Jakarta Blasts Renew Security Fears

By TOM WRIGHT

JAKARTA -- The explosions that ripped through Jakarta's JW Marriott and Ritz Carlton hotels on Friday raised new concerns about the growing sophistication of terrorists in Asia and the possibility that suicide bombers may have been purposefully targeting a meeting of largely Western businessmen.

Police are still investigating the nearly simultaneous suicide attacks, which killed nine people and injured 53 others after the bombers apparently smuggled bomb parts into the hotel disguised as laptops. Although police haven't officially named any suspects, intelligence experts, analysts and investigators say that Noordin Mohammad Top, a 40-year-old member of the al- Qaeda-backed Jemaah Islamiyah network, or terrorists linked to him, are now the leading suspects in masterminding the attacks.

The Associated Press Sunday cited reports that the Indonesian government was intensifying efforts to find Mr. Noordin and had enlisted help from authorities in Malaysia, where Mr. Noordin lived until earlier this decade.

The attack had many of the hallmarks of a Jemaah Islamiyah operation, analysts said, and Indonesian police said an undetonated bomb found in room 1808 of the JW Marriott -- which police believe the bombers used as their base -- was almost identical to a cache of bombs found recently at a house owned by Mr. Noordin's father-in-law in Cilacap, central Java. The Marriott room was booked under the name Nurdin Azis, which is similar to aliases Mr. Noordin has used in the past.

The unexploded bomb showed "strong indications" that Mr. Noordin or terrorist cells linked to him were involved in Friday's events, said Ansyaad Mbai, head of counterterrorism at Indonesia's Coordinating Ministry for Political and Security Affairs, in an interview on Saturday. "The bomb in the Marriott was similar to ones we found in Cilacap," he said.

Indonesian police have yet to identify the perpetrators of the blasts at two Jakarta hotels, but police said Monday the regional militant group Jemaah Islamiah could be behind the attacks. Video courtesy of Reuters.

Attempts to identify the two suicide bombers, who were among the nine dead, were continuing, with police believing at least one of them was Indonesian. Both of their bodies were decapitated in the blasts, making it difficult to verify their identities.

Whatever the investigation reveals, the terrorists' success in smuggling bomb parts into the JW Marriott underscores their growing ability to beat tactics employed by security experts in recent years to keep them at bay. Because of past bouts with terrorism in Indonesia, including bombings in Bali in 2002 that killed more than 200 people, major Jakarta hotels have some of the tightest security in the world, with airport-style metal detectors and heavily guarded driveways with roadblocks.

The bombers appeared to have no trouble getting past those security measures, though, smuggling bomb parts into the hotel disguised as laptops, police said. The ability to assemble bombs inside hotels is "definitely a step up in their tactics," said Paul Quaglia, an analyst in Bangkok at PSA Asia, a security consulting company that has done an audit for the Ritz Carlton in Jakarta. "It's definitely something that was well planned."

Fears were also rising that the bombers were targeting elite businessmen specifically. Noke Kiroyan, an Indonesian citizen and former local chairman of mining company Rio Tinto PLC, was one of 19 executives breakfasting in a small lounge in the JW Marriott, which a local consulting group hires each Friday for its meetings. Mr. Kiroyan, who lost part of his right ear in the attack, said he believes that the bomber who hit the hotel would have chosen the main restaurant on the other side of the JW Marriott's lobby, where most guests were breakfasting and which was the target of a 2003 attack on the same hotel, if they had wanted to inflict the maximum number of casualties. "I think we were targeted," he said.

Other Western executives in Jakarta repeated concerns over the possible targeting of business elites, which they said may lead foreign businesses to be more cautious about how they operate in Indonesia and possibly recalibrate expansion plans. In recent years, Indonesia has made strides in arresting terrorists, making Westerners feel more secure. ExxonMobil Corp. and other foreign resource companies had recently planned to increase the number of expatriate staff in Indonesia.

Just before the blast, early Friday morning, the hotel's closed-circuit television caught images of the suicide bomber, wearing a backpack on his chest and wheeling a suitcase, turning left in the lobby and walking purposefully toward the lounge.

The bomber was challenged by a hotel security guard as he approached the room but was waved through after saying he was delivering a package to his boss, local media reported. Moments later, while at the entrance of the lounge, which was cordoned off with rope, he detonated his bomb, which police said was packed with nails.

Mr. Kiroyan was sitting at a conference table with his back to the lounge's entrance and was partly shielded by a pillar. The last thing Mr. Kiroyan remembers before the blast is reading a long message from his wife on his mobile phone. "Suddenly there was a loud bang and a blinding flash," he said. "My first thought was that my mobile phone exploded. You hear stories about mobile phones exploding. But then I realized it couldn't be that."

Suddenly, Mr. Kiroyan was lying on the floor in pitch darkness with his clothes soaking wet. What he at first took to be blood turned out to be water from the hotel's emergency sprinkler system. People were crying out that they couldn't see.

Mr. Kiroyan then made his way out of the room, where he was met by two hotel staff and guided outside to wait for an ambulance. "I feel angry but relieved that I am alive," Mr. Kiroyan said.

Although he didn't directly observe the suicide bomber, Mr. Kiroyan said other colleagues at the meeting later recounted that some of the people in the room remember seeing an unknown Indonesian man at the entrance just before the explosion.

The four foreigners who have so far died in the Marriott explosion -- three Australians and a New Zealander -- were all sitting at the far end of table from Kiroyan, nearest the entrance. An Indonesian waiter and the suicide bomber also were killed in the explosion.

Indonesian terrorists have failed in recent years to kill a large number of Westerners in suicide bombings. The 2002 Bali nightclub attacks killed 202 mainly Western tourists through two bombs, one in a car and the other carried in a backpack by a suicide bomber. But an earlier attack on the JW Marriott in Jakarta in 2003, by a car bomb, killed 12 people, two-thirds of them Indonesians, and injured more than a hundred. Attacks against the Australian embassy in 2004 and again in Bali in 2005, killed mainly Indonesians.

Foreign expatriates living in Jakarta said none of the previous attacks so directly targeted foreign business interests. The idea that the meeting Friday may have been a focus was "a scary thought" said William Reed Rising, a U.S. citizen who works in real estate and normally attends the briefing but was absent last week.

—Patrick Barta contributed to this article.

Write to Tom Wright at tom.wright@wsj.com

Countering Riots, China Rounds Up Hundreds

By ANDREW JACOBS

URUMQI, China — The two boys were seized while kneading dough at a sidewalk bakery.

The livery driver went out to get a drink of water and did not come home.

Tuer Shunjal, a vegetable vendor, was bundled off with four of his neighbors when he made the mistake of peering out from a hallway bathroom during a police sweep of his building. “They threw a shirt over his head and led him away without saying a word,” said his wife, Resuangul.

In the two weeks since ethnic riots tore through Urumqi, the regional capital of Xinjiang, killing more than 190 people and injuring more than 1,700, security forces have been combing the city and detaining hundreds of people, many of them Uighur men whom the authorities blame for much of the slaughter.

The Chinese government has promised harsh punishment for those who had a hand in the violence, which erupted July 5 after a rally by ethnic Uighurs angry over the murder of two factory workers in a distant province. First came the packs of young Uighurs, then the Han Chinese mobs seeking revenge.

“To those who have committed crimes with cruel means, we will execute them,” Li Zhi, the top Communist Party official in Urumqi, said July 8.

The vow, broadcast repeatedly, has struck fear into Xiangyang Po, a grimy quarter of the city dominated by Uighurs, Turkic-speaking Muslims who have often had an uneasy relationship with China’s Han majority. Uighurs are the largest ethnic group in Xinjiang, but in Urumqi, Han make up more than 70 percent of the 2.3 million residents.

It was here on the streets of Xiangyang Po, amid the densely packed tenements and stalls selling thick noodles and lamb kebabs, that many Han were killed. As young Uighur men marauded through the streets, residents huddled inside their homes or shops, they said; others claim they gave refuge to Han neighbors.

“It was horrible for everyone,” said Leitipa Yusufajan, 40, who spent the night cowering at the back of her grocery store with her 10-year-old daughter. “The rioters were not from here. Our people would not behave so brutally.”

But to security officials, the neighborhood has long been a haven for those bent on violently cleaving Xinjiang, a northwest region, from China. Last year, during a raid on an apartment, the authorities fatally shot two men they said were part of a terrorist group making homemade explosives. Last Monday, police officers killed two men and wounded a third, the authorities said, after the men tried to attack officers on patrol.

“This is not a safe place,” said Mao Daqing, the local police chief.

Local residents disagree, saying the neighborhood is made up of poor but law-abiding people, most of them farmers who came to Urumqi seeking a slice of the city’s prosperity. Interviews with two dozen people showed vehement condemnation of the rioters. “Those people are nothing but human trash,” one man said, spitting on the ground.

