the denial of access to foreigners in early privatization stages in order to assuage nationalists in the parliament. These policies resulted in much lower revenues (by as much as a factor of 10) than the government could have received for the privatized assets.



AN ECONOMIC REFORM PLAN FOR POST-SADDAM IRAQ
The Bush Administration should provide leadership and guidance for the future Iraqi government to undertake fundamental structural economic reform. This process should include a massive, orderly, and transparent privatization of state-owned enterprises, especially the restructuring and privatization of the oil sector. These steps would greatly enhance needed access to global capital markets.

U.S. political commitment will be needed to motivate international organizations to provide appropriate expertise and technical assistance. Inter alia, these organizations could include IFIs such as the International Monetary Fund and the World Bank, and would likely encompass such diverse non-governmental organizations (NGOs) as the National Endowment for Democracy, the Center for International Private Enterprise, the American Bar Association, and the AFL-CIO.

In particular, the Bush Administration should convince the future federal government of Iraq to come to an agreement on how oil revenues are taxed and proceeds are distributed to the country's three distinct ethnic regions--Shiite Arabs, the Kurds, and the Sunni Arabs. Successfully privatizing the country's oil fields, refining capacity, and pipeline infrastructure will mean higher efficiencies and higher tax revenues in the oil sector.

What a New Iraqi Government Must Do

The Administration, the IFIs, and other economic decisionmakers should prepare and provide support for a future federal Iraqi government to:

Develop a modern legal environment that recognizes property rights and is conducive to privatization. Protection and enforcement of property rights and access to successful alternative dispute resolution mechanisms are vital policies for fostering economic growth and foreign investment. Iraq also will need to build modern and well-functioning regulatory and supervisory frameworks and institutions in the oil and gas, banking, securities, and financial services areas. Such a legal and business environment should be equitable and non-discriminatory, and it should not distinguish between Iraqi-Arab nationals and foreigners.
The U.S. government, its allies, and international organizations should be ready to provide technical assistance in the legal, economic policy, and public administration areas. Working cooperatively with the United States, the European Union, and the IFIs, the post-Saddam government of Iraq will need to boost the court system and the rule of law. It will need to provide legislation to allow the use of broad alternative dispute resolution mechanisms outside of Iraq, as the local laws may change too quickly (and the local court system too slowly) for local judges to be able to follow and apply new legislation. Education for judges about the latest legal developments in the economic area will also be important. The courts will have to boost the enforcement of court rulings independent of the executive branch. The central government will need to pay judges and court employees adequate salaries to keep corruption in check.

Educate and prepare the Iraqi population for structural reform and privatization through a public information campaign.
Only when the public, including key stakeholders, elites, and the population at large, understand the goals of economic reform will they become more receptive to change and less likely to succumb to the anti-Western demagoguery that undoubtedly will emanate from the remnants of the discredited Ba'ath establishment and Islamic fundamentalists. The new Iraqi government will need to use the media and the educational system to explain the benefits of privatization and the changes to come in order to ensure broad public support.

Hire Iraqi expatriates, as well as other Western-educated Arabic speakers with financial, legal and business backgrounds, for key positions in government.
Examples of this approach in Eastern Europe demonstrate that Western-educated experts can implement economic reforms better than a former socialist bureaucracy can. Younger, well-educated technocrats have an advantage in their ability to communicate effectively with both locals and Westerners, including international providers of technical assistance. In implementing structural reform, the best results are achieved by teams of local and Western experts working together.

Deregulate prices in Iraq, including prices in the utilities and energy sector.
Quick price deregulation will be key to ensuring an adequate supply of goods for consumers and ending rationing. It will contribute to increased exports of oil and gas, which in turn will provide additional earnings and tax revenues for the government to share among the regional and local governments.32

Prepare to privatize assets in the industrial, utility, telecommunications, banking, transportation, port and airport, and pipeline and energy sectors.
The post-Saddam Iraqi government should prepare to privatize government assets by creating government-held companies instead of ministries, issuing stock for these companies, and implementing guidelines that allow for the introduction of modern management practices and GAAP standards. The central government should hire consulting firms to execute comprehensive assessments of companies it wishes to privatize in order to itemize inventory, to take stock of assets and liabilities, and possibly to settle some of their debts in preparation for privatization.
In particular, the Oil Ministry and regional oil companies should be restructured to transform them into attractive government-owned oil companies as an intermediary stage before initial public offering (IPO). For example, one company may focus its work in the southern portion of the country, another in the central region (around Baghdad) and the Western desert, and the third around Kirkuk in the North. Three more companies may be created, one to operate the pipelines, the second to operate the refineries, and the third to develop natural gas.

The stages of preparation for privatization could include:

Taking inventory of assets and liabilities;

Exercising necessary efficiency-improvement steps, such as retraining and layoffs (with compensation);

Introducing GAAP and other modern financial and management practices;

Signing international conventions against nationalization of foreign investments, such as the Convention on the Settlement of Investment Disputes between States and Nationals of other States (the Washington Convention), the World Bank's Convention on the Multilateral Investment Guarantee Agency (MIGA), and the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (1958);

Issuing company stock;

Running the companies under new, transparent, and efficient management for at least two years; and

Taking companies on road shows and completing IPOs in major financial centers such as New York and London, and floating stock in international markets.
Given adequate implementation of each of these stages, the time frame for this privatization effort could be four to five years after the new government is installed by the people of Iraq. During this time, the U.S. government and the IFIs would have to ensure that the political will for privatization remains intact. Management and accounting consultants hired by the new Iraqi government would have to ascertain that the program is transparent and on track.

Moreover, after privatization, Iraq must demonstrate that it is not losing tax revenue and that the government's oil revenue is distributed among the regions equitably and efficiently, allocated to the worthy causes, and not wasted, looted, or abused, which could undermine the entire economic reform program.

Keep the budget balanced and inflation, taxes, and tariffs low.
International experience demonstrates that lower and flatter taxes (in the range of 20 percent or less), applied uniformly and in a non-discriminatory fashion, are an important investment magnet, especially for a country like Iraq that is rich in natural resources. Moreover, oil revenues will allow Iraq to keep the budget balanced and import tariffs low. Such a stable macroeconomic policy is likely to attract massive investment from a variety of sources, including the Middle East and Asia, not just the West, and boost income and employment.

Liberalize and expand trade, and launch an effort to join the World Trade Organization.
A study by the Council on Foreign Relations has demonstrated that a majority of Middle Eastern countries suffer from high import tariffs, red tape, and corruption--problems that depress GDP growth.33 Elimination of import taxes and tariffs and implementation of trade liberalization would provide an additional economic development engine for Iraq. The Bush Administration should provide technical assistance for trade liberalization and support Iraq's eventual membership in the WTO.
Conclusion
For the Iraqi people, structural economic reform and comprehensive privatization of government assets is necessary to stimulate recovery and provide stability after years of disastrous economic policies under Saddam Hussein. The winning strategy of structural reform and privatization also would benefit the industrial world, the United States and its allies, countries of the Middle East, and the developing world.

Iraq's return to global markets would allow for a more abundant and stable energy supply, a higher cash flow for the Iraqi people, and numerous business opportunities for the region and the world. Iraq's restructuring and privatization of its oil and gas sector could become a model for oil industry privatizations in other OPEC states as well, weakening the cartel's influence over global energy markets.

Ariel Cohen, Ph.D., is Research Fellow in Russian and Eurasian Studies in the Kathryn and Shelby Cullom Davis Institute for International Studies, and Gerald P. O'Driscoll, Jr., Ph.D., is Director of the Center for International Trade and Economics, at The Heritage Foundation.


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1. U.S. Department of Energy, Energy Information Administration, "Iraq: Country Overview," at http://www.eia.doe.gov/emeu/cabs/iraq.html.

2. Ibid.

3. U.S. Department of State, Office of the Coordinator for Counterterrorism, "Appendix B: Background Information on Terrorist Groups," Patterns of Global Terrorism-2000, April 30, 2001, at http://www.state.gov/s/ct/rls/pgtrpt/2000/2450.htm.

4. Energy Information Administration, "Iraq: Country Overview."

5. U.S. General Accounting Office, U.S. Confronts Significant Challenges in Implementing Sanctions Against Iraq, GAO-02-625, May 2002, at http://www.gao.gov/atext/d02625.txt.

6. Alix Freedman and Steve Stecklow, "Secret Pipeline: How Iraq Reaps Illegal Oil Profits," The Wall Street Journal, May 2, 2002.

7. Gerald P. O'Driscoll, Jr., Edwin J. Feulner, and Mary Anastasia O'Grady, "Iraq," in 2003 Index of Economic Freedom (Washington, D.C.: The Heritage Foundation and Dow Jones & Company, Inc., forthcoming).

8. Ibid.

9. Economist Intelligence Unit, "Country Report, July 2002."

10. O'Driscoll et al., "Iraq," 2003 Index of Economic Freedom.

11. Ibid.

12. Bill Gertz, "Tab to Rebuild Iraq, Kuwait Estimated at $100 Billion," The Washington Times, March 4, 1991. More recent estimates confirm this range.

13. Julian Borger, "Post-Saddam Iraq Will Cost You, U.S. Warned," The Guardian, August 2, 2002, at http://www.guardian.co.uk/bush/story/0,7369,767755,00.html. Lawrence Lindsey, Director of the National Economic Council, is quoted as estimating a cost for the Iraq war of between $100 billion and $200 billion. It is unclear what is included in that figure. See Bob Davis, "Bush Economic Aide Says Cost of Iraq War May Top $100 Billion," The Wall Street Journal, September 16, 2002, p. 1.

14. "Round Table on Declining Oil Prices and Its Political Consequences in the Middle East," Middle East Studies, Vol. 6, No. 1 (Spring 1999), pp. 5-36, at http://www.netiran.com/Htdocs/Clippings/Economy/990322XXFE01.html.

15. Energy Information Administration, "Iraq: Country Overview," p. 14.

16. "Iraq's oil reserves bigger than Saudi Arabia, Minister Says," BBC Monitoring, August 6, 2001, Al-Jumhuriyah Web site in Arabic, August 4, 2001.

17. "Iraq's Oil Industry: An Overview," Platts, at http://www.platts.com/features/Iraq/oiloverview.shtml.

18. "Iraq Building E&D Project List for Post-U.N. Sanctions Period," The Oil and Gas Journal, Vol. 95, No. 15 (April 14, 1997).

19. Energy Information Administration, "Privatization and the Globalization of Energy Markets," Energy Plug, at http://www.eia.gov/emeu/plugs/plpgem.html.

20. Madsen Pirie, "Privatization," Concise Encyclopedia of Economics, at http://www.econlib.org/library/encl/privatizaiton.html.

21. World Bank, "Privatization: Eight Lessons of Experience," Policy Views from the Country Economics Department, July 1992, at http://www.worldbank.org/html/prddr/outdeach/or3.htm. For the latest annual update on global privatizations, see Reason Public Policy Institute, "Privatization 2002: Putting the Pieces Together," at www.rppi.org/apr2002.pdf.

22. World Bank, "Privatization: Eight Lessons of Experience."

23. Ibid.

24. Ibid.

25. Ibid.

26. See information at Republic of Turkey, Office of the Prime Minister, Ministry of Privatization Administration, http://www.oib.gov.tr/.

27. Dr. Shafiq Ghabra, "The View from Kuwait," The Middle East Forum, March 18, 2000. For more on Kuwait, see U.S. Department of Commerce, "Commercial Overview," at http://www.arabchamber.com/arab-coutnries/Kuwait/commercial_overview.htm. See also International Monetary Fund, "IMF Concludes Article IV Consultation with Kuwait," Public Information Notice No. 00/27, April 4, 2000, at http://www.imf.org/external/np/sec/pn/2000/pn0027.htm.

28. See Energy Information Administration, "Saudi Arabia," January 2002, at http://www.eia.doe.gov/emeu/cabs/saudi.html. On Iran, see "Round Table," Middle East Studies, at http://www.netiran.com/Htdocs/Clpppings/Feconomy/990322XXFE01.html.

29. Mary Jordan, "Drilling Stakes at Mexico's Heart," The Washington Post, January 25, 2002.

30. The Russian government retained 38 percent of GAZPROM shares.

31. Energy Information Administration, "Russia," at http://www.eia.doe.gov/emeu/pgem/ch4a.html.

32. John C. Hulsman, Ph.D., and James Phillips, "Forging a Durable Post-War Political Settlement in Iraq," Heritage Foundation Backgrounder No. 1593, September 24, 2002.

33. Bernard Hoekman and Patrick Messerlin, "Harnessing Trade for Development and Growth in the Middle East," Council on Foreign Relations, 2002.



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? 1995 - 2004 The Heritage Foundation
All Rights Reserved.

>> JOBS WATCH, PENSION REFORM...

Employment, Unemployment, and the Puzzle of Payroll Anemia
by Alison Fraser and Rea S. Hederman, Jr.
WebMemo #440

March 5, 2004 | printer-friendly format |


Today's release from the Bureau of Labor Statistics, showing job gains of 21,000, reflects stability in the labor market but came in below most economists' expectations. Though by all other measures the economy is strong, job growth has been slower than expected over recent months. But is this really a "jobless recovery?" Or is a fundamental restructuring in several sectors of the economy changing the rules of game, for the overall benefit of most workers and consumers?

The Numbers, in Perspective
Today's numbers are below consensus forecasts, which expected about 125,000 new jobs to have been created. Employment increased by 21,000, and the unemployment rate held steady at 5.6 percent, which is low by historical standards. The average rate for the first quarter of 2004 promises to be about 5.6 percent, significantly below that of the fourth quarter of 2003. Looking at the big picture, trends in unemployment continue to move in the right direction.



While the economy is strong, even booming in some sectors, employment has only slightly increased. GDP growth in the fourth quarter of 2003 was 4.1 percent, strong by any measure. Business investment and exports surged in the quarter, up by 15.8 and 21.0 percent, respectively. Even pessimistic economists agree, the economy is anything but "stagnant."



Changing Times
So why has job growth been so slow? One factor may be that certain structures of the economy are changing. The sectors that have failed to rebound are in a period of a transition. For example, despite strong growth in manufacturing output, that sector will never employ the numbers that it once did. Strong productivity growth for several quarters is evidence of this fundamental shift. Still, this news is positive for most workers in America. The increase in productivity means lower prices and greater value for consumers; in other words, workers have greater purchasing power than in the past. Higher productivity often leads to higher wages, which have already increased by almost 1 percent since December. And because inflation is low, these gains are not nominal -- workers really are better off.



Reflecting these changes, the nature of unemployment has shifted, as well. Fewer workers are unemployed due to layoffs or downsizing. Most unemployed now are new entrants to the labor force and reentrants who have been out of the workforce for some time. It is also telling that the number of workers working part-time for "economic reasons," as the BLS puts it (that is, they are unable to find full-time work), has fallen by nearly 400,000 since November. While it may be tough for the unemployed to find new work, those working are less likely than before to lose their jobs and more likely to see their wages or hours increase.



The Bottom Line
As last month's strong GDP numbers show, the President's tax cuts are doing almost exactly what economists expected: business investment is booming, consumer demand and exports are strong, and the economy has grown considerably. What has been puzzling, though, is that these gains haven't translated into similarly rapid employment growth. Worth considering is whether some industries, such as manufacturing, have changed their patterns of employment. If this transition turns out to be the case, while some workers will experience hardships many more workers will benefit in the long-term.

What the government should not do is to make it more difficult for these industries to adapt themselves to the changing business environment. In terms of regulations, economic policy, and tax policy, firms need the greatest flexibility possible to make necessary changes, boost their competitiveness, and, ultimately, grow. One piece of this would be to make the President's tax cuts permanent, so that businesses face less uncertainty when they invest in new equipment, facilities, and workers. Another would be to cut the corporate tax rate or reform international taxation, both of which have been proposed as replacements for the FSC/ETI tax system.


Alison Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies, and Rea Hederman, Jr., is Manager of Operations of the Center for Data Analysis, at The Heritage Foundation.



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? 1995 - 2004 The Heritage Foundation
All Rights Reserved.




http://www.heritage.org/Research/Labor/CDA04-03.cfm

Diverging Employment Data: A Critical View of the Payroll Survey
by Tim Kane, Ph.D.
Center for Data Analysis Report #04-03

March 4, 2004 | |

One of the most visible economic issues in this presidential primary election cycle is the apparent failure of the economy to create jobs. Even though the U.S. economy has been growing strongly for over two years, many analysts have focused on an illusion of 2.2 million "lost jobs" since President George W. Bush took office. The illusion stems from a survey of employment conducted each month by the U.S. Bureau of Labor Statistics (BLS), officially referred to as the Current Employment Statistics (CES) survey and commonly known as the payroll survey.

Like all surveys, the CES suffers from a number of problems that are well known to data analysts. However, the payroll survey contains a unique methodological problem: It systematically overcounts the jobs held by one person when that person changes employers. The existence of a potential turnover effect is not new. But worker turnover is far below its pre-war norm, with potentially large consequences for estimates of total employment.

This paper takes a critical view of the payroll survey and finds that:

The payroll survey double-counts many workers who change jobs and is now artificially deflated because job turnover is down. Decelerating turnover in 2002-2003 explains up to 1 million jobs artificially "lost" in the payroll survey since 2001.
The BLS household survey indicates record high employment. The disparity of 3 million jobs (in employment growth) between the household and payroll surveys since the recovery began is unprecedented.
The disparity between the two BLS surveys of total employment is cyclical. The disparity widens during recessions and narrows during periods of rapid growth in gross domestic product (GDP). Such variation strongly suggests a statistical bias in one of the surveys.
Payroll survey data are always preliminary. Past revisions have regularly shown the initial estimates to be off by millions of jobs. For example, initial estimates of job losses in 1992 were revised in 1993, 1994, and 1995 and now show net job creation.
The payroll survey does not count the surge in self-employment. The household survey has recorded a surge of 650,000 self-employed workers. This number may be even higher if modern workers in limited liability companies and in consulting positions with traditional firms are not identifying themselves as self-employed.
Most economic indicators suggest an improving economy since November 2001, except for the loss of payroll jobs according to the CES. Aside from the payroll survey, most labor indicators suggest an improving labor market: Real wages are rising, unemployment is low and declining, and jobless claims are down. The sharpest contrast is the record high level of total employment: 138.6 million according to the Labor Department's household survey, formally known as the Current Population Survey (CPS).

Since the recession ended in November 2001, payroll jobs are down by 716,000 as opposed to a CPS increase of 2.2 million employed Americans. This 3 million-job mystery can be resolved through a critical examination of what the two surveys measure and how those measures should be recalibrated for an economy that has evolved dramatically. Congress should not be moving to protect jobs or meddle in labor markets if, as the facts show, those markets are functioning well. This report reviews the problems with the payroll survey and highlights two new innovative data series recently introduced by the Department of Labor.

The level of total employment according to the household survey, shown in Chart 1, is different from the payroll level by definition. For example, nonfarm payrolls do not count agricultural and self-employed workers. More important, payrolls will count an individual twice if he or she works two jobs or changes jobs during the pay period. Although the two survey employment levels track closely over time, the gap between them is somewhat irregular.



Chart 2 shows the accumulated increase in employment in the months after a recession ends and compares the current recovery period to the two survey levels averaged over the last five recessions. Trends of job recovery in the different surveys after the last five recessions appear almost identical, whereas this recovery has seen unprecedented declines in payroll employment. With the other economic indicators signaling a normal recovery during 2003, Chart 2 makes a compelling case that the payroll survey--not the household survey--is behaving oddly.



Is The Bls To Blame?
The statistical and economic staff at the BLS has built a well-deserved reputation for professionalism and public service, yet the recent divergence among surveys during a sensitive political season has led some to cast doubt on the government workers who publish the data or to question their methodology. But many doubts are politically driven and are a poor substitute for objective inquiry. It is unfair to criticize the BLS for the job growth mystery, especially when the first possible explanation is that both surveys are behaving normally.



The results are puzzling because the surveys are measuring a changing economy, not because the surveys are any different or less correct in their methodology. Analysts know intuitively that today's economy is structurally different from the economy of five or 10 years ago, but the consequences of the new economy are difficult to predict. Perhaps payroll jobs are weak simply because the modern company relies less on payrolls for engaging the labor force.

If that is the case, the current pattern of declining payroll jobs alongside rising individual employment makes perfect sense. However, additional measurements are needed to prove the hypothesis.

In fact, without any additional funding or guidance, the BLS quietly unveiled an innovative data series known as Business Employment Dynamics (BED) on September 30, 2003. The BED series aspires to reveal "creative destruction" in labor markets. The BED reports gross job flows on all new jobs gained and all jobs lost, in contrast to the net result available in the CES and CPS surveys. The results are startling and may serendipitously solve the current mystery of the diverging surveys. More than 7 percent of jobs are destroyed each quarter, and another 7 percent are created. The implications of total job turnover and its effect on net payroll counts are profound.



Conventional Wisdom Prefers the Payroll Survey
It is our judgment that the payroll survey provides more reliable information on the current trend in wage and salary employment.--Kathleen P. Utgoff, Commissioner, Bureau of Labor Statistics1

Analysts of U.S. labor markets have usually preferred the payroll survey data over the household survey data. Since the two total employment series have generally moved in tandem, there was little need even to question the payroll data. In fact, the large swings from one month to the next in CPS employment estimates made them less useful for forecasting. However, the widening divergence in the two series has shaken the conventional wisdom.

On numerous occasions, the BLS has reaffirmed the reliability of the payroll survey, especially for comparisons of employment levels over time. Other respected observers, including economists at the Federal Reserve and Congressional Budget Office (CBO), have also expressed a preference for the payroll survey. A recent paper by Elise Gould of the Economic Policy Institute makes one of the strongest cases for the orthodox view and serves as a good baseline for conventional errors in the conventional wisdom.2 The rationale for favoring the CES payroll series is often repeated in the media and boils down to three seemingly clear and compelling arguments:

Rationale #1: The household survey is volatile.
This rationale is fundamentally a critique that the CPS is not designed as a time series. Gould says, "The household survey is extremely volatile, indicating its inadequacy for analyses of month-to-month employment trends," which she attributes to its "smaller sample size." But the experts at the Labor Department assert that the CPS is designed as a time series, notably ratios like the unemployment rate and the employment-population ratio.

However, level estimates like total employment and the size of the labor force reported in the CPS are extrapolated based on population estimates and are consequently subject to large annual adjustments to the Census Bureau's population estimate. Footnotes in the Joint Economic Committee's Economic Indicators warn that civilian employment levels from the household survey are "not strictly comparable with earlier data."3 Comparability is problematic because the annual fix gets lumped into the month of January for every year. Those adjustments could be smoothed over each month of the year if the goal was to make the series comparable over time. Until now, the BLS had no incentive to do so, especially because the payroll survey was already serving as the time series to watch.

The high variability on a month-to-month basis is a concern, but critics should take care to understand its real cause. High variability in the CPS, beyond the January population spikes, is not a result of a small sample size. Instead, the rotating nature of the CPS sample drives its variability. One-quarter of respondents are rotated out of the survey each month, which keeps the survey respondents fresh. The overriding advantage of the household survey is its direct interface with American workers, which makes it a higher quality measure in many ways.

While high variability might rule out relying on the household survey for short-term movements, it by no means disqualifies it for longer periods. Considering that the divergence controversy spans the three years since the recession began in March 2001, holding the short-term variability rationale against the household survey seems to be a stretch.

