Wednesday, August 24, 2005

Trouble Ahead, Trouble Behind

Fed Summons 14 Banks to Discuss Credit-Derivatives Controls

Aug. 24 (Bloomberg) -- The Federal Reserve Bank of New York invited 14 of the ``major participants'' in the credit- derivatives market to a meeting next month amid concern the $8.4 trillion industry is rife with unconfirmed trades.

The meeting at the Fed's New York office on Sept. 15 will focus on market practices, according to an Aug. 12 letter sent to bank chief executives by New York Fed President Timothy Geithner. Fed spokesman Peter Bakstansky confirmed the letter's contents and declined to name the firms invited.

The credit-derivatives market more than doubled in the past year, giving companies, investors and governments the ability to bet on or protect against changes in credit quality. A backlog of confirmed trades may undermine investor confidence, a group led by E. Gerald Corrigan, managing director at Goldman Sachs Group Inc. and a former New York Fed president, said last month.

The Counterparty Risk Management Policy Group, the banking industry group led by Corrigan that first met in 1999 after the collapse of hedge fund Long-Term Capital Management, said in a report on July 27 that ``urgent'' effort is needed to tackle the ``serious'' accumulation of trade confirmations. Banks should be prepared to consider reducing trading until the deals are confirmed, the report said.

JPMorgan Chase & Co., Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. dominate the credit- derivatives market as the five most-cited trading partners, according to Fitch Ratings.

`Senior' Executives

The Fed's letter said ``a senior business representative and a senior risk management person,'' should attend the meeting.

Credit derivatives are the fastest growing part of the $24 trillion derivatives market, based on the so-called notional value of the debts underlying the contracts.

A derivative is a financial obligation whose value is derived from interest rates, the outcome of specific events, or the price of underlying assets such as debt, equities and commodities.

Investors use credit-default swaps to bet on a company's creditworthiness or protect against non-payment. The contracts are the most common credit derivative.

Like insurance, buyers pay an annual fee similar to a premium to protect a certain amount of debt against default for a specified number of years. In the event of a default, they get the face value of the bonds or loans.

The settlement process for credit-default swaps is resource intensive, and typically requires faxed signatures. Banks and companies risk getting swamped by investors seeking settlement on their contracts in the event of a corporate default, Corrigan's group said.

Derivatives traders must ensure they have systems and controls in place to keep up with the growth in their business, the U.K.'s Financial Services Authority said in a letter to companies this year.

To contact the reporters on this story:
Hamish Risk in London at;
Justin Baer in New York at
Last Updated: August 24, 2005 14:34 EDT

Friday, August 19, 2005

Cocaine and Heroin Sales Must Be Down

Feds Step Up Battle Against Meth Abuse

By LUCAS L. JOHNSON II, Associated Press Writer Fri Aug 19, 7:50 PM ET

NASHVILLE, Tenn. - Top officials from the Bush administration announced new efforts to battle methamphetamine abuse, including a training laboratory for police agencies and $16.2 million in grants to focus on treatment of addicts.

Attorney General Alberto Gonzales, Health and Human Services Secretary
Mike Leavitt and drug czar John Walters made the announcement Thursday at the Davidson County Drug Court and Treatment Center, the only drug court in the nation with a treatment and residential facility attached.

"This war has to be strategically fought," Leavitt said. "It's about prevention, it's about treatment and strong enforcement."

Meth, an addictive stimulant that affects the central nervous system, is usually produced in clandestine labs with over-the-counter cold tablets and common household chemicals.

The administration had been criticized as favoring drug abuse prevention over more law enforcement in battling meth. But Walters said the president's $12.4 billion drug control budget is being used "in a balanced way."

"We have to have the treatment and prevention, in addition to security resources," he said.

Bush plans to grant higher priority to the prosecution of meth cooks and repeat offenders. The Justice Department will also establish a forensic science training laboratory to educate federal, state and local law enforcement officers and chemists in the production of meth so that they are better equipped to investigate meth cases.

The initiative includes $16.2 million over three years for 11 new mental health and substance abuse services grants that focus on treatment of meth addiction.

Tennessee Gov. Phil Bredesen, whose state has be among the hardest hit by the spread of meth, applauded the announcement.

"We are not going to solve the problem overnight, but if we stay focused, we will make a difference," he said.

Last year, Tennessee law enforcement authorities seized 1,574 labs across the state — the second-highest lab seizure rate in the nation, behind Missouri, according to officials. Tennessee law now requires pharmacies to put certain cold and sinus products that contain pseudoephedrine behind the counter.

Sen. Jim Talent (news, bio, voting record), R-Mo., said in a statement that he is glad Bush recognizes the need for additional resources to fight meth, but the plan is does not go far enough to restrict products containing pseudoephedrine.

Talent supports regulations that would move cold medicines containing the drug behind pharmacy counters and limit how much one person can buy to 7.5 grams a month.

For Gregg Martin, 34, who is leaving Norman's residential treatment program after 15 months, treatment is the key that has given him another chance at life.

"Without it, I'd be in the penitentiary, or dead," he said.

Tuesday, August 16, 2005

The Birds Are Falling

Official: Venezuela Plane Passengers Dead

By IAN JAMES, Associated Press Writer 36 minutes ago

CARACAS, Venezuela - All 153 passengers aboard a commercial airliner that crashed Tuesday in eastern Venezuela were killed, the French civil aviation authority said.

The West Caribbean Airways plane was en route from Panama to the Caribbean island of Martinique when its pilot reported trouble with both engines to Caracas' air control tower at around 3 a.m., said Francisco Paz, president of the National Aviation Institute.

Airport authorities lost radio contact with the plane about 10 minutes later, when the plane was in the area of Machiques, 400 miles west of Caracas in the western border state of Zulia, he said.

"Residents in the area said they heard an explosion," Paz said.

Interior Minister Jesse Chacon said that based on reports from military aircraft flying over the area, "it's very unlikely there could be survivors."

The plane had been chartered for tourists, and 152 passengers were listed on the flight plan, Paz said.

Colombia's RCN Radio reported that West Caribbean said in a press release that there were also eight crew members aboard.

The plane — an MD82, made by McDonnell Douglas — crashed 20 miles east of Venezuela's border with Colombia, according to the radio report.

West Caribbean Airways, a Colombian airline, began service in 1998. In March, a twin-engine plane operated by the airline crashed during takeoff from the Colombian island of Old Providence, killing eight people.

Two other crashes in Venezuela in the past year both involved military planes. In December, a military plane crashed in a mountainous area near Caracas, killing all 16 people on board. In August 2004, a military plane crashed into a mountain in central Venezuela, killing 25 people.

Monday, August 15, 2005


Greek Crash Puzzles U.S. Aviation Experts

By LESLIE MILLER, Associated Press Writer 2 hours, 17 minutes ago

WASHINGTON - U.S. aviation experts say they can't understand the behavior of the flight crew aboard a Cypriot airliner that crashed north of Athens after flying on autopilot for what could have been hours.

Early reports indicated the Helios Airways jet lost cabin pressure. Temperatures and oxygen levels would have plummeted and left everyone aboard unconscious and freezing to death as the plane flew on autopilot long before it crashed, experts said Monday.

But if there had been a sudden decompression, experts say, the pilots and the flight attendants for some reason didn't react the way they were trained to.

"It's odd," said Terry McVenes, executive air safety chairman for the
Air Line Pilots Association, International. "It's a very rare event to even have a pressurization problem and in general crews are very well trained to deal with it."

