Pakistan's Dr. Strangelove
Why did Musharraf pardon Abdul Qadeer Khan?
BY IRFAN HUSAIN
Sunday, February 8, 2004 12:01 a.m. EST
Gen. Pervez Musharraf is caught between a rock and a hard place following the recent televised confession by Abdul Qadeer Khan, Pakistan's former chief nuclear scientist, of his role in illegally disclosing weapons secrets to Iran, Libya and North Korea.
The beleaguered Pakistani president--who recently survived two assassination attempts--has to balance international concern about Khan's actions with the wrath of religious groups and nationalists of every stripe within Pakistan, where the nuclear program enjoys widespread support. That explains, in part, his decision last week to pardon the errant scientist. Even Mr. Khan's unprecedented confession has not reduced his iconic stature in the eyes of ordinary Pakistanis. Many believe that he is being made a scapegoat for successive governments and army administrations that have been party to the export of nuclear technology.
Pressure on Gen. Musharraf came from Qazi Hussain Ahmed--the head of the largest religious party, Jamaat-e-Islami, a key part of the coalition that recently gave the president a crucial vote of confidence in the National Assembly--who has demanded that no action be taken against Khan "irrespective of anything he might have done." Mr. Ahmed has threatened to launch a nationwide movement against the government if Khan is further "humiliated." That sentiment has been widely echoed in newspaper editorials throughout Pakistan in recent days.
Gen. Musharraf's hands are also tied by other considerations. Most observers dismiss official claims of the army being unaware of Khan's free-lance marketing of nuclear secrets. That means if the scientist were put on trial, he could well take down some major military figures with him. There are already unconfirmed reports that Khan has taken out insurance against being forced to stand trial by sending documents detailing the army's involvement in illicit nuclear trafficking to his daughter in London.
Pakistan's journey to its present nuclear status has been long and arduous. After India exploded what it called a "peaceful nuclear device" in 1974, Zulfiqar Ali Bhutto, then Pakistan's prime minister, vowed that his nation would also develop a bomb, even if it meant Pakistanis "had to eat grass" in order to do so. And he turned to Khan, then a metallurgist at Urenco, a consortium of European nations involved in atomic research based in Holland, to head the task.
Khan brought with him stolen designs for centrifuges used to enrich uranium and began work at the Kahuta laboratories 12 miles outside Islamabad. These facilities were later renamed the Khan Research Laboratories in honor of the man who had become known as the "father of the Pakistani bomb." And when Pakistan tested five atomic devices in May 1998, in response to Indian tests a fortnight earlier, Khan and his colleagues became national heroes.
Khan's aura of invincibility only began to crack in late 2002, in the run-up to the Gulf War. A dossier of documents--supplied by Baghdad to the U.N. in response to Security Council resolution No. 1441--included a memo from an Iraqi secret agent in Dubai reporting that he had been approached by a person purporting to represent Khan, and offering to sell nuclear secrets. However the Pakistan government dismissed this with its usual knee-jerk denial.
Then last year, Khan's secret contacts with North Korea began to emerge, including a report that he visited Pyongyang 19 times between 1997 and 2002. And matters were brought to a head over the past few months when both Libya and Iran informed the International Atomic Energy Authority that their embryonic nuclear programs had been helped by Pakistani scientists. Faced with these embarrassing facts, Gen. Musharraf had no choice but to order an investigation.
At least two of Khan's colleagues are reported also to have confessed to having parted with nuclear secrets to foreign governments. That would seem to make it an open-and-shut case. But in Pakistan, things are seldom as they appear, especially when it comes to a program in which the military has been so heavily involved, right from its inception. So strong was the military control that civilian prime ministers, such as Benazir Bhutto and Nawaz Sharif, were kept out of the loop and even denied access to the facilities at Kahuta.
That makes it almost certain that Gen. Musharraf will opt for a way out that allows him to appear to have punished the erring scientists, while not being forced to make the army's involvement public. Khan's presidential pardon indicates the pursuit of that option. There will be next, one might predict, a move to strip the scientists of their ill-gained assets and to keep them under loose house arrest--so restricting, also, their access to the press. That would enable him to tell Khan's many supporters that, in view of the scientist's contribution to Pakistan's security, he has resisted the international community's demand for a public trial that would demean him and the nation.
Gen. Musharraf is in a daunting position as he tries to balance domestic fury with legitimate international concerns. But since the West needs his help in its war against terror--not to mention getting to the bottom of all nuclear proliferation of Pakistani origin--the chances remain high that both he and Khan will save face and walk away from this sordid drama.
Mr. Husain, a former civil servant in Pakistan, is a columnist for two Pakistani newspapers, Dawn and the Daily Times.
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washingtonpost.com
At Least 7 Nations Tied To Pakistani Nuclear Ring
By Peter Slevin, John Lancaster and Kamran Khan
Washington Post Staff Writers
Sunday, February 8, 2004; Page A01
VIENNA, Feb. 7 -- The rapidly expanding probe into a Pakistani-led nuclear trafficking network extended to at least seven nations Saturday as investigators said they had traced businesses from Africa, Asia and Europe to the smuggling ring controlled by Pakistani scientist Abdul Qadeer Khan.
Three days after Khan confessed on television to selling his country's nuclear secrets, Western diplomats and intelligence officials said they were just beginning to understand the scale of the network, a global enterprise that supplied nuclear technology and parts to Libya, Iran, North Korea and possibly others.
"Dr. Khan was not working alone. Dr. Khan was part of a process," said Mohamed ElBaradei, director of the International Atomic Energy Agency, the Vienna-based U.N. agency that is conducting the probe along with U.S. and other Western intelligence agencies. "There were items that were manufactured in other countries. There were items that were assembled in a different country."
Meanwhile, Pakistani officials disclosed that they had launched their own probe of Khan's activities in October after the Bush administration presented what one senior official described as "mind-boggling" evidence that Khan was peddling nuclear technology and expertise to Iran, Libya and North Korea, and had attempted to do the same with Iraq and Syria.
The evidence included detailed records of Khan's travels to Libya, Iran, North Korea and other nations, along with intercepted phone conversations, financial documents and accounts of meetings with foreign businessmen involved in illicit nuclear sales, the Pakistani officials said.
Pakistan's president, Gen. Pervez Musharraf, was personally briefed on the evidence on Oct. 6 by a U.S. delegation led by Deputy Secretary of State Richard L. Armitage. Gen. John Abizaid, the head of U.S. Central Command, made a similar presentation to Pakistani political and military leaders, the officials said.
"This was the most important development for us since 9/11," one of the Pakistani officials said. "One more time, the ball was in the court of General Pervez Musharraf."
Khan, known in Pakistan as the creator of the country's atomic bomb, acknowledged in the televised statement Wednesday that he had passed nuclear secrets to others, saying that he acted without authorization from his government. A day later, Musharraf pardoned Khan.