Rationale #2: The sample size is much larger for the payroll survey.
Payroll numbers are based on a much wider sample than the CPS, covering one-third of all U.S. workers every month. Moreover, CES survey results are confirmed and updated annually by benchmarking the data to records for all U.S. businesses that file unemployment insurance papers. The result is nearly complete coverage of the U.S. workforce, or 98 percent of all jobs. The household survey has a smaller sample of 60,000 individual households.

A brief introduction to statistics would confirm that a survey sample of 60,000 is more than adequate. Much smaller samples are used every day in media polls assessing everything from voter attitudes to consumer product ratings, and they are perfectly valid.

The danger in the "payroll survey is bigger" rationale is mistaking quantity for quality. True, the CES has a bigger sample--but of what?

The payroll survey is largely automated. Companies in the sample file their payroll figures based on computer software that simply counts up the number of unique payroll recipients each pay period, whether an employee works for one day or 30. A waiter who works at five establishments in one pay period will be counted as five jobs. Meanwhile, self-employed and agricultural workers are not on a payroll and are left uncounted by the CES. If modern companies are employing fewer workers on traditional payrolls, the CES is not currently designed to take such a trend into account.

Rationale #3: The payroll survey has a stronger relationship with GDP.
If forecasting GDP growth is the goal, then 50 years of research suggest that the payroll survey is preferable because of its proven high correlation with GDP. This rationale is not one used in public debates, but it may be more important than anything else for academic economists and Wall Street analysts. Billions of dollars ride on the accuracy of economic forecasts.

But what if the payroll-GDP correlation is an illusion of revised data? While the historical CES employment series has an indisputably strong relationship with growth rates, those historical data have undergone multiple revisions. An even bigger concern is whether the strong relationship is due to an internal statistical bias. Economists should be very careful to check for an endogenous influence of growth rates on payroll counts.4

Analysts Confounded by the Divergence
Many analysts have reviewed the survey divergence, and it remains one of the most fascinating economic mysteries of the modern recovery. However, policymakers, who rely on simplicity and certainty, have an intuitive need to select a favorite of the two surveys. The CBO weighed in with its August 2003 Economic Outlook, stating:

The establishment survey better reflects the state of labor markets, the CBO believes, not only because other indicators also imply rather weak labor-market conditions but because large revisions or misreporting appears less likely for the establishment than the household data.5
Ben Bernanke, a prominent academic economist and recently appointed Governor of the Federal Reserve, commented on the survey disparity on November 6, 2003. His views are a fair reflection of the academic economists, and he confesses, "[W]e do not fully understand the differences in employment reported by the payroll and household surveys, and the truth probably lies in between the two series." Nevertheless, Bernanke was quick to emphasize the conventional wisdom that "greater reliance should probably be placed on the payroll survey."6

Yet many serious investigations into the details have been unable to solve the mystery. The BLS reviewed the disparity in a major study for its October 2003 Advisory Committee, concluding, "To date, BLS has not been able to pinpoint a source or sources of these differing trends in employment growth."7 More recently, the February 2004 Economic Report of the President noted that "the explanation for why these two surveys' results have diverged so markedly over the last few years, and what this might indicate about the economic recovery, remains a puzzle."8

Clearly, the tide is turning, and many analysts are reconsidering the conventional wisdom. As the months go by, the payroll data are growing seriously out of step with other indicators, such as higher real earnings, booming hiring indices, and declining jobless claims. (See Table 1.)

Leading the turnaround, the CBO's January 2004 Economic Outlook modified its earlier support for the payroll survey, suggesting that "it is less clear which survey provides a more accurate picture of labor market conditions in the second half of 2003." The CBO notes that tax withholding also seems to be consistent with stronger employment growth.9

Smoothing the Household Series
As the divergence between the surveys has grown, analysts have become increasingly frustrated that the household data are not comparable over time because of the population adjustments that are lumped into the January data for every year. The Joint Economic Committee recommended a process for smoothing the adjusted population level over the entire time period and produced a comparable household employment time series in late 2003.10

In response, the BLS recently published two briefs that describe a process for making incremental population adjustments to the household series.11 The first brief, "Creating Comparability in CPS Employment Series" by Marisa Di Natale, was published in December 2003 and is the BLS's first effort to make its household series on total employment comparable across different months. The second paper was published on the BLS Web site on February 6, 2004, and offers, for the very first time, a smoothed total employment CPS series dating back to 1990.12

This innovation allows analysts to use CPS measures of employment growth in the same manner that the payroll numbers are used each month. It also eliminates the key rationale against household survey employment data.

The Divergence in Surveys Is Unprecedented
With the new, comparable household employment data, this report presents a side-by-side comparison of employment growth unclouded by population spikes. This new view confirms previous suspicions that the present divergence in job growth between surveys is unprecedented. The last five recessions experienced survey discrepancies, but nothing like the 3 million-job divergence of recent years. In fact, the household survey outpaced the payroll survey by around 500,000 jobs in three of the last five recoveries, while payrolls surged faster in the other two recoveries. But the divergence has never before reached this magnitude.

Interestingly, a historical view of the two series reveals that the total employment gap has widened and narrowed with regularity over the years, suggesting a relationship between the disparity and the business cycle.

Chart 3 shows the total level of civilian employment (from the household survey) minus the total nonfarm employment (from the payroll survey).13 The household survey count is always higher because it includes some categories of workers that the payroll survey does not. Obviously, payroll counts only nonfarm jobs on business payrolls (with corporate benefits like health care), while the household measure includes every American who says he or she has a job. The disparity makes some sense then, but a change in the survey disparity, especially a divergence that follows the business cycle, raises questions. Which survey is mis-measuring the economy?



One can see that the disparity has been trending downward since 1948, which is probably a reflection of the net decline in farmers. The curious cyclical movements are three sudden declines in the early 1950s, mid-1960s, and mid-1990s. The only sharp increase in the disparity has occurred during the past three years. Economic expansions mark the three periods when the gap declined.

The 2000-2003 spike in the survey disparity clearly coincides with the current recession and recovery. The question, then, is whether this recovery is somehow unique. First, the late-1990s stock and dot-com bubbles coincided with high worker confidence and high job turnover, and this inflated payroll counts. Second, the recovery in late 2001 began immediately in the wake of terrorist attacks on America followed by two wars. Turnover has not recovered because employees are expressing a preference for job stability over job movement, and this deflates payroll statistics.

A little noticed study published in 1999 supports this line of reasoning.14 Economists Chinhui Juhn and Simon Potter at the Federal Reserve Bank of New York were concerned about the growing divergence between the two employment surveys. It may come as a surprise from today's perspective, but the concern then was that payroll jobs were growing much faster than the number of workers in the CPS. Faced with the inverse of today's puzzle but lacking any clear solution to the divergence, they pointed to a potential error in population estimates underlying the household survey. Analysts now know that population adjustments still leave much of the survey divergence unexplained and that the jobs gap "bubble" of 1999 mirrored the stock market bubble.15 The question remains: How much was a bubble of real jobs and how much was a statistical illusion?

Problems with the Payroll Survey: Revisions
The conventional wisdom that the CES is superior for month-to-month trends has one major drawback: Monthly payroll data are preliminary. For example, the initial payroll number for December 2003 was a meager 1,000-job increase; yet it was revised up to 16,000 after one month and will be revised again. Since January 1990, 15 percent of preliminary CES reports that showed job growth were later revised to show job losses (or vice versa).

The following disclaimer accompanies every month's Employment Situation report:

[I]n the establishment survey, estimates for the most recent 2 months are based on substantially incomplete returns; for this reason, these estimates are labeled pre-liminary in the tables. It is only after two successive revisions to a monthly estimate, when nearly all sample reports have been received, that the estimate is considered final.
Thus, while the payroll survey may eventually be better for month-to-month analysis of the economy in retrospect, it is by no means appropriate for real-time analysis.

Preliminary revisions are not, in fact, the end of the story. Even after all the establishment responses are submitted for the CES, the final estimate is still based on a sample, not on the entire universe of establishments. Those estimates are significantly revised once per year when the comprehensive universe of payroll employers is incorporated into the benchmark.

The result of benchmarking is another lesson in caution, as post-benchmark CES data are usually--not rarely--quite different from the pre-benchmark series. Chart 4 shows the dramatic difference between preliminary estimates of total U.S. jobs and current estimates. During the early 1990s and 2000s, payroll jobs were overestimated, and during the mid-1990s, they were underestimated, often by 1 million jobs.




The Myth of a Jobless Recovery in 1992
The critical months of the 1992 presidential campaign coincided with a string of erroneous payroll survey reports. Although the recession was officially over as of March 1991, jobs continued to erode according to the payroll survey. In April 1991, total nonfarm employment was a preliminary 109.3 million. Today, that number is listed as 108.5 million. In October 1992, the payroll count was announced as 108.4 million, and voters went to the polls with that number in mind. It was called a jobless recovery and blamed on President George H. W. Bush. But today, the October 1992 payroll survey measure of total nonfarm employment is listed as 109.0 million.

The CES was overestimating total employment in the early months of the 1991-1992 recovery by 700,000-860,000 jobs, but underestimating in the last five months of 1992 by 235,000-522,000. Interestingly, corrections were made not just during the initial benchmarks, but also in 1993 and 1994 and even in later years.

Fair-minded observers should recognize that the payroll survey methodology is not to blame for the snafu. Rather, the problem was traced back to errors in unemployment insurance records, which have since been fixed.

On one hand, the peculiar situation is a reminder that statistics--especially survey data--are not ultimate truth and are prone to bugs. On the other hand, one would then expect 1992's situation to be unique. It is not.

A History of Large Revisions in Payrolls. The variance of 1992 payroll reports was not unique. Table 3 summarizes the differences between originally reported data and current revised data. The first column reports the average difference for the 12 months of each calendar year, where error equals the preliminary estimate of payroll jobs minus the current estimate of payroll jobs. In 1990, for example, initial payroll counts were overestimated by an average of 883,800 jobs.



Oddly, the average error for 1992 was much lower, typically an underestimation of 79,000. However, an average may be misleading: Half the months could have positive errors of 200,000, and the other half could have negative errors of 200,000.

The second column in Table 3 reports standard deviation, which is a measure of monthly error variability over a given year--not variability from one month to the next, but from the typical month's preliminary estimate to the revised current estimate. The year 1992 saw the highest standard deviation in payrolls (512,600), while 1991 data were relatively stable. However, high variability is the rule, not the exception, and is thus a concern for anyone relying on real-time payroll data.

The lessons are that preliminary data are not final, final data are subject to annual benchmark revisions, and a single year's benchmark is not the end of seasonal adjustments. And there is always the odd case like 1992, in which a statistical error corrupts the data. In its defense, the BLS has made great strides in 2003 in updating its methodology--primarily by changing to what is called a probability sample--to avoid large future revisions. This should remind any observer that current methodologies are not written in stone.

The bottom line is that either the current payroll data will be revised significantly or they will not. If they are revised, the CPS is essentially vindicated. The more intriguing possibility is that there are structural problems within the payroll survey that have only just now surfaced in the wake of the odd recovery of the "new" economy. If this is the case, then the payroll numbers will not be revised in the traditional sense. The loss of payroll jobs may be permanent as the workforce shifts to new forms.

Problems with the Payroll Survey: Self-Employment
As the debate over the survey disparity has unfolded, most observers have focused on the definitional case against the payroll survey. However, most attempts to refine the apples-to-oranges comparison into an apples-to-apples comparison miss the heart of the matter. This is not a case of a household survey that counts all workers (traditionally employed plus self-employed) versus a survey that counts only payroll jobs (traditionally employed). Instead, it is a case of a new class of workers who have consulting contracts, are not counted on payrolls, and still see themselves as traditional employees.

We can think of the payroll survey as counting all the "brown-eyed" workers at traditional firms, plus an extrapolation of the "blue-eyed" workers at start-ups who do not yet have payroll records. It does not count "green-eyed" individuals who are self-employed.

As for start-up firms, nobody knows exactly how many exist in the economy, but the BLS uses a careful process of estimating that number based on the observable fact that some portion of start-ups eventually grow into larger, traditional firms. In fact, BLS Commissioner Kathleen Utgoff addressed the issue when the major revisions were announced on February 6:

An issue often raised with regard to the establishment survey is that it might lag in recording a substantial portion of the job growth generated by new business for-mation. We do not believe that is the case.16
It seems that their effort to extrapolate the "blue-eyed" population of workers performed well during this recovery, though future benchmarks may revise the totals.

Start-ups should not be confused with self-employed workers. Economists Brian Wesbury,17 Allan Meltzer,18 and Robert Barro19 have independently suggested a rise in self-employment as the answer to the divergence mystery. Fortunately, the CPS specifically asks individuals whether they are self-employed, and indeed the ranks have swelled in the past two years. Seasonally adjusted self-employment levels are 647,000 higher than in November 2001. At a minimum, the "green-eyes" explain 20 percent of the divergence since the recession ended.

Self-Employee or Consultant? The problem with CPS counts of self-employment is that the workforce is evolving. It is by no means clear that Americans understand self-employment in the same sense that the government does. For example, a worker who leaves the IBM payroll and switches to a full-time consulting role with IBM is likely still to consider himself or herself an IBM employee. Certainly, the worker's family is likely to misidentify the worker's role as employed rather than self-employed. Likewise, partners at a limited liability company (LLC, a new company form) often consider themselves traditional employees when the government classifies them as self-employed partners.

The Internal Revenue Service first approved the limited liability company as a form of business organization in 1988. The most current data from Congress report an astounding 719,000 LLCs in 2000, with a growth rate of 34 percent per year.20 Clearly, the emergence of a "hazel-eyed" workforce is at hand--self-employees who consider themselves payroll "brown-eyes."

This is a seismic institutional shift in the structure of the economy. These kinds of changes imply that the CES levels will seem artificially low because workers will misidentify themselves as traditionally employed in the CPS, creating a wider divergence. A contract worker may no longer have benefits such as health insurance but may enjoy a higher paycheck. This "hazel-eyed" misidentification hypothesis gathered a boost from Utgoff's recent statement:

There are other differences between the two surveys that are more difficult to quantify. We know, for example, that some independent contractors are not reported as self-employed in the household survey but rather as wage and salary workers.21
One consequence of the emergence of a consultant-driven workforce is that U.S. labor markets are even more flexible--which, ironically, will improve the economy even as it makes payrolls look anemic. Sclerotic labor markets lead to higher unemployment rates, and this new economy is based on labor flexibility.

Another consequence is that statistics based on payroll counts will experience a level shift. The most obvious impact has been on productivity growth rates, which recently accelerated. Since productivity is simply a firm's output divided by the number of its payroll workers, the logical result of a reclassification of payroll workers is a boom in the productivity measure. Consultants are accounted as an expense, not a factor input.

Quantifying the consultant population is difficult given existing survey methods. The fundamental problem is psychological: If Americans have preconceived notions of what "self-employee" and "independent contractor" mean, there will be large degrees of misreporting in the CPS.

According to BLS economists, the best assessment of the new workforce comes from the biennial survey of Contingent and Alternative Employment Arrangements, most recently conducted in February 2001,22 which is regrettably right before the recession began. The relative size of the alternative workforce did not change from the 1999 survey, and no comparison to today's economy can be made because BLS did not have enough funding to conduct the survey in 2003. Even so, it is no clearer that survey respondents would identify themselves as independent contractors instead of self-employees when they maintain a self-image as traditional employees.

A rough estimate of "hazel-eyed" workers who misidentify themselves as "brown-eyed" may be useful. If new self-employed workers misidentify themselves in the household survey in 50 percent of cases, then the measured number of self-employed workers should actually be doubled. That would imply 1.3 million new self-employed workers, not 650,000. Congress and the BLS should consider rephrasing some questions on the household survey to begin tracking this emerging class of workers. In the meantime, awareness of the modern company structure and modern workforce will help policymakers to keep "anemic" payroll growth in perspective.



Problems with The Payroll Survey: Decelerating Turnover
The final problem with the payroll survey stems from the methodology that automatically counts payroll jobs, not workers. Consequently, the payroll survey indicates net job losses when the rate of worker turnover slows. This will occur even if the total level of employment is stable or slightly rising.

BLS experts Tom Nardone and co-authors proposed this intriguing theory in their October 2003 paper:

If a person leaves one job and starts another during a relatively short time span, they could appear on both employers' payrolls for the CES reference period. They would be counted twice.23
The payroll survey double-counts any individual who changes jobs during the pay period in which the worker is on two payrolls. Such turnover overcounting would normally be irrelevant if (1) the turnover rate was stable over time and (2) pay periods were stable. But if turnover rates increase or pay periods expand from weekly to monthly, overcounting will inflate the payroll count of total employment.

This is especially interesting because job turnover skyrocketed during the fast-paced labor markets of the 1990s, when labor demand was very high. In fact, Nardone and his team cite statistics from the Bureau of National Affairs showing that "in 1999 employee turnover reached its highest level in nearly two decades." Economic theory suggests that both hiring and quits, and maybe even layoffs, are pro-cyclical. Nevertheless, the BLS researchers did not attempt to quantify the inflationary effect of turnover on the CES.

The critical challenge facing any attempt to quantify the effect of turnover on payroll jobs is a dearth of data. Labor statistics for decades focused on whether a person was employed, in what sector, at what pay, and so on. It is much harder to keep track of a worker between jobs and over any length of time. Workers who have plentiful job opportunities were less interesting than the dilemma of those without. A 2001 paper by Federal Reserve economists Bruce Fallick and Charles Fleischman noted, "One important flow that has been poorly measured is the movement of workers from one employer to another without any significant intervening period of nonemployment."24

Deflating the Payroll Survey
The payroll survey systematically overestimates the level of jobs due to turnover, and it likely does so in a manner that varies with the business cycle. The following equation is a rough sketch of the process:



where Payrollrecorded is the level of total nonfarm employment published by the BLS, Payrolltrue is the actual number of payroll jobs held by individuals, and T is the amount of job turnover during the month. If turnover has a baseline minimum level as well as a variable component, the equation becomes:



Taking the process one step further, the variable amount of turnover could be influenced by employer confidence, worker confidence, GDP growth, and the increased use of monthly pay periods (as opposed to weekly or biweekly). The result can be described with:



where the coefficients (?1, ?2, and ?3) represent the size of each variable's effect on inflating the recorded payroll level over the true payroll level at a moment in time. When workers are hesitant to change jobs in the early part of a recovery, that effect can be partially captured by measures of GDP growth rates and lower levels of consumer-business confidence.

New Data on Gross Job Gains and Losses
Innovative new data from the BLS on gross job flows can illuminate the amount of turnover. Interestingly, the BLS has introduced not one, but two new data series on the gross numbers of jobs created and lost. These broader views of gross job flows, as opposed to the more limited data on net job changes in the CES and CPS, offer a potential confirmation of the turnover hypothesis.

The Labor Department recently started reporting a monthly data series on Job Openings and Labor Turnover (JOLTS) with data starting in December 2000. JOLTS measures ES-202 establishment data on "hires, quits, layoffs, discharges, and other separations for the entire month."25 In late 2003, the BLS unveiled another new series--Business Employment Dynamics (BED)--with quarterly data starting in the third quarter of 1992. Both series confirm that the rate of gross job flows has decreased during the past five years.

Job creation actually peaked in mid-1999 at 9 million jobs in one quarter, declining to 7.5 million in the second quarter of 2003, as shown in Chart 5. Gross job losses peaked in 2001 and have dropped back to normal levels. It seems that the problem with labor market payrolls is not high rates of job loss, but slower rates of job creation.



This report accepts the traditional assumption that job turnover equals the sum of gross job losses and gross job gains.26 The JOLTS turnover rate presented in this report equals the sum of the hires rate and separations rate. The BED turnover rate presented here is likewise a sum of the rate of job gains and rate of job losses.

Table 4 presents a summary of data on gross turnover from two different surveys. There are many caveats to using either JOLTS or BED as measures of turnover, and readers should realize that these are proxy measures. Gross job flows are not equivalent to turnover, because flows include departures (due to retirement, pregnancy, and injury) and new entrants (e.g., college graduates and immigrants). But the focus is on changes in gross flows, which logically are driven by changing turnover rates.



JOLTS and BED data concur that turnover rates have declined over the past two years, and the BED data show a peak in 1998 and 1999. JOLTS data show 0.8 percent fewer gross payroll jobs turned over per month in 2003 than in 2001. The BED series is quarterly but shows the same decline on a quarterly basis over the past two years. The BED data go even further back and show a large decline (1.7 percent) from 1999 turnover rates.27

A more complex concern with this paper's model of overcounting is that most pay periods are weekly, implying that the impact of these turnover rates is overstated by a factor of four or 12 because they are monthly and quarterly measures, respectively. If this were the case, one might think that the monthly JOLTS turnover would be one-third of BED turnover and that the change in rates would also be one-third as large. Instead, the decline in turnover rates is identical in both series in 2002 and in 2003. This implies a similar decline in turnover rates over any period. Nevertheless, the impact on payroll counts is muddled because the CES asks establishments to consider only the payroll period that includes the 12th day of the month. Hence, the decline in turnover would only potentially overcount a quarter of turnover cases per month, assuming (1) no response error by establishments and (2) no overlaps beyond the day of job change.

Common sense suggests that workers prefer no break in employment, especially if employment carries health insurance. One can even argue that the predominance of weekly pay periods mixed with payroll overlaps would heighten the degree of overcounting in the CES. This is mostly a speculative debate until researchers can help clarify the re-employment behavior of workers. The model presented below uses simple and clear assumptions in order to introduce the payroll survey's problem with overcounting.

Calculating Payroll Deflation
What is the impact of lower turnover on job counts? The answer depends on the rate at which departing workers are replaced (or, alternatively, the rate at which departing workers find new jobs) within the typical pay period. Calculating payroll deflation is a simple function:



The re-employment rate is difficult to specify. By definition, re-employed workers in the context of this model are never categorized as unemployed during their job transition, so figures on unemployment and unemployment durations are partially informative at best.

Research from the Labor Department offers some clues. One study of 1997-1998 labor turnover showed that the median duration between jobs for long-tenured displaced workers was 5.3 weeks, and only three weeks for younger workers.28 We can infer that most workers are re-employed quickly, especially if they are younger and are shorter-tenure. Another relevant study found that baby boomers held an average of 9.8 permanent jobs between the ages of 18 and 36. Common sense dictates that a majority of separations are described by workers who take up new opportunities without any gap of unemployment. The study also found that "more than two-thirds of these jobs were held in the first half of the period, from ages 18 to 27."29

These two findings imply that re-employment rates within a pay period are high for a great many workers and that an 80 percent rate is reasonable. Returning to Equation 4 and substituting in actual values for the payroll deflation since 1999 yields:



Thus, the payroll survey may have been deflated by nearly 1.77 million jobs since 1999 due to turnover alone. Considering the period since the recession ended, roughly 1 percent fewer jobs are counted per month in 2003 than during 2001, deflating the payroll survey by 1 million jobs.

Observers should keep in mind that these calculations are based on only a sketch of the turnover problem, using the best available data on gross job flows. Critics will remark that re-employment rates are inexact,30 but the fact that these rates are also pro-cyclical suggests a stronger, not weaker, deflation in payrolls. (See the Appendix.) Nevertheless, the existence of sizeable payroll deflation is the important point, because this problem in the payroll survey is simply not in the public conversation on jobs, and it should be.

Two implications of decelerating turnover are that:

A constant-turnover payroll correction would increase January's total nonfarm employment from 130.1 million to about 131.1 million, using a 2001 baseline for turnover rates. The illusion of 716,000 payroll jobs lost during the recovery becomes instead a gain of 300,000 jobs.
If worker confidence returns to its normal levels of the 1990s, more workers will be willing to change jobs and the payroll count will re-inflate.
Why are workers not changing jobs as frequently two years into the recovery? The likelihood is that many factors are reinforcing one another. First, economic studies show that turnover declines during a recession. Worker anxiety is probably heightened now more than usual by pessimism prevalent in the media. Certainly, the perception of losing jobs to workers in Mexico, India, and China is more profound than in previous eras.