The plane was fairly new, a Boeing 737-300 delivered in January 1998, according to company spokesman Jim Proulx. The flight data recorder that came with the aircraft records 128 kinds of data about the plane, he said.

Investigators were sending the plane's data and cockpit voice recorders to France for expert examinations.

The aircraft flew into Greek airspace, but air traffic controllers couldn't raise the pilots on the radio and fighter jets intercepted the plane, flying at 34,000 feet.

The fighter pilots saw that the airline pilot wasn't in the cockpit, the co-pilot was slumped over his seat and oxygen masks dangled, government spokesman Theodoros Roussopoulos said. He said the air force pilots also saw two people possibly trying to take control of the plane.

It is that sequence of events that puzzles aviation experts.

Warnings should go off if an airliner suddenly loses pressure, and pilots are trained to immediately put their oxygen masks on and dive to about 12,000 feet, where there's enough oxygen for people to breathe, they say.

If a cabin loses pressure suddenly, passengers and flight crew have only seconds to put on oxygen masks before losing consciousness. Death would follow quickly.

The chief Athens coroner, though, said at least six of the victims were alive at the time of the crash.

The pilots also didn't report any windows out or holes in the fuselage, the most likely causes of a catastrophic loss of pressure, said Bill Waldock, an aviation safety professor at Embry-Riddle Aeronautical University in Arizona.

Another clue to a sudden pressure loss would have been frost on the windows because it's so cold at 34,000 feet, said Waldock.

If the fighter pilots could see into the cockpit, the windows couldn't have been iced over, as they were in the 1999 crash of a Learjet 35 that killed golfer Payne Stewart. Investigators blamed that crash on a sudden decompression.

Paul Czysz, emeritus professor of aerospace engineering at St. Louis University, wonders why the co-pilot was slumped over.

"He couldn't have been unconscious for a small decompression at 34,000 feet," Czysz said. "Something's amiss."

The pilot and the co-pilot would have had five times as much oxygen as the passengers, he said.

"Even if the pressurization system was failing, it doesn't fail instantaneously. Even if it goes fast, you can seal the cabin, you've got all the oxygen in the cabin to breathe, you've got the masks and you've got plenty of time to get to 12,000 feet," Czysz said.

Jim Hall, former chairman of the
National Transportation Safety Board, said it's possible the oxygen in the cockpit failed. He noted that the NTSB has been concerned about the ability of pilots to get their masks on quickly enough.

"The accident did not have to occur," Hall said. "It has to be either a training issue or an equipment issue."

He's worried that the answer won't be found because the cockpit voice recorder probably recorded over itself after 30 minutes. Since the plane was in the air on autopilot for so long, it probably won't provide any information, he said.


Associated Press reporter Michael McDonough contributed to this report from London.

On the Net:

National Transportation Safety Board:

Sunday, August 14, 2005

Uh... ? Uh oh!

OPEC member Indonesia to be net oil importer this year

Last Update: 6:21 AM ET Aug. 9, 2005

JAKARTA (MarketWatch) -- Indonesia, Southeast Asia's sole member of the Organization of Petroleum Exporting Countries, will be a net oil importer in 2005, Coordinating Minister for the Economy Aburizal Bakrie said Tuesday.

"Without a doubt, Indonesia in 2005 will become a net oil importer due to low oil output," Bakrie told reporters, without elaborating. ...

Saturday, August 13, 2005


that we need to rely on foreign governments to get the real story. Our media and government has failed us... again.

Energy crisis looms due to escalating oil hike

Iloilo City (11 August) -- The Government has made the call to people to appreciate the looming crisis arising out of the unabated price of oil in the world market. According to Press Secretary Ignacio Bunye the country should face this challenge squarely and close ranks.

The DOE said there were no indications that crude oil prices would go down because of rising global demand especially from emerging economies like China and India. Right now, a price of crude per barrel has reached $ 65 to a barrel and diesel is also increasing fast.

President Gloria Macapagal Arroyo has given the Department of Energy instructions to give regular bulletins to the public on the direction and impact of the looming oil crisis due to the spiraling oil prices.

Arroyo called on all sectors and communities to engage in a serious, consistent effort to conserve energy and support all means to bring down overall consumption of energy and exploit alternative sources of fuel.

For the first five months of this year, oil imports increased by $2.3 billion from $1.8 billion despite the 8.6 percent decline in the demand for oil compared to the previous year.

The government has said that the looming oil price crisis will be more severe than 1974, 1979 and 1991 is certainly an issue far more important than politics, and its impact will hurt the entire nation.

In answer to the crisis, one of the steps being undertaken by the government is to tap the country's indigenous and renewable energy sources - especially geothermal, hydro, solar and other alternative fuels for transportation. The government will also soon launch the Compressed Natural Gas (CNG) stations. Several units of CNG buses are now undergoing road testing.

In line with this, the DOE and other agencies of the Executive branch are also working closely with Congress to craft a law that will be most responsive to the country's energy independence agenda.

Press Secretary Bunye said the looming crisis is not a simple test of our resiliency as a people, but a real challenge to our economic survival. He strongly urged people to act now to avoid complications later. (PIA-6)

This is just the beginning...

Wealthy investors today, pension funds tomorrow.

Floridians Lose Millions in Hedge Fund

MIAMI - Dozens of wealthy investors were scammed out of $160 million by three self-proclaimed hedge fund operators who set up flashy offices in Palm Beach County, took their money and ran, federal investigators said.

Now, months after authorities became suspicious, two of the three partners have fled the country, and the third isn't answering questions from investigators.

Most of KL Financial's 200 clients were men of retirement age. Gary Klein, a lawyer representing dozens of them, told The Miami Herald that he has clients who lost everything.

The SEC has filed a formal complaint accusing KL Financial of misrepresenting the fund's performance and possibly misappropriating money. A federal court has frozen the company's assets.

Mike Tein, one of KL's court-appointed receivers, said the three men directly received $20 million during their six-year reign at KL, spending lavishly on million-dollar homes, exotic sports cars and frequent trips to Las Vegas.

Within 24 hours of a surprise visit to a KL Financial office in California in February by SEC investigators, Won Lee, 34, reportedly cashed in frequent-flier miles for a one-way ticket to
South Korea. Investigators have not heard from him since.

Another partner, Yung Kim, 34, vanished a day later, but answered a surprised investigator's cell phone call weeks later. The line went dead after Yung was asked where he was, and authorities haven't heard from him since, Tein said.

Chief trader John Kim, 36, remains in Florida and has promised to cooperate with investigators. But during a March 11 deposition, John Kim asserted his Fifth Amendment right to avoid self-incrimination to each of 195 questions.

His attorney, Gregory C. Ward, said in a March 16 motion that Lee and Yung Kim were to blame for losing the firm's money "without John Kim's knowledge or participation."

High gas prices fuel fear of financial hardship

Saturday, August 13, 2005

High gas prices fuel fear of financial hardship


With record-high prices hitting his gas tank and wallet, Jim Roundtree is considering shifting his commute.

"It's almost $3 a gallon now, so I might as well take the bus," said Roundtree, who was filling up his older Mazda sedan Friday at a West Seattle 76 station, where prices ranged from $2.65 to $2.85 a gallon.

The bus, which he already takes occasionally, turns his 15-minute drive into an hourlong trip -- not something the 47-year-old Alki resident relishes. "I don't want to sit there on a bus after work. I just want to get home, change, relax and eat some dinner," he said.

Roundtree says rising prices would cut into his ability to drive to visit friends and family who live outside the city.