U.S. and U.N. investigators say Khan's nuclear trading network represents one of the most egregious cases of nuclear proliferation ever discovered. Using suppliers and middlemen scattered across three continents, the network delivered a variety of machines and technology for enriching uranium, a key ingredient in nuclear weapons. In the case of Libya, at least, it provided blueprints for the bombs themselves.
Khan's network provided "one-stop shopping" for nuclear technology and parts, said a senior U.S. official, who described how supply met demand in what amounted to a centralized ordering system.
"If I want to buy an IBM computer, I don't have to go to every single element of IBM," the official said, by way of analogy. "I can go to their salesman, and he fixes me up just fine."
Diplomats familiar with the Pakistan operation say Khan and his closest associates were the "salesmen" who filled orders for Libya and other customers. In the case of Libya, representatives of Libyan leader Moammar Gaddafi contacted the Pakistanis, who relayed the requests to middlemen.
The middlemen, in turn, found suppliers to produce the necessary components. Finished parts were then shipped to a firm in the Persian Gulf emirate of Dubai, which arranged for delivery to Libya. The interception of a significant shipment of components in Italy last fall led to Gaddafi's decision to eliminate his nonconventional weapons programs, U.S. officials contend.
Companies or individuals in at least seven countries, including Pakistan, were involved, knowledgeable officials said. Among the countries known to be involved are Malaysia, South Africa, Japan, the United Arab Emirates and Germany. A company in another European country was also involved, two diplomats said.
The commodities produced for Libya ranged from electronics and vacuum systems to high-strength metals used in manufacturing gas centrifuges, which are used in making enriched uranium.
"It was a remarkable network that was able in the end to provide a turn-key gas centrifuge facility and the wherewithal to make more centrifuges," said former IAEA inspector David Albright, a physicist who has studied the nuclear procurement networks of Iran and Libya. "The technology holder was always Khan. Suppliers came and went, but Khan was always there."
Libya and Iran have already given investigators the names of many of the companies and middlemen involved, and are continuing to offer more, according to Western diplomats familiar with the investigation.
Two German businessmen identified by Libya as alleged suppliers of centrifuge technology -- Otto Heilingbrunner and Gotthard Lerch -- have been interviewed by IAEA investigators but not charged with any crimes, according to two officials close to the investigation. A third German named by Libya, Heinz Mebus, is now deceased. All were formerly employed by companies that manufacture equipment used in gas centrifuges.
Heilingbrunner, reached by phone at his home in southern Germany, said he tried to sell aircraft parts to Iran in the 1980s, but said he never sold nuclear technology to anyone.
"I never did business with this junk," said Heilingbrunner. "I do not know how they came up with me." A senior Bush administration official said the Khan connection may have provided everything Libya acquired for its nascent nuclear program, including weapons designs. The designs were later handed to U.S., British and IAEA officials in Tripoli and are now being studied in the United States.
The disclosure of Armitage's October visit by Pakistani officials provides new details of a claim made this week in a speech by CIA Director George J. Tenet. Tenet said the intelligence agency had successfully penetrated Khan's network long before the IAEA went to Pakistan in November with evidence of illicit technology transfers to Iran.
Two Pakistani officials said Armitage presented the case against Khan and several other associates during a meeting with Musharraf at his official army residence in the city of Rawalpindi. The Americans asked Pakistan to verify the information independently and to take action against those involved, the officials said.
"We were told that Pakistan's failure to take action will most certainly jeopardize its ties with the United States and other important nations," one of the Pakistani officials said. The U.S. officials warned Pakistan that failure to act on the information could lead to sanctions by the United States and the United Nations.
Musharraf was said to be stunned by the detailed evidence against Khan and his associates. "It seemed that the Americans had a tracker planted on Khan's body," a Pakistani official said. "They know much more than us about Dr. Khan's wealth spread all over the globe."
Among other things, he added, the U.S. officials presented evidence of Khan's alleged attempts to sell nuclear secrets to Saddam Hussein when he was president of Iraq and reported that Khan had traveled to Beirut for a clandestine meeting with a top Syrian official in the mid-1990s.
During the second week in November, an Iranian delegation led by a deputy foreign minister, Gholam Ali Khoshru, arrived in Islamabad, according to a third senior Pakistani official.
"They used a very careful formulation," the official recalled of the visit. "They said they had acquired components and designs in '87 from the black market -- they mentioned Dubai -- and said two of the individuals involved were of South Asian origin, though not from the same country. They hinted they were under scrutiny from the IAEA and would have to make these declarations" about who had supplied the technology.
Shortly afterward, the IAEA delivered its findings on Iran in a two-page letter, and Pakistan's investigation began in earnest. Musharraf ordered the Inter-Services Intelligence agency (ISI) and Strategic Planning and Development Cell to check out the evidence that had been provided by the United States and the U.N. agency, the officials said.
ISI officials traveled to Malaysia, Dubai, Iran and Libya and "found that evidence against Dr. Khan was accurate," one of the officials said.
Staff writer Joby Warrick in Washington and researcher Shannon Smiley in Berlin contributed to this report. Lancaster reported from Islamabad and Khan from Karachi.
? 2004 The Washington Post Company
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Libya's A-Bomb Blueprints Reveal New Tie to Pakistani
By WILLIAM J. BROAD
Published: February 9, 2004
Investigators have determined that the nuclear weapon blueprints found in Libya from the Pakistani scientist Abdul Qadeer Khan were of his own relatively crude type of bomb -- not the more advanced models that Pakistan developed and successfully tested, American and European arms experts have said in interviews.
The analysis of the blueprints, which establish a new link between Dr. Khan and the underground nuclear black market now under global scrutiny, has heartened investigators in Europe and the United States because his design is seen as less threatening in terms of the spread of nuclear weapons.
"If you had to have a design circulating around the world, we'd be worse off if it was a design other than Khan's," said an American weapons expert who is familiar with the Libyan case.
However, European and American investigators said they feared that Dr. Khan and his network of shadowy middlemen might have peddled the weapon blueprints to other nations in deals that have not yet come to light. They also said the Libyan findings gave new credence to what was apparently an attempt by Dr. Khan more than a decade ago to sell a nuclear weapon design to Iraq.
Pakistani officials have focused their recent disclosures on Dr. Khan's illicit spread of equipment to enrich uranium to produce nuclear fuel, and have said little or nothing of the blueprints for a nuclear warhead that went to Libya, which are considered more sensitive. To the amazement of inspectors, the blueprints discovered in Libya were wrapped in plastic bags from an Islamabad dry cleaner.
"The Libyans said they got it as a bonus," an official said of the plans.