It is non-economic factors, however, that make this era unique. The attacks of September 11, two wars in the Middle East, and constant terrorism alerts all generate psychological insecurity, which logically affects employment decisions. Americans are likely to place more emphasis on stability and other priorities as opposed to career opportunities during these times.

Conclusion
The payroll survey may be systematically undercounting job growth, creating an unprecedented job growth gap between its total employment measure and the household survey's. In the past six months, the BLS has approved new techniques to smooth the household survey's measure of total employment in order to make month-to-month comparisons. Analysts can now point with confidence to the employment of a record number of Americans as of January 2004 and the employment of an additional 2.2 million workers since the recession ended.

Why has the payroll survey missed so much recent job creation? The BLS is skeptical of the start-up explanation, and recent benchmarks confirm the BLS's position. Self-employment is a different matter, and the latest statement by the BLS commissioner confirms the appearance of a new class of contractors. The evolution of the workforce--specifically, the demographic emergence of consultants and contractors who do not consider themselves self-employed--is a likely wedge between the surveys. Self-employment has grown by over 600,000 in two years, and misidentification by the LLC and consulting workforce implies a much higher number.

Finally, a new hypothesis quantified in this report is that decelerating turnover is artificially deflating company payrolls, creating an illusion of 1 million jobs lost since 2001. The heightened insecurity since September 11, the Iraq war, and the specter of outsourcing are logical explanations for reduced turnover. Here again, innovative new data series on employment dynamics from the BLS allow economists to confirm this hypothesis.

Policymakers and analysts should treat payroll data with caution when making comparisons to employment levels in 2001 and earlier years. Contrary to the conventional wisdom, the best measure of job growth now comes from smoothed total employment reported in the household survey. Consequently, policies aimed at protecting illusory lost jobs are ill-advised. Employment in America is rebounding strongly, and the increasing dynamism of U.S. job markets should not be clogged by misguided and misinformed cures.

Tim Kane, Ph.D., is Research Fellow in Macroeconomics in the Center for Data Analysis at The Heritage Foundation.

Appendix: Technical Note on Calculating
Payroll Overcounts Due to Turnover
A more complex approach to payroll overcounts due to turnover would incorporate re-employment rates that vary over time. Because the aggregate re-employment rate within a pay period is pro-cyclical, it will amplify the cyclical overcount in the payroll survey.

A better model of overcounts would also divide the turnover rate in half in order to correct the double-count of job-changers rather than ignoring them altogether. This approach would use the following equation to calculate payroll inflation every year and adjust accordingly:



where T is the monthly turnover rate and R is the average re-employment rate within the pay period.

Re-Employment Rate
As utilized here, the re-employment rate is defined as the ratio of workers who are employed at a new job within the same pay period of their old job. This assumes that most employer-to-employer transfers are not interrupted by unemployment spells or departures out of the labor force, but are voluntary movements to an immediately better opportunity. In those cases, the worker will appear on two payrolls in a single pay period. There are also many cases where a transitioning worker will appear on both payrolls for multiple periods, but these considerations are excluded here. The basic re-employment rate can be described by:



where EE is the number of workers who move from employment to employment during the pay period, EU is the number moving to unemployment, and EN is the number moving to "not in the labor force" status. Thus, the denominator represents total separations. Here the simplifying assumptions are that all EE job transitions have a single payroll overcount (realistically, some will have no overcounts and some will have multiple overlapping payrolls) and that all EU and EN transitions are defined completely by a spell that outlasts the pay period.

This paper assumes a re-employment rate of 80 percent within a monthly pay period. Using CPS data from 1994-2000, Fallick and Fleischman estimate R to be around 40 percent.31 Their paper does not offer a time series for re-employment rates. While the 80 percent rate used here may seem high, it is based on assumptions derived from Labor Department research. Furthermore, this does not calibrate for multiple payroll overlaps.

A model that incorporates half turnover and changing re-employment rates yields results similar to the simple model presented in Equation 4. Calculation of the "complicated" model indicates that payroll jobs were inflated as shown in Table 5. The net effect is a 1.3 million-job deflation since the recovery began (a deflation of 2.0 million since 1999), higher than the simple model.


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1. Kathleen P. Utgoff, "Commissioner's Statement on the Employment Situation," U.S. Department of Labor, Bureau of Labor Statistics, September 5, 2003, at www.bls.gov/news.release/archives/jec_09052003.pdf.

2. Elise Gould, "Measuring Employment Since the Recovery: A Comparison of the Household and Payroll Surveys," Economic Policy Institute Briefing Paper No. 148, December 12, 2003.

3. Economic Indicators January 2004, prepared for the Joint Economic Committee by the Council of Economic Advisers, p. 11.

4. It is well-known that GDP growth is driven by increases in factor inputs such as labor and capital, implying a direction of causality: Increases in employment lead to faster GDP growth. However, estimating this relationship is problematic if growth rates also cause higher employment. Because growth and employment are jointly determined, they are known as endogenous. Subsequent forecasts of GDP growth that do not take the endogenous effect into account can be biased, overestimating the impact of employment on growth. This paper's hypothesis is not that growth causes employment per se, but that higher growth inflates the CES measure of jobs.

5. Congressional Budget Office, The Budget and Economic Outlook, An Update, August 2003, p. 34.

6. Governor Ben S. Bernanke, remarks at the Global Economic and Investment Outlook Conference, Carnegie Mellon University, Pittsburgh, November 6, 2003.

7. Tom Nardone, Mary Bowler, and Jurgen Kropf, "Examining the Discrepancy in Employment Growth Between CPS and the CES," October 17, 2003.

8. Economic Report of the President, February 2004, pp. 49-50.

9. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2005 to 2014, January 2004.

10. Joint Economic Committee, A Tale of Two Employment Surveys, October 14, 2003.

11. Marisa L. Di Natale, "Creating Comparability in CPS Employment Series," U.S. Department of Labor, Bureau of Labor Statistics, December 2003, at www.bls.gov/cps/cpscomp.pdf.

12. U.S. Department of Labor, Bureau of Labor Statistics, "Current Population Survey 1990-2003 Employment Adjusted for Population Controls," at www.bls.gov/cps/cpspopsm.pdf (March 2, 2004).

13. The household series for this figure is a four-month moving average, based on the revised household survey measure of total employment, which is smoothed for census population adjustments of 1990-1999 and 2000-2002, using a methodology recommended by the BLS.

14. Chinhui Juhn and Simon Potter, "Explaining the Recent Divergence in Payroll and Household Employment Growth,"
Current Issues in Economics and Finance, December 1999.

15. The Census Bureau does in fact revise U.S. population estimates annually. In January 2004, for example, the population estimate since the 2000 census was revised down by 560,000. But census revisions do not explain either the "narrowing" survey convergence in 1996-1999 or the "widening" survey divergence of 2001-2003.

16. Kathleen P. Utgoff, "Commissioner's Statement on the Employment Situation," U.S. Department of Labor, Bureau of Labor Statistics, February 6, 2004, at www.bls.gov/news.release/jec.nr0.htm.

17. Brian Wesbury, "The Bush Boom," The Wall Street Journal, September 15, 2003, p. A20.

18. Allan H. Meltzer, "A Jobless Recovery?" The Wall Street Journal, September 26, 2003, p. A16.

19. Robert J. Barro, "Don't Sweat the Sickly Employment Numbers," Business Week, January 26, 2004, p. 32.

20. Joint Committee on Taxation, "Background and Proposals Relating to S Corporation," June 18, 2003 at
http://www.house.gov/jct/x-62-03.pdf .

21. Utgoff, "Commissioner's Statement on the Employment Situation," February 6, 2004.

22. "The survey found 8.6 million independent contractors (6.4 percent of total employment), 2.1 million on-call workers (1.6 percent of total employment), 1.2 million temporary help agency workers (0.9 percent of the employed), and 633,000 contract company workers (0.5 percent of total employment). The proportions of workers employed in all four alternative arrangements were about unchanged since February 1999." U.S. Department of Labor, Bureau of Labor Statistics, Contingent and Alternative Employment Arrangements, February 2001 (emphasis added).

23. Nardone et al., "Examining the Discrepancy in Employment Growth Between CPS and the CES."

24. Bruce Fallick and Charles Fleischman, The Importance of Employer-to-Employer Flows in the U.S. Labor Market, Federal Reserve Board Finance and Economics Discussion Series 2001-18, April 2001.

25. Kelly Clark and Rosemary Hyson, "New Tools for Labor Market Analysis: JOLTS," Monthly Labor Review, December 2001, p. 33.

26. "[Gross] job reallocation at time t is the sum of all plant-level employment gains and losses that occur between t--1 and t." Stephen J. Davis, John C. Haltiwanger, and Scott Schuh, Job Creation and Destruction (Cambridge, Mass.: MIT Press, 1996), p. 12. See also the discussion on the state of data on worker flows (pp. 129-133 and 149-150). The real variable of interest is, of course, worker flows, not job flows, and we use job flows as a proxy in this CDA Report.

27. After reviewing an early draft of this paper, economists at the Bureau of Labor Statistics suggested that the BED may not be appropriate for gross worker-flow turnover. The alternative suggested is an employer-to-employer worker flow from CPS surveys. These data show a decline from 2.89 percent per month in November 1999 to 2.09 percent in November 2003--half of the rate derived from the BED, and still large. The CPS number is not definitive, however, and potentially underestimates the effect by ignoring respondents who drop out of the sample. This attrition bias is likely to be made up of a large proportion of individuals who move in response to employment change.

28. Ryan T. Helwig, "Worker Displacement in a Strong Labor Market," Monthly Labor Review, June 2001, p. 18.

29. U.S. Department of Labor, Bureau of Labor Statistics, "Number of Jobs Held, Labor Market Activity, and Earnings Growth Among Younger Baby Boomers: Results from More Than Two Decades of a Longitudinal Survey," news release, August 27, 2002.

30. Using very complicated CPS calculations, Fallick and Fleischman estimate a comparable re-employment rate of 40 percent. This estimate is a lower bound, and the authors discuss an "attrition bias" that would result in an upper bound rate of 80 percent. Of course, other estimates based on other methodologies will offer different rates. All researchers in this area acknowledge that there is no definitive study of worker flows, and the one clear fact is that employer-to-employer transitions are much more prevalent than economists realized a generation ago.

31. Fallick and Fleischman, The Importance of Employer-to-Employer Flows in the U.S. Labor Market, pp. 11-12.



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All Rights Reserved.

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The Pension Underfunding Crisis: How Effective Have Funding Reforms Been?
by David C. John
Testimony #1003

October 29, 2003 | |





I appreciate the opportunity to appear before you today to discuss the appropriate funding rule for America's defined benefit pension plans. This is an extremely important subject, and I would like to thank Chairman Boehner for scheduling this hearing. Let me begin by noting that while I am a Research Fellow in Social Security and Financial Institutions at the Heritage Foundation, the views that I express in this testimony are my own, and should not be construed as representing any official position of the Heritage Foundation. In addition, the Heritage Foundation does not endorse or oppose any legislation.

What a difference a year makes. Last year, there was a great deal of discussion about the "dangers" of 401k retirement plans and other types of defined contribution plans. Experts warned, with some justification that retirement plans where workers had to invest their money faced investment risks. Many of those same experts and legislators called for a return of the good old days when employees were part of a defined benefit retirement plan. Under those plans, rather than having a retirement benefit based on one's investments, a worker receives a company paid benefit based on his or her length of employment and salary history. In theory, defined benefit plans are paid from a separate fund managed by the company or by financial professionals chosen by them.

Those experts implied that these defined benefit plans had little or no risk. They were wrong. Since then, a number of companies have dropped their defined benefit pension plans as part of a bankruptcy proceeding. Most recently, Weirton Steel became the latest company to try to dump their pension obligations on the taxpayer. Last week, I was a guest on a radio show that originates in the Ohio Valley area, and had the opportunity to speak to several steel workers whose pensions were going to be affected by Weirton's actions. Their stories were a forceful reminder that this is not just a policy issue, it affects real people's lives in the most direct way at the time when they are likely to be least able to change their circumstances.

Now Congress is debating legislation that would allow companies just a little more time to fund their pension plans. It is also looking at ways to change the regulatory framework so that under-funded pension plans look like they have just a bit more in assets. Companies claim that without this help, jobs will be lost and the economy will suffer.

The S&L Crisis: Are We On the Same Track With Pensions?

Earlier this month, I testified at a Senate Special Committee on Aging hearing entitled "Americas Pensions: The Next S&L Crisis." That title could not be more to the point. It also brings back some painful memories. Back in the early 1980's, I worked as Legislative Director to a member of the House Banking Committee, former Rep. Doug Barnard of Georgia, as Congress considered legislation dealing with the early signs of the S&L crisis.

At the time, we were told that the industry was essential to America's economy, and that even though they were beginning to run deficits, all that was needed was a little forbearance. As a result, Congress created a regulatory form of capital called "good will" which allowed S&Ls to count an estimate of their reputations and business relationships as part of capital. At first, the gimmick worked like a wonder. S&Ls suddenly had not only enough capital to be "healthy" but to expand.

Of course, the net result was that when the industry finally collapsed the expanded S&Ls had lost even more money than they would have if they had been allowed to face economic reality several years earlier. The cost to America's taxpayers was somewhere around $500 billion. By showing forbearance, Congress had really just made the problem worse and increased the eventual cost. That example could also apply to America's pensions.

The S&L crisis has a direct parallel to what we are discussing today. The Senate Finance Committee has approved legislation that includes a three year holiday on the Deficit Reduction Contribution, a mechanism created in 1987 to require companies with chronically under-funded pension plans to increase the assets in those plans. Such a move, regardless of the problems faced by a few industries, would practically guarantee that we will be sitting here in a few years discussing a multi-hundred billion dollar bailout of the PBGC. It would be extremely irresponsible, and I would hope that the Administration would veto any bill containing such a funding holiday.

Currently, 12 percent of the labor force is covered by defined benefit pension plans, while an additional 7 percent is covered by both defined benefit and defined contribution plans. Under a defined benefit plan, a worker is promised a retirement benefit based on a percentage of salary for each year worked or similar measures. While the worker does not have the direct investment risk associated with a 401(k) plan, the benefits depend on whether or not the plan is fully funded. The risk that it is not fully funded can be as great or greater than the risk from stock and bond investments, but it is usually much harder for the worker to determine how high that risk is.

A Proper Discount Rate for Defined Benefit Pension Plans

A key question is whether the pension plan's level of funding is being measured properly. A July 8 proposal by the U.S. Department of the Treasury addresses both the proper way to measure pension plan funding and ways to make it easier for workers and others to determine whether their company's pension plan is at risk. It also proposes ways to prevent companies that are in financial trouble from making promises to their workers and then making the taxpayers pay for them.

The Treasury Department's plan is far superior to the discount rate provisions in the July 18 version of the Portman-Cardin bill passed by the House Ways and Means Committee--H.R.1776, named for the bill's two principal sponsors, Representatives Rob Portman (R-OH) and Benjamin L. Cardin (D-MD)--and Congress should consider incorporating Treasury's proposed reforms into the final bill. As a short-term alternative - with the full understanding that this is a temporary measure, Congress should consider a two year shift to a corporate bond rate, such as that contained in HR 3108.

Why an Appropriate Discount Rate Is Important

The funding of a defined benefit pension plan is measured using a "discount rate." A plan is assumed to be fully funded if the assets that it currently has can be expected to grow at a certain interest rate until the resulting level of assets then equals the total amount of pension payments that the plan promises to make in the future. For example, if a fund will owe $1,000 in 30 years and assumes that its assets will earn an average of 5 percent every year after inflation, it must have $231 today in order to be fully funded. (Invested at a 5 percent interest rate, $231 will grow to $1,000 in 30 years.)

The discount (interest) rate used to measure a plan's funding is crucial. If a plan assumes that its assets will grow at 7 percent a year instead of 5 percent, it needs only $131 today to be fully funded (rather than the $231 it would need if it used a 5 percent rate). On the other hand, if a plan uses a discount rate of only 3 percent, then it must have $412 on hand today to be fully funded.

The discount rate has no actual relationship to how much a pension plan's investments are earning. While the law requires that plans make prudent investments, these investments can change over time and are greatly affected by short-term swings in the stock, bond, and property markets. The discount rate is intended to measure whether or not the plan has sufficient assets to meet its obligations over a long period of time; thus, a defined benefit plan uses the rate for long-term government or corporate bonds instead of the rate of interest the plan is earning on its investments.

Over the years, Congress has tinkered with the appropriate discount rate in order to address specific problems as they arose. From 1987 to 2002, the law required that defined benefit pension plans use a weighted four-year average of the returns of the 30-year U.S. Treasury bond rate as their discount rate for determining funding adequacy. Under the 1987 law, plans were allowed to use any number between 90 percent and 110 percent of that rate. The spread between 90 percent and 110 percent was intended to allow the pension plan a slight amount of flexibility in its calculations. In 1994, Congress narrowed this range to between 90 percent and 105 percent of that weighted average. This discount rate is also used to determine lump-sum benefits for workers who want a one-time payment instead of a monthly check.

However, using this rate presents two problems. First, the Treasury Department announced in 2001 that it would stop issuing the 30-year Treasury bond. As a result, market prices for these bonds are distorted by the realization that they will no longer be issued. Second, interest rates in general are at a historic low, reaching levels not seen for almost 50 years. While economists expect them to rise gradually, pension plans argue that using today's low rate would make pension plans look far more underfunded than they actually are. Continued use of today's rate would force companies to assign pension plans literally billions of dollars that could be used more effectively to build the company.

Recognizing that the old discount rate was too low, in 2002, Congress allowed pension plans to use instead a number equal to 120 percent of the four-year average of the 30-year Treasury bond rate. However, this law expires after 2003. Some corporations have proposed that Congress substitute a longer-term corporate bond rate for the 30-year Treasury rate. Since corporate bonds do not have the full faith and credit of the United States behind them, they have higher interest rates. Using those higher interest rates would sharply reduce the amount of money that a pension plan must have on hand in order to avoid being underfunded while still protecting the funding status of the plan.

The changes in the discount rate between 1987 and now have had an effect. Each, along with other changes in the law including the establishment of a 90 percent minimum full funding rate in 1994, have addressed specific problems. In most cases, there has been at least a temporary improvement. For instance, the 1994 law saw a chronic under-funding of these pension plans (in the aggregate) change into a significant surplus. However, despite temporary improvements each time that the law is amended, the next change in circumstances requires yet another urgent congressional action.

Recent circumstances are forcing Congress to yet again examine the appropriate discount rate. As will be discussed below, the Treasury Department has made a proposal that would significantly improve the discount rate. However, simply looking at the discount rate for current liabilities may not be enough. For both the affected workers and for taxpayers as a whole, it may be even more important to look at the termination liability of chronically under-funded pension plans.

How the Treasury Department Proposal Would Affect the Discount Rate

On July 8, the Treasury Department proposed that a two-stage change in the pension plan discount rate be substituted for the current 30-year Treasury bond rate. For the next two years, the Treasury proposal would allow plans to use Congress's choice of either the 20-year or 30-year corporate bond rate. After that two-year period, companies would begin a three-year transition to using a corporate bond interest rate determined by the average age of an individual company's workforce.

Since companies with older workers will begin to pay out pension benefits sooner than companies with younger workers, the Treasury Department proposal would require companies with older workers to use a shorter-term corporate bond rate. Short-term bonds of all types have a lower annual interest rate than longer-term bonds do. This lower discount rate means that those companies would have to have proportionately more assets available to pay pension benefits. Companies with younger workers could use a longer corporate bond rate, which would allow them to have proportionately less cash and other assets available. This is an important reform that should be carefully considered.

The simple fact is that some industries and companies have workforces that are older on average than others. Since these companies will have to begin paying their workers' pension benefits sooner, the health of their pension plans is a significant factor in their ability to remain in business. If their pension plans are underfunded and the company has to make significant payments to them, that company is at a higher risk of bankruptcy than if the same company had a younger average workforce. Rather than using a uniform measure for all companies, it is much more prudent to use a discount rate that is customized to reflect a particular company's workers.

Using a customized discount rate as proposed by the Treasury Department would allow workers and investors to better understand a company's overall financial health. The customized discount rate also should allow earlier identification of problem companies so that changes can be required before they become critical.

Balancing the Interests of Workers, Companies, and Taxpayers

It is tempting to see the issue of discount rates as affecting only the amount that cash-strapped companies will have to divert to their pension plans. However, much more is at stake. Changing the discount rate to just a single long-term corporate rate might benefit companies by lowering the amount that they have to contribute to pension plans, but it also might hurt both workers and taxpayers in the long run. Workers who want to take a lump-sum pension distribution instead of monthly payments would receive less under such a system than they would under the current discount rate.

Lump-sum pension benefits are calculated by determining the total amount of pension benefits owed over a lifetime and calculating how much money invested today at the discount rate is needed to grow into the promised total amount. The higher the discount rate, the lower the amount of money that will be necessary to grow into that promised benefit, and the lower the lump sum benefit. At the same time, too low a discount rate may mean a lump-sum payment that is too high, thus further draining the plan of needed assets.

In determining an appropriate discount rate, Congress must balance the needs of both pension plans and retirees wishing to take a lump sum benefit. Similarly, if Congress only substitutes a higher uniform discount rate for the present one, taxpayers could find themselves required to pay higher taxes to make up for Pension Benefit Guarantee Corporation (PBGC) deficits. The PBGC is the federal insurance agency that takes over insolvent pension plans and pays benefits to retirees. Even though the PBGC limits the amount that it pays to each retiree, taxpayers can expect Congress to bail out the agency with additional tax money if the agency runs major deficits.

When Congress considers the appropriate discount rate, it must take into consideration the risk that an overly generous discount rate will result in more underfunded pension plans, and thus that more of those plans will be turned over to the PBGC for payment. This is especially true if legislation contains a holiday on the Deficit Reduction Contribution. This is not just an issue that concerns companies; taxpayers have an equal stake in its outcome.

Termination Liability

As important as the debate over the appropriate discount rate is, its use is not sufficient to protect either workers or taxpayers. As the PBGC has pointed out, many chronically underfunded plans look reasonably healthy until they are terminated. For instance, Bethlehem Steel's pension plan reported that it was 84 percent funded under current liability rules, but proved to be only 45 percent funded when the plan terminated. The US Airways pilots' plan reported that it was 94 percent funded, but proved to be less than 35 percent funded when it was terminated. Most recently, Weirton Steel's pension plan was only about 39 percent funded when it terminated. I spoke to one worker with over 20 years service who was told by both management and his union head that the pension plan was funded. They were not lying, they were just using another measure - one that proved to be meaningless when the plan went under PBGC control.

The simple fact is that while there is some value to measuring current liabilities, it is not sufficient. Pension accounting is a regulatory game that must come closer to reality. It is meaningless to the Weirton Steel worker if his plan looks relatively healthy before it is terminated. What is important is finding out that his pension will be reduced. Similarly, as a taxpayer, I could care less if Bethlehem Steel's plan met minimum funding requirement for most of the years prior to its end. What does interest me is the $4.3 billion shortfall that I or my children may have to help cover.