Still, the police response has been indiscriminate, they said. Nurmen Met, 54, said his two sons, 19 and 21, were nabbed as riot officers entered the public bathhouse his family owns. “They weren’t even outside on the day of the troubles,” he said, holding up photos of his sons. “They are good, honest boys.”

Many people said they feared that their family members might be swallowed up by a penal system that is vast and notoriously opaque. Last year, in the months leading to the Beijing Olympics, the authorities arrested and tried more than 1,100 people in Xinjiang during a campaign against what they called “religious extremists and separatists.”

Shortly after the arrests, Wang Lequan, the region’s Communist Party secretary, described the crackdown as a “life and death” struggle.

Uighur exile groups and human rights advocates say the government sometimes uses such charges to silence those who press for greater religious and political freedoms. Trials, they say, are often cursory. “Justice is pretty rough in Xinjiang,” said James Seymour, a senior research fellow at the Chinese University of Hong Kong.

In a sign of the sensitivities surrounding the unrest, the Bureau for Legal Affairs in Beijing has warned lawyers to stay away from cases in Xinjiang, suggesting that those who assist anyone accused of rioting pose a threat to national unity. Officials on Friday shut down the Open Constitution Initiative, a consortium of volunteer lawyers who have taken on cases that challenge the government and other powerful interests. Separately, the bureau canceled the licenses of 53 lawyers, some of whom had offered to help Tibetans accused of rioting last year in Lhasa, the capital of Tibet.

Rights advocates say that if the trials in Xinjiang resemble those that took place in Tibet, many defendants will receive long sentences. “There is a lot of concern that those who have been detained in Xinjiang will not get a fair trial,” said Wang Songlian, a research coordinator at Chinese Human Rights Defenders, an advocacy group.

Residents of Xiangyang Po say police officers made two morning sweeps through the neighborhood after the rioting began, randomly grabbing boys as young as 16. That spurred a crowd of anguished women to march to the center of Urumqi to demand the men’s release.

But none of the detainees has come home, the residents say, and the authorities have refused to provide information about their whereabouts.

“I go to the police station every day, but they just tell me to be patient and wait,” said Patiguli Palachi, whose husband, an electronics repairman, was taken in his pajamas with four other occupants of their courtyard house. Ms. Palachi said they might have been detained because a Han man was killed outside their building, but she insisted that her husband was not involved. “We were hiding inside at the time, terrified like everyone else,” she said.

Although it was impossible to verify the accounts of the residents, as Ms. Palachi spoke, more than 10 people gathered to share similar accounts.

Emboldened by the presence of foreign journalists, the group decided to walk to the local police station to confront the police again. “Maybe if you are with us, they will give an answer,” said Memet Banjia, a vegetable seller looking for his son. “Probably they will say nothing and the next day we will disappear, too.”

But the meeting with the police was not to be. As the residents approached the station house, a squad car roared up and the crowd melted away. The foreigners were ordered into the car and driven to the station house. After an hour’s wait, a pair of high-ranking security officials arrived with a lecture and a warning.

“You can’t be here; it’s too unsafe,” one of them said as he drove the foreigners back to the heavily patrolled center of the city. “It’s for your own good.”

Zhang Jing contributed research.

Pentagon Seeks to Overhaul Prisons in Afghanistan

By ERIC SCHMITT

BAGRAM AIR BASE, Afghanistan — A sweeping United States military review calls for overhauling the troubled American-run prison here as well as the entire Afghan jail and judicial systems, a reaction to worries that abuses and militant recruiting within the prisons are helping to strengthen the Taliban.

In a further sign of high-level concern over detention practices, Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, sent a confidential message last week to all of the military service chiefs and senior field commanders asking them to redouble their efforts to alert troops to the importance of treating detainees properly.

The prison at this air base north of Kabul has become an ominous symbol for Afghans — a place where harsh interrogation methods and sleep deprivation were used routinely in its early years, and where two Afghan detainees died in 2002 after being beaten by American soldiers and hung by their arms from the ceiling of isolation cells.

Bagram also became a holding site for terrorism suspects captured outside Afghanistan and Iraq.

But even as treatment at Bagram improved in recent years, conditions worsened in the larger Afghan-run prison network, which houses more than 15,000 detainees at three dozen overcrowded and often violent sites. The country’s deeply flawed judicial system affords prisoners virtually no legal protections, human rights advocates say.

“Throughout Afghanistan, Afghans are arbitrarily detained by police, prosecutors, judges and detention center officials with alarming regularity,” the United Nations Assistance Mission in Afghanistan said in a report in January.

To help address these problems, Maj. Gen. Douglas M. Stone of the Marines, credited with successfully revamping American detention practices in Iraq, was assigned to review all detention issues in Afghanistan.

General Stone’s report, which has not been made public but is circulating among senior American officials, recommends separating extremist militants from more moderate detainees instead of having them mixed together as they are now, according to two American officials who have read or been briefed on his report.

Under the new approach, the United States would help build and finance a new Afghan-run prison for the hard-core extremists who are now using the poorly run Afghan corrections system as a camp to train petty thieves and other common criminals to be deadly militants, the American officials said.

The remaining inmates would be taught vocational skills and offered other classes, and they would be taught about moderate Islam with the aim of reintegrating them into society, said the officials, who spoke on condition of anonymity because the review’s findings had not been publicly disclosed. The review also presses for training new Afghan prison guards, prosecutors and judges.

The recommendations come as American officials express fears that the notoriously overcrowded Afghan-run prisons will be overwhelmed by waves of new prisoners captured in the American-led offensive in southern Afghanistan, where thousands of Marines are battling Taliban fighters.

President Obama signed an executive order in January to review policy options for detention, interrogation and rendition.

The Defense and Justice Departments are leading two government task forces studying those issues and are scheduled to deliver reports to the president on Tuesday.

But administration officials said Sunday that the task forces — which are grappling with questions like whether terrorism suspects should be turned over to other countries and how to deal with detainees who are thought to be dangerous but who cannot be brought to trial — were likely to seek extensions on some contentious issues.

Last month The Wall Street Journal reported elements of General Stone’s review, but in recent days American military officials provided a more detailed description of the report’s scope, findings and recommendations.

A spokesman for the Afghan Embassy in Washington, Martin Austermuhle, said he was unaware of the review, and did not know if the government in Kabul had been apprised of it.

Admiral Mullen felt compelled to issue his message last week after viewing photographs documenting abuse of prisoners in Iraq and Afghanistan by American military personnel in the early years of the wars there, a senior military official said.

Mr. Obama decided in May not to make the photographs public, warning that the images could ignite a deadly backlash against American troops.

The admiral urged top American field commanders to step up their efforts to ensure that prisoners were treated properly both at the point of capture and in military prisons.

He told the service chiefs to emphasize detainee treatment when preparing and training troops who deploy to the Middle East and Southwest Asia.

“It is essential to who we are as a fighting force that we get this right,” Admiral Mullen said in the message. “We are better than what I saw in those pictures.”

American officials say many of the changes that General Stone’s review recommends for Bagram are already in the works as part of the scheduled opening this fall of a 40-acre replacement complex that officials say will accommodate about 600 detainees in a more modern and humane setting.

The problems at the existing American-run prison, the Bagram Theater Internment Facility, have been well documented.

The prison is a converted aircraft hangar that still holds some of the decrepit aircraft-repair machinery left by the Soviet troops who occupied the country in the 1980s.

Military personnel who know Bagram and the prison at Guantánamo Bay, Cuba, describe the Afghan site as tougher and more spartan.

The prisoners have fewer privileges and virtually no access to lawyers or the judicial process. Many are still held communally in big cages.

In the past two weeks, prisoners have refused to leave their cells to protest their indefinite imprisonment.

In 2005, the Bush administration began trying to scale back American involvement in detention operations in Afghanistan, mainly by transferring Bagram prisoners to an American-financed high-security prison outside of Kabul guarded by American-trained Afghan soldiers.

But United States officials conceded that the new Afghan block, at Pul-i-Charkhi prison, could not absorb all the Bagram prisoners. It now holds about 4,300 detainees, including some 360 from Bagram or Guantánamo Bay, Afghan prison officials said.

Officials from the general directorate for prisons complained about the lack of detention space based on international standards in provinces of Afghanistan. They said most of those prisons were rented houses and not suitable for detention.

Gen. Safiullah Safi, commander of the Afghan National Army brigade responsible for the section of Pul-i-Charkhi that holds the transferred inmates from Bagram and Guantánamo Bay, said his part of the prison had maintained good order and followed Islamic cultural customs.

But last December, detainees in the other blocks of the prison staged a revolt in an attempt to resist a security sweep for hidden weapons and cellphones. Eight inmates died.