The centrifuge equipment and warhead designs from Dr. Khan's laboratories in Pakistan were discovered in Libya after the country's leader, Col. Muammar el-Qaddafi, agreed to dismantle his secret nuclear program, opening it to United States and United Nations nuclear officials.
Late last month, a 747 aircraft was chartered by the United States government for the sole purpose of carrying the small box with the warhead designs from Libya to Dulles airport near Washington. They are now undergoing analysis.
The American weapons expert said Western analysts, while relieved to find that the blueprint was of Dr. Khan's design, were not overjoyed. "A bad bomb is still a nuke," he said. "It can still do pretty terrible things to your city."
Dr. Khan is known in Pakistan as the father of the Pakistani bomb or the founder of its nuclear weapons program, but Western experts say the credit is not all his. A metallurgist, he is an expert at building centrifuges -- hollow metal tubes that spin very fast to enrich natural uranium in its rare U-235 isotope, which is an excellent bomb fuel. His mastery of the difficult art proved vital to Pakistan's acquiring a nuclear arsenal.
But other Pakistani scientists, Western experts said, had far greater success in turning the enriched uranium into nuclear warheads.
To develop the armaments, the American expert said, Pakistan ran "two parallel weapons programs, one good and one bad; Khan ran the bad one." Dr. Khan's weapon was inferior in terms of such as things as size, power and efficiency. The Pakistan Atomic Energy Commission, the nation's official authority for nuclear development, ran the more successful program.
All Pakistan's atom bombs resemble designs that China tested in the late 1960's and passed on to Pakistan decades ago, European and American experts said.
So too, Pakistan's atom bombs all use a relatively advanced means to detonate bomb fuel known as implosion.
The weapon that destroyed Hiroshima in 1945 used a simpler detonation method known as a "gun-type system," in which conventional explosives sped a uranium projectile through a cannon barrel into a uranium target, creating a critical mass and a gargantuan blast.
By contrast, experts said, Pakistan's designs used the more advanced principle of implosion, as did the bomb dropped on Nagasaki. It works by having a sphere of conventional explosives squeeze inward to crush a ball of bomb fuel, creating the critical mass. Implosion uses much less fuel than detonations from the gun-type system, making the bombs far cheaper and lighter.
Even so, Dr. Khan's design is "vanilla flavored and very old in concept," a European weapons expert said.
Analysts said the Libyan episode gave new life to the case of a middleman claiming to represent Dr. Khan who in 1990, on the eve of the Persian Gulf war, offered to have the Pakistani help Iraq build its own nuclear weapon.
The case came to light in the mid- 1990's when United Nations inspectors came across documents relating to the middleman's offer. "He is prepared to give us project designs for a nuclear bomb," an Iraqi memo said of Dr. Khan. "The motive behind this proposal is gaining profits for him and the intermediary." But the investigators made little headway, largely because Pakistan furiously denied there had been any aid to Iraq and refused to allow Dr. Khan to be questioned.
Now, those denials have collapsed, bringing new interest. David Albright, president of the Institute for Science and International Security in Washington, said Iraqi documents, coupled with the Libyan developments, raised the possibility that Dr. Khan's network operated for more than a decade to offer atomic blueprints not only to Libya and Iraq but to countries like Iran, Syria and North Korea. Global investigators must now carefully examine that possibility, he said.
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As Palestinians slide into anarchy,
calls mount for better leadership
By Gil Sedan
JERUSALEM, Feb. 2 (JTA) -- "Yes, we are in a state of anarchy."
That is how Zayyad Abu-Zayyad, member of the Palestinian Legislative Council and a former Palestinian Authority Cabinet minister, describes life today in the areas ruled by the Palestinian Authority.
"Certainly when a Palestinian policeman cannot walk around freely wearing his uniform, this creates a vacuum in which everyone does whatever one pleases," he said.
The situation is becoming grave, Abu-Zayyad told JTA.
"We have people selling land that is not theirs, and our courts are unable to enforce the law. Everyone who has money can purchase as many arms as he wants and can do with them whatever he wants. There is strong collaboration between our mafia and the Israeli mafia," he said.
"I am surprised at the level of mutual tolerance within the Palestinian society that still exists," he added. "Other societies would have been at a much worse state."
However, Abu-Zayyad distinguishes between a state of anarchy and the possibility that the Palestinian Authority is on the verge of disintegration.
"The P.A. is not collapsing," he said. "Should it happen to collapse, it would certainly not be in Israel's interest; all extremists would go on a rampage. I know that there are a number of Palestinian intellectuals who feel that the P.A. should give up and let Israel take over -- I am not among them."
A resident of the Jerusalem suburb of al-Azariyya, Abu-Zayyad is a close associate of P.A. Prime Minister Ahmed Qurei. Accordingly, he relieves Qurei of any responsibility for the deterioration of affairs.
"No one helps him, neither" P.A. President Yasser "Arafat, nor the Israelis nor the Americans. He still stays put, but I am not sure for how long," Abu-Zayyad said.
Israeli and American officials reportedly consider Qurei a tremendous disappointment. Perhaps because he witnessed the fate of his predecessor Mahmoud Abbas -- who tried to wrest real power from Arafat and was forced to resign within three months -- Qurei has demonstrated virtually no leadership since taking office last fall, Israeli and American officials say.
There is a high probability that he soon will resign or be forced to resign, Israeli officials believe.
Maj. Gen. Aharon Ze'evi (Farkash), the head of intelligence for the Israel Defense Forces, told the Cabinet this week that Arafat understands that the present state of affairs weakens the hegemony of his ruling Fatah Party and further strengthens the political stock of fundamentalist groups like Hamas.
As a result, Ze'evi said, Arafat recently instructed uniformed P.A. police officers to return to the streets of Palestinian cities to demonstrate a political presence. However, the lack of discipline in the force is such that the suicide bomber who killed 11 civilians on an Israeli bus in Jerusalem last week was a P.A. policeman from Bethlehem.
Arafat finds himself under heavy pressure from Egypt to cope with the anarchy and create conditions that would enable a meeting between Qurei and Israeli Prime Minister Ariel Sharon. Qurei has kept his distance from Sharon, demanding that Israel suspend construction of its West Bank security fence as a condition for meeting.
Sharon, who believes the fence will dramatically change the strategic relations between Israel and the Palestinians in Israel's favor, refused.
"He wants to succeed, but this is not enough," Abu-Zayyad said of Qurei. "He has learned the lesson from Abu-Mazen," he said, using Abbas' nom de guerre.
Abbas "annihilated himself politically," Abu-Zayyad said, "after having met Sharon and receiving nothing from him."