Nationally, almost two-thirds of those surveyed for an AP-AOL poll expect fuel costs to cause them financial hardship in coming months. That's sharply higher than in April, when about half felt that way.

The average price of a gallon of regular gasoline nationally is more than $2.41, compared with $1.86 a year ago and about $2.31 in July, according to the auto club AAA.

It's even worse in Seattle, where the price of a gallon of regular self-serve gas topped $2.62, according to AAA Washington -- that's up more than 67 cents over a year ago and 18 cents over last month. Washington state, at $2.61 a gallon, averaged the fourth-highest of any state, after California ($2.72), Hawaii ($2.70) and Nevada ($2.62).

And costs are expected to keep rising: Prices for crude oil reached a record of more than $67 a barrel in New York on Friday. That's almost 50 percent higher than a year ago.

In the poll conducted for The Associated Press and AOL News, 64 percent said gas prices will cause money problems for them in the next six months. In April, 51 percent expressed such concerns.

Those most likely to be worried were people with low incomes, the unemployed and minorities.

However, the level of concern was rising fastest among women, retirees, married people and those living in the suburbs.

Denise Spalding, a real estate broker who lives on Capitol Hill, poured $46.09 worth of gas into her Volvo Cross Country yesterday while working on a project in West Seattle.

Since she drives all over town for business, she said, she didn't have a choice.

"I will find a way to fill my tank up with gas," the 60-year-old said. "It's just the cost of doing business. Of course it cuts in. Does it piss me off? Yes."

Filling up with regular gas for the Seattle driver of a subcompact who needs only 12 gallons has increased from an average of $23.40 a year ago to about $31.50 now. Filling up with premium gas for the driver of a Ford Expedition SUV or a big truck that needs 28 gallons has increased from just over $59 a year ago to pennies under $80 now.

Richard Curtin, director of consumer surveys for the University of Michigan, said high gas prices can dampen enthusiasm even when the rest of the economy is good.

"It has a rather large effect on the public's mood about the economy, especially among lower-income households," he said. "It directly reduces their spendable income, because they are not able to conserve their use of gas very easily -- their trips to work and to the store."

Only about a third in the poll said they think President Bush is handling the nation's energy problems effectively, while almost six in 10 disagree. When asked whom they blame most for the rise in gas prices, people were most inclined to blame the oil companies, followed closely by politicians and countries that produce oil.

The AP-AOL News poll of 1,000 adults was conducted Aug. 9-11 by Ipsos, an international polling firm.

The survey has a margin of sampling error of plus or minus 3 percentage points.
P-I reporter Jake Ellison contributed to this report from The Associated Press.

Friday, August 12, 2005

Be Like China: Off The MF'er !

5 years for $11 billion? That's nothing. In China they would have roasted him.

WorldCom's Sullivan Gets 5-Year Term

By Walter Hamilton, Times Staff Writer

NEW YORK — It pays to spill the beans.

That was the consensus opinion of legal experts Thursday as former WorldCom Inc. finance chief Scott D. Sullivan was sentenced to five years in prison for his central role in the company's $11-billion accounting fraud — the same fraud that led to a 25-year sentence for his boss, Bernard J. Ebbers.

U.S. District Judge Barbara Jones called Sullivan the "architect" of the scam, but said the light sentence was warranted because his court testimony proved pivotal in convicting Ebbers.


China Banker Gets Suspended Death Sentence

Former Senior Chinese Banker Gets Suspended Death Sentence in Major Embezzlement Case

BEIJING (AP) -- The former president of state-owned Bank of China's Hong Kong branch was given a suspended death sentence Friday in a major embezzlement case, state media reported.

Liu Jinbao, who was also a deputy chairman of the Bank of China, was sentenced to death but given a two-year reprieve at the Intermediate People's Court in the northeastern Chinese city of Changchun, the official Xinhua News Agency said.

Such suspended death sentences in China are usually commuted to life in prison.

He was convicted of embezzling 14.3 million yuan ($1.8 million) with others, plus another 7.5 million yuan ($930,000) for himself, the report said. It said Liu also was convicted of taking 1.4 million yuan ($170,000) in bribes.

Wednesday, August 10, 2005

The New, New Deal..

Eerily similar to parts of Roosevelt's New Deal.

Bush: Highway Bill Will Spur the Economy

President Bush opened the gates Wednesday for spending a whopping $286.4 billion on roads and bridges, rail and bus facilities, bike paths and recreational trails, saying the projects from coast to coast would spur the economy and save lives.

Critics said the 1,000-page transportation bill was weighed down with pet projects to benefit nearly every member of Congress. The bill's price tag over six years was $30 billion more than Bush had recommended, but he said he was proud to sign it.

"Highways just don't happen," Bush said. "People have got to show up and do the work to refit a highway or build a bridge, and they need new equipment to do so. So the bill I'm signing is going to help give hundreds of thousands of Americans good-paying jobs."

To make his point, Bush signed the measure at a suburban Chicago Caterpillar Inc. plant in the home district of House Speaker
Dennis Hastert. The Republican leader oversaw nearly two years of negotiations on Capitol Hill to get a slimmed-down version that Bush would accept.

Bush spoke to workers outside the plant, surrounded by sparkling new construction machinery. Two cranes held a sign that said "Improving Highway Safety for America" over the portable stage set up with a wooden desk for the signing.

The bill signing was the second ceremony this week that has taken Bush from his Texas ranch, where he is spending about five weeks on a summer break from the White House. On Monday, Bush went to New Mexico to put a new energy policy into law.

Two years in the making, the highway bill contains more than 6,371 special projects valued at more than $24 billion, according to Taxpayers for Common Sense. The distribution of the money for these projects "is based far more on political clout than on transportation need," said Keith Ashdown, vice president of policy for the group.

Alaska, the third-least populated state, for instance, got the fourth most money for special projects — $941 million — thanks largely to the work of its lone representative, House Transportation Committee Chairman Don Young. That included $231 million for a bridge near Anchorage to be named "Don Young's Way" in honor of the Republican.

Bush mentioned a pet project in Hastert's district — the $207 million Prairie Parkway connector to join two major highways in the growing region outside Chicago. Hastert has been pushing the project for years although state officials are not convinced it's the best way to ease traffic, and some critics say it will promote urban sprawl, hurt the environment and swallow up fertile farmland.

The homestate favors for lawmakers helped smooth over political differences between Bush and prominent Democrats who attended the ceremony, including Gov. Rod R. Blagojevich, Sens. Dick Durbin and Barack Obama of Illinois, and several House members.

The president had threatened to veto the highway bill if it was too fat. White House spokesman Trent Duffy said some House members wanted to spend $400 billion, so Bush considered $286.4 billion a good compromise.

Lawmakers backing the bill say projects were included on merit. They say money for infrastructure is well spent, especially considering that traffic congestion costs American drivers 3.6 billion hours of delay and 5.7 billion gallons of wasted fuel every year. Substandard road conditions and roadside hazards are a factor in nearly one-third of the 42,000 traffic fatalities a year, officials say.

"This bill upgrades our transportation infrastructure and it'll help save lives," Bush said.

The president touted a provision that gives states incentives to increase seat belt usage and create vehicle stability standards by 2009 to prevent rollovers. And he noted that with this bill, the federal government is not raising gas taxes to pay for road projects as some have advocated. Public Citizen President Joan Claybrook praised the bill's safety provisions, particularly the improved standards to protect vehicle occupants in rollovers and side-impact crashes.

"This legislation could produce the most significant safety enhancement since air bags were required in all vehicles in the 1991 highway legislation," she said.

