Preventing Biological Weapons Proliferation and Bioterrorism

Preventing Biological Weapons Proliferation and Bioterrorism. By Ellen Tauscher, Under Secretary for Arms Control and International Security

Address to the Annual Meeting of the States Parties to the Biological Weapons Convention

Geneva, Switzerland,December 9, 2009

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Photos | Video: Part 1; Part 2

Mr. Chairman, distinguished delegates, thank you for your warm welcome.

Before I begin, I want to recognize our Chairman, Ambassador Grinius, for his personal commitment to this issue. His skill in bringing ideas and expertise together to explore opportunities, and to improve international disease surveillance under the BWC umbrella have been invaluable.

The United States is confident that with your leadership, progress made this year on disease surveillance can translate into sustainable commitments.

I also want to acknowledge the quiet but solid behind-the-scenes work of the Implementation Support Unit. Thank you.

I have come here today to share with you President Obama’s strategy for preventing biological weapons proliferation and bioterrorism.

The United States intends to implement this strategy through renewed cooperation and more thorough consultations with our international counterparts in order to prevent the misuse and abuse of science while working together to strengthen health security around the world.

When it comes to the proliferation of bio weapons and the risk of an attack, the world community faces a greater threat based on a new calculus. President Obama fully recognizes that a major biological weapons attack on one of the world’s major cities could cause as much death and economic and psychological damage as a nuclear attack.

And while the United States remains concerned about state-sponsored biological warfare and proliferation, we are equally, if not MORE concerned, about an act of bioterrorism, due to the increased access to advances in the life sciences.

Around the world, we are experiencing an unparalleled period of scientific advancement and innovation in biology.

Techniques that once were cutting edge innovations are now commonplace. Capabilities once found only in a few advanced laboratories are increasingly wide-spread.

We ALL hope that this science is used for good, but we cannot ignore that it also can be used for ill.

Neither I, nor anyone else in the Obama Administration, need any further evidence of the terrible nature and consequences of a bioterrorism attack. I have, unfortunately, seen the dangers of bioterrorism up close. I served as a Member of Congress when a small amount of anthrax was mailed to the United States Senate in October 2001, just weeks after the September 11 terrorist attacks.

A few envelopes containing anthrax spores paralyzed the Congress. The office buildings of both the House and the Senate were closed down almost immediately. My offices in the Longworth Building were closed for 8 weeks to be sanitized. Five people who came into contact with spores from the letters were killed and hundreds more were put on antibiotics. Years later, no one has been brought to justice and it appears that a single person may have perpetrated these attacks.

This underscores the fact that significant capabilities for harm are already available to small groups and individuals and the prospect of bioterrorism represents a growing risk for the global community. Already we have seen terrorist groups like Al Qa’ida seek biological materials and expertise in order to conduct a biological attack.

That is why we in the United States are calling for all of you to join us in bolstering the Biological Weapons Convention, the premier forum for dealing with biological threats.

The Obama administration’s new strategy for countering biological threats—both natural and man-made—rests upon the main principle of the Biological Weapons Convention: that the use of biological weapons is “repugnant to the conscience of mankind.”

That’s why we believe we have developed an approach that strikes a balance between supporting scientific progress and curbing and stopping the potential for abuse.

Over the last several months, the Obama administration has engaged in a thorough review of our approach with scientists, academics, NGO’s and government officials.

We have determined that we have made considerable progress in recognizing and responding to a potential biological attack or outbreak of disease, although we can do more.

More importantly, the Administration concluded that there was no comprehensive strategy to address gaps in our efforts to prevent the proliferation of biological weapons and scientific abuse.

So just last week President Obama approved a new National Strategy for Countering Biological Threats.

Our new strategy has a clear, overarching goal … to protect against the misuse of science to develop or use biological agents to cause harm.

Copies of that strategy have been supplied to all of you. I would like to request that the strategy document be circulated as an official conference room paper.

Let me outline the broad goals of the strategy:

First, we will work with the international community to promote the peaceful and beneficial use of life sciences, in accordance with the BWC’s Article Ten, to combat infectious diseases regardless of their cause. We will work to promote global health security by increasing the availability of and access to knowledge and products of the life sciences to help reduce the impact from outbreaks of infectious disease whether of natural, accidental or deliberate origin.

Second, we will work toward establishing and reinforcing norms against the misuse of the life sciences. We need to ensure a culture of responsibility, awareness, and vigilance among all who use and benefit from the life sciences to ensure that they are not diverted to harmful purpose.