Sharon released hundreds of Palestinian prisoners, relaxed anti-terrorist restrictions in the West Bank and turned over several cities to P.A. rule in an effort to bolster Abbas' prestige. The Bush administration, which has shunned Arafat because of his ties to terrorism, warmly embraced Abbas, inviting him to the White House and relaxing restrictions on U.S. aid to the Palestinians to show that Abbas could win gains for his people.
Palestinians say the Israeli and American gestures were not enough.
Abu-Zayyad draws a picture in which the Palestinian Authority has absolutely no power to stabilize the situation. But that's not an accurate description, according to some Israeli experts.
Col. (Res.) Shalom Harari, an expert on Palestinian affairs at the Interdisciplinary Center in Herzliya, told JTA that this is yet another show staged by Arafat, who throughout his career has carefully cultivated chaos and disorder to garner international sympathy and blur his responsibility for events.
"The story repeats itself every few months: Internal unrest in the Palestinian Authority reaches a heating point, Arafat makes a few moves to prove that he is in control but then lets go and allows the instability to continue," Harari said.
According to Harari, Arafat still thrives on a situation of "divide and rule," regardless of the consequences for his people.
However, Harari said, the one difference is the fact that now Palestinians dare to speak of "fawda," an Arabic word that denotes a state of anarchy.
The watershed was the attempt last fall on the life of Ghassan Shaka, mayor of Nablus. Shaka's brother, Ahmad, was shot dead in Nablus by bullets apparently aimed at Shaka, one of the most prominent figures in the Palestinian areas.
Following the murder, Shaka wrote a sharply worded letter to Arafat that was published in all Palestinian newspapers.
"The continuation of this threatening and painful situation, and the impotence of the Palestinian law authorities, will force us to take our rights into our hands," he wrote. "My family and I expect immediate measures of sovereignty that will return the respect of law."
Once Shaka spoke out, others followed suit. In an article in the London-based Al-Sharq al-Awsat newspaper, former Arafat adviser Imad Shakur demanded that Arafat take immediate and dramatic steps to return law and order to the Palestinian streets.
First, Shakur wrote, all factions -- most of which maintain terrorist militias -- should be transformed into legitimate political parties; the militias should be dismantled and integrated into the legitimate P.A. security forces; and the Qurei government should resign and an emergency government be created.
In fact, the first two suggestions are very close to obligations the Palestinians accepted under the "road map" peace plan, but then said they could not be expected to carry out.
Recent opinion polls show public Palestinian support for Shakur's demands. A poll conducted two months ago by the Palestinian Center for Policy and Survey Research in the West Bank and Gaza Strip showed that only 37 percent of Palestinian respondents had confidence in Qurei's government.
A record high of 81 percent said P.A. institutions are riddled with corruption. Two-thirds of those people believe corruption will remain the same or even increase in the future.
Indeed, Abu-Zayyad said Monday that he, too, believed nothing much would change -- unless Israel takes the initiative and renews peace talks with the Palestinian Authority.
He was unimpressed by an interview Sharon gave this week to the Ha'aretz newspaper, in which he claimed to have given instructions to begin preparing for the removal of 17 Israeli settlements in the Gaza Strip.
"I think that every unilateral step will not bring about a solution, not even dismantling settlements," Abu-Zayyad said, repeating the official Palestinian position. "I am sure that if Sharon dismantles settlements in the Gaza Strip, he will try and compensate the settlers in the West Bank -- which would, in turn, further complicate the situation."
? JTA. Reproduction of material without written permission is strictly prohibited.
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David DeRosa , president of DeRosa Research & Trading, is an adjunct finance professor at the Yale School of Management and the author of "In Defense of Free Capital Markets." The opinions expressed are his own.
Japan's Quantitative Easing Policy Dwindles: David DeRosa
Feb. 8 (Bloomberg) -- In March 2001, the Bank of Japan altered its basic monetary policy approach, targeting the base of the money supply instead of short-term interest rates. That made Japan the only major country to adopt what central bankers call ``quantitative easing.''
Since then, there have been some signs that Japan's troubled economy is on the mend. Whether quantitative easing did the trick or not, is something economists will undoubtedly debate for a long time.
The discussion should start with how much quantitative easing Japan actually has done since March 2001. The bulk of the easing occurred during the final quarter of 2001 and the first quarter of 2002.
The rate of growth of the monetary base during that period at times exceeded 25 percent at its peak in first quarter 2002. The growth rate subsequently plunged and is now in the vicinity of 15 percent.
The monetary base consists of currency in the hands of the public plus commercial bank reserves kept at the central bank. In Japan, the later is referred to as the ``current accounts,'' though there is no connection to the balance of trade.
Rate Falls
Central banks directly control the monetary base but not the broader monetary aggregates, such as the famous M2 + CDs. That consists of currency plus checking accounts, savings accounts, and certificates of deposits.
The rate of change of M2 + CDs rose from 2.5 percent in March 2001 to peak at over 3.5 percent in the first quarter of 2002. It's noteworthy that now the rate has fallen to 1.5 percent.
The point is that though quantitative easing is still going on in Japan, the rate at which money is being created has fallen back to the dangerous level of the pre-quantitative easing era.
In January, the Bank of Japan raised its the upper target for growth in current account balances to 35 trillion yen from 32 trillion yen ($333 billion to $304 billion). Yet that was needed ``simply to avoid a de facto tightening in monetary policy,'' wrote Anne Mills, a senior foreign exchange economist for Brown Brothers Harriman & Co. on Jan. 20.
Hayami's Ghost
How committed then is the BOJ to quantitative easing?
History would suggest that the BOJ was never truly comfortable with quantitative easing. In fact, it fought quantitative easing tooth and nail before finally surrendering to the concept during the term of BOJ Governor Masaru Hayami, who served from 1998 to March 2003. For most of his time at the BOJ, Hayami seemed dead-set opposed to a monetary base policy target.
Hayami preferred to exercise monetary policy by establishing a target for the short-term interest rate. This target would be enforced by the BOJ conducting easing and tightening operations, wherein the monetary base would be expanded or contracted.
A number of economists complained that Hayami's BOJ had succeeded in holding the short-term interest rate either close to zero or actually at zero, but hadn't prevented the price of goods and services from falling.
Faster Money Growth
This later phenomenon is deflation, meaning a sustained fall in the price level. Deflation can be destructive to an economy because it implies high real rates of interest. The real rate of interest is the observed market rate adjusted for inflationary or deflationary expectations.
Moreover, the culprit was easy to identify. The money supply, measured narrowly as the monetary base, or broadly as the sum of currency, checking accounts, and savings accounts, was growing at dangerously low rates.
The cure was at hand: The BOJ needed to create a faster rate of money growth. Practically speaking, this had to work, or at least it always had worked before, though it was a prescription that few economists would ever advocate except in extreme situations such as the one Japan was experiencing.
What's Next?