“There’s a general concern that the Afghan national prisons need to be rehabilitated,” said Sahr MuhammedAlly, a senior associate for law and security at Human Rights First, an advocacy group that is to issue its own report on Bagram on Wednesday.

Abdul Waheed Wafa contributed reporting from Kabul, Afghanistan.

In Guatemala, Chasing Away the Ghost of Alvarado

by Tim Padgett

It's been five centuries since Pedro de Alvarado, a homicidal Spanish conquistador, seized from the Maya the volcanic realm that became Guatemala. But his bloodlust still haunts the country, which today has one of the highest homicide rates in the western hemisphere. Guatemala's 36-year-long civil war, which ended in 1996, killed 200,000 people. Its cloak-and-dagger murders have made locals so paranoid that "even the drunks are discreet," as one 19th century visitor wrote.

That neurosis still shrouds Guatemala City, a gloomy capital that no amount of marimba music can brighten. Rich and poor communities alike are surrounded by walls topped with enough razor wire and rifle-toting guards to look like penitentiaries. This year tandem motorcycle-riding was banned because it was such a popular M.O. for drive-by shootings, and daylight saving time was canceled because the dark mornings created too many opportunities for foul play. Even so, bus drivers face being killed by armed extortionists during rush hour, and lawyers who complain about government corruption can turn up under the bougainvilleas with a few bullets to the head.

That's apparently what happened to Rodrigo Rosenberg, a corporate lawyer murdered on May 10 while biking near his home. In a twist that's macabre even for Guatemala, Rosenberg had taped a video three days earlier in which he anticipated his assassination and put the blame on President Alvaro Colom and his imperious wife Sandra Torres. They deny it, saying their right-wing foes coerced Rosenberg into making the video and then had him killed.

But since the shocking video was uploaded to YouTube on May 11, the nation has begun to confront the benighted lawlessness that plagues not only Guatemala but most of the rest of Central America too. Younger Guatemalans, organizing protests via social-networking sites such as Facebook and Twitter, have turned out by the thousands to protest their putrid judicial system and festoon Rosenberg's murder scene with banners. "Older people say they haven't seen an awakening like this in 60 years," says Alejandro Quinteros, 26, a cherubic fast-food manager and political novice who helps lead the National Civic Movement. "We're not afraid anymore."

Fear is understandable in a country that feels like a "baroque game of chess played with bodies," says Francisco Goldman, whose book The Art of Political Murder details the 1998 assassination of Catholic bishop Juan Gerardi, who was bludgeoned to death after issuing a report on army massacres during the civil war. In a nation where just 2% of last year's 6,200 murders were solved, "impunity opens doors to murderous imaginations," says Goldman.

But the outcry over the Rosenberg case has opened doors to reform. Guatemala's congress was compelled to pass a law, long resisted by powerful political and business interests, that allows public scrutiny of judicial appointments. This month lawmakers say they're set to convene at least one special session to act on measures such as concealed-weapons laws and the creation of organized-crime and anticorruption courts. Activists like Alfonso Abril, 24, of the civic group ProReforma, want to revise Guatemala's sclerotic constitution to modernize lawmaking and codify individual rights. "I'm from the upper class," says Abril, "but I know we can't keep living in a country like this."

He also knows Guatemalan politics is still treacherous. More than 50 candidates were assassinated during the general election in 2007, the same year three visiting Salvadoran congressmen were murdered by rogue policemen (who were then mysteriously killed themselves). In his video, Rosenberg says his coffee-baron client Khalil Musa was gunned down along with his daughter in April because Musa knew too much about drug-money-laundering. "Rodrigo wanted to talk about the deadly manipulation of laws and lives here," says his half brother Eduardo Rodas. Guatemala has asked the U.N. and the FBI to investigate his murder. After 500 years, Rosenberg's ghost may be the first to challenge Alvarado's.

China Revs Up Its Dealmaking Machine

By Dexter Roberts and Frederik Balfour

Is China Inc. intent on buying the world? It sure looks that way. Just in June and July, Chinese companies from oil refiner Sinopec (SNP) to carmaker Beijing Automotive and appliance giant Haier have invested or shown interest in investing in oil fields in Iraq, GM's Opel car business in Germany, an upscale appliance maker in New Zealand, and a Japanese department store. The sums involved range from tiny ($50 million for Haier's 20% stake in the New Zealand appliance maker) to hefty, at least by Chinese standards: Sinopec paid more than $7 billion for a Swiss oil company. A rumored bid for a Spanish-owned Argentine oil producer would be twice that.

China's total investments abroad, at $170 billion, come to only one-thirtieth the capital that the U.S. has spent on foreign factories, real estate, and other assets. But the Chinese have definitely been revving up their deal machine. China's overseas investments doubled last year, to $52 billion, and the Chinese government's economic planners have predicted a 13% increase this year, despite a slight slowdown last winter. In the crisis, "prices are getting better," says Daniel H. Rosen, a partner at New York advisory firm Rhodium Group and author of a recent report on China's outward investment. "That creates opportunities for China to go bottom-fishing." Beijing is also making it easier to acquire abroad. And non-energy companies are rushing overseas to buy skills in design and engineering.

The mergers-and-acquisitions craze is good news for lawyers, accountants, and investment bankers. JPMorgan Chase (JPM) and Morgan Stanley (MS) have both worked on high-profile China bids. PricewaterhouseCoopers has been involved with more than 125 transactions, and Bain & Co. has consulted for Chinese suitors, too. "It's a huge market not only for Bain but for many advisors," says Philip Leung, a Bain partner in Shanghai.

A big buildup in Chinese overseas M&A actually might benefit the global economy because it would recycle the dollars and other currencies earned by Chinese exporters in a healthier way. Right now, Chinese exporters don't have much use for the foreign exchange they earn. So the dollars pile up at China's central bank, which invests them in U.S. Treasury bills and the like. Meanwhile, the yuan that the exporters get for their dollars and euros feeds internal speculation and could stoke inflation. A flood of bids from the Chinese could also help put a floor under the prices of all kinds of companies.

Triggering Backlashes

Yet the deals will be no smooth ride for either Chinese acquirers or their targets. Although they are learning fast, the Chinese are not yet pros at M&A, and they often trigger backlashes from investors or voters in the countries where they show up. Plenty of blowups and setbacks are likely.

China has many incentives to keep playing the M&A game, however. China's companies are often flush with cash. Loans are not an issue when state-connected enterprises have Beijing's approval to invest overseas. "Most Chinese banks are state-owned, of course," says Zhou Chunsheng, a professor of finance at Cheung Kong Graduate School of Business in Beijing. "So companies find it very easy to raise money to expand their business into other countries."

Officials also want to stem the resentment evident in Internet forums and campus seminars against parking most of China's $2.1 trillion in foreign exchange reserves in low-yield, inflation-sensitive U.S. Treasuries. "Why would we want to keep subsidizing irresponsible U.S. behavior that will inflate the dollar and hurt us?" asks Wenran Jiang, a political science professor at the University of Alberta. Better, says Jiang, to purchase companies.

Beijing has backed overseas expeditions before. But "there's been a step-up of support since early this year," says Robert L. Kuhn, an American China consultant who knows the senior leadership well. "The support extends all the way to the Politburo." On Mar. 16 the Commerce Ministry announced that, starting in May, only provincial-level approval would be needed for overseas investments below $100 million. After Aug. 1 companies can more easily purchase foreign exchange to fund foreign acquisitions. Regulators "are giving the green light," says Guo Tianyong, a professor at the Central University of Finance & Economics in Beijing.

They're prodding companies to act, too. At a July 4 Beijing conference of top politicos, Li Rongrong, the head of the agency responsible for China's top state enterprises, publicly complained that too few companies had reached global scale. "We must encourage our top enterprises to go out and enter overseas markets and expand their business," he told his audience.

Avoiding Too Much Competition

The biggest investments have been in natural resources companies that can help slake China's energy thirst. Such deals require precise handling. "To avoid potential political and commercial backlash, Chinese oil and commodity companies often select their targets carefully," says Luke Parker, head of the M&A Service at Edinburgh energy consultants Wood Mackenzie. "The Chinese have tended to favor acquisitions where they are not competing head to head with the majors." Buying Switzerland's Addax Petroleum, for example, gave Sinopec access to Nigerian and Kurdish oil but ruffled few feathers.

When the Chinese do stumble, the results are spectacular. The latest example is the planned $19 billion-plus investment by Aluminum Corp. of China (Chinalco) (ACH) in Anglo-Australian miner Rio Tinto (RTP). Rio Tinto needed the cash, but its shareholders questioned the wisdom of selling an 18% stake to Chinalco, one of Rio Tinto's biggest customers. Most politicians openly condemned the transaction. "[China's] state-owned entities are nothing more than an arm of the Communist Party," says Australian Senator Barnaby Joyce.