Third, we will implement a coordinated approach to influence, identify, inhibit, and interdict those who seek to misuse scientific progress to harm innocent people. We will seek to obtain timely and accurate information on the full spectrum of threats and challenges. This information will allow us to take appropriate actions to manage the evolving risk.

Finally, and most relevant to this body, we want to reinvigorate the Biological Weapons Convention as the premier forum for global outreach and coordination. The Biological Weapons Convention embodies the international community’s determination to prevent the misuse of biological materials as weapons. But it takes the active efforts of its States Parties – individually, and collectively – to uphold these commitments that continue to bolster the BWC as a key international norm.

The United States wants to work to ensure that this is the principal forum dedicated to these issues. We appreciate and applaud this forum’s past efforts, and commit to engaging fully as we work together towards our common goals.

Before describing our proposals to reinvigorate the BWC, let me reiterate that the Obama Administration’s commitment to the Biological Weapons Convention is steadfast. The United States will continue to meet its Article One commitments not to develop, acquire, produce or possess biological weapons.

But I want to be clear and forthcoming and I hope this will not be a surprise to anyone. The Obama Administration will not seek to revive negotiations on a verification protocol to the Convention. We have carefully reviewed previous efforts to develop a verification protocol and have determined that a legally binding protocol would not achieve meaningful verification or greater security.

It is extraordinarily difficult to verify compliance. The ease with which a biological weapons program could be disguised within legitimate activities and the rapid advances in biological research make it very difficult to detect violations. We believe that a protocol would not be able to keep pace with the rapidly changing nature of the biological weapons threat.

Instead, we believe that confidence in BWC compliance should be promoted by enhanced transparency about activities and pursuing compliance diplomacy to address concerns.

I know there are some that may disagree with this decision. Instead, I would urge you to join us in implementing the more robust BWC activities already underway.

We want to develop a rigorous, comprehensive program of cooperation, information exchange, and coordination that builds on and modifies as necessary the existing Work Program approach.

As we look toward the 2011 Review Conference, the United States believes that a reinvigorated, comprehensive Work Program is the best way to strengthen the Convention. So I would ask you to demonstrate your good faith and commitment to the BWC by joining us in increasing transparency, improving confidence building measures and engaging in more robust bilateral compliance discussions.

To highlight our three areas of emphasis in this area, let me provide a bit more detail about our goals.

First, we seek to promote confidence in effective treaty implementation:

A key consideration related to any treaty is the ongoing need to promote confidence in compliance. We believe that greater emphasis should be placed on voluntary measures to provide increased confidence. We must also increase participation in the existing Confidence-Building Measures. We should work together to review the Confidence Building Measures forms to assess their effectiveness and identify areas for improvement. States Parties, in conjunction with the Implementation Support Unit, should provide appropriate assistance to meet these goals.

In a gesture of our transparency, I want to announce that the United States will

• Invite the 2010 Chairman to visit our National Interagency Biodefense Campus in Maryland. The facilities there include the high containment laboratories of three different U.S. government agencies and provide an excellent opportunity to highlight the steps we are taking to ensure safe and secure research for the benefit of public health, and;
  
  
• Work toward posting future annual CBM submissions on the public access side of the Implementation Support Unit website and we will encourage other Parties to follow suit.

As part of this effort, we must seek to make membership in the BWC universal. We will be looking to work with you on outreach efforts to countries that have not yet joined the Convention.

Second, we will seek to enhance cooperation through the BWC on natural and deliberate disease threats to complement the work being done by the World Health Organization and other international bodies. In order to implement our Article Ten commitments, it is critical that we work together to achieve, sustain and improve international capacity to detect, report, and respond to outbreaks of disease, whether deliberate, accidental or natural. This includes implementation of the World Health Organization’s International Health Regulations.

Fundamentally, if we improve a country’s ability to respond to natural outbreaks, we have improved their capability to deal with bioterrorism.

In this respect, the United States is dedicated to continuing our substantial assistance and we want to work closely with other BWC States Parties to enhance and coordinate these efforts - including through the G-8 Global Partnership, United Nations Security Council Resolution 1540 and other mechanisms.

The BWC should be fully utilized as a forum to inform States Parties of related bilateral and regional activities, to consult on new avenues of multilateral engagement, and to promote the support of the international community.

Greater cooperation and technical assistance are key to achieving and sustaining the capabilities we need to prevent biological weapons use and to combat infectious diseases.