The basis for this was the quantity theory of money, something that economists have known for hundreds of years. Rising price levels, inflation, or falling price levels, deflation, are always linked to the rate of growth of money creation.
In the end, Hayami came on board with the quantity theorists. In March 2001, he announced he was switching to target the rate of expansion of the monetary base.
Now Toshihiko Fukui, Hayami's successor as governor, has publicly endorsed quantitative easing. Yet given the plunge in the rate of increase of the monetary base and the broad-based monetary aggregates, one has to wonder what the BOJ really has in mind.
To contact the writer of this column:
David DeRosa in New Canaan, Connecticut, or derosa@bloomberg.net
To contact the editor of this column:
Bill Ahearn, or bahearn@bloomberg
Last Updated: February 8, 2004 09:49 EST
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MARKET WATCH
Executive Pay, Hiding Behind Small Print
By GRETCHEN MORGENSON
Published: February 8, 2004
INVESTORS have been understandably irate over executive pay recently. But because disclosure in the area is so woeful, they don't know the half of it.
Summary pay tables, required by the Securities and Exchange Commission since 1992, help investors see where their hard-earned money goes. But three areas cry out for reform by regulators: deferred compensation, supplemental executive retirement plans and executive payouts when a company undergoes a change in control.
As Brian Foley, a compensation expert in White Plains, put it, "The big print giveth but the small print giveth even more." And, sometimes, there is no print at all.
Consider deferred compensation, the career-ender for Richard A. Grasso, former chairman of the New York Stock Exchange. The only thing companies must reveal about deferred compensation is the difference between the market rate of interest and the rate earned by the executives on the amounts they have collected. That is the only clue to how mountainous deferred compensation can be.
At Wyeth, a drug maker, executives can earn an astonishing 10 percent interest rate annually. The 2003 proxy reported that John R. Stafford, Wyeth's former chairman who is a consultant, earned $1.6 million in above-market interest alone on deferred compensation. A Wyeth spokesman declined to say how much Mr. Stafford has in total.
Robert J. Ulrich, chief executive of the Target Corporation, a retailer, earned $688,218 based on deferred pay in 2002, the most recent year for which data is available; four top colleagues there made a total of $470,000.
Supplemental executive retirement plans are also annoyingly opaque. Actual amounts in executives' plans are undisclosed; tables outline only what executives may receive based on years of service, salary and bonus.
Such plans can loom large. Last month, Hercules Inc., a chemical maker, restated third-quarter 2003 results to account for a $4.7 million pension benefit paid to William Joyce, former chief executive. Hercules' net income was cut by $2.9 million or 14 cents a share.
Tim Ranzetta, president of Equilar, a compensation analysis firm, said: "The disclosure of the myriad executive compensation plans - pension, supplemental executive retirement plans, deferred compensation, split dollar life insurance - is not adequate in answering a fundamental question: What is the projected value of these plans to the executive upon his retirement?''
Finally, there are the potentially huge payouts to executives in a merger, a matter of consternation among shareholders at MONY, the insurance concern weighing a bid from AXA, the French insurance giant.
If the deal goes through, MONY executives will receive $98.2 million - more than 6 percent of the $1.5 billion transaction.
Executives' take in a merger is rarely detailed in routine filings. In last year's proxy, MONY discusses only broadly what executives could get: a lump sum of three times an executive's salary, bonus, long-term performance pay and other things. Such disclosure, or lack of it, is typical at companies.
Jesse M. Brill, a securities and compensation lawyer and chairman of the National Association of Stock Plan Professionals, is urging lawyers to disclose all compensation received by chief executives this year, not just adhere to outdated requirements. His disclosure advice is at www.naspp.org.
Shareholders are paying these bills. They have a right to know the costs in plain, shocking English.
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IDF to pay big time to fix reservist call-up system
By Haaretz Staff
The Israel Defense Forces is expected to pay tens of millions of shekels in the upcoming months to fix a computerized call-up system for reservists. The system was installed just two years ago, and was meant to call reservists to their units as part of a "quiet call-up."
The original system contained a 9-digit field for reservists' mobile telephone numbers. In a few months, however, all cellular telephone numbers are to be changed to 10-digit numbers, and therefore, the system has to be updated accordingly.
The financial daily Globes reported yesterday that the IDF has appointed a special committee to look into the impact of this move. Various sources said that the repercussions could cost tens of millions of shekels.
The IDF took much pride when it inaugurated the new computerized dialing system two years ago. Instead of dispatching special reserve soldiers, the system automatically calls the reservists' cell phone, home, and place of work to pass on messages concerning his unit. The reservist needs to punch in his personal number and confirm that he has received the message.
The system, developed by a civilian company, proved to be very successful in trials and exercises. The planners, however, did not take one factor into consideration, namely that additional digits may be added to the cell phone numbers. The army will also look into expanding the fields for personal and other telephone numbers to prevent future problems.
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More money needed `to minimize fence's harm to Palestinians'
By Amnon Barzilai
The defense establishment is asking the government to add hundreds of millions of shekels to the budget for the construction of the separation fence, to finance measures to ease the disruptions that the barrier has created in the daily lives of Palestinians who live west of it.
If the addition is approved, the total budget for building the fence this year would come to over NIS 3 billion. This figure is predicated on the construction of 265 kilometers of fencing this year, at an average cost of NIS 10.5 million per kilometer.
In response to the international criticism of the way the fence's route interferes with Palestinians' daily lives, the Israel Defense Forces' deputy chief of staff, Major General Gabi Ashkenazi, set up a task force to draft proposals for improving the situation. The task force proposed a number of recommendations, including the following:
l Dozens of alternative roads, tunnels and gates in the fence should be built to connect Palestinian villages to major urban centers in the West Bank, or to other nearby villages, in cases where existing transit routes have been disrupted by the fence. Work on the first underground road, between the village of Habla and Qalqilyah, began last week.
l Israel should fund organized transportation for schoolchildren whose homes are separated from schools in another village by the fence. The IDF has already allocated NIS 160,000 to bus children in Hirbat Shabra.
l Israel should finance the establishment of a dialysis unit at Makassed Hospital in East Jerusalem to ease the problems currently encountered at roadblocks by Palestinians trying to reach Jerusalem's Hadassah Hospital for this purpose. In addition, five Palestinian ambulances should be placed under close IDF supervision, and these ambulances should then be allowed to pass through roadblocks swiftly, without the lengthy security checks to which ordinary Palestinian ambulances are subjected for fear that they might be smuggling explosives.
At a meeting with Defense Minister Shaul Mofaz last Thursday, officials in charge of the fence's construction said that the work was currently on schedule, meaning that by the end of the year, stage three of the construction will be completed and work will have begun on stage four. To date, almost 200 kilometers of fencing have been completed; if this year's timetable is met, there will be 461 kilometers of finished fence by the end of the year.