Monday, August 08, 2005

Dial 911: "The world is running out of oil"

Oil giants fanfare energy crisis

Big oil companies are driving advertising campaigns warning that the world is running out of oil and calling on the public to help the industry.

ExxonMobil, the world's largest energy group, said in a recent advertisement: "The world faces enormous energy challenges. There are no easy answers," according to a story of Financial Times published on Friday.

And ExxonMobil's statistics back up the sentiment. In The Outlook for Energy: A 2030 View, the Irving, Texas-based company forecasts that oil production outside the Organization of the Petroleum Exporting Countries, the cartel that controls three-quarters of the world's oil reserves, will reach its peak in just five years.

Chevron, the second-largest energy group in the United States, sends a similar message, but goes two steps further. "One thing is clear: The era of easy oil is over. We call upon scientists and educators, politicians and policy-makers, environmentalists, leaders of industry and each one of you to be part of reshaping the next era of energy. Inaction is not an option," was the message in a recent advertising campaign.

The company has even set up a website, warning of the pressures of high demand and fewer fields and offering a forum of discussion.

Royal Dutch Shell and BP, Europe's biggest energy groups, have recently felt the effects of venturing into more difficult frontiers. Shell was forced by environmentalists to reroute a pipeline that threatened rare whales in Russia's arctic and last month warned of a 10 billion dollars cost overrun at its Sakhalin project there.

In its advertisements BP touts new energy alternatives, while ExxonMobil, which has unapologetically abandoned alternatives that have not been profitable, says in an advertisement: "Wishful thinking must not cloud real thinking."

Meanwhile, a recent simulation exercise showed that terrorists struck oil facilities in the US and Saudi Arabia, pushing oil prices to a record 120 dollars. It goes further to "project" that oil price might rocket to 160 dollars a barrel, after a "simulated" violence in Saudi Arabia which causes evacuation of foreign nationals with oil expertise, ending the country's ability to increase oil production.

However, a senior executive at an oil company not involved in the advertising campaigns speculated that his counterparts were attempting to buy themselves some slack to go after the messier, more expensive, dirty oil. Another executive said it may buy some sympathy for the difficulty many companies are having in increasing their production and reserves.

Neil McMahon, an analyst at brokerage Sanford Bernstein, said: "We think these messages are at odds with the comments normally made to investors regarding future oil prices and the ability of producers to meet demand, and we wonder if perhaps those messages are actually a better indicator of the companies' thinking."

Source: Xinhua

Help the PEOPLE ??? FU says The Wolf and His World Bank

World Bank set to suspend loan after Ecuador changes oil fund

By Hal Weitzman in Quito
Published: August 5 2005 03:00 | Last updated: August 5 2005 03:00
The World Bank could signal as early as today that it is in effect suspending $400m in loans to Ecuador, in response to the country's restructuring of an oil stabilisation fund.

The bank has made no official response, but is preparing a reply to a letter sent this week by Rafael Correa, Ecuador's finance minister, to Paul Wolfowitz, head of the bank, asking why Mr Correa was left empty-handed last week in Washington, where he had expected to receive a $100m (€81m, £56m) loan as part of the bank's fiscal support programme for Ecuador.

In an interview with the Financial Times, Mr Correa said that by denying the loan at the last moment, the World Bank had broken a contract with the Andean country.

"This is an offence for Ecuador. A loan had been approved and was in place and they are cancelling it, completely outside any ethical or legal principle, because we changed a law," said Mr Correa. "We are a sovereign country. Nobody can punish us because we are changing our own laws."

The oil stabilisation fund, which had been designed to use the profits from oil revenues primarily to pay off debt, was reformed last month so that only half of the amount previously set aside for debt reduction would be dedicated to that purpose, while social spending would be increased.

Mr Correa said that Ecuador had kept to its agreement with the bank, which stipulates that 70 per cent of the oil stabilisation fund should have been used to pay down debt until September 2004.

It is understood that the bank will respond by arguing that the policies and objectives that its loans were designed to support have been at least partially reversed, making it highly unlikely that the government will fulfil the goals of the loan programme.

Although it will leave open a small window for further negotiations, the bank's letter is likely to indicate that it is in effect suspending the current fiscal loan programme, which had been due to disburse a further $100m next year. It may also suspend a parallel scheme of $200m in loans for social programmes.

Mr Correa said the bank's change of policy had been entirely unexpected. "We were never told until last week that the Feirep law [restructuring the oil stabilisation fund] was a problem. The country has been misled. This was not the right way to act."

Communications between the bank and Ecuador's new government - which took power following the ousting of Lucio Gutiérrez in April - have been far from exemplary. However, the bank's refusal did not surprise emerging market analysts, who had been warning that multilateral lenders may view the restructuring of the oil stabilisation fund with alarm.

Mr Correa said Ecuador could not be intimidated by the bank. "They can keep their money," he said. "Ecuador is not for sale."

He said the denial of the loan would not leave the government with a budget shortfall, since although it created a possible funding gap of $50m in the $7bn budget for this year, it was unlikely that the government would make all its planned expenditures.

Mr Correa also confirmed he expected Venezuela to buy a total of $300m in Ecuadorean bonds as part of a debt-restructuring policy, although he said the initial amount might be closer to $150m. He said he had not yet received responses from other possible lenders, including China.

Sunday, August 07, 2005

Nero Fiddles

Congress May Take Action on MLB Drug Use

RALEIGH, N.C. - A member of the House committee that held hearings on steroid use in March says Congress may feel compelled to get involved in testing major league players for banned substances.

"At this point I think (the chances are) getting better and better because of baseball's inability to police their own players," Rep. Patrick McHenry, R-N.C., said Saturday on the ESPN program "Outside the Lines."

Witnesses before the
House Government Reform Committee included Rafael Palmeiro, who adamantly denied using steroids but later failed a drug test. He has said he never intentionally took steroids and he doesn't know what caused the test result.

Baltimore Orioles slugger began serving a 10-day suspension last week and will be eligible to return to the lineup Thursday.

The House committee won Palmeiro's permission last week to obtain documents from Major League Baseball about the steroid test that led to his suspension. That information will be used to investigate whether Palmeiro committed perjury.

"I think (commissioner) Bud Selig and the players' association as well should allow us to have full disclosure when it comes to this matter, and all of these drug testing matters," said McHenry, a freshman congressman. "It's important to the integrity of the game. We're talking about our national pastime and who our kids look up to as heroes."

Major League Baseball has penalized its players for positive steroid tests since 2004. Selig wants more stringent testing by an independent authority and harsher punishments for steroid users, including a 50-game suspension for a first offense, 100 games for a second and a lifetime ban for a third.

The quality of the players under suspicion raises the importance of assuring that baseball is clean, McHenry said on the program.

Palmeiro is one of four players in major league history with 500 homers and 3,000 hits. A celebration of his 3,000th hit — which came after the positive drug test but before the results were released — was planned for this week but canceled at his request.

"The reality is this: This Palmeiro situation, we wouldn't be talking about it if it were some second-string left fielder from the
Colorado Rockies," McHenry said. "We're talking about the Hall of Fame and whether or not you can be there with Willie Mays and Hank Aaron."

McHenry was dismayed by some of the March 17 testimony, specifically that of retired slugger Mark McGwire. McGwire has denied using steroids but repeatedly dodged the question while testifying under oath, saying: "I'm not here to talk about the past."

"I walked into that hearing a fan of Mark McGwire and walked away greatly disappointed," McHenry said. "His reactions to the questions that day just seemed to be stonewalling."

Palmeiro, he said, made a more favorable impression at the time.