PBGC is a Market Distortion

PBGC, despite having an important mission, is a creation of government and would not exist in the marketplace in its current form. Just like the FDIC and the old Federal Savings and Loan Insurance Corporation, its protection is not free. Because PBGC is a distortion in the market, its politically set insurance premiums and regulatory guidelines are open to gaming by corporations and others who want to pass part of the cost of their pension plans to the taxpayer. The current debate over an appropriate discount rate is another example of this.

This is not to say that the agency does not serve a valuable purpose, but to recognize that its presence increases the risk that taxpayers will end up paying for the protection it offers. Until PBGC is either reformed to include a premium rate that includes a more effective measure of risk or changed into an agency that helps to arrange properly priced private sector insurance, debates about pension funding status are going to reoccur on a regular basis.

Two Other Important Reforms

The Treasury Department proposal includes two additional reforms that would increase the information available to workers and investors and lower the potential liability to the PBGC. Even if agreement on the discount rate cannot be reached for now, Congress should swiftly consider making the following reforms:

Improved Information
All too often, the true status of a defined benefit pension plan is unknown to the affected companies' workers and investors. The Treasury Department proposal would require pension plans that are underfunded by more than $50 million to make a more timely and accurate disclosure of their assets, liabilities, and funding ratios. In addition, while phasing in the new discount rate changes, all plans would have to make an annual disclosure of their pension liabilities using the duration matched yield curve. This reform would further improve the ability of workers and investors to judge whether a pension plan is properly funded.

Finally, pension plans would have to disclose whether they have enough assets available to pay the full amount of benefits that workers have already earned. As mentioned above, requiring disclosure of "termination basis" would ensure that if the company files for bankruptcy and seeks to terminate its pension plan, workers are not suddenly surprised to find that the plan cannot pay the pension benefits they have already earned.

Reduced Taxpayer Liability
Companies that are in severe financial trouble often try to keep their workers happy by promising them higher pension benefits. Similarly, companies in bankruptcy sometimes seek to improve pension benefits in return for salary concessions. In both cases, these higher pension promises often get passed on to the PBGC, and thus to the taxpayers, for payment when the company seeks to terminate its pension plan. The proposed reforms would prevent severely underfunded pension plans from promising higher pension benefits or allowing lump-sum payments unless the company fully pays for those improvements by making additional contributions to its pension plan. Similar restrictions would apply to companies that file for bankruptcy.
How Not to Improve the Situation

The one thing that Congress should not do is to repeat the sad experience of the 1980's. Unless there is hard evidence that a company will recover its economic health, Congress should not casually extend the amount of time that corporations have to fund their pension plans. While this may be justified on a case-by-case basis, a general rule is likely to just mean that taxpayers will have to pay more to bail out the PBGC when it runs out of money.

And that day is inevitable unless Congress takes a serious look at PBGC and the entire retirement situation. This is not a problem where individual mini-crises should be considered to be unrelated. PBGC has an investment portfolio that includes a sizeable proportion of government bonds. It is true that unlike Social Security, which simply stores the special issue treasury bonds in its trust fund, PBGC builds its portfolio by trading its special issue bonds with the Bureau of the Public Debt. However, that portfolio growth gives a false sense of assurance.

When the time comes for PBGC to liquidate its portfolio to pay benefits, we may see the "perfect storm" where both Social Security and Medicare are liquidating their government bond portfolio at the same time. Even though PBGC is the smallest of these agencies by a large margin, the only way that it will be able to raise the money that it needs for benefit payments is to either sell its bond portfolio on the open market or to return them for repayment. Neither option looks promising at this point. If the government is borrowing massive amounts of money, the prices of bonds can be expected to be unstable at best. And if Social Security and Medicare are consuming massive amounts of government resources, PBGC can expect a place behind them.

Thoughts for the Future

As an alternative, Congress should consider a close examination of the entire retirement situation ranging from Social Security to private pension plans to incentives for people to work. Among steps that could be considered are:

Reform PBGC: PBGC has done a fine job with what it has, but the structure is fundamentally flawed. Premiums are inadequate, and are not based on any measure of the risk that the employer will turn its pension plan over to the agency. Investment strategies are less than adequate. Rather than a piecemeal review, Congress should begin now a thorough review of the agency.
Encourage Small Business to Form Retirement Pools: About 50 percent of the US workforce has no private pension plan. Many of these workers are employed by smaller businesses that cannot afford to sponsor any sort of retirement plan. Current legislative efforts to remedy this situation have centered on reducing the regulatory burden that is a major part of the cost of having a pension plan. Instead, Congress should consider an alternate approach. Rather than expecting every small business to have its own retirement plan, encourage them to form pools, perhaps based around associations, chambers of commerce, or other affinity group. This would work best with defined contribution retirement plans.
Phase Out Defined Benefit Plans: Sadly, it may be time to recognize that in the future workers will have more job mobility than they even do now, and that a defined benefit plan may not be in their best interests. Congress should consider developing incentives for companies to shift their retirement plans to defined contribution plans.
Encourage Workers to Work Longer: In the future, there will be fewer younger people to take the jobs of those who retire, and a resulting demand for older workers who are willing to stay in the workforce - even if it is only on a part-time basis. Congress should examine the various workplace rules now to remove regulatory and other obstacles
Reform Social Security: Every day that Congress and the Administration delays reforming Social Security, there is one less day that the program will have surpluses. The Social Security trustees warn that the program will begin to run cash flow deficits within 15 years. There is a pool of IOUs known as the trust fund, which can be used to help pay benefits until they run out in 2042, but in order to liquidate them, Congress will have to come up with about $5 trillion (in today's dollars) from general revenue. The last thing that future retirees need is to find out that both their company pension plan and Social Security are unable to pay all of their promised benefits.
Thank you for the opportunity to testify. I look forward to your questions.


--------------------------------------------------------------------------------



The Heritage Foundation is a public policy, research, and educational organization operating under Section 501(C)(3). It is privately supported, and receives no funds from any government at any level, nor does it perform any government or other contract work.



The Heritage Foundation is the most broadly supported think tank in the United States. During 2002, it had more than 200,000 individual, foundation, and corporate supporters representing every state in the U.S. Its 2002 contributions came from the following sources:



Individuals 61.21%
Foundations 27.49%
Corporations 6.76%
Investment Income 1.08%
Publication Sales and Other 3.47%


The top five corporate givers provided The Heritage Foundation with less than 3.5% of its 2002 income. The Heritage Foundation's books are audited annually by the national accounting firm of Deloitte & Touche. A list of major donors is available from The Heritage Foundation upon request.



Members of The Heritage Foundation staff testify as individuals discussing their own independent research. The views expressed are their own, and do not reflect an institutional position for The Heritage Foundation or its board of trustees.



--------------------------------------------------------------------------------
? 1995 - 2004 The Heritage Foundation
All Rights Reserved.
America's Pensions: The Next Saving and Loan Crisis?
by David C. John
Testimony

October 14, 2003 | |





Before the Select Committee on Aging United States Senate



I appreciate the opportunity to appear before you today to discuss the economic future of America's pension plans. This is an extremely important subject, and I would like to thank both Chairman Craig and Ranking Member Breaux for scheduling this hearing. Let me begin by noting that while I am a Research Fellow in Social Security and Financial Institutions at the Heritage Foundation, the views that I express in this testimony are my own, and should not be construed as representing any official position of the Heritage Foundation. In addition, the Heritage Foundation does not endorse or oppose any legislation.



What a difference a year makes. Last year, there was a great deal of discussion about the "dangers" of 401k retirement plans and other types of defined contribution plans. Experts warned, with some justification that retirement plans where workers had to invest their money faced investment risks. Many of those same experts and legislators called for a return of the good old days when employees were part of a defined benefit retirement plan. Under those plans, rather than having a retirement benefit based on one's investments, a worker receives a company paid benefit based on his or her length of employment and salary history. In theory, defined benefit plans are paid from a separate fund managed by the company.



Those experts implied that these defined benefit plans had little or no risk. They were wrong. Since then, a number of companies have dropped their defined benefit pension plans as part of a bankruptcy proceeding. Just last week, Weirton Steel became the latest company to try to dump their pension obligations on the taxpayer. Today's witness list also includes both the Pension Benefit Guarantee Corporation and a steel worker whose pension was affected by corporate bankruptcy. It is critical for all of us to remember that this is not just a policy issue, it affects real people's lives in the most direct way at the time when they are likely to be least able to change their circumstances.



Now Congress is debating legislation that would allow companies just a little more time to fund their pension plans. It is also looking a ways to change the regulatory framework so that under funded pension plans look like they have just a bit more in assets. Companies claim that without this help, jobs will be lost and the economy will suffer.



The S&L Crisis: Are We On the Same Track With Pensions?


The title of today's hearing, Americas Pensions: The Next S&L Crisis, could not be more to the point. It also brings back some painful memories. Back in the early 1980's, I worked as Legislative Director to a member of the House Banking Committee, former Rep. Doug Barnard of Georgia, as Congress considered legislation dealing with the early signs of the S&L crisis.



At the time, we were told that the industry was essential to America's economy, and that even though they were beginning to run deficits, all that was needed was a little forbearance. As a result, Congress created a regulatory form of capital called "good will" which allowed S&Ls to count an estimate of their reputations and business relationships as part of capital. At first, the gimmick worked like a wonder. S&Ls suddenly had not only enough capital to be "healthy" but to expand.



Of course, the net result was that when the industry finally collapsed the expanded S&Ls had lost even more money than they would have if they had been allowed to face economic reality several years earlier. The cost to America's taxpayers was somewhere around $500 billion. By showing forbearance, Congress had really just made the problem worse and increased the eventual cost. That example could also apply to America's pensions.

Currently, 12 percent of the labor force is covered by defined benefit pension plans, while an additional 7 percent is covered by both defined benefit and defined contribution plans. Under a defined benefit plan, a worker is promised a retirement benefit based on a percentage of salary for each year worked or similar measures. While the worker does not have the direct investment risk associated with a 401(k) plan, the benefits depend on whether or not the plan is fully funded. The risk that it is not fully funded can be as great or greater than the risk from stock and bond investments, but it is usually much harder for the worker to determine how high that risk is.

A Proper Discount Rate for Defined Benefit Pension Plans.

A key question is whether the pension plan's level of funding is being measured properly. A July 8 proposal by the U.S. Department of the Treasury addresses both the proper way to measure pension plan funding and ways to make it easier for workers and others to determine whether their company's pension plan is at risk. It also proposes ways to prevent companies that are in financial trouble from making promises to their workers and then making the taxpayers pay for them.

The Treasury Department's plan is far superior to the discount rate provisions in the July 18 version of the Portman-Cardin bill passed by the House Ways and Means Committee--H.R.1776, named for the bill's two principal sponsors, Representatives Rob Portman (R-OH) and Benjamin L. Cardin (D-MD)--and Congress should consider incorporating Treasury's proposed reforms into the final bill.

Why an Appropriate Discount Rate Is Important

The funding of a defined benefit pension plan is measured using a "discount rate." A plan is assumed to be fully funded if the assets that it currently has can be expected to grow at a certain interest rate until the resulting level of assets then equals the total amount of pension payments that the plan promises to make in the future. For example, if a fund will owe $1,000 in 30 years and assumes that its assets will earn an average of 5 percent every year after inflation, it must have $231 today in order to be fully funded. (Invested at a 5 percent interest rate, $231 will grow to $1,000 in 30 years.)



The discount (interest) rate used to measure a plan's funding is crucial. If a plan assumes that its assets will grow at 7 percent a year instead of 5 percent, it needs only $131 today to be fully funded (rather than the $231 it would need if it used a 5 percent rate). On the other hand, if a plan uses a discount rate of only 3 percent, then it must have $412 on hand today to be fully funded.



The discount rate has no actual relationship to how much a pension plan's investments are earning. While the law requires that plans make prudent investments, these investments can change over time and are greatly affected by short-term swings in the stock, bond, and property markets. The discount rate is intended to measure whether or not the plan has sufficient assets to meet its obligations over a long period of time; thus, a defined benefit plan uses the rate for long-term government or corporate bonds instead of the rate of interest the plan is earning on its investments.



From 1987 to 2002, the law required that defined benefit pension plans use a weighted four-year average of the returns of the 30-year U.S. Treasury bond rate as their discount rate for determining funding adequacy. Under the 1987 law, plans were allowed to use any number between 90 percent and 105 percent of that rate. The spread between 90 percent and 105 percent was intended to allow the pension plan a slight amount of flexibility in its calculations. This discount rate is also used to determine lump-sum benefits for workers who want a one-time payment instead of a monthly check.



However, using this rate presents two problems. First, the Treasury Department announced in 2001 that it would stop issuing the 30-year Treasury bond. As a result, market prices for these bonds are distorted by the realization that they will no longer be issued. Second, interest rates in general are at a historic low, reaching levels not seen for almost 50 years. While economists expect them to rise gradually, pension plans argue that using today's low rate would make pension plans look far more underfunded than they actually are. Continued use of today's rate would force companies to assign pension plans literally billions of dollars that could be used more effectively to build the company.



Recognizing that the old discount rate was too low, in 2002, Congress allowed pension plans to use instead a number equal to 120 percent of the four-year average of the 30-year Treasury bond rate. However, this law expires after 2003. Some corporations have proposed that Congress substitute a longer-term corporate bond rate for the 30-year Treasury rate. Since corporate bonds do not have the full faith and credit of the United States behind them, they have higher interest rates. Using those higher interest rates would sharply reduce the amount of money that a pension plan must have on hand in order to avoid being underfunded while still protecting the funding status of the plan.



How the Treasury Department Proposal Would Affect the Discount Rate

On July 8, the Treasury Department proposed that a two-stage change in the pension plan discount rate be substituted for the current 30-year Treasury bond rate. For the next two years, the Treasury proposal would allow plans to use Congress's choice of either the 20-year or 30-year corporate bond rate. After that two-year period, companies would begin a three-year transition to using a corporate bond interest rate determined by the average age of an individual company's workforce.



Since companies with older workers will begin to pay out pension benefits sooner than companies with younger workers, the Treasury Department proposal would require companies with older workers to use a shorter-term corporate bond rate. Short-term bonds of all types have a lower annual interest rate than longer-term bonds do. This lower discount rate means that those companies would have to have proportionately more assets available to pay pension benefits. Companies with younger workers could use a longer corporate bond rate, which would allow them to have proportionately less cash and other assets available. This is an important reform that should be carefully considered.



The simple fact is that some industries and companies have workforces that are older on average than others. Since these companies will have to begin paying their workers' pension benefits sooner, the health of their pension plans is a significant factor in their ability to remain in business. If their pension plans are underfunded and the company has to make significant payments to them, that company is at a higher risk of bankruptcy than if the same company had a younger average workforce. Rather than using a uniform measure for all companies, it is much more prudent to use a discount rate that is customized to reflect a particular company's workers.



Using a customized discount rate as proposed by the Treasury Department would allow workers and investors to better understand a company's overall financial health. The customized discount rate also should allow earlier identification of problem companies so that changes can be required before they become critical.



Balancing the Interests of Workers, Companies, and Taxpayers

It is tempting to see the issue of discount rates as affecting only the amount that cash-strapped companies will have to divert to their pension plans. However, much more is at stake. Changing the discount rate to just a single long-term corporate rate might benefit companies by lowering the amount that they have to contribute to pension plans, but it also might hurt both workers and taxpayers in the long run. Workers who want to take a lump-sum pension distribution instead of monthly payments would receive less under such a system than they would under the current discount rate.



Lump-sum pension benefits are calculated by determining the total amount of pension benefits owed over a lifetime and calculating how much money invested today at the discount rate is needed to grow into the promised total amount. The higher the discount rate, the lower the amount of money that will be necessary to grow into that promised benefit, and the lower the lump sum benefit. At the same time, too low a discount rate may mean a lump-sum payment that is too high, thus further draining the plan of needed assets.



In determining an appropriate discount rate, Congress must balance the needs of both pension plans and retirees wishing to take a lump sum benefit. Similarly, if Congress only substitutes a higher uniform discount rate for the present one, taxpayers could find themselves required to pay higher taxes to make up for Pension Benefit Guarantee Corporation (PBGC) deficits. The PBGC is the federal insurance agency that takes over insolvent pension plans and pays benefits to retirees. Even though the PBGC limits the amount that it pays to each retiree, taxpayers can expect Congress to bail out the agency with additional tax money if the agency runs major deficits.



When Congress considers the appropriate discount rate, it must take into consideration the risk that an overly generous discount rate will result in more underfunded pension plans, and thus that more of those plans will be turned over to the PBGC for payment. This is not just an issue that concerns companies; taxpayers have an equal stake in its outcome.



Two Other Important Reforms

The Treasury Department proposal includes two additional reforms that would increase the information available to workers and investors and lower the potential liability to the PBGC. Even if agreement on the discount rate cannot be reached for now, Congress should swiftly consider making the following reforms:

Improved Information
All too often, the true status of a defined benefit pension plan is unknown to the affected companies' workers and investors. The Treasury Department proposal would require pension plans that are underfunded by more than $50 million to make a more timely and accurate disclosure of their assets, liabilities, and funding ratios. In addition, while phasing in the new discount rate changes, all plans would have to make an annual disclosure of their pension liabilities using the duration matched yield curve. This reform would further improve the ability of workers and investors to judge whether a pension plan is properly funded.
Finally, pension plans would have to disclose whether they have enough assets available to pay the full amount of benefits that workers have already earned. Known as "termination basis," this method ensures that if the company files for bankruptcy and seeks to terminate its pension plan, workers are not suddenly surprised to find that the plan cannot pay the pension benefits they have already earned.

2. Reduced Taxpayer Liability


Companies that are in severe financial trouble often try to keep their workers happy by promising them higher pension benefits. Similarly, companies in bankruptcy sometimes seek to improve pension benefits in return for salary concessions. In both cases, these higher pension promises often get passed on to the PBGC, and thus to the taxpayers, for payment when the company seeks to terminate its pension plan. The proposed reforms would prevent severely underfunded pension plans from promising higher pension benefits or allowing lump-sum payments unless the company fully pays for those improvements by making additional contributions to its pension plan. Similar restrictions would apply to companies that file for bankruptcy.



How Not to Improve the Situation.



The one thing that Congress should not do is to repeat the sad experience of the 1980's. Unless there is hard evidence that a company will recover its economic health, Congress should not casually extend the amount of time that corporations have to fund their pension plans. While this may be justified on a case-by-case basis, a general rule is likely to just mean that taxpayers will have to pay more to bail out the PBGC when it runs out of money.



And that day is inevitable unless Congress takes a serious look at PBGC and the entire retirement situation. This is not a problem where individual mini-crises should be considered to be unrelated. PBGC has an investment portfolio that includes a sizeable proportion of government bonds. It is true that unlike Social Security, which receives special issue treasury bonds that cannot be traded on the open market, PBGC can and does build its portfolio by trading its bonds on the open market. However, that activity gives a false sense of assurance.



When the time comes for PBGC to liquidate its portfolio to pay benefits, we may see the "perfect storm" where both Social Security and Medicare are liquidating their government bond portfolio at the same time. Even though PBGC is the smallest of these agencies by a large margin, the only way that it will be able to raise the money that it needs for benefit payments is to either sell its bond portfolio on the open market or to return them for repayment. Neither option looks promising at this point. If the government is borrowing massive amounts of money, the prices of bonds can be expected to be unstable at best. And if Social Security and Medicare are consuming massive amounts of government resources, PBGC can expect a place behind them.



Thoughts for the Future.



As an alternative, Congress should consider a close examination of the entire retirement situation ranging from Social Security to private pension plans to incentives for people to work. Among steps that could be considered are:



Reform PBGC: PBGC has done a fine job with what it has, but the structure is fundamentally flawed. Premiums are inadequate, and are not based on any measure of the risk that the employer will turn its pension plan over to the agency. Investment strategies are less than adequate. Rather than a piecemeal review, Congress should begin now a thorough review of the agency .
Encourage Small Business to Form Retirement Pools: About 50 percent of the US workforce has no private pension plan. Many of these workers are employed by smaller businesses that cannot afford to sponsor any sort of retirement plan. Current legislative efforts to remedy this situation have centered on reducing the regulatory burden that is a major part of the cost of having a pension plan. Instead, Congress should consider an alternate approach. Rather than expecting every small business to have its own retirement plan, encourage them to form pools, perhaps based around associations, chambers of commerce, or other affinity group. This would work best with defined contribution retirement plans.
Phase Out Defined Benefit Plans: Sadly, it may be time to recognize that in the future workers will have more job mobility than they even do now, and that a defined benefit plan may not be in their best interests. Congress should consider developing incentives for companies to shift their retirement plans to defined contribution plans.
Encourage Workers to Work Longer: In the future, there will be fewer younger people to take the jobs of those who retire, and a resulting demand for older workers who are willing to stay in the workforce - even if it is only on a part-time basis. Congress should examine the various workplace rules now to remove regulatory and other obstacles
Reform Social Security: Every day that Congress and the Administration delays reforming Social Security, there is one less day that the program will have surpluses. The Social Security trustees warn that the program will begin to run cash flow deficits within 15 years. There is a pool of IOUs known as the trust fund, which can be used to help pay benefits until they run out in 2042, but in order to liquidate them, Congress will have to come up with about $5 trillion (in today's dollars) from general revenue. The last thing that future retirees need is to find out that both their company pension plan and Social Security are unable to pay all of their promised benefits.


Thank you for the opportunity to testify. I look forward to your questions.

---



The Heritage Foundation is a public policy, research, and educational organization operating under Section 501(C)(3). It is privately supported, and receives no funds from any government at any level, nor does it perform any government or other contract work.



The Heritage Foundation is the most broadly supported think tank in the United States. During 2002, it had more than 200,000 individual, foundation, and corporate supporters representing every state in the U.S. Its 2002 contributions came from the following sources:



Individuals 61.21%
Foundations 27.49%
Corporations 6.76%
Investment Income 1.08%
Publication Sales and Other 3.47%


The top five corporate givers provided The Heritage Foundation with less than 3.5% of its 2002 income. The Heritage Foundation's books are audited annually by the national accounting firm of Deloitte & Touche. A list of major donors is available from The Heritage Foundation upon request.

Members of The Heritage Foundation staff testify as individuals discussing their own independent research. The views expressed are their own, and do not reflect an institutional position for The Heritage Foundation or its board of trustees.

--------------------------------------------------------------------------------
? 1995 - 2004 The Heritage Foundation
All Rights Reserved.

Egypt holds brother of al-Qaeda official
Confirmation follows '99 conviction for Jihad group's attacks
09:04 PM CST on Thursday, March 4, 2004
Associated Press
CAIRO, Egypt - Egypt acknowledged for the first time Thursday that it is holding Mohammed al-Zawahiri, the brother of al-Qaeda's No. 2 man.
Mr. al-Zawahiri was thought to have been in Egyptian police custody for at least three years, but the government never acknowledged it. He was sentenced to death in absentia in 1999 for his role in attacks by the militant group Islamic Jihad.
His older brother, Ayman al-Zawahiri, is the top aide to al-Qaeda leader Osama bin Laden and allegedly once led the military wing of Egypt's Jihad group. Ayman al-Zawahiri also was sentenced to death in absentia in the same 1999 trial.
Interior Minister Habib el-Adly said Mohammed al-Zawahiri would stand trial soon but did not say when.
Under Egypt's laws, a suspect can be detained without charges or trial indefinitely. Egyptian law doesn't provide for a new trial for a suspect who has been convicted in absentia in a military court and returns to the country. It only permits clemency pleas to the president.
Mr. al-Zawahiri's relatives were surprised when they read a recent newspaper report about his whereabouts.
"We didn't know if he was alive or dead," said Mahfouz Azzam, Mr. al-Zawahiri's great uncle.
-------------------------------------------
'The day after' Arafat dies - not just an IDF game
By Amos Harel, Haaretz Correspondent
The Israel Defense Forces recently conducted a simulation "war game" about what would happen the day after Palestinian Authority Chairman Yasser Arafat passes away.
The exercise examined several possible scenarios and how Arafat's death - by natural causes - would influence the domestic situation in the Palestinian Authority and its relations with Israel. The Central Command exercises involved senior officers; apparently, the General Staff will continue where the Central Command officers left off.
Security sources told Haaretz that the exercise was not the result of any new information about the state of Arafat's health.
Last fall there was speculation about the 75-year-old's health after he appeared to be fatigued and gaunt, but after medical treatment he seemed to be feeling fine.
The army regards "the day after" as a "new chapter" in PA - and Palestinian - history. The assumption is that everything that will take place - the funeral, the mass demonstrations, power struggles for the leadership - will lead to a change in the Palestinians' strategic relationship with Israel.
The exercise included issues like where the funeral would be held, the route it would travel, the possibility of violent demonstrations, loss of control by the PA, and attempts by the Hamas to forcibly grab power in Gaza.
There is also growing speculation in the PA about what happens on the day after. Channel 2 reported this week that Arafat wants a crypt for himself on the Haram al-Sharif, the Temple Mount, where there are graves of many past Palestinian leaders.