In total, the fence is slated to be 705 kilometers long; of this, 151 kilometers is the Ariel salient, which is slated to be built only in 2005.
The officials also told Mofaz that the 20-kilometer section of the fence from Har Avner to Tirat Zvi would be completed by July 2004.
One problematic section of the fence is the area around Baka al-Sharkiyeh. The fence was originally slated to pass east of this town, but the army later reconsidered and decided instead to raze 40 illegal buildings located between Baka al-Sharkiyeh and the Israeli town of Baka al-Garbiyeh, thereby enabling the fence to be built on the Green Line, west of Baka al-Sharkiyeh. This 8.5-kilometer section of the barrier, of which 800 meters will be an eight-meter-high wall, is slated to be completed by the end of this month.
In the meantime, however, the army has already wasted NIS 140 million on the abandoned route east of Baka al-Sharkiyeh; it is now considering razing these portions of the fence.
Completion of both the Baka al-Sharkiyeh and the Har Avner-Tirat Zvi segments will produce a continuous 196-kilometer stretch of fence running from the Jordan River to Elkana.
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David Horovitz: A Baffling Exchange, or Worse
I have lost count of the number of people abroad who have called or written to me these past few days, baffled by the lopsided Israel-Hizballah prisoner deal, assuming that distance is fueling their incomprehension, and seeking enlightenment. The trouble is, from here too, there has been plenty to be baffled about.
The numbers, for a start: more than 400 Palestinian security prisoners, 30 or so Lebanese and other Arab nationals, and 60 exhumed bodies of Lebanese gunmen, in return for three Israeli soldiers' corpses and a single live businessman? If that's what Israeli leaders consider "an exchange," they would appear to be long overdue for a refresher course in Middle East bargaining.
Then there is the very issue of dealing with Hizballah in the first place -- breaching the principle of refusing to negotiate with terrorists, a principle Israel has urged the rest of the international community to enshrine. Moreover, the exchange constitutes an unmistakable incentive for Hizballah to repeat the whole process, as the movement's sickeningly savvy leader Sheikh Hassan Nasrallah has gleefully observed: Kidnap some more soldiers at the border, and again demand extortionate terms for their return, dead or alive, confident that Israel, as it has now, will again go to any and all lengths to "bring its boys back home." Prime Minister Sharon's threat to use force rather than German mediators to resolve any future kidnappings sounded empty, even pathetic, given that it was issued before the very coffins he had just paid so heavily to return.
And finally, there is the further reinforcement of the perceived benefits of terrorism in the minds of hostile Palestinians. If the unilateral departure from Lebanon in 2000 provided encouragement for the terrorists' claim that Israel buckles under relentless attack, and Sharon's recent talk of a limited withdrawal in the West Bank has been interpreted as further proof of the bombers' wisdom, then this exchange would seem to constitute absolute confirmation.
Short-term Palestinian Authority prime minister Mahmud Abbas, telling his own people to put down the guns, stop dispatching the bombers, end the armed intifada, and restart serious peace negotiations, was rebuffed by Sharon when he pleaded for a mass release of Palestinian prisoners to boost his domestic standing. Hassan Nasrallah, pledging his assistance to the Palestinians in liberating their captured land from the Zionists, as he has liberated his, secured that same mass prisoner release by the simple expedient of seizing three soldiers at the border and kidnapping Elhanan Tannenbaum.
What message does that send about the relative advantages of negotiation and terrorism? Is it any wonder that Hamas, which hadn't bothered that much about trying to kidnap soldiers since Israel refused to knuckle under when Nahshon Wachsman was abducted in 1994 (and murdered by his captors, who were killed themselves as commandos vainly attempted his rescue), is now vowing to return to the practice.
Set against all this is the covenant the State of Israel makes with its people when it calls them into the army -- the commitment, come what may, not to abandon them in the field or if they're taken prisoner. There is the hope that a second phase of the deal may resolve the fate of missing airman Ron Arad. There is the return of Tennenbaum. And there is the end, the most bitter end, to the uncertainty endured by the families of those three soldiers, Adi Avitan, Benny Avraham and Omar Sawaid, now laid honorably to rest.
With, truly, the greatest sympathy for all the families, the equation doesn't add up. The sacred covenant to bring the boys back home simply doesn't apply in the cases of the returned trio; these were soldiers the army had already confirmed were dead. As for Tennenbaum, though a reserve colonel, he was most certainly not captured while on Israeli government or defense establishment business. And whatever the future hopes for Arad, the fact is that he did not come home under this exchange.
A friend this weekend posited a psychological explanation for the otherwise inexplicable. She noted how Sharon, in his address before those three flag-covered coffins, spoke of those in our neighborhood who sanctioned "murder and evil," and contrasted them with the Jewish state, "which sanctifies life." The chief of staff, in similar vein, insisted the deal was not weakness but a victory for Israel's higher "values." Isn't that what this has all been about, she mused? Israel agreeing to an inconceivable arrangement so that it could confirm to itself, and most particularly so that its prime minister could confirm to himself, how humane we are, how elevated our morals, and the unthinkable lengths we will go to preserve them.
I fear there may be some truth in this. And I say "fear" because it is such rank hypocrisy. It cannot square with an army that didn't provide the necessary supervision to prevent the trio being kidnapped in the first place, an army moreover that had abandoned a soldier to his fate six days before the trio were attacked at the Lebanon border -- Cpl. Madhat Yusuf, who bled to death hours after being hit by Palestinian gunfire at Joseph's Tomb on the edge of Nablus.
And most damningly, it cannot square with a prime minister who procrastinated for so long over building a security fence that, if completed earlier, could have saved so many non-combatant Israeli lives, is still delaying some sections so that it will not be completed for an intolerable two more years, and has routed parts of it deep inside the West Bank for narrow political reasons, bringing numerous Palestinians onto the "safe" side of the barrier in the process and thus heightening our vulnerability.
That the Hizballah exchange was carried out on the very day that yet another bomber exploited the absence of a full barrier to cross from the West Bank and murder 11 more Israelis in Jerusalem, and maim dozens more, searingly underlines the disconnect. Sharon has championed a deal that delights our enemies, in order to bring home our dead. Can he put his hand on his heart and say he is going to the ends of the earth, too, for the sake of the living?
***
The Jerusalem Report wishes our friend Erik Schechter, a former intern and reporter here, and now a military affairs reporter at The Jerusalem Post, a speedy recovery from the injuries he sustained in the January 29 bus bombing. Erik was at the center of the bus; the bomber was toward the back. With what must count as good fortune, he was moderately injured, mainly in his legs, and doctors expect him to make a full recovery.