"It turns out that maybe the reason why he was so good is that maybe he wasn't telling the truth," McHenry said.

Y2K Redux

By ANICK JESDANUN, Associated Press Writer 30 minutes ago

New Daylight Saving May Cause Tech Problems

NEW YORK - When daylight-saving time starts earlier than usual in the United States come 2007, your VCR or DVD recorder could start recording shows an hour late.

Cell phone companies could give you an extra hour of free weekend calls, and people who depend on online calendars may find themselves late for appointments.

An energy bill
President Bush is to sign Monday would start daylight time three weeks earlier and end it a week later as an energy-saving measure.

And that has technologists worried about software and gadgets that now compensate for daylight time based on a schedule unchanged since 1987.

"It is unfortunately going to add a little bit of complexity to consumers," said Reid Sullivan, vice president of the entertainment group at Panasonic Consumer Electronics Co. "In some cases, depending on the product, they may have to manually increase or decrease the time."

The upcoming transition evokes memories of Y2K, the Year 2000 rollover that forced programmers to adjust software and other systems that, relying on two digits for the year, never took the 21st century into account.

"It wouldn't be a society-wide catastrophe, but there would be a problem if nothing's done about it or we try to move too quickly," said Dave Thewlis, executive director of a group that promotes standards for calendar software.

Newer VCRs and DVD recorders have built-in calendars to automatically adjust for daylight time. Users would have to override them, switching to "manual" to ensure shows continue to record correctly.

Computers with Microsoft Corp.'s Windows operating systems would need to obtain updates. Though most affected applications would likely be taken care of by the Microsoft fix, calendar systems will need to be checked to ensure that appointments already entered get properly adjusted.

Some electric utilities have advanced meters to adjust rates based on peak and non-peak hours, and studies would be required to determine if any modifications are needed. The telecommunications industry, meanwhile, must ensure that its clocks are properly adjusted to bill customers properly.

Adding to the complications is the fact that many computer programs now treat U.S. and Canadian time zones as the same. If Canada doesn't adopt the new dates, too, Windows, calendars and other software would have to learn additional zones.

Technologists sounded louder alarms as the Year 2000 approached. The programming shortcut caused some computers to wrongly interpret 2000 as 1900, potentially fouling systems that control power grids, air traffic, banking systems and phone networks.

Businesses and governments around the world threw some $200 billion at the problem, and the transition occurred without any worldwide disaster, even leading some critics to suggest they were victims of a big-money bamboozle.

The daylight-saving transition will be at most a mini-Y2K, with the impact of any failure far less reaching.

"We're looking only at a one-hour difference versus setting back (the clock) 99 years," said Randall Palm of the Computing Technology Industry Association.

Dan Bart of the Telecommunications Industry Association said Y2K fears stemmed from computers completely crashing rather than simply displaying a wrong time.

A fax machine might stamp the wrong time for four weeks, but "Do I care? Not really," he said.

Besides, many systems have means for self-correction.

Video recorders, for instance, can synch with time signals sent over PBS broadcasts and through electronic programming guides.

Some watches from Timex Inc. can adjust times based on radio signals from the U.S. National Institute of Standards and Technology and other government sources.

The digital clocks on cell phones are generally synched with the service provider's network clock. Operating systems from Microsoft, Apple Computer Inc. and Cisco Systems Inc. can be configured to check periodically with Internet-based "time servers," though such servers tend to use Greenwich Mean Time and leave daylight adjustments to local machines.

Joe Tasker, senior vice president for government affairs at the Information Technology Association of America, points out that daylight time already varies around the world, and some parts of the United States don't observe it at all.

"We already are used to having a system in place that specifies all the information that we need" for a particular region, Tasker said. "It's just a question of changing the effective date."

Some European countries changed dates in response to a
European Union directive to standardize daylight time beginning in 1996. That led to problems with Finnish dates in at least one version of Windows.

A few countries even change dates every year.

Israel, for instance, bases daylight time on the lunar Jewish calendar, and Palestinians change their clocks at different times as an assertion of independence. Windows doesn't even provide an auto-adjust option for the time zone covering Jerusalem.

Moti Tzur, a sales manager at Sakal Electronics Ltd. in Jerusalem, says the constant changes do little to confound manufacturers, sales representatives or consumers.

"We get up and change the time on the VCR ourselves," Tzur said. "These things come with directions."

But while other countries have coped, Americans have largely become complacent and expect many clocks to change automatically because dates have been set for two decades, said Lauren Weinstein, a veteran technologist.

"Missiles won't be launching but it's still going to cause a lot of hassle," he said. Risks grow when "things advance to the point where you expect things to happen automatically and you expect it to be correct."

Neo, There Is No Spoon

OPEC Pumps Up Output in Bid to Curb Prices

1 hour, 27 minutes ago

OPEC increased oil production by 300,000 barrels a day in the last two weeks, to around 30.4 million barrels daily, in an attempt to cool surging oil prices, the cartel's president said.

Sheik Ahmed Fahd Al Ahmed Al Sabah, president of the Organization of Petroleum Exporting Countries, said in remarks carried by the Kuwait News Agency on Friday that the market had begun returning to normal and "prices (have) started to fall, especially after the smooth transition of power," in Saudi Arabia.

He was referring to the investiture of King Abdullah, after the death of King Fahd on Monday. The kingdom is the largest oil producer and exporter in the world.

Crude oil prices settled at a new high, above $62 a barrel, on Friday, rallying on concerns about refinery snags and after the release of a positive U.S. jobs report that sparked fears of inflation.

Saturday, August 06, 2005

Some Options Strategies Not As They Seem
Saturday August 6, 3:24 pm ET
By Ellen Simon, AP Business Writer

Amateurs Embracing Options Trading, but Some Strategies May Not Be As Safe As They Appear NEW YORK (AP) -- Options trading used to be considered an exotic form of investing that most individual investors left to the pros. But the price of options drops in a strong market and options have been getting cheaper since 2003. As a result, individuals have become more active in the world of puts and calls.

While volume on broad equity indexes like the Standard & Poor's 500 and the Nasdaq composite has stayed in a narrow band for much of the year, options volume keeps hitting records. July's option trading volume was up by 21.7 percent over last July, according to the Options Industry Council.

As options have boomed, some investors have bought into option strategies and options funds that may not be as safe as they seem. But more on that later.

First, what are options?

Here's a thumbnail sketch of how options work: Broadly, a put gives the buyer a right to sell a specified number of shares at a particular price within a specified time. Put buyers expect the price of the underlying security to fall.

A call gives the buyer a right to purchase a specified number of shares of stock at a fixed price before a specified future date. Call buyers are speculating that the underlying shares will rise.

The holder of the underlying shares who sells options is called the options "writer." The writer gets a fee, called a premium, for writing the option. The premium is based on the stock's most recent close.

There are usually multiple dates and strike prices on the options for most big stocks. There are also options on indexes and exchange traded funds.

So, for instance, if you think Microsoft Corp.'s stock is going to fall, you can buy a three-month put to sell 100 shares at $30 a piece, paying a premium of about $275. If Microsoft falls to $25 a share, you buy shares at the market price, then sell them to the writer for $30 each, pocketing $5 per share, minus your $275 premium, for a nifty profit of $225.

Of course, if Microsoft stock rises to $30 or above within three months, you are, as they say, "out of the money." Your options are worthless and you've lost the $275 it cost to make the bet.

If you're intimidated by options, you're not alone. The Chicago Board Options Exchange runs the Options Institute, whose six full-time instructors usually teach seminars for brokers, and have also run sessions for workers at the Internal Revenue Service and the Federal Reserve.