--------------------------------------------------------------------
Source: Menatep CEO Stephen Curtis killed in copter crash
By Dafna Maor
Stephen Curtis, the chief executive of Menatep, the bank that hold shares in the Russian oil firm Yukos, was killed in a helicopter accident in the United Kingdom, TheMarker has learned from a source near the company.
Official confirmation of the news could not be obtained. The BBC reported on the helicopter crash near Bournemouth airport Thursday morning, noting that two people had been killed but not revealing their names.
The British news service reported that the helicopter, an Augusta, fell near a wooded area, and that police were searching for possible additional victims.
Menatep is a holding company belonging to Mikhail Khodorkovsky, the former chairman of Yukos, who Moscow arrested in October 2003 for alleged tax evasion and fraud.
When arresting Khodorkovsky, the 44 percent stake he and his partners in Menatep held in Yukos were frozen.
Khodorkovsky claims the arrest was designed to pressure him because he had financially backed opposition parties and even considered running against Russian president Vladimir Putin in elections.
The holdings of Khodorkovsky and Menatep in Yukos are considered to be worth almost $15 billion. In February 2004, Khodorkovsky's oartners, including Leonid Nevzlin, who has moved to Israel, proposed selling the shares to the Russian government subject to Khodorkovsky's release.
Curtis, a former senior partner in the law firm of Curtis & Co, was named to lead Menatep in November 2003. The Menatep group controls assets worth some $30 billion.


Smart he is not
By Doron Rosenblum
The bizarre and puzzling episode known as the "Tennenbaum affair" is gradually turning into what Alfred Hitchcock called a "MacGuffin" - an inscrutable subplot, shrouded in mystery, that diverts attention from the main plot. In our case, the real and main mystery is the weird behavior of Ariel Sharon - not just in this affair, but throughout his three years as prime minister, if not his entire public career.
For months, everyone wondered what lay behind Sharon's unusual efforts to secure Tennenbaum's return from Lebanon - his one tenacious, consistent and accomplished action so far in his two terms as prime minister. Yet it was precisely for the sake of this certifiably dubious character that Sharon threw himself into the fray.
He did so with exceptional determination and caring, such as he has never shown for any other positive goal in the last three tears - certainly not for the security, well being and future happiness of Israel's residents.
What was the secret of the spell that Tennenbaum, of all people, cast over Sharon? Is it the fact that he was a colonel in the Israel Defense Forces? Would Sharon have shown similar empathy for an ordinary honest citizen who was innocent of any wrongdoing?
Or could it be that it was the twisting, dark morality of the man that spoke to the heart of one for whom the wink, the deceit and the "non-truth" are no strangers at any level of behavior - from the reprisal raids half a century ago to the Lebanon War, from the settlements to the police investigations?
This week, the conundrum seemed to have an answer by Ma'ariv daily's exposure of the "missing link" between Sharon and Tennenbaum. Strangely, though, these revelations don't so much shed light as deepen the dark mystery of Sharon's behavior. Indeed, the Tennenbaum affair is no more than an allegory - one more fiasco in the chain of Sharon fiascos, which share amazingly similar characteristics.
They all begin with winking, nodding and deception and false presentations of events. They are all wrapped in arrogant, self-confident manifestations of infinite cunning. They all eventually end in disgrace, bereavement and failure, if not in some historic blunder that sets in motion generations of grief.
Isn't this the way - with a spin-rich, self-defeating "shrewdness" - that the "affair of the fence" was handled? Isn't this how our whole life was run by Sharon for the past three years? And isn't this how - steeped in the cunning of personal conduct - Sharon found himself with egg on his face over and over again?
This is how the strange "deal" with Hezbollah was carried out; this was how the chance to consolidate Abu Mazen as Palestinian prime minister was missed; this was how the Palestinian Authority was smashed to smithereens, sewing terrorist chaos in the territories and strengthening Hamas.
And with the same arrogant blindness, in a kind of domino run of damage on top of damage, it was the same Sharon who, in his shrewd "war of choice" in Lebanon brought about the creation of Hezbollah on the border of Manara and Metullah.With the same "shrewdness" he drove home the wedges called settlements.
There is no reason to believe that the deceptions swirling around the "road map" or the "disengagement plan" are not another "shrewd plan" of Sharon's that is starting to unfold - a thing of shreds and patches, of caprices and improvisations. There is no sort of reasonable response to any objection or warning put forward by either right or left. Why operate without dialogue? Why a wall like this along such a route? And what will we do when the fence is bypassed by shooting and missiles? And what will happen in the chaos behind the wall?
Yet, in the very contemplation of these conundrums, the mystery of Sharon's behavior solves itself. Maybe it has nothing to do with sly interests, deep psychology born of a difficult childhood, or some brilliant conspiracy. Maybe the solution lies right in front of us, so therefore we can't see it. It may be elementary, dear Watson, it may be the reason is quite simply a lack of intelligence.
Let it be said at once that Sharon may be as sharp as a whip, as cunning and elusive as an eel, but - as the Nahal Brigade troupe used to sing - "he's not so smart." Certainly not so smart as many, himself included, may think. It's plain that the guy doesn't think things through, not at a national level, and not in personal behavior. His thinking is a bit lowbrow. Yes it's hurried, packed with tactics, lacking any sense of broad horizons or distilled knowledge, void of any real, responsible strategy.
That may be an unpleasant explanation for the mystery of the systematic, unrelenting failure of Sharon - as politician, statesman, leader, and personally - except for his skill at getting elected at the polls. But is there any other explanation?
Gloomy and bizarre as it may sound, Sharon, who is considered to be the personification of Israeli resourcefulness, is actually a feckless type - a kind of "shrewd" ne'er do well who has stepped out of all the Jewish jokes together, from Hershele to the Wise Men of Chelm.
He's the one who waits for either for the squire to leave or the dog to die; he the one who ate smelly fish and was beaten and kicked out of town; he's the one who carried out his threat and went to sleep hungry. And, as the situation of Sharon and state of the nation attest that both are trapped in the same quagmire of misery, it might even be funny - if the joke wasn't on us.

Top Articles
Op-Ed / A damaging compulsory pension law
Some of the tax benefits to high income earners should be canceled and the money used to subsidize the interest rates of the compulsory pensions.
By Avia Spivak
The Bottom Line / Nothing to gain at the High Court
Bank of Israel Governor David Klein is taking the central bank into uncharted waters - a High Court petition against the treasury wages director, and lawsuits against the bank's labor council and against the State of Israel.
By Moti Bassok


Sharon expected to survive latest scandal
March 5, 2004
Scrambling to fend off the latest scandal, Israel's Prime Minister, Ariel Sharon, has denied any wrongdoing in securing the release of an Israeli in a prisoner swap with Lebanese Hezbollah guerillas.
On Wednesday, Mr Sharon dismissed as a "wild attack " a report in the Maariv daily suggesting his push for Elhanan Tannenbaum's release in the January 29 deal had been spurred by close business ties he once had with the man's father-in-law.
Leftist politicians called for the right-wing leader, already under investigation in two corruption scandals, to resign or face an official inquiry. Opposition parties requested a no-confidence vote in parliament, which is expected on Monday.
The vote is not expected to pose any immediate threat to Mr Sharon.The Government has easily survived almost weekly no-confidence motions recently, despite a rift with far-right coalition partners angered by his plan to uproot Jewish settlements in the Gaza Strip.
Since Mr Tannenbaum's release in a deal in which the bodies of three Israeli soldiers were also returned and 400 Arab prisoners were freed, he has been grilled by security agents over allegations he was involved in illegal business deals when he was abducted in 2000.
Maariv said that Mr Tannenbaum's father-in-law, Shimon Cohen, had been a business partner of Mr Sharon's family in the 1970s at their ranch in southern Israel.
Israeli soldiers yesterday shot dead a 14-year-old Palestinian boy who was caught in crossfire during a raid on a refugee camp in the southern Gaza Strip, witnesses said.
Palestinians also accused the Israelis of killing a militant who died in an explosion at his home in the Rafah camp, but the army said it was not responsible.
The raid came a day after three Palestinians from the militant Hamas group were killed in an Israeli air strike on the car in which they were travelling south of Gaza City.
Reuters, Los Angeles Times

http://www.moretothepoint.com/
The Interim Constitution and the Future US Role in Iraq listen
Coordinated bombings in Baghdad and Karbala made Tuesday the deadliest day in Iraq since the fall of Saddam Hussein. Vice President Cheney calls it "desperation" by those opposed to the interim constitution. Others fear a decline into religious civil war. With the approach of the June deadline for transferring political power, General John Abizaid, the head of US Central Command, told Congress today that despite an expected increase in violence, the US is reducing its profile in Baghdad, although he said that the US had mot intention of abandoning the Iraqi police. As the US begins its biggest troop transfer since World War II, we look at the prospects for stability before November's election with journalists in Iraq, experts in defense and conflict prevention and resolution, and former State Department and intelligence officers.



http://www.theworld.org/latesteditions/20040304.shtml
Loose nukes interview (4:30)
A former Soviet nuclear facility in the breakaway republic of Abkhazia is missing some of its weapons-grade uranium. Host Marco Werman speaks with London Times reporter Tom Parfitt who has been following the story.

China's Internet report (5:15)
China's government keeps watch over the Internet and blocks controversial websites. But some Chinese webusers won't be deterred. They're surfing past Beijing censors with help from the outside. The World's technology correspondent Clark Boyd tells how some Chinese are hacking through the great firewall of China.

France terrorism threat report (2:30)
Ten thousand people have been searching the French rail system, looking for ten bombs which a shadowy organisation called AZF says it has planted. Paris correspondent Genevieve Oger has the story.


>> AFRICAN CONNECTIONS...

Nucl?aire: le Nigeria met Islamabad dans l'embarras puis fait volte-face
04/03/2004 - 14:49
ABUJA, 4 mars (AFP) -
Le Nigeria a mis jeudi le Pakistan dans l'embarras en annon?ant qu'Islamabad lui avait propos? son aide pour acqu?rir l'arme nucl?aire avant de faire volte-face apr?s un d?menti tr?s sec des autorit?s pakistanaises.
Cette controverse intervient alors que le r?gime militaire pakistanais du g?n?ral Pervez Musharraf, alli? de Washington en Asie du Sud, est sous fortes pressions am?ricaines apr?s des "r?v?lations" sur des "fuites" de technologie nucl?aire pakistanaise, notamment vers l'Iran, la Cor?e du Nord et la Libye.
Jeudi matin, le minist?re nig?rian de la D?fense affirmait dans un communiqu? que le chef d'?tat major pakistanais, le g?n?ral Mohammed Aziz Khan, avait d?clar? la veille ? Abuja que "son pays oeuvre ? trouver une solution pour aider les forces arm?es nig?rianes ? renforcer leur capacit? militaire et ? acqu?rir la puissance nucl?aire".
Le texte pr?cisait que ces d?clarations avait eu lieu lors d'une rencontre entre le g?n?ral Khan, en visite de lundi ? vendredi au Nigeria et le ministre nig?rian de la D?fense, Rabui Musa Kwankwaso.
Un d?menti cinglant ne tarda pas ? fuser d'Islamabad. "Nous d?mentons. C'est sans fondement. Il n'a rien dit de cela", a affirm? ? l'AFP le porte-parole des forces arm?es pakistanaises, le g?n?ral Shaukat Sultan, ? propos du g?n?ral Khan.
Peu apr?s la r?action pakistanaise, les autorit?s nig?rianes revenaient sur leur communiqu? initial en ?voquant simplement une "erreur typographique" dont elles n'ont pas pr?cis? la nature.
"La r?f?rence ? la puissance nucl?aire dans le communiqu? publi? auparavant ?tait une erreur typographique", a d?clar? ? l'AFP un porte-parole du minist?re de la D?fense, Nwachukwu Bellu.
"Il n'y a pas eu de discussions sur le nucl?aire, sur son d?veloppement et son acquisition", a affirm? M. Bellu. "Il s'agissait d'une erreur", a-t-il ajout?. "Il ne faut pas tenir compte de la partie concernant la puissance nucl?aire. Ce sujet n'a pas ?t? abord? lors de la r?union".
"Les discussions ont ?t? centr?es uniquement sur la coop?ration militaire en terme d'entrainement et d'acquisition de nouveaux ?quipements. Rien sur la puissance nucl?aire", a rench?ri un porte-parole des forces arm?es, le colonel Ganiyu Adewale.
D?tenant l'arme nucl?aire depuis 1998, le Pakistan s'est livr? en d?but d'ann?e 2004 ? un exercice p?rilleux pour ?viter les critiques croissantes des Etats-Unis, soucieux d'imposer au monde leur vision de la non-prolif?ration.
Abdul Qadeer Khan, directeur du programme nucl?aire pakistanais de 1976 ? 2001, a ainsi "avou?" ? la t?l?vision nationale ?tre responsable de "fuites" de technologies nucl?aires, au b?n?fice notamment de l'Iran, de la Cor?e du Nord et de la Libye.
Ce scientifique a assur? que l'arm?e et le gouvernement du g?n?ral Pervez Musharraf, qui a pris le pouvoir fin 1999 lors d'un coup d'Etat, n'?taient pas au courant de ces fuites. Il a re?u le "pardon" du r?gime militaire Musharraf tandis que l'opposition d?mocratique d?non?ait une mascarade destin?e ? masquer les v?ritables responsabilit?s.
Le communiqu? nig?rian initial ne pr?cisait pas la r?ponse nig?riane ? une telle offre mais soulignait que le chef d'Etat major nig?rian, le g?n?ral Alexander Ogomudia avait "salu?" le programme nucl?aire pakistanais en jugeant que "le Pakistan n'est plus un Etat en d?veloppement car il poss?de la puissance nucl?aire".
Fin janvier, des responsables nig?rians avaient d?j? indiqu? qu'ils ?taient en discussions avec le r?gime nord-cor?en pour acqu?rir une technologie de fabrication de missiles alors que les Etats-Unis cherchent ? stopper le programme nucl?aire du r?gime communiste de Pyongyang.
Le bureau du pr?sident nig?rian Olusegun Obasanjo s'?tait empress? de d?mentir un accord militaire entre la Cor?e du nord et la puissance r?gionale d'Afrique de l'Ouest qui aurait imm?diatement d?clench? l'ire de Washington.
bur-eg-il/aml


? 2004 AFP. Tous droits de reproduction et de repr?sentation r?serv?s.
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BR?SIL
Scandale dans la maison Lula
Le gouvernement de Luiz In?cio da Silva fait face au premier scandale de corruption de son mandat. Un ?v?nement qui ternit l'image de probit? et d'intransigeance du Parti des travailleurs (PT) et qui pourrait remettre en cause son succ?s annonc? aux prochaines ?lections municipales, en octobre.
Waldomiro Diniz, l'homme par qui le scandale arrive... (AFP)
Le scandale a ?clat? le 16 f?vrier dernier, avec la une de Epoca annon?ant simplement "Argent sale". Dans ses pages, l'hebdomadaire relatait par le menu le contenu d'un enregistrement vid?o datant de la campagne ?lectorale qui a vu gagner Luiz In?cio da Silva, dit "Lula", en 2002, un enregistrement o? l'on voit Waldomiro Diniz, alors patron de la Loterie de Rio de Janeiro (LOTERJ) et depuis sous-chef des affaires parlementaires de la Maison civile (l'?quivalent de Matignon), n?gocier des dessous-de-table avec Carlinhos Cachoeira, l'un des patrons des jeux de hasard clandestins de Rio, pour financer la campagne de certains membres du Parti des travailleurs (PT) de Lula. Sur l'enregistrement, Diniz r?clame ?galement une commission de 1 % et promet de favoriser Cachoeira dans un march? public de loteries.
Contrairement ? ce que donne ? croire l'ampleur du scandale, l'information n'est pas nouvelle. D?s juillet 2002, l'hebdomadaire Isto? avait fait les premi?res r?v?lations sur "les relations compromettantes entre Diniz et les exploitants de jeux l?gaux et ill?gaux". A l'?poque, ce dernier avait ni? avoir des rapports avec les "bicheiros".
Un "coup" pour affaiblir Lula
Cette fois, la r?action de Lula n'a pas tard?. Il a limog? Diniz et ordonn? l'ouverture d'une enqu?te. L'affaire frappe cependant de plein fouet Jos? Dirceu, chef de la Maison civile et num?ro deux du gouvernement, qui a pr?sent? sa d?mission. Lula l'a refus?e. Le pr?sident br?silien ne pense pas que son bras droit ait ?t? au courant de l'affaire et estime donc qu'il n'en est pas responsable. Dirceu a ?galement ?t? assur? de la "totale confiance et totale solidarit?" du pr?sident du PT, Jos? Genoino.
Dirceu, le "siamois de Lula", selon le quotidien argentin Clar?n, son "mentor politique" d'apr?s l'hebdomadaire chilien Qu? Pasa, est surtout un homme fort et respect? sans qui, de l'avis de plusieurs analystes, le pr?sident br?silien ne pourrait contr?ler la machine politique. C'est pourquoi il s'agit d'un v?ritable coup dur pour le gouvernement, d'autant plus que "le PT a toujours brandi l'?tendard de l'?thique en politique comme principale diff?rence avec les autres partis", souligne la Folha de S?o Paulo. Le m?me quotidien ?voque d'ailleurs l'hypoth?se d'un "coup" de l'opposition pour affaiblir Lula.
La fin d'une cr?dibilit? ?
Mais, pour l'hebdomadaire Veja, de plus en plus critique ? l'?gard de Lula, la cause est entendue : cette histoire Diniz ne fait que confirmer une r?alit?, "le PT utilise des m?thodes qu'il a toujours critiqu?es lorsqu'il ?tait dans l'opposition". Une opposition qui a exig? la cr?ation d'une commission parlementaire d'enqu?te (CPI) sans l'obtenir, le gouvernement arguant que les faits se sont produits alors que le PT n'?tait pas encore au pouvoir. Le Congr?s vient d'ailleurs ?galement de rejeter cette demande, faute de preuves contre Dirceu.
De toute fa?on, les d?g?ts sont faits si l'on en croit la Folha de S?o Paulo. "L'une des cons?quences les plus importantes des r?v?lations sur les activit?s de Diniz est la perception, qui se g?n?ralise au sein de la soci?t?, qu'est en train de dispara?tre de la politique br?silienne ce p?le de r?f?rence ?thique qu'a ?t? le PT tout au long de sa trajectoire dans l'opposition." Si sa mani?re d'appr?hender la politique et l'?conomie ?tait souvent na?ve, pour ne pas dire irr?aliste ou irresponsable, on pouvait ?tre s?r qu'il ?tait du bon c?t? lorsqu'il s'agissait de questions relatives ? l'?thique", poursuit la Folha.
Aujourd'hui, les sp?culations vont bon train sur la capacit? du gouvernement ? passer l'?preuve du feu des ?lections municipales du mois d'octobre. Mais aussi sur l'existence d'autres affaires de corruption qui signeraient la fin d'une cr?dibilit? si ch?rement acquise. Les march?s financiers ?galement craignent les cons?quences de l'histoire Diniz. Cela n'emp?che pas 60 % des Br?siliens, d'apr?s un sondage d'opinion de l'institut Datafolha publi? mardi 2 mars dans la Folha de S?o Paulo, de continuer ? accorder leur confiance ? Lula.
In?s Bel A?ba
? Courrier international


Malaysian Leader Denies Nuke Whitewash
By SEAN YOONG
ASSOCIATED PRESS
KUALA LUMPUR, Malaysia (AP) -
Prime Minister Abdullah Ahmad Badawi denied Thursday that his government whitewashed an investigation of Malaysia's role in a worldwide nuclear black market, and said he wasn't worried the issue would hurt him in upcoming elections.
The vote, which Abdullah called Wednesday, will be the first since former Prime Minister Mahathir Mohamad retired in October. The Islamic opposition has promised to focus on the nuclear network during its campaign for the election, expected by the end of March.
The government faces allegations that a Malaysian company owned by Abdullah's son played a key role in a nuclear black market, led the father of Pakistan's nuclear program, to traffic nuclear technology and know-how to Libya, Iran and North Korea.
A police investigation cleared Scomi Precision Engineering of knowingly making centrifuge components that were seized in October in the Mediterranean en route to Libya.
The Islamic opposition claims the government went easy on Abdullah's son, even while the prime minister wages a very public anti-corruption campaign. The opposition also says the government has detained about 70 terror suspects over the past three years without trial.
Badawi, speaking publicly for the first time since calling the elections, said he said he wasn't troubled by the Pan-Malaysian Islamic Party's allegations.
"I am not worried at all," Abdullah told reporters. "I think PAS just wants to find something to attack me and embarrass me. They are trying to resort to character assassination. They have nothing else to capitalize on."
Abdullah said police had investigated the trafficking case as "best they could" and that the results would be given to the International Atomic Energy Agency.
"They will scrutinize it," Abdullah said. "They are not fools. They cannot be misled."
A top U.S. nonproliferation envoy met Malaysian leaders this week to urge this Southeast Asian country to tighten export regulations and plug criminal loopholes to prevent trafficking.
Abdullah confirmed that he met John Stern Wolf, the assistant secretary for the State Department's non-proliferation bureau.
"He did not ask for strict controls," Abdullah said. "He is aware that we were already looking into it, even before this. Of course, we need time. It's not something that can easily be resolved."
Badawi called the elections in an apparent bid to solidify control of his 14-party coalition and reverse gains that the Islamic party made in a 1999 vote. The coalition, which has 152 of 193 seats in parliament, is almost certain to extend its 50-year grip on power. The date for the elections is to be announced Friday.