Stung, Rio backed off, opting instead for a $15.2 billion rights issue and a joint venture with BHP Billiton (BHP). Beijing Times was scathing: "Rio Tinto is just like an unfaithful woman. Once she loved the money in Chinalco's pocket, but she actually didn't love the man himself." In July, Beijing authorities arrested a Rio Tinto employee in China on accusations of industrial espionage, leading many to speculate China was retaliating.

Some observers wonder how long it will take for the Chinese to get their dealmaking right. "The finance skills at the top of Chinese companies are not likely to be as developed as [at] U.S. or European or even Indian companies," says Anil Gupta, a professor of strategy and organization at the University of Maryland's Smith School of Business. The result, he says, is that the Chinese often overpay or fail to grasp the challenges involved in a takeover.

Skills and Knowhow

The Chinese can also scare potential targets. Take the investments by Chinese manufacturers and retailers. "A number of these transactions are about getting skills and knowhow to use in China," says Matthew Phillips, a partner at the Shanghai office of PricewaterhouseCoopers. That was part of the logic behind Haier's stake in Fisher & Paykel Appliances of New Zealand: The Kiwis can teach the Chinese about design.

This logic can backfire, as in the case of Beijing Auto and Germany's Opel. "Beijing Auto looks at Opel and sees this as a game-changer," says Mike Dunne, managing director of J.D. Power & Associates in China (like BusinessWeek, a division of The McGraw-Hill Companies). Opel's skills would give Beijing Auto a critical edge in China's car wars. But the Germans fear the Chinese are interested in Opel only as a technology resource, not as a brand to revive. That's limiting Beijing Auto's chances in the bidding, sources say.

Other Chinese missteps include Shanghai Auto's 51% purchase in 2004 of Korea's Ssangyong Motors (which is now bankrupt) and television maker TCL's acquisition of RCA Thomson (generally seen as a failure). The jury is still out on the acquisition of IBM's (IBM) PC business by China's Lenovo.

But the Chinese are learning. Analysts think Chinese authorities probably froze a deal for GM's Hummer by construction equipment company Sichuan Tengzhong out of fear the Chinese outfit lacks the expertise to run a U.S. company (the other reason for examining the deal is fear of the Hummer's environmental impact). PwC's Phillips says energy companies "have moved up the learning curve very quickly." Bain's Leung describes how executives from a Chinese consumer-products marketer recently traveled to the U.S. to meet with suppliers, customers, and executives of a target company. The thorough due diligence convinced the Chinese to back out.

One area where the Chinese tread softly is in the U.S. They recall the abortive 2005 bid for Unocal by China National Offshore Oil (CEO), which ignited a firestorm in the U.S. Congress. "The Chinese perception is that they are trying to acquire companies using market mechanisms, yet they get caught up with political controversies," says Evan Feigenbaum, an ex-Deputy Assistant Secretary of State under George W. Bush.

Still, U.S. concern hasn't held back the Chinese elsewhere. Acquisitions have gone ahead in Australia, including a $1.4 billion takeover bid by China Minmetals for Oz Minerals and a $770 million investment in Fortescue Metals by Hunan Valin Iron & Steel. "It is natural for companies when they grow up to find new opportunities outside," says finance professor Zhou. "There will be more Chinese acquisitions abroad. And the world will get used to it."

Gulf of Mexico Threatens Native Americans' Way of Life in Louisiana

By Kari Lydersen
Washington Post Staff Writer
Monday, July 20, 2009

GOLDEN MEADOW, La. "Every morning is like Christmas morning" during shrimping season, says Whitney Dardar, 73, a Houma Indian who loves fishing in the bayous of southwestern Louisiana as his forebears have done for two centuries.

The Houma and several other tribes, which are recognized by the state but not the federal government, settled in the outer fringes of Louisiana in the early 1800s, fleeing other hostile tribes and U.S. military forces farther north.

Now, the tribes are losing their land again -- this time to the Gulf of Mexico, as thousands of acres of wetlands vanish each year, hurricanes do increasing damage without these marshy buffers, and saltwater intrudes into the bayou water and soil. The U.S. Geological Survey estimates that up to 40 square miles of Louisiana wetlands disappear annually and that by 2040 the state's coastline will have receded more than 30 miles.

For Native American families it is nearly impossible to farm, fish and trap the way they used to because of the saltwater intrusion and disappearing land; high fuel costs and low market prices have also made the shellfish industry unsustainable.

Isle de Jean Charles was home to about 75 families before being pummeled by Hurricanes Katrina and Rita in 2005 and Gustav and Ike in 2008. Now only about 25 households remain. When the state installed a 72-mile string of hurricane-protection levees around southwest Louisiana in 2002, Isle de Jean Charles was not included.

"We got chased out by the whites; now we're getting chased back," said Chief Albert Naquin, 62, who grew up on the island and heads the Biloxi-Chitimacha-Choctaw tribe, which is related to the Houma. "At one time, it was man-made removal; now it's Mother Nature's removal."

But humans are largely to blame for wetlands erosion. The building of levees along the Mississippi River prevents it from naturally flooding and meandering along, depositing sediment and building wetlands in the process. In decades past, marshes were seen as areas to be filled in and developed rather than preserved. The cutting off of freshwater flows from the Mississippi River and the erosion of wetlands mean that saltwater from the Gulf moves up into coastal waterways and lands.

"Saltwater intrusion didn't happen because one government entity or one rich landowner or tribal elder decided to shut down the process of delta building; it was done incrementally as part of a pervasive culture that viewed wetlands as wastelands," said Mark Davis, director of the Tulane Institute on Water Resources Law and Policy. "The legacy of those decisions, programs and values is still very much with us. No place is it coming up as starkly as in south Louisiana, and for no culture more clearly than for the Houmas."

The offshore oil and gas industry's 10,000 miles of canals have speeded up the deterioration of the marsh, many scientists and locals believe. Last year, 30 groups including the Louisiana Shrimp Association and Greenpeace USA asked Shell Oil to pay the state nearly $362 million to compensate for wetlands loss. In response, the company has pointed to its ongoing wetlands-restoration partnerships.

Many of Louisiana's Native Americans are ambivalent about the fossil fuel industry. They blame it for destroying their land, but it also provides well-paying offshore jobs to locals, jobs that have become even more important as subsistence lifestyles fade.

"You see the effect it has on our communities, but at the same time it employs a lot of people," said Dardar's daughter Brenda Dardar Robichaux, chief of the United Houma Nation. "They should be able to employ a lot of people and still be good stewards of the water."

Whitney Dardar plans to continue shrimping as long as he is physically able -- but for love, not money. He would never recommend the life to young people, and many of his younger male relatives work on the offshore oil rigs.

Dardar also still collects oysters in the winter, using a weather-worn boat draped in nets. He does it mainly to keep busy; the oyster haul has become so thin it is not lucrative.

"The oysters don't like the water too salty, so you have to go farther for them. They don't grow like they used to; a lot of the places they used to grow, the land is gone," he said.

Charles Verdin, 52, of the Pointe-au-Chien tribe, says his people used to farm and raise livestock, but the eroding land and increasingly salty soil have ended that. He would like to see the dismantling of levees that block the flow of fresh river water into the bayou.

"People used to grow everything themselves; now you have to buy canned beans," he said. "And people used to have cattle, but now you don't, because you don't have any place to put them. We used to do for ourselves; now we have to rely on stores, and that means we have to get different jobs. It used to be everyone would share; now that's not around anymore. It just kills me."

Native American men used to make good money trapping minks, raccoons, muskrats and nutrias, large rodents that gobble marsh plants. But demand for fur has decreased, and the land where they used to trap has largely disappeared, so this tradition, too, has dwindled.

Chief Naquin once backed the stalwart elderly residents on Isle de Jean Charles who wanted to stay there. But because most younger people have already left, he wants to move the tribe to higher ground where members could build an intergenerational community, teach traditional practices, and invite tourists to buy their beadwork and food.

"At one time I didn't want to relocate -- I thought it would be like another Trail of Tears," he said. "But now I see that is a selfish viewpoint. It's only a matter of time before the island's gone -- one more good hurricane, and we'll be wiped out."

Davis thinks it is probably too late to save Isle de Jean Charles, but he hopes its fate prods officials to step up coastal preservation.

"I think there's a growing recognition we're all in the same boat," he said. "If you can't save the Mississippi Delta, why in heaven's name would you think anyone will get around to saving Long Island or the Chesapeake?"

Outside World Turns Blind Eye to N. Korea's Hard-Labor Camps

By Blaine Harden
Washington Post Foreign Service
Monday, July 20, 2009

SEOUL -- Images and accounts of the North Korean gulag become sharper, more harrowing and more accessible with each passing year.