What's the breakdown of institutional versus individual options investors?

"It's a perennial question," said Jim Binder, a spokesman for the Options Industry Council. "The best we get is anecdotal evidence. ... It's probably 50-50, but the institutional side is growing faster."

One relatively new product institutions are selling to individuals goes by the cumbersome name of "the closed-end covered write fund."

The funds, which hold on to their underlying equities but sell options for others to buy them, can make a tidy profit on the premiums they charge to write the option. In many respects, the funds look like a bet that the market will continue to go sideways, trading in a narrow range.

"Closed-end covered write funds have become extremely popular," said Tom Stotts, director of hedging options at RBC Dain Rauscher. Assets under management in such funds are "probably in the billion dollar range," Stotts said.

"Lots of people are consuming them; they may not know exactly what they're consuming," he said.

Like all closed-end funds, the write funds raise their money, then take no new investments from either existing or prospective investors. One fund is the Madison/Claymore Covered Call Fund, which has $284.9 million total managed assets, according to its Web site. Another is the First Trust/Fiduciary Asset Management Covered Call, which has $386 million in assets under management.

Bernie Schaeffer, chairman and CEO of Schaeffer's Investment Research and an expert in options, is skeptical of the strategy the funds employ.

"Because the market hasn't been doing anything, lots of people are selling options, selling calls for the stock they own," Schaeffer said.

That's a risky strategy, he said, and the funds are risky, too. The funds make their income from the premiums, which are shrinking. They're unprotected if their stocks fall. And they've sold away appreciation if their stocks gain.

"Investors are mistakenly looking at these as conservative income funds without the kind of downside risk you would have in a conventional investment," he said.

"While you can sell an option for a dollar and that gives you a bit of a cushion, what good is that going to do you if the market plunges 10, 15 or 20 percent?" he said. "It's not going to cover you at all."

"There's a disconnect between what people are doing and the reason for buying stock in the first place," Schaeffer said. "Why are you risking your money if you're not expecting, potentially, some very attractive appreciation down the road?"

Wednesday, August 03, 2005

Tokyo's Nikkei falls below 11,900 as Toyota sags

Tokyo's Nikkei falls below 11,900 as Toyota sags
Thu Aug 4, 2005 01:02 AM ET
(Updates to mid-afternoon)

TOKYO, Aug 4 (Reuters) - The Nikkei share average slid under the 11,900 mark on Thursday after investors -- nervous about political wrangling over Japan's postal reform bills -- sold off Toyota Motor Corp. (7203.T: Quote, Profile, Research) on weaker earnings and cashed in recent winners across the board.

A day after the Nikkei crossed the psychologically important 12,000 mark for the first time in 15 months, profit taking hit a host of recent gainers, driving the index down 0.90 percent.

All but three of the TOPIX's 33 industry sub-indices slumped into negative territory.

"I think the desire to lock in gains is the only reason investors would be selling now, when stocks are at this level," said Tsutomu Yamada, market analyst at Securities.

"Earnings results have been very good and consensus is growing about the strength of the economy ... I don't think this (selling) will last much longer," he added.

The Nikkei was down 107.97 points at 11,873.83 as of 0453 GMT.

The broader TOPIX index fell 0.80 percent, or 9.66 points to 1,202.36.

Worries about whether Prime Minister Junichiro Koizumi can squeeze out a victory for his postal reform bills in Japan's parliament helped put investors in the mood to take profits, Yamada said.

A vote on the bills was initially expected on Friday but could be delayed until next week, media reported.

Koizumi has said rejection of the bills would be tantamount to a vote of no-confidence, a tacit threat to call an election.

An election would likely hurt stocks because it raises the possibility of Koizumi's ruling coalition losing power, stalling policy.

Toyota fell 1.9 percent to 4,200 yen after the world's second-biggest auto maker reported a 9.7 percent fall in quarterly operating profit as an increase in investment spending outweighed brisk global sales.

Helped by expectations that auto makers would benefit from a recently lower yen, Toyota shares had risen nearly 8 percent in the past month, making the stock ripe for profit-taking.

Nippon Telegraph and Telephone Corp. (NTT) (9432.T: Quote, Profile, Research) shed 0.8 percent to 497,000 yen after it posted a 5.3 percent fall in quarterly profit on Wednesday as weakness in fixed-line units outweighed its buoyant mobile business.

Among other notable decliners, Trend Micro Inc. (4704.T: Quote, Profile, Research) tumbled 3.4 percent to 3,740 yen after UBS downgraded the stock to "neutral 2" from "buy 2".

But Konica Minolta Holdings Inc. (4902.T: Quote, Profile, Research) rose 6.8 percent to 1,064 yen after it reported a 7.3 percent rise in quarterly operating profit on Wednesday, helped by smaller losses at its camera and photographic film unit and cost cuts, and said it was on track for a full-year profit rise of 33 percent.

Monday, August 01, 2005

Russian-Chinese military exercise

Russia-China exercise no source of concern: Russian DM 2005-07-31 17:34:14

MOSCOW, July 31 (Xinhuanet) -- Russian Defense Minister Sergei Ivanov said Sunday the Russian-Chinese military exercise planned for next month should not be viewed as a source of concern for other countries.

"If this arouses their interests or concerns -- whatever you call it, it's their problem," Ivanov, who is touring Russia's Far East, told reporters in Vladivostok, the Interfax news agency reported.

Russia has been carrying out military exercises with the United States, other members of the North Atlantic Treaty Organization, India and Japan, he said.

"Why can't we hold military exercises with China? ... We are good neighbors and our trade is growing. And we are strategic partners," the Russian defense minister said.

The exercise, scheduled to begin on August 18 and last about a week, will involve Russian air refueling and early warning aircraft, Su-27SM fighter jets and naval vessels from the Pacific Fleet, Ivanov said earlier. Enditem

Bush Appoints Bolton As U.N. Ambassador

By TERENCE HUNT, AP White House Correspondent 1 hour, 1 minute ago

President Bush sidestepped the Senate and installed embattled nominee John Bolton as ambassador to the
United Nations on Monday, ending a five-month impasse with Democrats who accused Bolton of abusing subordinates and twisting intelligence to fit his conservative ideology.

"This post is too important to leave vacant any longer, especially during a war and a vital debate about UN reform," Bush said. He said Bolton had his complete confidence.

Bush put Bolton on the job in a recess appointment — an avenue available to the president when the Congress is in recess. Under the Constitution, a recess appointment during the lawmakers' August break would last until the next session of Congress, which begins in January 2007.

Bolton joined Bush and Secretary of State
Condoleezza Rice at the announcement ceremony and said he was honored and humbled by the president's appointment. "It will be a distinct privilege to be an advocate for America's values and interests at the U.N. and, in the words of the U.N. charter, to help maintain international peace and security," he said.

Bush said that Bolton's nomination had been supported by a majority of the Senate but that "because of partisan delaying tactics by a handful of senators, John was unfairly denied the up-or-down vote that he deserves."

Bush had refused to give up on Bolton even though the Senate had voted twice to sustain a filibuster against his nominee. Democrats and some Republicans had raised questions about Bolton's fitness for the job, particularly in view of his harsh criticism of the United Nations.

As Bush concluded speaking, Sen. John Cornyn (news, bio, voting record), R-Texas, praised the president for using his authority "to end the obstruction against John Bolton."