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Officials: N. Korea Denies Uranium Program
By HANS GREIMEL
ASSOCIATED PRESS
SEOUL, South Korea (AP) - Despite reported progress in recent North Korean nuclear talks, South Korean officials said Thursday that the North still denies having a secret uranium-based program and that other crucial issues - including an agenda for working-group meetings - are up in the air.
The agreement for lower-level officials to meet in working groups to nail down details of a possible deal was seen as a step forward at the six-nation talks that ended Saturday in Beijing.
Diplomats say they are crucial in striking common ground before the next round of six-way talks, expected before July.
But a South Korean diplomat familiar with the talks said the countries have yet to decide when those meetings will take place or what will be discussed.
That will require more haggling through diplomatic channels, he said.
"We don't know what the working group will really deal with," he said on condition of anonymity. "It's very difficult to predict what sort of job the working group will do."
Lee Soo-hyuck, South Korea's chief negotiator, said North Korea's stance had hardly shifted since the first round of talks last August among the United States, China, the two Koreas, Russia and Japan.
"Overall, the North Korean delegation's positions have not changed from those they expressed in the first round," Lee said this week in an interview with South Korea's CBS Radio. "They firmly denied that they have a uranium-based nuclear program, and they also did not change their position on security guarantees."
During the Beijing talks, North Korea insisted on keeping a nuclear program for medical and other peaceful purposes. But it said it would give up its weapons program in exchange for aid and U.S. security guarantees.
But Washington says North Korea must first start its nuclear dismantlement. It also insists that any deal include the North's alleged uranium-based program, in addition to a plutonium program it readily acknowledges.
The nuclear standoff flared in late 2002 when U.S. officials said North Korea admitted having a secret uranium program after being confronted with evidence.
Another diplomat familiar with the negotiations said Thursday that the latest talks allowed more "in-depth discussions on substantial matters of a North Korean nuclear freeze and related measures" but "didn't get into what to freeze and what to dismantle."
U.S. officials said earlier this week that the chief problem at the talks was North Korea's refusal to acknowledge having a uranium-based program.
James Kelly, the U.S. State Department's top official on Asia, told a U.S. Senate panel that the North Koreans "wouldn't give us any satisfaction" about the uranium claim.
But Kelly noted that North Korea was less vocal in asserting that position in Beijing than before because of what he said was growing evidence that the denials lack credibility.
Abdul Qadeer Khan, a Pakistani nuclear scientist, has admitted providing North Korea with assistance for developing a uranium bomb.


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Venezuela's U.N. Ambassador Resigns
By EDITH M. LEDERER
ASSOCIATED PRESS
UNITED NATIONS (AP) -
Venezuela's U.N. ambassador said Thursday he was resigning to protest human rights violations and threats to democracy in the South American nation.
Milos Alcalay, a career diplomat who has represented his country for 30 years, made his announcement at a news conference where copies of a letter to Venezuelan Foreign Minister Jesus Arnaldo Perez were handed out.
Alcalay said his diplomatic career has been guided by the principles of protecting human rights, operating through a transparent democratic process and supporting an open dialogue for international diplomacy.
"Sadly, Venezuela now is operating devoid of these fundamental principles, which I still remain intensely committed to. Therefore, it is with a heavy heart today that I am resigning from my position," he said in his statement.
Alcalay's resignation came amid opposition protests of the National Elections Council's decision to reject a petition for a recall vote against President Hugo Chavez.
On the issue of democracy, the ambassador said he believes the arguments set forth by the Elections Council violate "the spirit and the purpose" of Venezuela's constitution "and rob Venezuelans of the right to effect change through the democratic process."
He also denounced the Chavez government's human rights record.
"We've seen army and police repression, unacceptable loss of life, disappearance of political leaders and there have been allegations of torture," Alcalay said. "A peaceful demonstration of citizens is no longer feasible in Venezuela and brutal repression must stop."
The ambassador warned that "the increasing bipolarization and problems we are experiencing at home in Venezuela have impacted our relationships around the world."
"I cannot remain indifferent before the sad events in my country, the loss of many lives and the outcry of the Venezuelan people whose political and civil rights are under threat," he said.
The South American nation of 24 million people is torn between Venezuelans who say Chavez has become increasingly autocratic and those who say he speaks for the poor.

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Arab League Can't Agree on Reform Plan
By SALAH NASRAWI
ASSOCIATED PRESS
CAIRO, Egypt - Arab foreign ministers failed to agree Thursday on a new strategy for reform in the Middle East that was meant to be a response to a Bush administration proposal.
The ministers of the 22-member Arab League, finishing four days of meetings, will discuss the plans again when they meet in Tunisia just before a league summit March 29-30.
Officials did not explain why they couldn't agree on their response to Washington's recent initiative urging Middle East governments to adopt major political and economic reforms. The Bush administration plans to present the plan at the G8 summit of industrial nations in June.
Arab nations, led by Egypt and Saudi Arabia, have denounced the initiative as an imposition of foreign ideas and have pushed for Arabs to come up with their own reform package.
The ministers' discussions focused on an Egyptian-Saudi plan that encourages Arabs to play a larger role in running their political, economic, social and cultural affairs. The initiative, also backed by Syria, suggests Arabs coordinate their foreign and security policies through new supervision and follow-up agencies.
The Egyptian-Saudi does not address specific issues including the status of women, human rights, improving education and liberalizing political systems.

Iraqi Foreign Minister Hoshyar Zebari said he championed broad reform. "The wind of change is blowing and Arabs should be prepared," Zebari told The Associated Press.

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Iraq Scrambles for New Oil Export Routes
By BRUCE STANLEY
ASSOCIATED PRESS
LONDON (AP) -
With oil exports from northern Iraq crimped by the persistent threat of sabotage, the Iraqi Oil Ministry is pursuing several options to increase crude exports along safer routes in the Persian Gulf, including deals to ship oil to two former foes.
The ministry is considering building pipelines to export limited amounts of crude to Iran and Kuwait. Both countries suffered enormous losses in wars launched by Saddam Hussein, and their interest in the oil projects could attest to a turnaround in relations with Baghdad.
In addition, the Oil Ministry has refurbished two of the four berths at its Khor al-Amaya export terminal in the Gulf. Tankers began loading oil there Friday for the first time since before the U.S.-led invasion.
Oil is Iraq's most valuable export, and the country must sell more to pay for rebuilding an economy shattered by wars, sanctions and misrule. Confronted with political tensions and terror attacks, Iraq's Governing Council and its American backers recognize that rising oil revenues are essential to the creation of jobs and social stability.
However, some analysts argue that the Oil Ministry risks giving Iran and Kuwait unnecessary leverage over Iraq's economic lifeblood. They say the ministry should focus instead on securing and reopening Iraq's northern pipeline to Turkey and on completing repairs to the Khor al-Amaya terminal, which was destroyed during the first Gulf War.
A few critics even allege the real rationale for exporting to Iran is a corrupt deal between Shiite advisers to Iraqi Oil Minister Ibrahim Bahr al-Uloum and their religious brethren in Iran.
"Definitely there is no coherent strategy," former Iraqi oil minister Issam Al-Chalabi said.
Iraq is now pumping more than 2 million barrels of crude a day, compared to some 2.8 million barrels on the eve of war last year. It exports most of what it produces.
Iraqi officials hope that new export outlets in the Gulf will help make up for their current inability to make full use of the oil pipeline from Kirkuk in northern Iraq to the port of Ceyhan, Turkey. Insurgent attacks have forced the pipeline's closure for all but a few days since Saddam's ouster.
With help from the U.S. military, the Oil Ministry is working to improve security. The northern pipeline is important because it gives Iraq a convenient outlet to markets in Europe, whereas Iraq has typically supplied customers in Asia from its southern facilities in the Gulf.
Ministry officials have been reluctant to announce a target date for resuming full use of the pipeline.
A Turkish oil official said modest amounts of oil began flowing through the pipeline on Monday, though it wasn't clear if this week's average volume of 377,000 barrels signified a resumption of normal shipments. The pipeline can handle up to 900,000 barrels a day.
"The Iraqis seem to be resigned to the instability in the northern part of Iraq continuing for a long time," said Manouchehr Takin of the Center for Global Energy Studies in London. "Otherwise it doesn't make sense to look at these other alternatives on a short-term basis."
Iraq has the world's second biggest proven reserves after Saudi Arabia, but politics has starved it of reliable export routes. Saddam's 1990 invasion of Kuwait led Saudi Arabia to halt Iraq's exports through a pipeline to the Red Sea, and the Americans closed Iraq's pipeline to Syria after toppling the former Iraqi leader.
Iraq's first pipeline, to what was then the port of Haifa in British-controlled Palestine, ceased operating after the 1948 war that resulted in the creation of Israel. Despite the pipeline's dilapidated condition, the change of regime in Baghdad has encouraged some Israelis to dream of importing cheap Iraqi crude.
A senior Iraqi oil official confirmed this week that the Oil Ministry now wants to build a small, six-mile pipeline to export up to 250,000 barrels of oil a day to a refinery in Abadan, Iran. Despite acrimonious relations between the United States and Iran, the Coalition Provisional Authority in Iraq has raised no objections to this deal, the official said, speaking from Baghdad on condition of anonymity.
Iraq already buys Iranian gasoline and kerosene, and the proposed pipeline would be just another commercial arrangement, the official said.
Under a separate deal announced Sunday, officials from Iraq and Kuwait are evaluating the feasibility of building a pipeline to ship up to 250,000 barrels of Iraqi oil each day through Kuwait and its port facilities in the Gulf.

--

>> ON GERMS...USDA, CLINTON, HEIMAT...PAPERCLIP?

Germs in Our Midst
http://www.wnyc.org/shows/lopate/episodes/current
Wednesday, March 03, 2004
Plum Island lies two miles off of Long Island and 85 miles from New York City, and it houses a U.S. government biological research center where scientists study exotic diseases and viruses. New York lawyer Michael C. Carroll is on the Leonard Lopate Show today to share his concerns that the research facility is dangerously insecure. He thinks that there might even be a link between Plum Island research and outbreaks of Lyme disease and the West Nile virus.
Michael C. Carroll
Michael C. Carroll is the author of Lab 257: The Disturbing Story of the Government's Secret Plum Island Germ Laboratory. It's based on his research of declassified government files and interviews with Plum Island scientists and employees.

? Read more about the book
http://www.ars.usda.gov/plum/


Sarin Nerve Agent Leaks From Ala. Bunker
ASSOCIATED PRESS
ANNISTON, Ala. (AP) -
A trace amount of sarin nerve agent leaked from a weapons storage bunker at Anniston Army Depot, but no one was injured.
Workers were conducting routine checks for leaks Tuesday when a monitor detected the agent outside the airtight bunker where the weapons are stored.
Sarin did not escape the area, and the concentration was not enough to hurt anyone, said Cathy Coleman, a spokeswoman Anniston Chemical Activity, which oversees the stockpile.
Tons of munitions are stored in dirt-covered, concrete igloos at the depot 50 miles east of Birmingham.
Since 1982, the Army has found 897 leaking chemical weapons in storage at the depot, where the military is using an incinerator to destroy the aging weapons.

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E-Notes
The Strategic Balance in the Middle East: an Israeli Perspective
by Efraim Inbar

February 6, 2004

This essay is based on a talk to the FPRI Sponsors Forum on January 29, 2004. The Forum is regularly hosted by Pepper Hamilton LLP (www.pepperlaw.com). Efraim Inbar is Professor of Political Studies at Bar-Ilan University and Director of the Begin-Sadat (BESA) Center for Strategic Studies.

The Middle East has been divided for decades between radical forces challenging the regional status quo and Western influence, pro-Western states, and regional actors whose foreign policy fluctuated in accordance with the regional balance of power. Since September 11 2001, we witness an unprecedented American effort to enhance considerably its influence in the region. The global war on terrorism focuses on the Greater Middle East (from Libya to Afghanistan), which hosts the infrastructure (headquarters and training) of most terrorist organizations. The subsequent American invasion of Iraq was an additional effort to establish a Pax Americana in the region. The main challenges to the attempt to spread democracy and free market values in the region are taking place in Iraq, Iran, Turkey, and in Palestine. The success in meeting these regional challenges will clearly affect also Israel's security.

Iraq
In the aftermath of the American victory in Iraq the important question is whether the American military presence in Baghdad constitutes the beginning of a new period in the Middle East or will we see a quick military withdrawal and the dissipation of American influence, similar to what happened after the victory in 1991? Can the Americans westernize and democratize the Arab world, by "Hellenizing" this region in a manner reminiscent of Alexander the Great in the 4th century BCE? Will we see a really new Iraq, with a transformed political culture and with radically new attitudes? Will Baghdad become, once again, a flourishing center of sciences and of belle arte and an agent of change in the Middle East? The answer to those questions depends primarily on two uncertain factors. The first enigma surrounds the ability and the determination of the American polity to play an imperial role; the second set of uncertainties revolves around the Iraqi society and its ability to absorb change and to transform itself into a 21st century socio-political entity.

Despite the bad name acquired by imperialism, there is nothing inherently or morally wrong in bringing peace, prosperity and progress to less blessed regions. The US definitely has the military, economic and political preeminence to exercise its hegemony and export its values to every corner of the world. Its tremendous cultural influence is already omnipresent at every level, facing only quixotic resistance. The universal lingua franca is English (the American variant). American TV series, McDonalds and Cokes abound. Enrollment in the elite American universities is the entry card into the rather cosmopolitan professional and scientific elites of many states. The US is the strongest magnet for those who wish to improve their economic lot or to be freer. American political culture has the potential to reinforce the quest for implanting the American Way elsewhere. It contains a sense of universal mission rooted in biblical motifs.

Yet, America is not known for being patient enough to sustain a long-term commitment needed to this mission. Do we see nowadays a transitory reaction to 9/11 or a decidedly internationalist American outlook based on long-term popular support and a readiness to pay the price for its civilizational role? The route taken by Washington remains to be seen and will be of course affected by the configuration of indigenous forces to which we now turn.

In a limited sense, Iraq is ready for change since anything is better than the tyranny of Saddam Hussein. In a larger sense, it probably has a potential for gradual transformation, primarily because Iraq is a rich country. It has oil, arable land and water. The American presence can bring about a more equitable division of resources. Democratization in Korea or Taiwan shows that an important intervening variable in such a process is higher standards of living. Iraq also has a rather sophisticated middle class (a part of it abroad), which could become under certain circumstances a potent force for progress. Arab political culture does indeed play a negative role in this context, but it is not an insurmountable barrier for change as old traditions often contain modernizing elements. In any case, American-induced change will elicit active resistance by motley groups, such as Islamists, ex-Baathists, and disgruntled tribal leaders, Who might get support from abroad. Indeed, most of Iraq's neighbors have good reasons to fear change in Iraq and will probably meddle in its affairs. While Western democracy in Baghdad is not around the corner, a successful economic and political liberalization process in Iraq will have tremendous ripple effects in the region.

From Jerusalem's perspective, the Iraqi threat during the reign of Saddam Hussein was removed. Saddam Hussein had a record of aggressive behavior and displayed hegemonic ambitions. He was responsible for starting a long war with Iran (1980-88); for invading Kuwait in 1990; and he did not hesitate to use chemical agents in the battlefield and against his own citizens. These traits made his quest for biological and nuclear weapons extremely dangerous, particularly when it came to Israel. Saddam Hussein has never hidden his deep hostility to the Jewish state and his preference for its demise. He has repeatedly threatened Israel with destruction by using his Weapons of Mass Destruction (WMD) arsenal and did not hesitate to launch missiles to Israeli population centers in the winter of 1991.

While the future of Iraq remains unclear, Israel has benefited from the regime change in Baghdad. The new Iraq is busy with domestic problems and will find it difficult to conduct an active anti-Israeli foreign policy. The American presence and an initial dependency upon Washington would cause the new regime to avoid WMD programs. Such a posture in Iraq removes the potential for establishing an Eastern Front against Israel. Noteworthy, such a front is closer to Israel's heartland than potential attacks from the north or south. Indeed, the change in Iraq allows Israel to implement cuts in various items of its defense budget.

Iran
Since the 1979 Islamic revolution Iran has adopted a vocal anti-American foreign policy. Moreover, Iran's quest for nuclear weapons is a direct challenge to the American attempt to impose a non-proliferation regime. An American failure to convince Iran to desist from continuing in its efforts to produce fissionable material (enriching Uranium and/or separating Plutonium) will have dangerous consequences in the Middle East. The prospects of a nuclear Iran would: threaten US, and European security; increase militancy and embolden hard-liners in the region; destabilize the Gulf area; and encourage other states, such as Saudi Arabia and Libya, to follow suit.

The more assertive American position of the current Bush administration on proliferation and its military presence in Iraq do offer some hope in Jerusalem that the Americans might do something about putting an end to the Iranian nuclear program. From an Israeli perspective, Iran has increasingly become a threat to the Jewish State. Iran refuses to recognize Israel and top officials frequently call for the destruction of the Jewish state, calling it the "Small Satan." For example, in December 2001, Rafsanjani called for a jihad campaign against the Jewish State. He noted that one nuclear bomb could finish off Israel, while its nuclear response would cause only bearable damage to the Islamic word. A more recent example occurred during a major military parade on September 22, 2003 when the Islamic republic showed off six of its Shahab-3 missiles, which were decorated with anti-Israeli and anti-US slogans, including one saying Israel should be "wiped off the map." Iran has also consistently opposed the peace process between Israel and the Arab world, which was restarted in 1991, while funding the Hizballah in Southern Lebanon that attacked Israeli targets, not only in Southern Lebanon and in Israel but elsewhere in the world. Tehran has also lent support to Palestinian terrorist groups such as Hamas and Islamic Jihad that are intent to destroy the Jewish state.

Iran's bottomless enmity, coupled with its missile and WMD programs have become an existential challenge to Israel. By the 2003, Iran reached a very advanced stage in the development of the surface-to-surface Shahab-3 missile. It has a 1,300 kms range, putting Israel into its striking distance. This long-range capability made the Iranian nuclear program even more threatening. Therefore, the fruition of the Iranian nuclear program is seen in Jerusalem as an existential threat. Israel's top intelligence official has issued a stark warning regarding the threat posed by Iran's nuclear program. In a November 17, 2003 testimony before the Israeli Knesset's Foreign Affairs and Defense Committee, Meir Dagan, head of the Mossad, stressed that an Iranian atomic capability would constitute the greatest "threat to the existence of Israel" since 1948. Tehran, according to the intelligence chief, will soon reach a "point of no return" in its nuclear development, after which an Iranian offensive atomic capability would be a virtual certainty. Dagan's assessment follows a recent warning by Israeli Defense Minister Shaul Mofaz that "Israel can in no way accept the presence of a nuclear weapon in Iranian hands"-- a thinly-veiled threat that Jerusalem is prepared, if necessary, to neutralize the Iranian nuclear program by force if current international pressure fails to curb Tehran's nuclear ambitions.

Turkey
Turkey suffered in November 2003 dozens of fatalities and hundreds of wounded due to terror attacks by the extreme Islamic organizations. Terror has not spared Muslim-populated Turkey. This country, which emphasizes the secular nature of the state and its resolution to be part of the enlightened West, is a major annoyance to the radical Muslims. The enchanting, cosmopolitan city of Istanbul, encompassing both banks of the Bosphorus Straits, the waterway designed as the border between Europe and Asia, symbolizes more than anything the Turkish vision to be part of Western civilization. However, this Kemalist dream is a nightmare for al-Qaida and its ilk. Indeed, their intent is not only hitting Jews (who are associated with Israel) and British nationals, but also creating a political maelstrom that will push Turkey once again towards the fundamentalist Islamic Middle East, with its ingrained anti-modernist and anti-Western outlook from which Turkey so wishes to disconnect itself.

The government of Turkey will probably deal firmly with the phenomenon of terror on its soil. This state is one of the few, which has succeeded, through a determined and uncompromising campaign, in wiping out domestic terror, utterly crushing the Kurdish PKK underground. Turkey's military adjusted its doctrines and tactics to deal with the Kurdish threat and was successful in mobilizing domestic political support and the necessary resources to do the job well. The successful campaign against the PKK in the 1980s and 1990s was carried out, however, on the hills and countryside, as opposed to the present danger-- terrorism against civilians in big urban centers, thus rendering the present challenge by international Islamic terror a much greater one.

The Turkish army will gladly meet the challenge to prove that it is still much needed and that it remains the real guardian of the Turkish state. Turkey also has efficient and professional security services. They have been for years in the forefront of the war against Kurdish and Armenian terrorism and have also acquired much experience in combating radical Islamist elements. Hopefully, cooperation between Turkey and other states, including Israel, in the area of counter-terror, will only grow.

If Turkey fails in its fight against terror, one possible terrible consequence would be a reversal in its historic quest to be part of the West. Snatching Turkey away from the West would be a huge success for the radical Islamist elements because it is so far the only successful example of a Muslim country embracing Western values of democracy and free market. Moreover, its geostrategic location is extremely important. At stake, therefore, it is not only the internal security of Turkish citizens, but the identity of the Turkish state and its society, as well as the security of the West.

For Israel, Turkey current foreign policy orientation is extremely valuable. Since the mid-1990s, we have witnessed an upgrading of bilateral relations reaching an unprecedented degree of strategic partnership. The closer Israeli-Turkish strategic cooperation has a positive effect on the peace process, which amounts to a reluctant acceptance of Israel as a regional actor by most Arab states. It reinforces the notion that Israel is militarily strong and cannot easily be removed from the map. Moreover, this relationship has a moderating effect on Arab ambitions and revanchism, which are still nurtured in the region.

Turkey has continued to maintain good relations despite the prolonged Palestinian armed confrontation with Israel that started in September 2000, and the ascendance of the proto- Islamist party (AKP) to power in November 2002-- an indication of the resilience of Israeli-Turkish relations. Moreover, Ankara increased its diplomatic involvement in the region, a development Israel welcomed. A change of course in Ankara that the recent terrorist attacks in Istanbul served as an alarm call to such an eventuality. An Islamist takeover in Turkey will have most detrimental effect on the strategic balance in the Middle East and on Israel's security.

The Israeli-Palestinian Arena
In September 2000, the Palestinians under Yasser Arafat rejected the incredible concessions offered by Prime Minister Ehud Barak in the framework of a comprehensive peace plan. Since then, they have conducted a terror campaign against Israel. After 9/11 it became clearer than before that the Palestinian violence, despite its local motivations and characteristics, is part of a larger phenomenon-- the Muslim rage against the West. The Palestinian national movement, infused with religious motifs from the very beginning, has consistently sided with the anti-Western forces in the Middle East. It supported the Soviet Union; it attempted to topple King Hussein in Jordan; it helped destabilize pro-Western Lebanon; it provided training to most terrorist organization in its camps in Lebanon; it sided with Saddam Hussein in 1991 and 2003. Fighting Israel, a perceived western post in the Middle East, is part of the Palestinian national ethos. Moreover, the religious elements in the Palestinian national movement, Hamas and the Islamic Jihad have close links to Islamist Iran, as well as to Hizbullah and al-Qaeeda.

The September 1993 Oslo agreement seemed to herald a new era in Israeli-Palestinian relations. These hopes were shattered in September 2000. The Oslo agreements amounted to a de facto partition of the Land of Israel, something most Israelis did not object to in principle. Unfortunately, the Palestinians established an entity that is corrupt, dictatorial and worst of all: unable to meet the main test of modern state-- monopoly over the use of force. The Palestinian Authority allowed the existence of numerous armed militias. The consequence of the Oslo agreement was to give the Palestinian terrorist organizations a territorial base near the heartland of Israel making it easier for them to attack Israeli targets. Indeed, the number of Israeli casualties rose to 898 in the 9/1993-9/2003 period, in sharp contrast to the toll of the previous 15 years-- only 254 casualties.

Slowly, Israel became aware of the magnitude of the new challenge, gradually escalating its military responses. Its freedom of action has been constantly curtailed by the vagaries of the Middle East policies of Washington, and by the democratic character of the Israeli political system (the rule of law and the influence of public opinion). The interim assessment shows that Israel was successful in containing Palestinian violence. Moreover, Israel under Ariel Sharon showed considerable resilience. It was successful in nourishing a good relationship with its ally, the US. More than ever was Israel's foreign policy successful in portraying Yasser Arafat as an obstacle to peace. In contrast, the Palestinians failed to bring about the reversal of the peace treaties between Egypt and Jordan with Israel, and a military involvement of Arab states. All clearly announced their refusal to participate in a wider regional confrontation on behalf of the Palestinians. Arafat also failed to trigger an international military intervention, such as the one in Kosovo. Despite the widespread criticism of Israel's war against the Palestinian terror, particularly in Europe, and the occasional signs of weakness within Israeli society, it is worth remembering that terror is the weapon of the weak and it is not always effective.