A distillation of testimony from survivors and former guards, newly published by the Korean Bar Association, details the daily lives of 200,000 political prisoners estimated to be in the camps: Eating a diet of mostly corn and salt, they lose their teeth, their gums turn black, their bones weaken and, as they age, they hunch over at the waist. Most work 12- to 15-hour days until they die of malnutrition-related illnesses, usually around the age of 50. Allowed just one set of clothes, they live and die in rags, without soap, socks, underclothes or sanitary napkins.

The camps have never been visited by outsiders, so these accounts cannot be independently verified. But high-resolution satellite photographs, now accessible to anyone with an Internet connection, reveal vast labor camps in the mountains of North Korea. The photographs corroborate survivors' stories, showing entrances to mines where former prisoners said they worked as slaves, in-camp detention centers where former guards said uncooperative prisoners were tortured to death and parade grounds where former prisoners said they were forced to watch executions. Guard towers and electrified fences surround the camps, photographs show.

"We have this system of slavery right under our nose," said An Myeong Chul, a camp guard who defected to South Korea. "Human rights groups can't stop it. South Korea can't stop it. The United States will have to take up this issue at the negotiating table."

But the camps have not been discussed in meetings between U.S. diplomats and North Korean officials. By exploding nuclear bombs, launching missiles and cultivating a reputation for hair-trigger belligerence, the government of Kim Jong Il has created a permanent security flash point on the Korean Peninsula -- and effectively shoved the issue of human rights off the negotiating table.

"Talking to them about the camps is something that has not been possible," said David Straub, a senior official in the State Department's office of Korean affairs during the Bush and Clinton years. There have been no such meetings since President Obama took office.

"They go nuts when you talk about it," said Straub, who is now associate director of Korean studies at Stanford University.

Nor have the camps become much of an issue for the American public, even though annotated images of them can be quickly called up on Google Earth and even though they have existed for half a century, 12 times as long as the Nazi concentration camps and twice as long as the Soviet Gulag. Although precise numbers are impossible to obtain, Western governments and human groups estimate that hundreds of thousands of people have died in the North Korean camps.

North Korea officially says the camps do not exist. It restricts movements of the few foreigners it allows into the country and severely punishes those who sneak in. U.S reporters Laura Ling and Euna Lee were sentenced last month to 12 years of hard labor, after being convicted in a closed trial on charges of entering the country illegally.

North Korea's gulag also lacks the bright light of celebrity attention. No high-profile, internationally recognized figure has emerged to coax Americans into understanding or investing emotionally in the issue, said Suzanne Scholte, a Washington-based activist who brings camp survivors to the United States for speeches and marches.

"Tibetans have the Dalai Lama and Richard Gere, Burmese have Aung San Suu Kyi, Darfurians have Mia Farrow and George Clooney," she said. "North Koreans have no one like that."

Executions as Lessons

Before guards shoot prisoners who have tried to escape, they turn each execution into a teachable moment, according to interviews with five North Koreans who said they have witnessed such killings.

Prisoners older than 16 are required to attend, and they are forced to stand as close as 15 feet to the condemned, according to the interviews. A prison official usually gives a lecture, explaining how the Dear Leader, as Kim Jong Il is known, had offered a "chance at redemption" through hard labor.

The condemned are hooded, and their mouths are stuffed with pebbles. Three guards fire three times each, as onlookers see blood spray and bodies crumple, those interviewed said.

"We almost experience the executions ourselves," said Jung Gwang Il, 47, adding that he witnessed two executions as an inmate at Camp 15. After three years there, Jung said, he was allowed to leave in 2003. He fled to China and now lives in Seoul.

Like several former prisoners, Jung said the most arduous part of his imprisonment was his pre-camp interrogation at the hands of the Bowibu, the National Security Agency. After eight years in a government office that handled trade with China, a fellow worker accused him of being a South Korean agent.

"They wanted me to admit to being a spy," Jung said. "They knocked out my front teeth with a baseball bat. They fractured my skull a couple of times. I was not a spy, but I admitted to being a spy after nine months of torture."

When he was arrested, Jung said, he weighed 167 pounds. When his interrogation was finished, he said, he weighed 80 pounds. "When I finally got to the camp, I actually gained weight," said Jung, who worked summers in cornfields and spent winters in the mountains felling trees.

"Most people die of malnutrition, accidents at work, and during interrogation," said Jung, who has become a human rights advocate in Seoul. "It is people with perseverance who survive. The ones who think about food all the time go crazy. I worked hard, so guards selected me to be a leader in my barracks. Then I didn't have to expend so much energy, and I could get by on corn."

Defectors' Accounts

Human rights groups, lawyers committees and South Korean-funded think tanks have detailed what goes on in the camps based on in-depth interviews with survivors and former guards who trickle out of North Korea into China and find their way to South Korea.

The motives and credibility of North Korean defectors in the South are not without question. They are desperate to make a living. Many refuse to talk unless they are paid. South Korean psychologists who debrief defectors describe them as angry, distrustful and confused. But in hundreds of separate interviews conducted over two decades, defectors have told similar stories that paint a consistent portrait of life, work, torment and death in the camps.

The number of camps has been consolidated from 14 to about five large sites, according to former officials who worked in the camps. Camp 22, near the Chinese border, is 31 miles long and 25 miles wide, an area larger than the city of Los Angeles. As many as 50,000 prisoners are held there, a former guard said.

There is a broad consensus among researchers about how the camps are run: Most North Koreans are sent there without any judicial process. Many inmates die in the camps unaware of the charges against them. Guilt by association is legal under North Korean law, and up to three generations of a wrongdoer's family are sometimes imprisoned, following a rule from North Korea's founding dictator, Kim Il Sung: "Enemies of class, whoever they are, their seed must be eliminated through three generations."

Crimes that warrant punishment in political prison camps include real or suspected opposition to the government. "The camp system in its entirety can be perceived as a massive and elaborate system of persecution on political grounds," writes human rights investigator David Hawk, who has studied the camps extensively. Common criminals serve time elsewhere.

Prisoners are denied any contact with the outside world, according to the Korean Bar Association's 2008 white paper on human rights in North Korea. The report also found that suicide is punished with longer prison terms for surviving relatives; guards can beat, rape and kill prisoners with impunity; when female prisoners become pregnant without permission, their babies are killed.

Most of the political camps are "complete control districts," which means that inmates work there until death.

There is, however, a "revolutionizing district" at Camp 15, where prisoners can receive remedial indoctrination in socialism. After several years, if they memorize the writings of Kim Jong Il, they are released but remain monitored by security officials.

South's Changing Response

Since it offers a safe haven to defectors, South Korea is home to scores of camp survivors. All of them have been debriefed by the South Korean intelligence service, which presumably knows more about the camps than any agency outside of Pyongyang.

But for nearly a decade, despite revelations in scholarly reports, TV documentaries and memoirs, South Korea avoided public criticism of the North's gulag. It abstained from voting on U.N. resolutions that criticized North Korea's record on human rights and did not mention the camps during leadership summits in 2000 or 2007. Meanwhile, under a "sunshine policy" of peaceful engagement, South Korea made major economic investments in the North and gave huge, unconditional annual gifts of food and fertilizer.

The public, too, has been largely silent. "South Koreans, who publicly cherish the virtue of brotherly love, have been inexplicably stuck in a deep quagmire of indifference," according to the Korean Bar Association, which says it publishes reports on human rights in North Korea to "break the stalemate."

Government policy changed last year under President Lee Myung-bak, who has halted unconditional aid, backed U.N. resolutions that criticize the North and tried to put human rights on the table in dealing with Pyongyang. In response, North Korea has called Lee a "traitor," squeezed inter-Korean trade and threatened war.

An Enforcer's View

An Myeong Chul was allowed to work as a guard and driver in political prison camps because, he said, he came from a trustworthy family. His father was a North Korean intelligence agent, as were the parents of many of his fellow guards.

In his training to work in the camps, An said, he was ordered, under penalty of becoming a prisoner himself, never to show pity. It was permissible, he said, for bored guards to beat or kill prisoners.

"We were taught to look at inmates as pigs," said An, 41, adding that he worked in the camps for seven years before escaping to China in 1994. He now works in a bank in Seoul.

The rules he enforced were simple. "If you do not meet your work quota, you do not eat much," he said. "You are not allowed to sleep until you finish your work. If you still do not finish your work, you are sent to a little prison inside the camp. After three months, you leave that prison dead."

An said the camps play a crucial role in the maintenance of totalitarian rule. "All high-ranking officials underneath Kim Jong Il know that one misstep means you go to the camps, along with your family," he said.

Partly to assuage his guilt, An has become an activist and has been talking about the camps for more than a decade. He was among the first to help investigators identify camp buildings using satellite images. Still, he said, nothing will change in camp operations without sustained diplomatic pressure, especially from the United States.

Inconsistent U.S. Approach

The U.S. government has been a fickle advocate.