To this end:

• The Center for Disease Control will soon become the world’s first World Health Organization Collaborating Center for implementing International Health Regulations. It will assist the WHO and other international partners to help build the necessary global infrastructure to fully implement the IHRs in all six WHO Regions.
  
  
• In May, we propose a two-day meeting to share information on offers to support IHR implementation, hear from those receiving assistance about their experiences and to make specific suggestions for improvement.
  
  
• We will follow up with a meeting in August that builds upon the May discussion and looks at new technologies and new approaches to build the core capacities on disease surveillance needed under the IHRs.

As the final piece of our strategy to enhance this forum, we want to make the BWC the premier forum for discussion of the full range of biological threats – including bioterrorism – and mutually agreeable steps States can take for risk management.

The BWC should provide an international forum for advancing the dialogue on pathogen security and laboratory biosafety practices, and for promoting legislation, guidelines and standards through cooperation and partnership.

We must work here to develop international standards and practices for these important elements that advance our mutual security. To this end, we would like to announce that:

• Our FBI and CDC have developed best practices and guides on the conduct of joint criminal and epidemiological investigations of suspected intentional biological threats or incidents. We will bring our experts to discuss this in more detail at the August Experts Meeting.
  
  
• We also propose a workshop just after the August Experts Meeting where all interested countries can share information on bio risk management training, standards, and needs.

The threat of a bio attack is much like other transnational threats and challenges that we face today: climate change, nuclear proliferation, and food security. We’re all in the same boat and none of us, no matter how big, can afford to go it alone.

The United States takes biological weapons threats very seriously and that’s why we have adopted an energetic new approach that is tailored to counter today’s threats.

In closing, I want to thank you for this opportunity to reaffirm the Obama Administration’s support for revitalizing the BWC. I hope to join you once again at the 2011 Review Conference as we continue to move forward together on the critical work of countering biological threats.

Thank you, Mr. Chairman.

International Counterterrorism Policy in the Obama Administration

International Counterterrorism Policy in the Obama Administration. By Daniel Benjamin, Coordinator, Office of the Coordinator for Counterterrorism

Jamestown Conference, Washington, DC December 9, 2009

Good morning. It is a great pleasure to be here. I’ve been a devoted reader of Jamestown publications since you first stepped up to the challenge of the radically changed post-9/11 security environment, with the introduction of the Terrorism Monitor. I can still recall being interviewed by Jamestown for the third issue of volume one of the Monitor, and I had the pleasure of having this same speaking slot two years ago in a somewhat less official capacity. As you can imagine, I’m delighted to have the opportunity to speak to you today about the Obama administration’s counterterrorism policy.

If memory serves, when I spoke to you two years ago, my view was that the United States had developed great skills at what I called tactical counterterrorism–taking individual terrorists off the street, and disrupting cells and operations. On the strategic side, I thought we were losing ground. Now, I believe the administration is redressing that gap. In my roughly six months in office, my view of our tactical capabilities in the areas of intelligence, the military, and law enforcement have more than amply been confirmed. One of the great rewards of government service is the chance to work with colleagues in all of these areas, and I must say that their level of competence and professionalism is really extraordinary. When I consider how far we have come since my days at the NSC in the late 90s, I think it is quite remarkable.

And we are now working to match their proficiency by formulating the kind of policies that seek to shape the environment that terrorists operate in so that they find their efforts more constrained. We are rebuilding and reinvigorating old partnerships to combat terror and establishing new ones with others who have been on the sidelines. As we look at the problem of transnational terror, we are putting at the core of our actions a recognition of the phenomenon of radicalization—that is, we are asking ourselves time and again: Are our actions going to result in the removal of one terrorist and the creation of ten more? What can we do to attack the drivers of radicalization, so that al- Qaida and its affiliates have a shrinking pool of recruits? And finally– and vitally–are we hewing to our values in this struggle? Because as President Obama has said from the outset, there should be no tradeoff between our security and our values. Indeed, in light of what we know about radicalization, it is clear that navigating by our values is an essential part of a successful counterterrorism effort. Thus, we have moved to rectify the excesses of the past few years by working to close the prison at Guantanamo Bay, forbidding enhanced interrogation techniques, and developing a more systematic method of dealing with detainees. We are also demonstrating our commitment to the rule of law by trying Khalid Sheikh Muhammad and other al-Qaida operatives in our court system.