Israel has traditionally demanded of the Palestinians peaceful coexistence with little success so far. Since the famous speech of president Bush of June 24, 2002, greater attention was given to the needed internal change within the Palestinian community to make it ripe for living peacefully next to Israel. The US, in line with the imperatives of the pro-democratic ideology, demands more than foreign policy change. The US insists on a change of leadership, democratization of the PA and dismantling the terror infrastructure. The American position suits well Israel.

Conclusion
Israel is in the frontline of the Western attempt to bring about a more stable and peaceful Middle East that is more open to Western ideas, such as democracy and free market. The main challenges for this endeavor are in Iraq, Iran, Turkey, and in the Israeli-Palestinian arena. The success of the radical forces in these focal points will affects adversely Israel's security. Israel itself can use its power to curtail some of these challenges but it needs the support of the West.

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Sharon faces scandal over released captive
By Ed O'Loughlin, Herald Correspondent in Jerusalem
March 4, 2004
The Israeli Prime Minister, Ariel Sharon, is again fighting for his political life following revelations yesterday that he had close connections to the family of an Israeli freed from Lebanese captivity in a controversial prisoner exchange in January.
According to a front-page exclusive in the daily Maariv, freed Israeli reserve officer, Elhanan Tannenbaum, is the son-in-law of Shimon Cohen, who for years was the manager of Mr Sharon's ranch in the Negev desert.
The freeing of Lieutenant-Colonel Tannenbaum in a deal with the Lebanese guerilla group Hezbollah proved controversial in Israel, with many wondering why more than 400 Arab prisoners were freed in return for only one living Israeli - Colonel Tannenbaum - and the bodies of three soldiers killed in Lebanon.
Public anger deepened in the aftermath of the exchange when it became known that Colonel Tannenbaum had been kidnapped by Hezbollah while visiting the Arab world under murky circumstances.
Interrogated by the security services immediately on his return to Israel, Colonel Tannenbaum was subsequently and controversially granted immunity from prosecution. He then confessed he left the country to pursue a drug deal, but he also claimed to have been seeking information about Israeli air force navigator Ron Arad, missing in Lebanon since 1987.
The immunity deal has fanned the flames further, especially in view of revelations that the security forces believe Colonel Tannenbaum, a lieutenant-colonel in the Israeli army reserve, may not only have revealed security secrets to Hezbollah under interrogation but could have been prepared to sell them to Israel's enemy.
According to another exclusive report in the Haaretz daily yesterday, Israeli security agents discovered that Colonel Tannenbaum had illegally gained access to masses of secret documents before he left for Dubai in 2000.
Ma'ariv's revelations were followed by calls in the media and from the political left for Mr Sharon's resignation.
His office scrambled to release a statement denying he was aware that his old partner was the father-in-law of the man he had done so much to free, often against advice from the security establishment.
This story was found at: http://www.smh.com.au/articles/2004/03/03/1078295454149.html
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M. Chirac et M. Jupp? freinent les ambitions de M. Raffarin
LE MONDE | 03.03.04 | 14h50
Alors que le premier ministre ne cache pas son intention de remanier son ?quipe minist?rielle et de prendre la pr?sidence de l'UMP apr?s les r?gionales, le chef de l'Etat lui a rappel? que la priorit? du gouvernement demeure la lutte contre la ch?mage.
Plus qu'une bourde, une faute. L'Elys?e n'a pas appr?ci? que Jean-Pierre Raffarin laisse filtrer sa strat?gie pour les mois ? venir : remaniement minist?riel d?s avril, lorsque les nouveaux pr?sidents des conseils r?gionaux, issus des ?lections, seront en place ; acc?l?ration de la candidature du premier ministre pour remplacer Alain Jupp? ? la t?te de l'UMP ; recherche d'un accord avec Nicolas Sarkozy pour ?viter l'implosion ? droite. Ces informations parues dans la presse (Le Mondedat? 29 f?vrier-1er mars) ont mis, mardi 2 mars, Jacques Chirac en fureur. Pour, l'Elys?e, la priorit? du gouvernement doit rester la lutte pour l'emploi. En laissant transpara?tre ses ambitions, le premier ministre donne, selon l'expression d'un proche du chef de l'Etat, l'impression de "faire sa petite tambouille sur son petit r?chaud". Cette col?re de l'Elys?e relayait celle du pr?sident de l'UMP.
D?s le matin, ? l'occasion du d?jeuner hebdomadaire des chefs de la majorit? ? l'H?tel Matignon, le premier ministre a d? s'expliquer sur ce premier accroc entre le chef du gouvernement, qui avait notamment ?t? choisi pour sa "jupp?o-compatibilit?" et le pr?sident du parti chiraquien. Pendant plusieurs minutes, M. Raffarin a pris la parole en premier "pour mettre les choses au point", selon un proche de M. Jupp?. Le premier ministre a tent? de rassurer son interlocuteur sur sa loyaut?, en l'assurant que ses propos avaient ?t? d?form?s. C'est le mot "coll?gialit?" qui est revenu dans la bouche de M. Raffarin ; il a contest? l'existence d'un "ticket" l'alliant ? M. Sarkozy.
En r?ponse, M. Jupp? a rappel? que le calendrier de son d?part n'avait "aucune raison" d'?tre anticip?. L'ancien premier ministre a insist? sur la n?cessit? de respecter les r?gles en vigueur ? l'UMP. Il a, en outre, soulign? qu'en tant que pr?sident du parti, il ?tait le garant des statuts, du processus d?mocratique et de l'expression des militants.
CALMER LES ESPRITS
M. Jupp? a r?it?r?, deux heures plus tard ? l'Assembl?e nationale, ses propos devant les d?put?s du groupe UMP. Enfin, dans la soir?e, il s'est ? nouveau exprim?, devant le bureau politique du parti. En pr?sence d'une trentaine de personnes, dont le principal conseiller du pr?sident de la R?publique, J?rome Monod, la ministre de la d?fense, Mich?le Alliot-Marie, le ministre de la ville, Jean-Louis Borloo, et le secr?taire d'Etat aux transports, Dominique Bussereau, ami du premier ministre, - mais en l'absence des proches de M. Sarkozy -, M. Jupp? a hauss? le ton. "La future ?quipe qui dirigera l'UMP sera ?lue par les 165 000 adh?rents et pas par les cabinets minist?riels", a-t-il proclam?. Sans citer le ministre de l'int?rieur, il a affirm? qu'il n'avait "d'exclusive contre personne". A ses yeux, dans le parti, a-t-il pr?cis? dans un souci d'apaisement, "les meilleurs doivent acc?der aux responsabilit?s auxquelles leur talent leur donne droit".
L'entourage du premier ministre, s'effor?ait, mardi dans la journ?e, de calmer les esprits. "Il n'a jamais ?t? question d'un ticket avec Nicolas Sarkozy", soulignait-on. M. Raffarin n'a jamais prononc? ce mot, dit-on ? Matignon comme au minist?re de l'int?rieur o? l'on pr?cise qu'aucun accord n'a ?t? conclu.
A l'approche des ?lections r?gionales, dont le r?sultat reste incertain, le chef du gouvernement s'applique ? b?tir une nouvelle strat?gie. Pour cela, il ne discute pas qu'avec son num?ro deux, objecte un proche. "Jean-Pierre Raffarin s'entretient tous les jours avec Alain Jupp?, fait-on remarquer dans l'entourage du premier ministre, et il a ?galement abord? les m?mes sujets avec le garde des sceaux, Dominique Perben." Le remaniement, dont "tout le monde sait qu'il aura lieu", ironise un collaborateur de M. Raffarin et la pr?sidence de l'UMP sont un enjeu majeur. "La seule question ? laquelle il faut r?pondre, dit-on ? Matignon, est la suivante : "qui est le meilleur rassembleur ?" Elle ne peut pas ?tre r?gl?e tout de suite."
La succession de M. Jupp? provoque un malaise parmi les d?put?s de la majorit?. "Il serait probablement opportun d'organiser le congr?s avant le mois de novembre", estime Fran?ois Goulard, secr?taire g?n?ral adjoint du parti et d?put? du Morbihan. Selon lui, "Raffarin est le mieux plac? pour remplacer Jupp?, mais pourquoi attendre ?", interroge-t-il. "Sans se pr?cipiter et tout en respectant les statuts, nous pourrions tenir ce congr?s d?s la rentr?e de septembre", sugg?re-t-il. Herv? Mariton, d?put? de la Dr?me partage cet avis : "Le calendrier pr?vu pour l'?lection de la future ?quipe dirigeante du parti est long. Tout en respectant les statuts, je suis pour que l'on raccourcisse ce d?lai." Lui aussi plaide pour l'organisation du congr?s en septembre.
R?LE D?TERMINANT
Mais d'autres parlementaires, ? l'instar de Marc-Philippe Daubresse, d?put? du Nord et secr?taire g?n?ral adjoint du parti chiraquien pr?f?re s'en tenir au respect des statuts. "Les militants n'accepteraient pas que l'on bouscule les choses. L'UMP doit absolument rester soud?", a-t-il estim?. En revanche, pour Christian Estrosi proche de M. Sarkozy, d?put? des Alpes-Maritimes, conseiller politique de l'UMP, "cette question n'a aucune importance. C'est un d?bat sans int?r?t. C'est aux militants qu'il appartient de d?cider".
Toutefois, M. Chirac, dont le r?le reste d?terminant, a r?affirm? clairement ? un proche que le calendrier pr?vu par les statuts de l'UMP, l'?lection du pr?sident ? l'automne par les militants, devait ?tre respect?. Une rencontre - plut?t une explication - est d'ailleurs pr?vue entre le pr?sident de la R?publique, le premier ministre et le pr?sident de l'UMP, mercredi.
L'entourage du chef de l'Etat s'efforce de minimiser l'incident. A l'Elys?e, on affirme qu'il n'"y a pas l'ombre d'un probl?me entre le pr?sident et le premier ministre" et on ne croit pas ? l'existence d'un axe Raffarin-Sarkozy dirig? contre le chef de l'Etat. M. Raffarin peut ?tre maladroit mais il est loyal. Et il sait bien que son avenir politique d?pend en grande partie de M. Chirac.
Yves Bordenave, Pascal Ceaux et B?atrice Gurrey

62 % des Fran?ais d?sapprouvent l'action du premier ministre
Selon un sondage IFOP pour Paris Match, ? para?tre jeudi 4 mars et r?alis? les 26 et 27 f?vrier aupr?s de 1 018 personnes, 51 % des personnes interrog?es approuvent l'action de Jacques Chirac, contre 57 % lors de la pr?c?dente enqu?te des 29 et 30 janvier (- 6 points), et 48 % la d?sapprouvent. L'action de Jean-Pierre Raffarin recueille les faveurs de 38 % des personnes interrog?es (contre 42 % pr?c?demment, - 4) et 62 % sont en d?saccord avec cette politique (+ 4). Plus d'un Fran?ais sur deux (55 %, - 3) consid?re que le premier ministre "dirige bien l'action du gouvernement" et 35 % (- 5) pensent qu'il "m?ne une bonne politique sociale". En cas d'?chec de la droite aux r?gionales, 68 % des sond?s souhaitent "un remaniement important du gouvernement de Jean-Pierre Raffarin" ; 31 % sont d'un avis contraire et 1 % ne se prononcent pas.

* ARTICLE PARU DANS L'EDITION DU 04.03.04

Charm el-Cheikh : la th?se d'une d?faillance du syst?me de pilotage automatique et d'une erreur humaine
LE MONDE | 03.03.04 | 14h10
D'apr?s "Le Figaro", les pilotes du Boeing 737 ne se seraient pas rendus compte que le m?canisme n'?tait pas enclench?. Les enqu?teurs ?gyptiens qualifient cette version de "pure sp?culation".
Une d?faillance du syst?me de pilotage automatique, suivie d'une erreur humaine : c'est le sc?nario d?crit, mercredi 3 mars, par Le Figaro, pour expliquer le tragique accident du Boeing 737 de Flash Airlines, ab?m? au large de Charm el-Cheikh, en Egypte, le 3 janvier, causant la mort de 148 passagers, dont 135 Fran?ais.
D'apr?s le quotidien, "le pilote automatique ne s'est pas mis en service. Plus grave, l'?quipage ne s'en est pas aper?u (...) L'?quipage constate que "quelque chose ne va pas", mais ne comprend pas. Il est "surpris" car il consid?re que l'avion est toujours sous pilote automatique". Le Figaro explique que "lentement mais inexorablement, l'avion passe sur la tranche : le plan des ailes est alors perpendiculaire au sol. Un appareil de voltige peut rester quelques secondes dans cette position, soutenu par son moteur. le Boeing 737 n'en a pas les capacit?s."
"Jusqu'au dernier moment, il n'y a pas de panique", expliquait au Monde, le 6 f?vrier, le directeur du Bureau d'enqu?tes et d'analyses (BEA) de l'aviation civile, Paul-Louis Arslanian, en excluant une panne de d?rive. Jusqu'? la fin, les pilotes pensent ma?triser la situation, confirme Le Figaro. "Notre r?le est de savoir pourquoi l'?quipage est arriv? ? une telle situation", confie M. Arslanian au quotidien.
Le BEA a pourtant vivement r?agi, mercredi, ? la publication de ce sc?nario. "Aucun ?l?ment pr?cis ne permet d'expliquer se qui s'est pass?. Si nous avions un ?l?ment pr?cis, il aurait ?videmment ?t? rendu public", a indiqu? le BEA au Monde. "D?s qu'il y aura des informations, elles seront rendues publiques par les autorit?s ?gyptiennes qui dirigent l'enqu?te sur place", poursuit le bureau. Le chef des enqu?teurs ?gyptiens a qualifi? pour sa part de "pure sp?culation" la th?se d'un pilote qui aurait cru ? tort avoir enclench? le pilotage automatique. En revanche, le pr?sident de l'Association des victimes de Charm el-Cheikh, Marc Chernet, s'est r?joui, mercredi matin, de "cette explication rapide" qu'il "prend tr?s au s?rieux". "Elle avait ?t? ?voqu?e d?s le 31 janvier, en priv?", confie au Monde M. Chernet, qui s'interroge d?sormais pour savoir "si le comportement suppos? des pilotes constitue, en droit, une faute inexcusable".
LETTRE DU PREMIER MINISTRE
C'est en revanche mercredi matin que les familles des victimes de l'accident ont d?couvert ce nouveau sc?nario. M. Arslanian leur avait en effet adress?, le 20 janvier, une lettre pour r?pondre ? ceux qui s'inqui?taient "de la confiance qui -pouvait- ?tre faite aux enqu?teurs ?gyptiens". "Je confirme que les enqu?teurs -fran?ais et am?ricains- (...) ont eu un acc?s complet aux enregistreurs et qu'ils participent de plein droit aux discussions. (...) L'?quipage est conscient d'un probl?me et il tente de le g?rer professionnellement et sans affolement.".
Par ailleurs, dans une lettre dat?e du 1er mars, Jean-Pierre Raffarin ?crivait de son c?t? aux familles des victimes : "M?me si certaines des l?gitimes interrogations qui ont ?t? exprim?es demeurent ? ce jour sans r?ponse, j'esp?re de tout c?ur que -la r?union organis?e avec Dominique Perben, le garde des sceaux, le 31 janvier- aura r?pondu ? vos attentes (...) Je tiens ? vous assurer de la totale mobilisation de l'ensemble des services de l'Etat pour qu'il soit r?pondu ? ces interrogations et pour qu'en particulier les causes et les circonstances de ce drame soient totalement ?claircies". Une phrase qui, mercredi matin, avait un go?t amer pour plusieurs personnes endeuill?es par la mort de leurs proches, le 3 janvier, dans la mer Rouge.
Ariane Chemin

* ARTICLE PARU DANS L'EDITION DU 04.03.04
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All? Radovan ? C'est Slobo ? l'appareil
LEMONDE.FR | 03.03.04 | 14h14
"Alors, cet ambassadeur (d'Allemagne) me demande comment cela se fait que les Serbes de Croatie ont des armes. Je lui dis, attends mon gars, les Serbes ont toujours eu des armes, nous en tant que peuple, nous ne restons jamais d?sarm?s. (Rires) Et cet encul? de mes deux, tu sais ce qu'il me dit ? Oui, mais ils auraient ?galement des mortiers. A quoi je lui r?ponds : les mortiers, c'est bien des armes, non ?" Sur ce, les deux interlocuteurs, l'un ? Belgrade et l'autre ? Sarajevo, ?clatent de nouveau d'un long rire.
Ce n'est pas un personnage du cin?aste Quentin Tarantino qui s'exprime ainsi, mais Slobodan Milosevic, chef de l'Etat serbe, ici en ligne avec Radovan Karadzic, leader des Serbes de Bosnie. "Qu'est-ce que ce guignol attend de moi ?, ajoute le pr?sident serbe, visiblement tr?s content de lui-m?me. Que je lui dise que c'est moi qui ai fourni ces mortiers ? Ha, ha, ha..." En ce mois de juillet 1991, les premiers affrontements avaient d?j? ?clat? en Croatie, o? la minorit? serbe, soutenue par des unit?s de l'Arm?e populaire de Yougoslavie, s'appr?tait ? proclamer l'?ph?m?re R?publique autonome de la Krajina.
Cette conversation t?l?phonique fait partie des 245 documents sonores r?cemment vers?s au dossier d'accusation contre Slobodan Milosevic par le Tribunal p?nal international pour l'ex-Yougoslavie (TPIY), o? l'ancien pr?sident est jug? pour son r?le dans les trois grands conflits qui ont d?chir? l'ex-Yougoslavie de 1991 ? 1999 (Croatie, Bosnie, Kosovo). Il s'agit, selon l'agence IWPR (Institute of War and Peace report); qui couvre l'actualit? du tribunal, de conversations t?l?phoniques intercept?es par les services secrets de Sarajevo, qui auraient mis plusieurs hauts responsables serbes bosniaques sur ?coute d?s 1991.
Num?ris?s, tous ces enregistrements peuvent ?tre t?l?charg?s en format MP3 sur le site de l'ONG hollandaise Domovina.net, qui, depuis plusieurs ann?es, travaille ? constituer une base de donn?es sur la guerre en ex-Yougoslavie. Leur ?coute nous renseigne sur l'intensit? des ?changes entre Belgrade et Sarajevo ? la veille de la guerre en Bosnie : certains jours, Radovan Karadzic s'entretient ? plusieurs reprises avec Milosevic, mais aussi, plus sporadiquement, avec des personnages tels que le patron des services secrets serbes, Jovica Stanisic, le directeur des douanes, Mihalj Kertes, le paramilitaire "Arkan" ou Milorad Lukovic, alias "Legija", patron des B?rets rouges de sinistre renomm?e.
Concernant Milosevic, ces conversations "prouvent clairement, selon le TPIY, que l'accus? a pris une part active dans la planification, l'instigation et la pr?paration des crimes d?crits dans son acte d'accusation". Sur la forme, on ne manquera pas de relever le style ? la fois familier, paternaliste et piment? adopt? par le pr?sident d?chu lorsqu'il s'adresse ? son "cher Radovan" beaucoup plus respectueux des convenances et tr?s demandeur en conseils en tout genre. "Slobo" ponctue fr?quemment ses phrases par des jurons fleuris, des interjections et des rires rauques. Plut?t qu'aux hommes politiques croates ou bosniaques, il s'en prend r?guli?rement ? ses propres alli?s, qu'il traite de tous les noms d'oiseaux, tel un Milan Babic, "pr?sident" des serbes de Croatie, qualifi? tour ? tour d'"encul?", "idiot", "bon ? rien", "porc d?bile" et "schizo".
Malgr? des lignes t?l?phoniques en tr?s mauvais ?tat, on entend souvent comme toile de fond le claquement d'assiettes, des verres qui s'entrechoquent et des bruits de mastication. Les protagonistes se parlent souvent de chez eux, en compagnie de membres de leur famille, telle l'?pouse de Karadzic, Liljana, qui est pri?e un soir d'aller "baisser la t?l?". On s'informe poliment de la sant? des uns et des autres, on remercie Dieu si tout le monde va bien, et l'on se remet aux blagues grasses, aux intrigues et autres machinations politiques qui n'en constituent pas moins le pr?lude au plus sanglant conflit qu'ait connu l'Europe depuis la fin de la deuxi?me guerre mondiale.
Ce qui, ? partir de la fin de l'ann?e 1991, ne semble plus ?chapper au pr?sident serbe : "C'est, comme ils disent, la guerre, et nous sommes une des parties en conflit", rappelle-t-il ? un Radovan Karadzic visiblement mal inform?. En public, Slobodan Milosevic n'a jamais cess? de marteler que la Serbie, ? part se d?fendre contre "l'agression" de l'OTAN en 1999, n'a men? aucune guerre sur le territoire de l'ex-Yougoslavie.

Alexandre L?vy

----------------------------------------------------
Sa?f Al-Islam Kadhafi, au nom du p?re
LE MONDE | 03.03.04 | 14h02
Artisan du retour de la Libye au sein de la communaut? internationale, le fils a?n? de la seconde ?pouse du colonel Kadhafi est aussi le dauphin pr?sum? du chef de la Jamahiriya.
L'oeil ?coute, l'oreille s?lectionne. Inconnu il y a quatre ans, Sa?f Al-Islam Kadhafi est d?j? un pro de la communication. En Libye, le fils a?n? de la seconde ?pouse du colonel Kadhafi est un sultan qui chasse au faucon dans le d?sert, ?l?ve des tigres et des pumas. Ici, ? Londres, l'homme a pris l'apparence d'un golden boy de la City.
Blue-jean de grand faiseur, chemise ouverte, large sourire vendeur. Ce matin, dans le salon tr?s anglais de son h?tel particulier d'Hyde Park, le "Glaive de l'islam" - son nom en arabe - la joue modeste, sympa, d?tendu. A l'ext?rieur de l'immeuble, sous l'auvent ? colonnes battu par la pluie, ni plaque ni garde en armes. Discr?tion ?gale tranquillit?. Dans le d?cor gris perle du salon, le secr?taire qui prend des notes est libyen, le ma?tre d'h?tel qui sert le jus d'orange, britannique.
Grand, svelte, ?l?gant, le pr?sident de la Fondation internationale Kadhafi des organisations caritatives est un homme heureux. Les affaires marchent bien. Apr?s vingt ann?es de mise au ban international, la Grande Jamahiriya arabe et socialiste de Libye sort du purgatoire et rentre au pas de course dans le concert des nations. Et c'est en partie gr?ce ? lui. Sur le chemin de Canossa qu'a finalement d?cid? d'emprunter l'impr?visible colonel, Sa?f est l'?claireur, le guide du Guide en quelque sorte. Ou son masque le plus affable, comme on voudra.

Officiellement, ce grand gar?on de 32 ans bient?t n'est rien. A l'instar de son p?re, qui s'est d?fait de tous ses titres il y a des ann?es - ce qui lui permet, sans convaincre ?videmment quiconque, de plaider r?guli?rement l'innocence dans la triste situation libyenne -, le Glaive n'occupe aucune fonction ni ne joue aucun r?le dans les affaires de l'Etat. "Je suis juste un Libyen qui fait ce qu'il peut pour son pays." La presse arabe a senti en lui l'h?ritier d?sign?. Pour elle, il est "le prince de Libye". Les chancelleries suivent et le consid?rent ouvertement comme le dauphin pr?sum?. Les chefs d'Etat qui le re?oivent, Jacques Chirac en t?te, le traitent comme tel.