February 23, 2004
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Homegrown Terror
A potent poison. A Senate mail room. Echoes of the unsolved anthrax attacks--with a dash of angry truckers
By MICHAEL D. LEMONICK
After anthrax-tainted letters began showing up in the wake of 9/11, authorities quickly suggested that this was probably a case of homegrown terrorism rather than Round 2 of al-Qaeda's assault on the U.S. The likely perpetrator, many still believe, was a malevolent nerd with chemistry-lab expertise and a grudge against the government. But when traces of the biological toxin ricin showed up in Senator Bill Frist's mail room last week, the FBI and other agencies declared there was no evidence pointing to either a foreign culprit or a mad scientist. One possibility under examination: a good ole boy who knows his way around 18-wheelers, weigh stations and CB radios.
That would be consistent with two unsolved ricin-in-the-mail incidents that occurred last fall. They didn't create much of a panic, and despite the evacuation of three Senate office buildings last week, neither did the ricin found under a mail-opening machine on Capitol Hill. Ricin is a potent enough poison, and terrorist groups from al-Qaeda to the Iraq-based Ansar al-Islam have reportedly produced it for use as a biological weapon. So, evidently, did Saddam Hussein before the first Gulf War.
But ricin isn't especially good as a weapon of mass destruction. It's easy to make, using a recipe you can get off the Internet. It comes from the castor bean, which is used around the world in products ranging from laxatives to brake fluid to nylon, and also grows wild in the southwestern U.S., so there's no shortage of raw material. But unlike anthrax, ricin is tough to aerosolize and inhale; the easiest way to deliver a fatal dose is injection or ingestion, and you need a lot for the latter. Ricin is powerful, but it's a retail, not a wholesale, poison.
That's why ricin once enjoyed a certain cachet among international men of mystery. Every spywatcher knows about Bulgarian defector Georgi Markov, who was assassinated in London in 1978 in a ploy that James Bond or Austin Powers would appreciate: a shadowy stalker jabbed Markov in the leg with an umbrella rigged to inject a pellet of ricin under his skin (the killer was never found, but the KGB and the Bulgarian secret service were prime suspects).
More recently, the handful of ricin cases pursued by the FBI have involved domestic hotheads, not international spies. In 1995, for example, two Minnesota men associated with a tax-protest group called the Patriots Council were convicted for possessing ricin with the intent of using it as a weapon. And in 1993, Canadian customs agents found ricin along with four guns, 20,000 rounds of ammunition and some neo-Nazi literature in the car of an Arkansas survivalist crossing into Canada.
Then last October someone hand-delivered a package to a mail-sorting center near Greenville-Spartanburg International Airport in South Carolina. Inside the package, which was addressed to the U.S. Department of Transportation (DOT), was a metal vial filled with ricin. A label read, "Caution ricin poison enclosed in sealed container. Do not open without proper protection," and a letter demanded repeal of federal rules mandating 10 hours of rest in every 24 for long-haul truckers. Otherwise the sender, who signed the letter "Fallen Angel" and claimed to be "a fleet owner of a tanker company," would pour ricin into the local water supply. "Keep at eight [hours] or I will start dumping," said the note.
The FBI gave polygraph tests to the mail facility's 36 employees and to local truck drivers, and in early November asked the American Trucking Association to notify members to look out for anyone acting aggressively or suspiciously. But even as the word was going out, another letter containing a vial of ricin turned up on Nov. 6 at a White House mail-handling facility at Bolling Air Force Base in Washington. Postmarked Chattanooga, Tenn., it too was addressed to the DOT, via the White House. And like the first letter, it carried a warning label and a demand from Fallen Angel to ease trucking rules. That incident was never made public. Nearly a week passed before the Secret Service, which had intercepted the letter, notified the FBI, the U.S. Postal Service and the Department of Homeland Security--a delay that rankled those agencies. The Secret Service has promised to revise its protocols. But it's also important to remember, says a law-enforcement source, that "ricin is not a living, flesh-eating bacteria, like anthrax, so our response is much different."
Beyond that, investigators tell TIME that the powder found in Frist's mail room was mostly paper dust, with traces of ricin so minute, they can't even be evaluated for particle size or purity. No envelope or note has been found, and no other piece of mail from the Senate has even a trace of ricin on it. Neither do any door sills, doorknobs, railings or surfaces anywhere in the building. Same goes for air filters, which should catch floating particles.
That leads to a couple of theories. Perhaps an envelope in Frist's mail room contained a letter that was forwarded to the DOT, where Fallen Angel's grudge is aimed. Or maybe the letter was simply sent by someone who had previously handled ricin. "Let's say he didn't send us any product," says an investigator. "He's just sloppy. It's on his fingers, on his hands, or he's using the same envelopes, same paper. That may be why we don't have anything."
Still, it's worrisome to know that anyone is sending lethal substances through the U.S. mail--and getting away with it. The FBI has spent 251,000 man-hours on the anthrax case, conducted 15 searches, interviewed 5,000 people and served 4,000 subpoenas--without an arrest. (Steven Hatfill, a former government bioweapons expert once described by Attorney General John Ashcroft as a "person of interest" in the case, is suing the U.S. government for violating both his constitutional rights and internal Justice Department rules against leaks. He has strongly denied accusations that he is behind the mailings.)
Now officials have another bioweapons correspondent to worry about--or maybe more than one. Without a note or an envelope, it's unclear whether this is related to the Fallen Angel incidents. If there was what the media are calling a "smoking letter," it may have long since gone out with the trash. Without even that much of a clue, the best that authorities can do is look for forwarded letters, reinterview Frist staff members, examine suspicious mail the Senator has got over the years--and hope that a tip or a slipup puts the latest mad mailer out of circulation.
Reported by Elisabeth Kauffman/Nashville and Viveca Novak and Elaine Shannon/Washington
Copyright ? 2004 Time Inc. All rights reserved.
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DNA Analysis of Ricin Could Track Source
By Marilyn W. Thompson
Washington Post Staff Writer
Sunday, February 8, 2004; Page A11
Using DNA analysis, federal authorities are trying to glean important clues about the source of ricin found last week in a Senate mailroom and in two earlier letter mailings, including where castor plants used to make the poisons were grown.
"The U.S. government has this well in hand," said Lee Browning, a researcher with a Texas seed company who has consulted with the FBI about ricin production and was interviewed by agents from the Lubbock field office about recent developments involving use of the poison. "They will read this DNA, analyze the soil and the water content, and be able to say if it's coming from South Carolina, Georgia, Florida or Texas. There's a team of people hard at work on it."
Authorities have not determined the source of ricin discovered in the office of Senate Majority Leader Bill Frist (R-Tenn.), or of samples found last October and November in postal facilities serving a Greenville, S.C., airport and the White House. The two found by postal workers arrived in envelopes with letters signed by "Fallen Angel," who protested new regulations that change the number of hours per day that truckers may spend sleeping in their berths.