In the Clinton years, high-level diplomatic contacts between Washington and Pyongyang focused almost exclusively on preventing the North from developing nuclear weapons and expanding its ballistic missile capability.

President George W. Bush's administration took a radically different approach. It famously labeled North Korea as part of an "axis of evil," along with Iran and Iraq. Bush met with camp survivors. For five years, U.S. diplomats refused to have direct negotiations with North Korea.

After North Korea detonated a nuclear device in 2006, the Bush administration decided to talk. The negotiations, however, focused exclusively on dismantling Pyongyang's expanded nuclear program.

In recent months, North Korea has reneged on its promise to abandon nuclear weapons, kicked out U.N. weapons inspectors, exploded a second nuclear device and created a major security crisis in Northeast Asia.

Containing that crisis has monopolized the Obama administration's dealings with North Korea. The camps, for the time being, are a non-issue. "Unfortunately, until we get a handle on the security threat, we can't afford to deal with human rights," said Peter Beck, a former executive director of the U.S. Committee for Human Rights in North Korea.

A Family's Tribulations

Kim Young Soon, once a dancer in Pyongyang, said she spent eight years in Camp 15 during the 1970s. Under the guilt-by-association rule, she said, her four children and her parents were also sentenced to hard labor there.

At the camp, she said, her parents starved to death and her eldest son drowned. Around the time of her arrest, her husband was shot for trying to flee the country, as was her youngest son after his release from the camp.

It was not until 1989, more than a decade after her release, that she found out why she had been imprisoned. A security official told her then that she was punished because she had been a friend of Kim Jong Il's first wife and that she would "never be forgiven again" if the state suspected that she had gossiped about the Dear Leader.

She escaped to China in 2000 and now lives in Seoul. At 73, she said she is furious that the outside world doesn't take more interest in the camps. "I had a friend who loved Kim Jong Il, and for that the government killed my family," she said. "How can it be justified?"

Special correspondent Stella Kim contributed to this report.

Some Fear N.Y. Fed Too Heavily Influenced by Wall Street Ideology

By Neil Irwin
Washington Post Staff Writer
Monday, July 20, 2009

NEW YORK -- The low-slung cubicles wrap around the ninth floor of a building three blocks from Wall Street, each manned by a young staffer staring at flashing numbers on a flat-screen computer monitor and working the phones to gather the latest chatter from financial markets around the world.

It could be any investment bank or hedge fund. Instead, it is the markets group of the Federal Reserve Bank of New York, which has been on the front lines of the government's response to the financial crisis. Federal Reserve and Treasury Department officials make the major decisions, but the New York Fed executes them.

The information gathered there provides crucial insights into the financial world for top policymakers. But the bank is so close to Wall Street -- physically, culturally and intellectually -- that some economic experts worry that the New York Fed puts the interests of the financial industry ahead of those of ordinary Americans.

"The New York Fed sticks out as being not just very, very close to Wall Street, but to the most powerful people on Wall Street," said Simon Johnson, an economist at MIT. "I worry that they pay too much deference to the expertise and presumed wisdom of a sector that screwed up massively."

Even some former insiders at the Fed say the bank does not pay enough attention to the fundamental flaws in the country's financial system or to the risks associated with bailing out financial firms -- for instance, the chance that banks will be encouraged to take more unwise gambles. These experts worry that the New York Fed has adopted the mindset of a trading floor: well attuned to ripples in financial markets but not to long-term trends and dangers.

Last month, for instance, Wall Street bond traders wanted the central bank to ramp up its purchase of Treasury bonds, which would help the traders by driving up prices. But Fed officials in Washington and around the country concluded that such a move would be counterproductive in the longer run, in contrast to some New York Fed staffers, whose views more closely mirrored those on Wall Street.

New York Fed employees "play a very valuable role, day in, day out, with detailed contacts with the big financial firms," said William Poole, a former president of the Federal Reserve Bank of St. Louis who is now at the Cato Institute. "What I think is missing is a longer-run perspective. They tend to be sort of short-term in their outlook, which is true of a lot of the financial firms. Traders have a horizon of a few hours or a few weeks, at most."

The New York Fed's home is a fortresslike building, with bars securing the windows on lower floors. Its main lobby resembles a Gothic cathedral: dim, quiet, with stone walls, as if to inspire a mix of fear and awe.

Like the other 11 regional Federal Reserve banks, the New York Fed is a curious mix of public and private, part of a system Congress created in 1913 to avoid concentrated power in Washington or New York alone. Its board of directors is composed of bankers, businesspeople and community leaders, who select the bank president with approval from Fed governors in Washington. Banks in New York, Connecticut and parts of New Jersey own shares in the New York Fed, though its profits are returned to the U.S. Treasury.

The man in charge is a soft-spoken economist named William C. Dudley, who took over as president in January, replacing Timothy F. Geithner when he became Treasury secretary.

With a proclivity for button-down Oxford shirts and rumpled suits, Dudley does not fit the mold of a Wall Street executive. He has won fans across the Federal Reserve System for a collaborative style, as well as a talent for explaining complicated problems in the financial world and drawing up solutions to them.

It is his résumé that alarms some critics, who see an example of a too-cozy relationship between financial firms and their lead regulator. One of several bank officials who have worked in the private sector, Dudley was at Goldman Sachs for two decades, including 10 years as chief economist, before joining the New York Fed in 2007.

The bank's board of directors, which selected Dudley, includes such corporate titans as Jamie Dimon, the head of J.P. Morgan Chase, and Jeffrey Immelt, General Electric's chief. Richard Fuld, then the chief executive of Lehman Brothers, resigned from the Fed just days before his firm went under. Stephen Friedman, who sat on Goldman's board, resigned as chairman of the New York Fed board earlier this year after controversy arose over his purchase of Goldman stock while at the Fed.

"I don't think they're consciously doing things to tilt the playing field to Goldman Sachs and the other major banks," said Dean Baker, co-director of the Center for Economic and Policy Research. "But when you work at a place, you tend to internalize their views, and that is going to color your policies. It's not that they're being deliberately corrupt; it's that they come to incorporate the interests of major banks in their views."

Dudley argues that he has been willing to take on large banks repeatedly, especially with stress tests earlier this year that many viewed as onerous and which required some banks to raise more capital.

For their part, senior Fed officials in Washington say the experience Dudley and some of his colleagues have in the private sector has proved invaluable in helping them understand how markets are failing.

"He has been the right person at the right place at the right time," said Donald L. Kohn, vice chairman of the Federal Reserve System Board of Governors.

On the ninth floor, the first employees show up at 4 a.m. and hit the phones to collect the latest on overnight trading in Asia and Europe.

The workers on the front lines are "trader analysts." Many of them are around age 30, with master's degrees in international affairs or public policy from schools such as Johns Hopkins and Columbia. Some stay at the bank for decades, rising through the ranks; others go to Wall Street firms within a few years (some of those converts have looked to return to the Fed lately as investment banks have shed jobs by the thousands).

The staff, though paid much less than Wall Street workers, is well compensated by government standards. The 289 bank officers earned an average of $204,000 in 2007 -- more than Cabinet secretaries.

"They're the eyes and ears of the Federal Reserve in financial markets, and they wouldn't be doing their jobs if they weren't sensitive to what's occurring in that world," Kohn said. Then it is up to the board and the Fed's policymaking committee "to take that information, weigh it along with all the other information we get and set policy."

This intimacy with the firms they regulate can give Fed officials crucial intelligence. At the height of the financial crisis in September, staffers learned from their market contacts that Wall Street's two largest investment banks, Goldman Sachs and Morgan Stanley, were in mortal danger because their trading partners were so quickly losing faith in them, according to an update on the day's market activity by the New York Fed staff obtained by The Washington Post. Four days later, the central bank brought the two firms under the Fed's protective umbrella by agreeing to make them "bank holding companies."

But in allowing Goldman and Morgan to convert themselves to bank holding companies that received access to greater federal aid, Fed officials exempted them from the usual requirements, potentially putting taxpayer money at risk. (Since then, the firms' fortunes have improved enough that the government has incurred no losses.)

In responding to the financial crisis, the New York Fed has designed many of its programs to try to take advantage of some of the same business practices that contributed to the crisis.

Last fall, Fed staffers in New York and Washington began developing ideas to address paralysis in the markets for credit card loans, auto loans and other forms of consumer debt.

In Washington, Fed staffers wanted the central bank to hire a small number of firms to purchase the securities backed by these loans, thus injecting fresh credit into the market. But New York Fed staffers thought it better to let any investor put up money, matched with a loan from the Fed, to buy the securities. They argued that this approach would restart private markets more effectively and could be deployed faster. The downside: The New York Fed's strategy could allow private investors to earn huge returns while the government limited their losses.

Federal Reserve Chairman Ben S. Bernanke and other top Fed officials sided with New York.