Mais Sa?f Al-Islam nie toute ?ventualit? de succession. Dans "l'Etat des masses", depuis la "grande r?volution" kadhafienne du 1er septembre 1969, il n'y a pas d'?lections, pas de Constitution, pas de libert? d'association, pas de partis politiques, pas d'information libre. M?me aujourd'hui, o? il est tant question d'ouverture, de r?formes, de privatisations massives, la Libye du Guide, c'est d'abord un grand silence. "Surtout, ne me citez pas, j'aurais de gros ennuis." Avocats, professeurs, ?tudiants, intellectuels, diplomates, hommes d'affaires, nul n'ose encore s'exprimer ouvertement. L'ouverture ? l'ext?rieur est r?elle, le changement strat?gique. Mais nul n'ignore en Libye qu'il suffirait que le Fr?re-Guide de la r?volution se l?ve un jour du mauvais pied pour tout refermer en une seule proclamation.

Les d?tentions au secret, les ex?cutions publiques, les assassinats d'opposants, les brutalit?s et les tortures syst?matiques qui ont ?maill? les trente-quatre ann?es d'existence de la Jamahiriya "tendent ? dispara?tre", note un chercheur. "Mais le long chemin de sang subi par les Libyens a marqu? les esprits pour plusieurs g?n?rations."Ces deux derni?res ann?es, Sa?f Al-Islam a obtenu la lib?ration de plusieurs centaines de d?tenus politiques et, pour la premi?re fois depuis quinze ans, une d?l?gation d'Amnesty International a ?t? autoris?e en f?vrier ? visiter les prisons. Selon l'un de ses membres, il reste "plusieurs centaines"de d?tenus politiques dans les ge?les du colonel.

"Politiques ? Non", se renfrogne le Glaive. Pour lui comme pour son p?re, qui cite ? tout-va l'"exemple" de George Bush et de ses cages de Guantanamo, les islamistes emprisonn?s "ne sont que des terroristes dangereux". Dans ce pays grand comme trois fois la France, mais ? 90 % d?sertique et peu peupl? (5,5 millions d'?mes), les "masses" sont cens?es se gouverner seules, via des comit?s populaires alternativement contr?l?s par les s?ides du colonel - arm?e, police politique, comit?s r?volutionnaires. "Mon p?re est un visionnaire qui n'est ni roi ni pr?sident, affirme le fils du "Berger de Syrte". Il n'a donc aucune charge h?r?ditaire ? transmettre." Il peut ?tre tr?s p?remptoire, l'h?ritier pr?sum?. Mais, dans un texte dat? du 13 d?cembre 2003, sign? de lui et diffus? sur son site Internet (www.gaddaficharity.org), le m?me jure aussi que la Libye "n'a pas ni ne cherche ? obtenir d'armes de destruction massive, nucl?aires, chimiques ou biologiques." Or on sait maintenant, gr?ce aux inspections d?ment autoris?es par le "ca?d" pour parfaire sa rentr?e en gr?ce, que ses programmes atomiques ?taient au contraire tr?s avanc?s. Sa?f Al-Islam est un politique...

Pens?e du d?sert ou d?sert de la pens?e comme on voudra, la "troisi?me th?orie universelle" contenue dans le Petit Livre vert du colonel est toujours d'actualit?. Cens?e d?velopper un syst?me ? mi-chemin entre socialisme et capitalisme, "la th?orie est d?mocratique et superbe", commente le fils pr?f?r?. "C'est sa pratique, affreuse, et sa mise en ?uvre, rat?e, qui doivent ?tre r?form?es."Des groupes d'?tudes "y travaillent", r?p?te-t-il depuis deux ans. Les Libyens pourront-ils un jour choisir librement leurs dirigeants par les urnes ? "Ce n'est pas qu'une question de vote, nous devons trouver le moyen d'ins?rer le peuple dans les m?canismes de d?cision", tranche le dauphin pr?sum?.

Pour l'instant, rien ne presse. Trop contente de pouvoir montrer au moins un dictateur arabe ayant pris suffisamment peur apr?s l'invasion irakienne pour ouvrir ses arsenaux interdits aux inspections, l'administration Bush, qui s'appr?te ? rouvrir son ambassade ? Tripoli, aussi bien que Tony Blair, attendu incessamment dans la capitale libyenne, ne se montrent gu?re regardants sur le chapitre des libert?s publiques. Le clan direct du colonel Kadhafi compte six enfants. Tous sont plus ou moins m?l?s ? l'administration du pays et ? ses plus juteuses op?rations financi?res. Il y a quelques ann?es, ce n'est pas Sa?f, mais son cadet d'un an, Saadi, r?put? proche de la ligne dure de la r?volution, qui semblait promis aux plus hautes destin?es. Et puis, buteur rat?, le cadet semble finalement se contenter de diriger la Ligue nationale de football. Quant ? la s?ur, la belle et blonde A?cha, "la Claudia Schiffer de Libye", dit la presse italienne, on raconte ? Tripoli que la politique lui aurait bien plu. Elle dirige elle aussi une organisation humanitaire. Mais, dans la soci?t? traditionnelle b?douine qu'est largement rest?e la Libye, "les femmes ne peuvent pas encore jouer ce genre de r?le", sourit un journaliste du cru.

Sa?f, lui, a l'oreille du ca?d et, tr?s vite, le p?re lui a donn? les moyens de ses ambitions. Fin 1994, ? peine frais ?moulu de l'universit? Al-Fatah de Tripoli, un dipl?me d'architecte en poche, il est charg? de concevoir un grand complexe immobilier avec h?tel, mosqu?e et logements. Bient?t, les projets se multiplient : villas, complexe sportif, centre de loisirs, etc. En Libye, le Glaive est c?l?bre. A l'ext?rieur, il n'existe pas encore. C'est en ao?t 2000 qu'il entre en pleine lumi?re. La Fondation cr??e trois ans plus t?t, "avec l'aide initiale de -son- p?re", reconna?t-il, s'entremet dans l'affaire des otages du groupe Abou Sayyaf de Jolo (Philippines).

La Jamahiriya, qui a financ? des ann?es durant tous les groupes ind?pendantistes ou s?cessionnistes arm?s de la plan?te, de l'IRA irlandaise aux Canaques n?o-cal?doniens, verse une ran?on estim?e ? 25 millions de dollars. Six otages occidentaux sont lib?r?s. La France remercie et ?voque "l'am?lioration des relations". Le chancelier allemand Gerhard Schr?der souligne que, "sans le colonel Kadhafi et son fils, rien n'aurait ?t? possible". La r?demption de l'"Etat des masses" commence. Aussi calme et pond?r? que son p?re appara?t col?reux, fantasque et violent, Sa?f Al-Islam est le nouveau visage du r?gime, "jeune, dynamique, r?solument moderne", ?crivent les gazettes. Embargo am?ricain, dures sanctions onusiennes : l'?conomie libyenne, au surplus g?r?e n'importe comment, est en lambeaux. Entre 1970 et 2003 la production p?troli?re, unique rente du pays apr?s l'?chec de tous les projets de diversification, a baiss? de moiti?. La Jamahiriya est seule, isol?e, mise au ban.

Le Glaive a vu le jour ? Tripoli, le 25 juin 1972, ? l'int?rieur m?me de la grande caserne militaire de Bal el-Azizya, o? r?side encore le colonel, entre "une maison modeste" et la grande tente b?douine o? il re?oit. Le 15 avril 1986, quand le pr?sident Ronald Reagan fait bombarder le site avec comme objectif d?clar? de tuer "le chien enrag? du Proche-Orient", le futur espoir libyen a 14 ans. Les bombardements ont fait 43 morts, dont la petite derni?re de la famille, un b?b? adopt? de quelques mois. Sa?f n'a pas oubli?. "C'?tait tr?s d?plaisant. Mais l'?v?nement a contribu? ? former ma nouvelle personnalit?, plus m?re. Vous connaissez le proverbe arabe : "Le coup qui ne brise pas ton dos te rend plus fort."" Quinze ans plus tard, il s'activera comme personne pour faire la paix avec l'Am?rique. Passionn?, dit-il, par les grands auteurs allemands, il philosophe : "Il y a un temps pour ha?r et un temps pour la paix."

Financ?e on ne sait trop comment - le FMI commence tout juste ? percer l'opacit? des comptes de la Jamahiriya -, la Fondation Kadhafi, dont on ignore m?me le budget, mais qui joue presque ouvertement le r?le d'un minist?re bisde la diplomatie, s'entremet dans tous les sales dossiers que tra?ne encore le r?gime. C'est elle qui mettra en place le r?glement des affaires Lockerbie (1988) et de l'avion fran?ais d'UTA qui a explos? en 1989 au-dessus du Niger - 270 morts dans le premier attentat, 170 dans le second. Dans les deux affaires, suite ? l'inculpation de plusieurs de ses ressortissants, la Libye reconna?t non pas sa culpabilit?, mais sa "responsabilit?". Et elle paye : autour de 3 milliards de dollars d'indemnit?s pour les familles des victimes. "Le prix de la paix", r?sume Sa?f, qui, comme son p?re, pense qu'il s'agit l? d'une sorte d'extorsion du fort au faible.

Aujourd'hui, alors que toutes les majors p?troli?res am?ricaines reviennent en Tripolitaine, "la r?volution est termin?e", constate le jeune Kadhafi. Avec le monde anglo-saxon en g?n?ral, avec l'Allemagne aussi bien qu'avec l'ancien colonisateur italien, tous les liens sont r?tablis. En deux ans, Silvio Berlusconi a d?j? accompli deux p?lerinages dans la tente du ca?d. Avec la France, "ce n'est pas la lune de miel", confie le fils du chef. "Mais j'ai confiance en Jacques Chirac, ajoute-t-il. L'affaire UTA r?gl?e, nous attendons de voir comment la France va r?agir. Si elle veut sinc?rement et s?rieusement tourner la page, nous r?pondrons."

Anglophone, germanophone et partiellement francophone, Sa?f Al-Islam n'est pas particuli?rement francophile. Dans les ann?es 1990, quand il voulait parfaire son ?ducation universitaire, Paris lui avait refus? un visa d'?tudiant. "Discrimination fond?e uniquement sur mon nom", commente l'int?ress?, qui n'a "pas oubli?"l'affront. Finalement, c'est l'Autriche qui l'accueillera, et c'est l?-bas qu'il obtiendra sa licence en administration des affaires. De ces ann?es heureuses o? le tr?s croyant "serviteur d'Allah" d'aujourd'hui laissera plut?t le souvenir d'un playboy flamboyant menant grand train avec la fortune de papa, notre homme, toujours c?libataire, nouera deux amiti?s importantes. La premi?re avec Choukri Ganem, un Libyen lib?ral form? aux Etats-Unis, alors num?ro trois de l'OPEP ? Vienne et qui est aujourd'hui le chef r?formiste du gouvernement libyen. C'est Sa?f qui a insist? aupr?s du colonel pour qu'il l'engage.

La seconde relation nou?e ces ann?es-l? est plus embarrassante. Il s'agit de J?rg Haider, le chef de la droite populiste autrichienne. Le Glaive ne renie rien : "C'est un ami, nous chassons ensemble, il vient chez moi, je vais chez lui." Cette proximit? n'est- elle pas un peu g?nante ? "Non. Nous avons de bonnes relations avec presque tous les politiciens de la droite extr?me europ?enne. J'ignore pourquoi, mais c'est ainsi."On insiste : "Yeah. Peut-?tre avons-nous quelques points communs, je ne sais pas..."

Patrice Claude

* ARTICLE PARU DANS L'EDITION DU 04.03.04
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Venezuela: The Next Cuba
By Paul Crespo
FrontPageMagazine.com | March 3, 2004
As Venezuela's embattled democratic opposition gears up for its planned August referendum against that South American nation's increasingly authoritarian ruler, President Hugo Chavez is consolidating his "Bolivarian Revolution" and subverting what's left of the country's constitutional democracy. Calling the legal referendum on his rule a "mega-fraud," Chavez is doing all he can to thwart the peaceful recall effort. Many fear that he has little intention of allowing a vote. Meanwhile, the migration of frightened Venezuelans to the US continues.
There is no doubt that Chavez - with Fidel Castro's help -- is creating a Cuban-style socialist state in Venezuela. Scholar Maxwell Cameron calls it the world's first "slow-motion constitutional coup." In the process, Chavez also is breathing new life into Fidel Castro's dying and decrepit dictatorship. But what's even more worrisome is the fact that the mercurial Chavez is turning the large, oil rich country into a base for international terrorism.
Sadly, not many people recognize this threat. In my July 2003 American Legion Magazine article -- The Other "Axis of Evil" I described the dangerous and growing alliance between Latin America's two major anti-American rogue states and international terror groups operating throughout the hemisphere.
Focusing on the close and burgeoning partnership between Castro and Chavez, I explored the links both Castro and his new Caracas-based clone have with Latin American communist guerillas, drug dealers and Islamic terrorists. Referring to Castro as an anti-American godfather, "increasingly advising his new alter-ego in Venezuela..." I wrote that Chavez, "with Castro's direction and support - may be turning Venezuela into a new anti-American terrorism hub."
Noting Castro's long history of subversion, espionage and terrorism -- including the October 2001 arrest in Washington, DC of Cuban spy Ana Belen Montes, the former senior Cuba analyst at the Defense Intelligence Agency (DIA) -- my article highlighted Castro's continuing threat to the US. Cuba remains on the US State Department list of state sponsors of terrorism. Chavez and Castro are intimately linked, meeting and talking regularly. Chavez has said Cuba and Venezuela are, in effect, "one team."
The partnership is so close that Venezuela's intelligence and security service, known as DISIP, reportedly has come under control of the Cuban intelligence service, the DGI. Because of this, US intelligence agencies have ended their longstanding liaison relationships with their Venezuelan counterparts. Hundreds of Cuban advisors, coordinated by Cuba's military attach? in Caracas, are also in charge of the elite presidential guard who defend Chavez against potential coups or military unrest.
Meanwhile, Chavez has purged and is reorganizing the Venezuelan military, making it personally loyal to him. Thousands of Cuban "teachers, doctors and sports trainers" also have flooded Venezuela. Their real job is to indoctrinate and train fanatically pro-Chavez paramilitary groups known as "Bolivarian Circles" that are part of a new 100,000-person People's Reserve militia recruited from Venezuela's poorest classes. These groups provide alternative armed cadres outside regular military channels loyal to Chavez.
While most of the mainstream media have ignored this growing menace, one major news magazine, US News and World Report, followed my piece with an in-depth investigative report in October 2003, Terror Close to Home: In Venezuela, a volatile leader befriends Mideast, Colombia and Cuba, confirming my exposition and clearly detailing the danger of Chavez's links to Castro and terrorism.
The weekly newsmagazine said that its two-month review, "including interviews with dozens of US and Latin American sources, confirms the terrorist activity," adding that "the oil-rich but politically unstable nation of Venezuela is emerging as a potential hub of terrorism in the Western Hemisphere, providing assistance to Islamic radicals from the Middle East and other terrorists."
Most prominent in Venezuela's list of friendly terror groups are the communist FARC guerillas (Colombian Revolutionary Armed Forces) who have terrorized Colombia for over 30 years and have killed thousands of people. Gen. Gary Speer, former acting chief of America's Southern Command, who said during a Senate Armed Services committee hearing in March 2002 that "we are very concerned about President Chavez ... the FARC operates at will across the border into Venezuela."
"There are arms shipments originating in Venezuela that get to the FARC and the ELN [National Liberation Army]," he added. "We have been unable to firmly establish a link to the Chavez government, but it certainly causes us suspicions. The company that Chavez keeps around the world, although under the guise of OPEC, certainly causes additional concerns as well." The US News piece details the exact location of FARC camps inside Venezuela where Venezuelan military advisors reportedly train FARC guerillas.
Sadly, Democratic presidential hopeful John Kerry stated in a February speech in Boston that the murderous FARC guerillas had "legitimate complaints" despite the fact that they have the support of less than three percent of Colombia's citizenry.
Chavez's links to Middle East terrorists may be more indirect but US officials note that Venezuela is providing support--including identity documents--that could prove useful to radical Islamic groups. U.S. News noted that Chavez's government has issued thousands of "cedulas," the equivalent of national ID cards, to people from Cuba, Colombia, and Middle Eastern `countries of interest' like Syria, Egypt, Pakistan and Lebanon that host foreign terrorist organizations.
According to US News, some of these cedulas were subsequently used to obtain Venezuelan passports and even American visas, "which could allow the holder to elude immigration checks and enter the United States." Chavez also was the only western leader to travel to Iraq to visit Saddam Hussein prior to his ouster by the US.
This article provoked an outcry from Chavez and his henchmen. The Venezuelan ambassador to the US, Alvarez Herrera, wrote an angry letter to the editor of US News deriding the article's accusations as "false" and "outrageous."
The ambassador then tried to counter the magazine's first-hand evidence by stating unconvincingly that "the government of Venezuela has ratified the Inter-American Convention Against Terrorism...and has signed multiple UN conventions on terrorism." Yet, the signature of this anti-democratic leftist demagogue on any international treaty hadly confirms his peaceful and lawful intent.
An indignant Chavez also told foreign reporters "I challenge the staff of US News and World Report or its owners to come here and look for one single shred of evidence, to show the world one single shred of proof." Chavez added that, "It is a strategy, to launch an offensive by concocting anything -- an assassination, a coup, an invasion." As a diversion from his terror links, Chavez has begun claiming loudly, and without any substantiation, that the CIA is trying kill him.
Much of the problem with our reaction to Chavez began with former US Ambassador to Venezuela, John Maisto who I briefly served as a military attach? at the US embassy in Caracas. His soft approach to the leftist demagogue was clearly flawed. Early on in Chavez's administration, the U.S. ambassador downplayed the Chavez threat, stating that it was Chavez's actions, not words that really mattered.
Other Clinton administration officials echoed that sentiment and said that we should ignore Chavez's rhetoric. That approach became informally known as the "Maisto doctrine." Yet, Chavez's actions inexorably have matched his rhetoric.
Despite his failure to appreciate the menace of a Chavez-Castro alliance, Maisto was inexplicably picked by the Bush administration to head - until recently -- the Western Hemisphere Affairs section at the National Security Council. He is still influencing Latin America policy as US Ambassador to the Organization of American States.
Fortunately, other members of Bush's National Security team such as Presidential Envoy to Latin America, Otto Reich and Assistant Secretary of State for the Western Hemisphere Roger Noriega do seem to understand the threat posed by the Chavez-Castro terror nexus.
Given the mischief Castro and Chavez are pursuing, Uncle Sam has his hands full dealing with the two dangers on either end of the Caribbean.
Paul Crespo is a former Marine Corps Officer and military attache at the US embassy in Caracas. An adjunct faculty member in the Political Science Departmnent at the University of Miami, he is also a Senior Fellow with the Foundation for the Defense of Democracies (www.DefendDemocracy.org) in Washington, DC.

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GAO wants acquisition process codified
By Laura M. Colarusso
Times staff writer
The Defense Department should codify a method for acquiring weapon systems that rely heavily on software development, according to a congressional report released Tuesday.
Though the Pentagon has a few success stories, it has wasted billions of dollars trying to evolve software code for various weapons, states the report from General Accounting Office, the investigative arm of Congress.
One of the most notable examples is the Air Force's F/A-22 Raptor. The service's premier acquisition program has run into numerous schedule delays and millions of dollars in cost overruns because of difficulties in developing the aircraft's software.
GAO blamed the Raptor's problems on managers not adhering to requirements and establishing reliable metrics.
But progress has been made. The Raptor "has been restructured with more oversight and has instituted more realistic controls over software development," the report stated.
Pentagon programs that are relatively successful, like the Navy's F/A-18 E/F Super Hornet fighter, upgraded and fielded software "incrementally," meaning they took small steps to evolve the code, which made the development process more manageable.
By using metrics -- such as cost, schedule, requirements, defects and quality -- to measure progress, developing complicated software loads would become more manageable, the study said.
The Pentagon should also model its acquisition programs on the best practices of software industry leaders, the report said.



Saddam allies appear ready to abandon fight
By William Cole
The Honolulu Advertiser
HELWE WOSTA, Iraq -- The dozens of former high-ranking Baath Party officials, including three generals and several colonels in Saddam Hussein's army, came to this tomato-and-watermelon-farming village to see one man: Army Lt. Col. Scott Leith.
A rogue's gallery that included murderers and thugs during Saddam's rule, they met with the American battalion commander over mutton and rice.
In doing so, they also sought peace: Partyless and jobless, they told Leith they want to carry the fight against Americans no more.
Tired of being hunted house to house, village to village first by the 4th Infantry Division and more recently Leith's 1st Battalion, 27th Infantry Wolfhounds, more than 20 high-echelon Baath Party officials and many more midranking members from southwest of Kirkuk said Friday they want to end their opposition.
"Several of them that were there spoke to one person, who spoke directly to Saddam," Leith said after the meeting, hosted by a local sheik.
Earlier, Leith, 40, told about 150 of the Sunni Arabs the Baath Party was gone for good, Saddam was a coward, and a new day had come to Iraq.
To reinforce the point, the Hawaii-based soldiers showed up heavily armed, and two Apache attack helicopters flew over mud huts, sheep and gaping Iraqis.
Leith said he was "guardedly enthusiastic" about the Baath members' decision to give up the fight. What coalition commanders will do with them still has to be determined.
"If this is true, these are people with an awful lot of information, and an awful lot of pull," Leith said. "So if they work with the coalition, certainly we can bring peace here quicker."
The day was another in an odyssey that Leith likens to living out an adventure novel. Several hundred villagers and children showed up to get a glimpse of the American soldiers, with the 6-foot-4 Leith leading the way.
He has met with three of the four tribal leaders in the 87-mile east-to- west swath he is responsible for, including the nearly 100,000-population city of Al Huwijah about 40 miles southwest of Kirkuk.
The sheik who hosted Friday's meeting, Mahmoud Azam Turk, is part of the Al Jabori tribe, which extends from Iran through northern Iraq and into Syria.
"The outgoing commander told me they see the commander of the region ... almost as sheiks of the area," Leith said. "It's kind of counter to our culture where I would normally defer to the age and social position of these gentlemen. But I can't. I must come forward with the might of the United States and the coalition."
Sitting cross-legged on a teal-colored carpeted floor in a room whose four walls were lined with sheiks and former Baath Party members, Leith did just that.
"We come asking for nothing. We are not asking for money, we are not asking for resources. We ask for one thing -- and that is your work to make this a peaceful and stable environment," Leith told the crowd. "People should not be dying in your fields. That is my responsibility and that is your responsibility."
In this Sunni Arab section of Iraq, where anti-American feelings still run strong, a few left the meeting room when Leith disparaged Saddam. U.S. soldiers took photos of those who attended, and wrote down their names at the meeting that included Special Forces.
Jasim Yunis Hamed, 30, a member of the Iraqi Civil Defense Corps, said the sheik Mahmoud has the power to keep the peace in his region. "He can control anything," Jasim said. "All the people here -- he told them to stop anything bad. He can do this."
The overture from the former Baath members is a step in the right direction, said Maj. Jeff Butler, the 1-27 operations officer. "They are wanted because they are high Baath Party members who went into hiding," Butler said. "Some are known to be financiers of terrorist actions against coalition forces."