Genetic analysis also has been an important FBI focus in the investigation of the unsolved 2001 anthrax mailings to Capitol Hill and to media outlets in New York and Florida, which left five people dead and 17 ill as the lethal microbes were spread. Those tests, some of which have been specially developed for the FBI, are incomplete, but the FBI said recently that it expects definitive results on the source of the anthrax bacteria within six months.
Browning said federal agencies have geared up in recent years to handle the use of the toxin ricin, a protein found in castor seeds, as a terrorist tool. Samples of numerous varieties of castor plants have been collected by federal officials for use in forensic and scientific analysis, he said.
After ricin was found on a mail sorting machine in the Dirksen Senate Office Building, officials of the Department of Homeland Security said that the poison could be easily made by an amateur with access to castor plants. In a letter found in the Greenville case and at a White House mail facility, "Fallen Angel" claimed to have "easy access to castor pulp" and to be "capable of making ricin."
Browning, however, questioned the assessment that ricin is an "active" or highly potent powder. He does not believe it could be the work of an amateur using homegrown formulas and simple equipment. Extracting ricin is a dangerous process, he said, that requires chemistry knowledge and advanced scientific equipment.
"There is currently no U.S. production of castor," he said, partly because of the dangers associated with it. Browning's firm, Castor Oil Inc. of Plainview, Tex., last year cultivated 40 acres of castor plants to generate seed that could be used for research. It is the only company in the United States that cultivates the castor plant, he said.
Tom McKuen, a ricin expert at the Department of Agriculture's Western Regional Research Center in Albany, Calif., declined to say whether he or other USDA specialists have been working with the FBI on recent cases. He said his team has focused since 2001 on research to "genetically eliminate" the ricin toxin from castor seeds so that they can be handled more safely.
The most common use of castor is in the production of castor oil, a lubricant widely used in commercial products, including lipsticks, sunblocks, paint, plastic foam, electrical wiring and sealants. The United States imports the majority of its castor oil from India, he said, but the shipments pose no terrorism threat because ricin cannot be extracted from the processed oil.
Castor plants grow profusely in the wild in many warm climates in the United States, and to extract ricin, the plants must be cooked into a pulp, McKuen said.
Medical researchers, including a team in Texas, are experimenting with the use of ricin in cancer treatment. Browning's company, in partnership with Dow Chemical Co., received $5 million from the Department of Energy in 2001 to work with USDA on research to use plant-based oils such as castor oil to make plastics and chemicals. The project includes work to eliminate the ricin protein from castor seeds.
Browning said he has worked closely with the FBI over the years and turned over any seed variation he has developed to federal authorities. "I want them to know everything that I know," he said.
? 2004 The Washington Post Company
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U.S.-Russian Plan to Destroy Atom-Arms Plutonium Is Delayed
By MATTHEW L. WALD
WASHINGTON, Feb. 8 -- A project to destroy the plutonium from thousands of retired Russian and American nuclear weapons has been delayed, and some experts say they fear that the work may never be done.
The plan was to have both countries build factories that could mix uranium with plutonium, the material at the heart of nuclear bombs, to be burned as fuel for civilian reactors. It was conceived in the mid-1990's at a time of intense concern over the security of weapons materials in the former Soviet Union; Russia agreed to it in 2000.
The point was to ensure that weapons being disassembled by mutual agreement would never be rebuilt, and that the weapons plutonium, the hardest part of a nuclear bomb to make, could not be sold or stolen.
But the Bush administration's budget plan for the Energy Department, released last week, said groundbreaking for a conversion factory planned for South Carolina had been delayed from July of this year until May 2005.
The immediate reason is that the United States and Russia are deadlocked on the liability rules for American workers and contractors that would help build the plant in Russia, and the United States will not break ground first. Each plant is to dispose of about 34 tons of weapons plutonium.
Administration officials want to use terms written for early nuclear agreements that protect American contractors from almost all liability in case of accidents involving the release of radioactive material; the Russians have refused those terms.
But another problem is that after years of effort, Western nations have not raised the approximately $2 billion that the Russians say they need to build and operate their conversion plant. The British said recently that they were withholding any pledge until the liability issue was resolved.
In 1997, when President Bill Clinton's energy secretary, Hazel R. O'Leary, announced that the United States would rid itself of weapons plutonium, she said burning it as fuel in civilian reactors might begin by 2002. But even before the delay made clear in the Bush budget, the American plant, estimated to cost nearly $4 billion, was expected to begin producing fuel only in 2008. The Energy Department's eventual plan is to pay the Duke Power company to use the plutonium in its reactors.
The issue is particularly delicate in South Carolina, because the Energy Department has already been shipping plutonium from its other weapons factories to its Savannah River Site, near Aiken.
In 2002, South Carolina sued the Energy Department in an unsuccessful effort to prevent shipments. The governor at the time, Jim Hodges, said he wanted a binding agreement that the weapons plutonium would be disposed of elsewhere if the plant was not built. The new delay, Mr. Hodges said, "leads me to believe there's no serious commitment from the Bush administration."
But administration officials say the plan is alive. "I'm absolutely confident we're going to resolve this," said Linton F. Brooks, the under secretary of energy for nuclear security. But he could not say when. "Nobody who tells you he can predict how long it will take is worth listening to," he said.
He described the impasse on liability as "a speed bump as opposed to a death blow." The money, he said, would follow quickly once an agreement on that issue was reached.
But a State Department official acknowledged that "between the liability and details of financing, there's a lot of things to iron out."
Some environmentalists oppose turning weapons plutonium into reactor fuel. Dr. Ed Lyman, a senior nuclear physicist with the Union of Concerned Scientists, has argued that a reactor accident would be more serious if the fuel was a plutonium mix rather than simply uranium, because the fuel's constituents are more dangerous if released.
A Greenpeace nuclear expert, Tom Clements, said the plan would leave Russia with a factory that -- after the weapons plutonium is processed -- could turn additional plutonium into reactor fuel, encouraging the creation and circulation of material that could be diverted into weapons production, or be stolen by a terrorist or militant group.
In Europe, some plutonium is recovered from spent fuel for reuse, and the Russians would like to do the same. In contrast, the Energy Department plans to bury American spent fuel, including the plutonium.
The plan for the South Carolina factory also faces its own hurdles.
The consortium of contractors the Energy Department chose to build it -- an affiliate of the Duke Power company; the Stone and Webster engineering firm; and Cogema, a French nuclear company -- proposed to meet the limits for radiation releases at the plant by pushing the measurement boundary about five miles from the factory.
The Energy Department insisted that the boundary be the factory site perimeter, requiring changes to the safety analysis the consortium must submit to the Nuclear Regulatory Commission to win a license.
Copyright 2004 The New York Times Company
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