The New York Fed, in scrambling to save the financial industry, has even taken a page out of the industry playbook, adopting a trick known as "special purpose vehicles." These entities, as used by Citigroup and other banks, contributed to the financial meltdown. But the Fed turned to similar entities when it bumped up against legal restrictions on its ability to buy risky assets. When the central bank decided to rescue Bear Stearns and, later, American International Group, New York Fed lawyers suggested creating separate limited liability corporations to buy the assets. The Fed then lent money to these new entities.

Dudley said the Fed has made such moves to support the overall economy, helping to keep a deep recession from getting much worse. When programs have helped individual firms, they have done so only to prevent catastrophic damage to the broader U.S. economy.

"Nobody here is trying to do anything but support the economy and support market functioning," he said in an interview. "We are worried about the stability of the system, not any individual institution."

HRW: Nigerian Forces Arbitrarily Killed Dozens In Jos

By VOA News 20 July 2009

Human Rights Watch has called on Nigerian authorities to prosecute security personnel who allegedly killed more than 130 people during sectarian violence last year.

Representatives of the group testified Monday before a judicial commission of inquiry in Nigeria's Plateau state.

In a report released Monday, Human Rights Watch accuses soldiers and police of arbitrarily killing 133 men and boys, nearly all of them Muslim, in the city of Jos last November.

It says most of the killings occurred November 29, the day after clashes between Muslim and Christian mobs killed several hundred people in Jos.

The report says police and soldiers shot unarmed citizens, and lined up victims on the ground before executing them.

Reuters news agency quotes a Plateau state police spokesman (Mohammed Lerama) as saying the accusations are not true.

The judicial commission has been tasked with looking into the causes of the Jos violence and identifying the people or groups responsible.

The violence erupted after the city's Muslim and Christian communities disputed the results of a local election.

Sectarian violence has flared before in Jos. Hundreds of people were killed there during street fighting in 2001.

Plateau State sits in Nigeria's "middle belt" region that separates the country's mainly Christian south from the predominantly Muslim north.

Debate Over Afghanistan Rages in Britain as Casualties Rise

By Sonja Pace London 20 July 2009

Pace report - Download (MP3)
Pace report - Listen (MP3)

Another British soldier has been killed in Afghanistan, the 17th this month. Rising casualties have sparked a political debate about the country's involvement in Afghanistan and why more and more of its soldiers are dying.

British soldiers carry coffin of Lieutenant-Colonel Rupert Thorneloe into The Guards Chapel in the Wellington Barracks in London for a funeral service, 16 Jul 2009

Britain has more than 9,000 troops in Afghanistan, about one third of them involved in Operations Panther's Claw against insurgents in Helmand province. And it is there that an increasing number of British troops have been dying, many killed by roadside bombs.

The rising toll has not gone unnoticed back home. In the small town of Wootton Bassett in southern England growing crowds gather ever more frequently to pay their final respects as the dead are repatriated and their flag-draped coffins driven through town.

Military analyst, Malcolm Chalmers of Britain's Royal United Services Institute, says until now the public has not really paid much attention to events in Afghanistan.

"The debate has become more intense and all those involved in the debate are looking at their answers and finding out that a lot of their explanations are not very convincing because the situation in Afghanistan is very difficult indeed and there are no quick solutions."

The debate has spilled over into parliament where Prime Minister Gordon Brown has faced pointed questions about his strategy, troop levels and whether troops are adequately equipped. Mr. Brown has been on the defensive.

"Mr. Speaker, we keep our force levels under constant review depending on the operational requirements," he said. "And, I have been reassured by commanders on the ground and the top of our armed services that we have the manpower we need for the current operations."

But there has been criticism from some top military brass. Army commander General Richard Dannatt has called for better equipment for troops to protect against roadside bombs.

Former soldier and now opposition member of parliament Adam Holloway, of the Conservative Party, says questions about troop levels and equipment are valid. But, he says the real problem is that the government's strategy is wrong for not focusing enough on helping average Afghans.

"We have only got one bit of the war going. We have got the big bang-bang war going. The battle for the people we are losing for sure," said Holloway.

Holloway says the only way to win on that second front is to provide security and economic development for Afghan towns and villages, not just send bombs and troops.

"You can bomb them back into the stone age, but you will never get rid of the Taliban that way," he added. "The only people who can defeat them are the Afghan people themselves and we need to be helping them to do that."

Holloway says more foreign troops are needed to establish security in troubled provinces like Helmand. But he says more emphasis must be placed on training the Afghan military and on development. He also says outside support for the Afghan government of Hamid Karzai is counter-productive, since that government is widely viewed as corrupt and ineffective.

But there are questions whether the rise in casualties will erode British public support for the mission.

Military analyst Malcolm Chalmers says it is possible.

"If there are not results in Helmand then people will be saying, 'Well, we tried and it failed and we should get out," said Chalmers.

The United States is stepping up its troop presence in Afghanistan and NATO has vowed to send more resources to beat back insurgents and provide security for upcoming national elections in August.

Second Turkish 'Plot' Trial Opens

Fifty-six people, including two retired generals, journalists and academics, have gone on trial in Turkey accused of plotting to overthrow the government.

Prosecutors say they were members of a shadowy ultranationalist network - dubbed Ergenekon - which allegedly aimed to provoke a military coup.

The two generals, who are in their 60s, could face life in prison if convicted.

This is the second court case related to the Ergenekon case. Another 86 suspects went on trial in October.

The investigation has strained relations between the governing AK Party, which has its roots in political Islam, and the military, which considers itself the guardian of Turkey's secular constitution.

Last week, President Abdullah Gul approved a new law giving civilian courts the power to try military personnel suspected of threatening national security or having links to organised crime.

'Coup plans'

Forty-four of the defendants were present inside the courtroom at the heavily-guarded Silivri prison on the outskirts of Istanbul on Monday to hear the charges against them read out.

Gen Hursit Tolon, a former army commander, looked relaxed as he answered questions from the four-judge panel after being accused of masterminding a terrorist group and inciting armed rebellion against the government.

His co-accused, Gen Sener Eruygur, a former commander of the paramilitary gendarmerie forces, was not present because of ill-health.

According to the 1,909-page indictment, the two men "began implementing the coup plans they drew up in 2003-2004 while in office and continued their activities after they retired".

The allegations first surfaced in March 2007, when a magazine published excerpts from the purported diary of a former navy commander, which described how Gen Eruygur and several other senior officers had plotted coups but failed to secure the support of the heads of the armed forces.

After retiring, the indictment says, the two men used civil society groups to incite public opinion against the AKP-led government.

At the same time, it alleges, they helped set up Ergenekon, which is accused of being behind several violent attacks, including the bombing of a secularist newspaper in 2006 and an attack on the country's top administrative court in the same year, in which a judge died.

Targeting those key parts of the secular establishment were supposed to foment chaos and to provoke Turkey's military into launching a coup in defence of secular interests, it is alleged.

'Lie'

Other prominent suspected Ergenekon members who went on trial on Monday include two journalists who have frequently criticised the government, Mustafa Balbay and Tuncay Ozkan; two university rectors; and the head of the Ankara chamber of commerce.

All the defendants deny the charges, saying they are politically motivated and designed to undermine the AK Party's opponents.

About 200 people demonstrated against the trial outside the court building on Monday, many holding portraits of Ataturk, the secularist founder of modern Turkey.

"This trial is a lie. They are fabricating evidence to arrest Ataturk's followers," one protestor, Suzan Demirten, told the Associated Press.

The BBC's David O'Byrne in Istanbul says it is unclear if the presiding judge will now decide to merge the proceedings with the ongoing trial of the 86 other suspects in the Ergenekon case, who include several other senior military personnel.

What is certain, however, is that few Turks doubt that at least some truth lies behind the accusations of coup plotting by elements of the military, our correspondent says.

And equally few doubt that whatever the result of the trials, the delicate balance of power between the Turkey's political and military elites has changed irrevocably, he adds.

Bosnian Serbs Guilty of Burnings

Two Bosnian Serb commanders have been found guilty of war crimes, including burning women and children alive, during the Bosnian civil war.

Cousins Milan and Sredoje Lukic were members of a paramilitary group called the White Eagles, or the Avengers.

They were accused of murder, persecution, extermination and other inhumane acts against Bosnian Muslims near Visegrad between 1992 and 1994.

Judges at The Hague jailed Milan Lukic for life, and Sredoje to 30 years.

Judge Patrick Robinson, reading his verdict, said: "The perpetration by Milan Lukic and Stredoje Lukic of crimes in this case is characterised by a callous and vicious disregard for human life."

The burning alive of Muslims, he said, was extraordinarily brutal, and "exemplified the worst acts of humanity that one person may inflict on others".

Ringleader

The court ruled that Milan Lukic, the leader of the White Eagles paramilitary force, was the ringleader of the attacks.