"This is an important position and its critical that it not remain vacant any longer. Bolton is exceptionally well qualified to fill this role at this time," Cornyn said in a statement. "I believe John Bolton clearly understands our hope for the U.N., and will fully dedicate himself to reforming a flawed U.N., to one that better advances the principles of democracy, freedom, and respect for human rights."

But Sen. Edward M. Kennedy (news, bio, voting record), D-Mass., sharply criticized the move.

"The abuse of power and the cloak of secrecy from the White House continues," Kennedy said. "It's bad enough that the administration stonewalled the Senate by refusing to disclose documents highly relevant to the Bolton nomination. It's even worse for the administration to abuse the recess appointment power by making the appointment while Congress is in this five-week recess. It's a devious maneuver that evades the constitutional requirement of Senate consent and only further darkens the cloud over Mr. Bolton's credibility at the U.N."

Sen. Christopher Dodd (news, bio, voting record) of Connecticut, a senior Democrat on the
Senate Foreign Relations Committee, said, "The president has done a real disservice to our nation by appointing an individual who lacks to the credibility to further U.S. interests at the United Nations. I will be monitoring his performance closely to ensure that he does not abuse his authority as he has in the past."

Republican Sen. George Voinovich (news, bio, voting record) of Ohio also said he was disappointed in the appointment.

"I am truly concerned that a recess appointment will only add to John Bolton's baggage and his lack of credibility with the United Nations," Voinovich said.

Bolton's appointment ends a five-month impasse between the administration and Senate Democrats.

The battle grabbed headlines last spring amid accusations that Bolton abused subordinates and twisted intelligence to shape his conservative ideology, and as White House and GOP leadership efforts to ram the nomination through the Senate fell short.

In recent weeks, it faded into the background as the Senate prepared to begin a nomination battle over John Roberts, the federal appeals judge that Bush chose to replace the retiring Justice
Sandra Day O'Connor at the Supreme Court.

At Bolton's April confirmation hearing, Democrats raised additional questions about his demeanor and attitude toward lower-level government officials. Those questions came to dominate Bolton's confirmation battle, growing into numerous allegations that he had abused underlings or tried to browbeat intelligence analysts whose views differed from his own.

Despite lengthy investigations, it was never clear that Bolton did anything improper. Witnesses told the committee that Bolton lost his temper, tried to engineer the ouster of at least two intelligence analysts and otherwise threw his weight around. But Democrats were never able to establish that his actions crossed the line to out-and-out harassment or improper intimidation.

Separately, Democrats and the White House deadlocked over Bolton's acknowledged request for names of U.S officials whose communications were secretly picked up by the National Security Agency. Democrats said the material might show that Bolton conducted a witch hunt for analysts or others who disagreed with him.

The top Republican and Democrat on the Senate Intelligence Committee received a limited briefing on the contents of the messages Bolton saw, but were not told the names.

Democrats said that was not good enough, but later offered a compromise. After much back and forth, with the White House claiming Democrats had moved the goal posts, no other senator saw any of the material.

Last week, the administration telegraphed Bush's intention to put Bolton on the job.

White House press secretary Scott McClellan said the vacancy needed to be filled before the U.N. General Assembly's annual meeting in mid-September. Former Sen. John Danforth left the post in January.

In a letter released Friday, 35 Democratic senators and one independent, Sen. Jim Jeffords of Vermont, urged Bush not to give Bolton a recess appointment.

"There's just too much unanswered about Bolton, and I think the president would make a truly serious mistake if he makes a recess appointment," Sen. Joseph Biden (news, bio, voting record) of Delaware, the top Democrat on the Foreign Relations Committee, said in an interview.

Sudanese VP Killed in Aircraft Crash

By MOHAMED OSMAN and TANALEE SMITH, Associated Press Writers

KHARTOUM, Sudan - Sudanese Vice President John Garang, a former rebel leader who is a key figure in the country's fledgling peace deal, died when the aircraft he was traveling in crashed into a southern Sudan mountain range in bad weather, Sudan's government said Monday.

Garang's death would be a heavy blow to the January peace deal that ended a 21-year civil war between the mostly Muslim north and the Christian and animist south in which some 2 million people died.

Thirteen others aboard the craft were also killed, an official statement said. The crash site was found near the Uganda-Sudan border, a Ugandan official said.

Ugandan officials said Garang and the others were flying in one of President Yoweri Museveni's personal helicopters, but the Sudanese statement said it was a plane. The conflict could not be immediately reconciled. Ugandan and Sudanese forces had been searching for Garang's aircraft since Sunday.

"It has now been confirmed that the plane crashed after it hit a mountain range in southern Sudan because of poor visibility and this resulted in the death of Dr. John Garang DeMabior, six of his colleagues and seven other crew members of the Ugandan presidential plane," according to a statement released by the office of Sudanese President Omar el-Bashir.

The 60-year-old former rebel, who was sworn in as vice president just three weeks ago, left on a flight from Uganda for southern Sudan at 5:30 p.m. Ugandan time Saturday afternoon, Sudanese and Ugandan officials said. It was not clear when the last contact with his craft took place.

Garang's aircraft had attempted to land in the New Kush region of southern Sudan but aborted the landing because of bad weather and headed back south, Ugandan President Yoweri Museveni said early Monday. Weather reports showed rain in the area.

Garang, who earned a doctorate from Iowa State University, is seen as the sole figure with the weight to give southern Sudanese a role in the Khartoum government, which they deeply mistrust. He also was a strong voice against outright secession by the south, calling instead for autonomy and power-sharing.

Sudanese have celebrated the power-sharing agreement — and a new constitution signed afterward — as opening a new chapter of peace and as a chance to resolve other bloody conflicts in Sudan, including the humanitarian crisis in the western region of Darfur. Garang was also seen as a great hope for peace in Darfur.

"The (Sudanese) president has appealed to the people to be calm, expressing that although the loss is great but the peace process will continue because peace has now become the property of the Sudanese people and peace-loving people around the world," the Sudanese statement said.

Garang was sworn in as vice president on July 9 — second only to his longtime enemy, President Omar el-Bashir. He and el-Bashir were to work on setting up a power-sharing government and on elevating Garang's rebel troops to an equal status with the Sudanese military.

There is no other leader of Garang's stature in the former rebel movement, the Sudan People's Liberation Army, which he founded and dominated for 21 years. His arrival in Khartoum on July 8 to take the vice president's post brought millions of southerners and northerners to the streets in celebration.

"We reaffirm the peace process will continue until we reach the objectives set and his (Garang's) departure will reinforce and give us more strength," the Sudanese statement said.

Salva Kiir, the vice president of south Sudan who was also Garang's deputy, said from his office in Nairobi, Kenya, that he ordered the former rebel movement's leadership council to hold an emergency meeting. He said the group will continue with Garang's policies and remain committed to the peace agreement.

The flight's disappearance brought up the specter of the 1994 downing of the airplane of Rwandan President Juvenal Habyarimana, who had been trying to implement a power-sharing deal between his fellow Hutus and the rival Tutsis. His death opened the doors to the Rwandan genocide in which more than 500,000 people were killed.

That genocide took place after months of preparation by Hutu militants — something that has not taken place in Sudan amid the good feelings over the peace deal.

Garang was returning home from a private visit to Uganda, flying from the capital Kampala to southern Sudan, said Ugandan army spokesman 2nd Capt. Dennis Musitwa.

A Ugandan rebel group, the Lord's Resistance Army, operates in the area and has shot down Ugandan military helicopters in the past.

El-Bashir clearly saw Garang as an important partner in sealing the peace, ensuring the south does not secede, and in repairing Sudan's international reputation. With a speed stunning to many in Sudan, the Sudanese state media went from describing Garang in the darkest terms to respectively calling him "Dr. Garang" after the peace deal was struck.