Finally, we have a strategy for success in Afghanistan and Pakistan. The President has put forward a clear plan to constrain the Taliban and destroy the al-Qaida core, and the administration is putting up the resources necessary to achieve that goal. Moreover, we are working with Pakistan to establish the kind of relationship, based on trust and mutual interests, that will lead to the defeat of radicalism in that country, which has in recent months seen so much violence. We understand the trust deficit, built up over decades that created the current situation. We know that challenges in the region will not be overcome overnight. But we believe we are now firmly on the right track.

Before going any further, we need to consider the threat today: On any given day, al-Qaida remains the foremost security threat the nation faces. Yet having said that, it is clear that for al-Qaida, it has been a difficult period. The group is under severe pressure in Pakistan and Afghanistan, where the U.S. and its allies have succeeded in severely degrading its operational leadership. The coming troop increase in Afghanistan will further reduce al-Qaida’s capabilities and those of other extremist organizations. The Pakistani military has been working to eliminate militant strongholds in its territory. As a result, al-Qaida is finding it tougher to raise money, train recruits, and plan attacks outside of the region.

In addition to these operational setbacks in Afghanistan and Pakistan, al-Qaida has not been successful in carrying out the attacks that would shake governments in the Arab world, which continues to be a primary long-term focus. It has failed to mobilize the masses–and this is a key point–which they have repeatedly said is their means of establishing Islamic emirates in the region.

Finally, there has been a decline of support for al-Qaida’s political program and there are several reasons for this: indiscriminate targeting of Muslim civilians in Iraq and Pakistan alienated many who were previously sympathetic to al-Qaida’s larger aspirations. The result has been both popular disaffection and a backlash from clerics in Muslim countries who have issued fatwas against the killing of other Muslims, notably in Iraq, although I note that this has yet to happen on a large scale in Afghanistan.

Second, al-Qaida’s ideological hard line has alienated more pragmatic organizations and individuals in the wider militant community. It has also created confusion over who carries the true banner of Islamic resistance to Western imperialism.

Third, denunciations of al-Qaida by extremist clerics have damaged the religious legitimacy of the group and raised questions about the proper use of violence in countries where there is no overt military action.

Fourth, al-Qaida and similar groups are becoming increasingly vague about who the primary enemy is, creating confusion in the militant community about the fundamentals of its strategic direction.

Yet despite these setbacks, al-Qaida has proven to be adaptable and resilient in two arenas. The first is in ungoverned or under-governed areas, often where there are tribal conflicts in which it can attach itself to the different parties. Thus in Yemen, al-Qaida operatives are marrying into the local tribes, and taking up their grievances against the government. In the sparsely populated Sahel, al-Qaida operatives, sometimes operating with individual local tribesmen and nomads, kidnap foreigners. In the FATA, operatives are marrying into local Pashtun tribes and are serving the larger interests of the Taliban insurgency by providing technical know-how and disseminating propaganda. And in Somalia, al-Qaida’s allies in al-Shabaab now control significant tracts of territory. These weakly-governed or entirely ungoverned areas are a major safe haven for al-Qaida and its allies and to dismiss their significance is to misunderstand their historical importance for training, recruitment, and operational planning. Quite frankly, the problem of un- and under-governed spaces is one of the toughest ones this and future administrations will face.

The second arena where Sunni radicals continue to succeed is in persuading religious extremists to adopt their cause, even in the United States. A bus driver, Najibullah Zazi, was trained in Pakistan and now faces charges in federal court for planning to set off a series of bombs in the United States. An indictment that was unsealed Monday in Chicago portrays an American citizen–David Headley–playing a pivotal role in last year’s attack in Mumbai, which killed more than 170 people and dramatically raised tensions in South Asia. So even if this radical movement is not mobilizing the masses, it is still galvanizing enough people to take to violence and poses a continuing, powerful threat. The importance of these two cases should not be glossed over–the conspiracies these men were engaged in had roots in the FATA, and eight years after 9/11, should give us all pause. The threat to the U.S. remains substantial and enduring despite the operational constraints on al-Qaida central.

It is also multifaceted as we have seen in the movement of young men, many of them motivated by a sense of ethnic duty, who have left their communities in Minnesota, been radicalized in Somalia, and fought and died for al-Shabaab.

As the example of David Headley indicates, al-Qaida is not the only group with global ambitions that we have to worry about. Lashkar e-Taiba has made it clear that it is willing to undertake bold, mass-casualty operations with a target set that would please al-Qaida planners. The group’s more recent thwarted conspiracy to attack the US embassy in Bangladesh should only deepen concern that it could evolve into a genuinely global terrorist threat. And let me say as an aside, very few things worry me as much as the strength and ambition of LeT, a truly malign presence in South Asia. We are working closely with allies in the region and elsewhere to reduce the threat from this very dangerous group.