WHITE EAGLES

Paramilitary group in Bosnian conflict in early 1990s

Accused of ethnic cleansing of Muslims near Visegrad

Worked with Bosnian Serb police and army units

Also known as the "Avengers"

He herded about 130 women, children and elderly men in to two houses - both in or near the eastern Bosnian town of Visegrad - before setting fire to them.

All those who tried to escape were shot.

He was also found guilty of murdering 12 Muslim civilian men, and beating Muslims at a detention camp.

Sredoje Lukic was found guilty of aiding and abetting one of the house fires.

Prosecutors told the tribunal that the White Eagles carried out a campaign of ethnic cleaning.

One prosecutor, Dermot Groome, said the cousins took part in a "widespread and systematic attack on the civilian population".

Top fugitives

The cousins had denied the charges at their trial at the International War Crimes Tribunal at The Hague, which ended in May.

The defence had called for an acquittal because of what it called "inconsistencies" in the prosecution evidence.

But the court found the testimonies of surviving witnesses to be credible.

In 2005, Milan and Sredoje Lukic were two of The Hague tribunal's top fugitives.

Milan Lukic, 41, went on the run for seven years after being indicted on war crimes charges, but was arrested in Argentina in August 2005 and was handed over to the tribunal after being extradited.

Sredoje Lukic, 48, surrendered to the Bosnian Serb authorities the following month.

Mali Ex-Rebels to Tackle al-Qaeda

The main group of Tuareg ex-rebels in Mali has agreed to help the army tackle al-Qaeda's North African branch. Both groups roam across the Sahara Desert and correspondents say the deal could prove significant. The agreement was brokered by Algeria's ambassador to Mali. Algeria is where al-Qaeda in the Islamic Maghreb stages most of its attacks. Last month, the group killed a British hostage who was being held in Mali after being seized in Niger. Two weeks later, after the president declared an all-out war on the group, the army said it had seized an al-Qaeda base near the border with Algeria. However, the group remains active in the region and has also staged attacks in Niger and Mauritania. The BBC's Martin Vogl in Mali's capital Bamako says the Malian and Algerian governments will both be pleased to have Tuareg forces as part of their offensive against al-Qaeda in the Islamic Maghreb. The Tuareg know how to operate in the desert perhaps better than anyone else and could be the government's best hope of beating al-Qaeda in the region, he says. US support Under the deal, special units of fighters from the Alliance for Democracy and Change (ADC) are to be sent to the desert to tackle al-Qaeda. Although the ADC signed a deal to end its rebellion three years ago, one of its factions is still active. The Tuareg, a historically nomadic people living in the Sahara and Sahel regions of North Africa, have had militant groups in Mali and Niger engaged in sporadic armed struggles for several decades. They have argued that their region has been ignored by the government in the south of the countries. But there has been a history of animosity between the Tuareg groups and al-Qaeda. Meanwhile, Mali, Algeria and Libya have reportedly agreed to work more closely against the group. Mali's President Amadou Toumani Toure said he had agreed to share information and military resources with his two counterparts. Correspondents say the US is giving substantial economic and military support to countries of the region which promise to tackle al-Qaeda.

Chechnya Is Gripped by Political Kidnappings

By ANDREW E. KRAMER

GROZNY, Russia — Oleg D. Masayev nervously fingered a cellphone as if working a string of prayer beads, his large blue eyes darting back and forth. He wanted to talk, he said, about his brother, who had disappeared without a trace or explanation, as if simply carried away by one of the dust devils that twirl along Chechnya’s roads.

“He was our youngest brother,” Mr. Masayev said. “He was the one we loved the most.”

The vanished brother had lived in Moscow and had little opportunity to become entangled in the separatist violence in Chechnya; he had, however, offered a chilling firsthand account as a victim of official abuse.

The wars that have ravaged Chechnya since the collapse of the Soviet Union have officially ended. Grozny, the capital, has been mostly rebuilt, and stores and cafes are open.

Yet the republic is in the throes of an epidemic of kidnappings. The abduction and killing last week of Natalia Estemirova, a celebrated human rights worker, came in the context of an escalating trend of unexplained disappearances. Dragged off the sidewalks, pulled out of beds at night or grabbed from their cars, scores of people have simply vanished.

In the first six months of this year, the Russian human rights organization Memorial, where Ms. Estemirova worked, documented 74 kidnappings in Chechnya, compared with 42 for all of 2008.

Human rights groups have blamed Chechnya’s president, Ramzan A. Kadyrov, and his security forces for the bulk of the disappearances, and the killing of Ms. Estemirova.

Abductions have evolved from a largely successful, if brutal, counterinsurgency tactic to a form of political repression by Mr. Kadyrov’s government, said Yekaterina L. Sokiryanskaya, a researcher at Memorial. Mr. Kadyrov, she said, has been governing and settling personal vendettas using the same free hand Moscow granted him to fight the war.

“Everybody calls him a small Stalin,” she said. “He is getting rid of political rivals and independent voices.”

Both Mr. Kadyrov and Russia’s president, Dmitri A. Medvedev, have denied that Mr. Kadyrov had a role in the killing of Ms. Estemirova. Memorial’s director, Oleg P. Orlov, has directly accused Mr. Kadyrov of the killing, reflecting the group’s broader analysis of the causes of the abduction epidemic in Chechnya. Mr. Kadyrov said Friday he would sue Mr. Orlov for slander.

The rise in abductions in Chechnya comes even as most reported insurgent activity in Russia’s volatile North Caucasus has moved outside of Chechnya, according to an analysis by the Washington-based Center for Strategic and International Studies.

In 2008, for example, the small region of Ingushetia surpassed Chechnya in the number of reported acts of insurgency-related violence, with 350 episodes compared with 210 in Chechnya, according to the center. In Dagestan, another republic, ethnic strife and police corruption are fueling a low-grade insurgency.

Over all, the center reported, the number of violent acts in 2008 in the North Caucasus, with a combined population of 6.1 million, was about four times larger than in Colombia, with a population of 42 million.

Mr. Kadyrov, who was installed as president just after his 30th birthday, has never lost his rough edges as he has evolved from a field commander to a political leader. Stocky and bearded, he once showed up in a track suit for an audience at the Kremlin, and enjoyed careering around Grozny, assault rifles strewn in the back seat. He keeps a private zoo, stocked with fighting dogs and ostriches.

As he consolidated power, political opponents and critics were either forced out of the region or died.

Alu D. Alkhanov, an interim president who preceded Mr. Kadyrov, was compelled to leave Chechnya in 2007. In 2006, Anna Politkovskaya, a journalist for the Moscow newspaper Novaya Gazeta who covered Chechnya, was shot in the entryway of her Moscow apartment building. Two brothers from a rival, Moscow-backed Chechen family were killed, one in his car in Moscow last year and the other in Dubai, in the United Arab Emirates, in April. In January, a former Chechen government insider who had publicly accused Mr. Kadyrov of torture was shot to death in Vienna.

Mr. Kadyrov has denied any role in these killings.

“All enemies of Kadyrov are mysteriously disappearing,” Ms. Sokiryanskaya, the Memorial researcher, said.

Ms. Estemirova’s death closed off a source of detailed criticism of Mr. Kadyrov for journalists and human rights groups. On Saturday, Aleksandr Cherkasov, a director of Memorial, said the group’s Grozny office would be temporarily closed because “what we have been doing involves mortal danger,” the Interfax news agency reported.

Mr. Masayev, whose brother disappeared last August, agreed to speak only about the grief his brother’s disappearance had caused the family. Memorial, the rights group, had documented the particulars of the case.

The vanished brother, Mukhamadsalakh D. Masayev, lived in Moscow through Chechnya’s two wars in the 1990s. A religious Muslim, he returned to Chechnya in 2006 hoping to work as an imam but was detained and held for four months in a parked bus on a Chechen military base. After his release, he granted an interview to Novaya Gazeta directly implicating Mr. Kadyrov in his abuse.

“One day, they took us out to the woods and cocked their assault rifles,” as if threatening them with execution, Mr. Masayev said in the interview. “Laughing, they brought us back. One day, a man with the nickname Jihad, the commander of some sort of battalion, beat me and yelled debasing words. Another day, the guards took us at night to a meeting with Ramzan Kadyrov. Kadyrov put a foot forward, as if for us to lick it and ask for forgiveness.”

He said he was released after being invited to drink tea with Mr. Kadyrov.

After the publication, Mukhamadsalakh Masayev returned to Chechnya to attend a funeral against the advice of his older brother. He disappeared soon after he arrived in Chechnya. His seven children live in Moscow with relatives. “The children ask me, ‘When will Papa come home?’ ” Oleg Masayev said of his meetings with his nieces and nephews now. “And I don’t know what to say. I say, ‘He is traveling on the path of God.’ ”