Saudi Arabia's King Fahd Dies in Riyadh

By ABDULLAH AL-SHIHRI, Associated Press Writer

RIYADH, Saudi Arabia - Saudi Arabia's King Fahd, who moved his country closer to the United States but ruled the world's largest oil-producing nation in name only since suffering a stroke in 1995, died early Monday, the Saudi royal court said. He was said to be 84.

Crown Prince Abdullah, the king's 81-year-old half brother and the country's de factor ruler, was appointed the new monarch.

"With all sorrow and sadness, the royal court in the name of his highness Crown Prince Abdullah bin Abdul Aziz and all members of the family announces the death of the custodian of the two holy mosques, King Fahd bin Abdul Aziz," according to a statement read on state-run Saudi TV by the country's information minister.

Fahd died at approximately 2:30 a.m. EDT, a senior Saudi official in Washington told The Associated Press.
President Bush was alerted within minutes of Fahd's death, the official said on condition of anonymity because he's not authorized to talk for the government. The king's funeral was to be held Tuesday evening, he said.

Saudi TV, which said the king was 84 years of age, broke into regular broadcasting to announce Fahd's death. Quranic verse recitals followed the announcement by the minister, Iyad bin Amin Madani, whose voice wavered with emotion as he read the statement.

Madani said only that the king, whose exact date of birth wasn't known, died of an illness.

Fahd died at the King Faisal Specialist Hospital in the Saudi capital, Riyadh, where he was admitted on May 27 for unspecified medical tests, an official at the hospital told The Associated Press on condition of anonymity.

At the time of his widely publicized hospitalization that caused concern home and abroad, officials said he was suffering from pneumonia and a high fever.

The Saudi statement said the new King Abdullah announced that his half brother and the Saudi defense minister, Prince Sultan bin Abdul Aziz, 77, would be the nation's next crown prince.

During his rule, the portly, goateed Fahd, who rose to the throne in 1982, inadvertently helped fuel the rise of Islamic extremism by making multiple concessions to hard-liners, hoping to boost his Islamic credentials. But then he also brought the kingdom closer to the United States and agreed to a step that enraged many conservatives: the basing of U.S. troops on Saudi soil after the 1990 Iraqi invasion of Kuwait.

In his last years, Fahd was more of a figurehead than the actual ruler — so he was sidelined as the close relationship he nurtured with the United States deteriorated after the Sept. 11 attacks. Fifteen of the 19 hijackers were Saudis, and many in the U.S. administration blamed kingdom's strict Wahabi school of Islam for fueling terrorism.

Abdullah oversaw the crackdown on Islamic militants after followers of Saudi-born
Osama bin Laden launched a wave of attacks, beginning with the May 2003 bombings of Western residential compounds in Riyadh. Abdullah also pushed a campaign against extremist teaching and preaching and introduced the kingdom's first elections ever — municipal polls held in early 2005.

And Abdullah — who before coming to power had not been happy with Saudi Arabia's close alliance with and military dependence on the United States and Washington's perceived bias toward
Israel — rebuilt the kingdom's ties with the U.S. He visited President Bush twice at Bush's ranch in Crawford, Texas, most recently in April 2005.

Visitors who saw King Fahd after his 1995 stroke reported he was barely aware of what was going on around him. Foreign dignitaries usually were allowed brief meetings with him, their visits lasting only as long as it took to film TV footage for the state-run stations.

On newscasts, the king was shown seated as he extended his hand to visitors or sipped coffee. Occasionally, policy statements, comments or speeches were issued in his name, and he was shown chairing ministerial meetings when Abdullah was out of town.

Fahd was proclaimed the fifth king of Saudi Arabia on June 13, 1982, three years after two events that would fuel the rise of Islamic extremism in Saudi Arabia.

In 1979, Ayatollah Ruhollah Khomeini founded the Islamic Republic in Shiite
Iran and, in the same year, radical Muslims briefly took over the holy mosque in Mecca, proclaiming the royal family not Islamic enough to rule.

Those developments, coupled with the king's reputation as a former gambler and womanizer, made the liberal-leaning Fahd move toward appeasing the country's powerful religious establishment, including the morals police who enforce the strict social codes that oblige women to veil and ban men and women from mingling.

Saudi Arabia did not want Shiite Iran to be seen as more Islamic than the Sunni kingdom, birthplace of Islam. So Fahd took the title "custodian of the two holy mosques" — referring to Islam's holiest shrines at Mecca and Medina — and he poured millions of dollars into the religious establishment and into enlarging fundamentalist universities.

In the 1980s, Riyadh, Washington and Islamabad, Pakistan, mobilized Islam to fight Soviet occupiers of
Afghanistan. Millions of Saudi riyals were donated to that effort and thousands of Saudis joined the jihad, including bin Laden, in a recruitment drive encouraged by the government. The king's official biography says Fahd was "an ardent supporter" of the Afghan mujahedeen.

But after the Soviet withdrawal from Afghanistan in 1989, Fahd, like U.S. and Pakistani officials, gave little attention to the mujahedeen, who turned that country into a training ground for their attacks, including the 9/11 suicide hijackings.

Earlier in his rule, Fahd was credited with turning Saudi Arabia into one of the Middle East's most modern states.

When Iraqi leader
Saddam Hussein invaded Kuwait in 1990 and looked like he also might take Saudi Arabia, Fahd was persuaded by the United States to allow hundreds of thousands of U.S. and other Western troops, including women, into his insular, rigidly Muslim kingdom to face the Iraqis.

The move was sharply criticized by fundamentalist Muslims who oppose Western influence and spawned the first potent opposition to Fahd's rule. Demonstrations were quelled and hundreds of clerics detained. Radicals set off bombs at two U.S. military posts in Saudi Arabia in 1995 and 1996, killing 25 Americans.

Bin Laden, who had earlier been stripped of his Saudi citizenship by Fahd's government, was incensed the Saudis opted to rely on Western troops for protection, spurning his offer to use the mujahedeen who had fought in Afghanistan to liberate Kuwait. He became even more determined in his opposition to the Saudi royal family.

The stroke left Fahd with short-term memory loss and an inability to concentrate for long stretches. Even before the stroke, Fahd suffered from arthritis, diabetes and a bad knee.

Fahd, the son of the founder of modern Saudi Arabia, King Abdul-Aziz, got an elementary school education with a heavy emphasis on religion at a school set up by Abdul-Aziz for his 42 sons.

He loved the good life and traveled often, enjoying years of high living. But when he was in his late 20s, he was summoned and told that to maintain his place in the succession he had to shape up.

In 1953, he became the nation's first education minister, laying the foundation for a nationwide school system that grew from 30,000 students to over 3.2 million students today enrolled in seven universities, 83 colleges and over 18,000 schools throughout the country.

In 1962, he became interior minister and then crown prince in 1975 when King Faisal was slain by a deranged nephew. Fahd was de factor ruler during the seven-year reign of his brother Khaled, a devout and apolitical man, and took the throne formally at Khaled's death in 1982.

The monarch always appeared in the traditional flowing white robe and "mishlah" — the camel-colored cape adorned with spun gold. He was a night-owl who slept during the day and often opened weekly ministerial meetings near midnight. His short working hours and centralized style — he insisted on approving even minor details — left a constant bottleneck of paperwork.

Details about Fahd's private life are little known, but he is believed to have had three wives and eight sons. His eldest son, Faisal, died in 1999 of a heart attack.