As you know, I worked on terrorism in the White House when al-Qaida first surfaced in the late 1990s and I can tell you now, after having access to the intelligence again, that the threat has become far more complicated due to the proliferation of groups and the cross-pollination of networks. The global radical milieu has become thicker. There is so much more that we have to keep tabs on than there was in 1999.

So what are we doing to meet this challenge? Faced with this continuing and evolving threat, President Obama has articulated a clear policy – to disrupt, dismantle, and defeat al-Qaida and its allies. That is our overriding objective, and to achieve it we are using all the tools at our disposal. In weakly-governed areas we are collaborating with the relevant local authorities to bolster their security forces to prevent al-Qaida safe havens. Moreover, our intelligence and law enforcement agencies and those of our allies continue to disrupt terrorist plots at home and abroad–as we have here in Denver and New York, in London, and in other countries around the world. We are working with the international financial community to deny resources to al-Qaida and its supporters. Now, as al-Qaida affiliates turn to kidnapping for ransom to raise funds, we are urging our partners around the world to adopt a no-concessions policy toward hostage-takers so we can diminish this alternative funding stream in regions like the Sahel, the FATA, and Yemen.

But this is not enough, as the continuing flow of recruits–and the lengthening roll call of conspiracies testifies. As President Obama succinctly put it, “A campaign against extremism will not succeed with bullets or bombs alone.” We need to look to look to what my colleague Deputy National Security John Brennan has called the upstream factors. We need to confront the political, social, and economic conditions that our enemies exploit to win over the new recruits…the funders…and those whose tacit support enables the militants to carry forward their plans.

The threat is global and our enemies latch on to grievances on behalf of the entire Muslim world, so we must work to resolve the long-standing problems that fuel those grievances. At the top of the list is the Arab-Israeli conflict, and, as you know, President Obama, Secretary Clinton, and Special Envoy George Mitchell are working very hard to resolve it.

Even with their efforts, peace in the Middle East will take time, and as we know, it will not eliminate all of the threats. But while the big policy challenges matter in radicalization, local drivers are critical as well. We are developing tailored-approaches to alter them. How do these different elements of our global counterterrorism strategy fit together?

To be sure, terrorism is a common challenge shared by nations across the globe—one that requires diplomacy—and one that the United States cannot solve alone. As Secretary Clinton has said, “Today's security threats cannot be addressed in isolation. Smart power requires reaching out to both friends and adversaries, to bolster old alliances and to forge new ones.” The Obama administration has worked hard to reach out and, on the basis of mutual interests and mutual respect, to forge international coalitions. The administration has been working at reinvigorating alliances across the board and reengaging in the multilateral fora concerned with counterterrorism—fora that, in all honesty, were neglected for some time at the many UN entities, the G8, and the vast range of regional organizations that are eager to engage on counterterrorism issues.

Building the counterterrorism capacity of our partners at the national level is also a top priority. Consistent diplomatic engagement with counterparts and senior leaders helps build political will for common counterterrorism objectives. When the political will is there, we can address the nuts and bolts aspect of capacity building. We are working to make the counterterrorism training of police, prosecutors, border officials, and members of the judiciary more systematic, more innovative, and far-reaching, and we are doing this through such efforts as the Antiterrorism Assistance Program. In its more than 25-year old history, the ATA program has trained more than 66,000 professionals from 151 countries, providing programs tailored to the needs of each partner nation and to local conditions.

ATA is just one of many programs–on the civilian and the military sides of the house—that is increasing the ability of others to ensure their own security. With this kind of work, we are making real the President’s vision of shared security partnerships as an essential part of US foreign policy. This is both good counterterrorism and good statecraft. We are addressing the state insufficiencies that terrorism lives on, and we are helping invest our partners more effectively in confronting the threat–-rather than looking thousands of miles away for help or simply looking away altogether.

We are also addressing the local drivers of radicalization that still lead large numbers of people to adopt al-Qaida’s ideology, and as I said earlier, we understand the dangers of radicalization, and we are working both to undermine the al-Qaida narrative and to ameliorate the conditions that make it attractive. We know that violent extremism flourishes where there is marginalization, alienation, and perceived–-or real–-relative deprivation. In recognition of this, my first step has been to build a unit focusing on what we in the government call “Countering Violent Extremism” in my office to focus on local communities most prone to radicalization. There is a broad understanding across the government that we have not done nearly enough to address underlying conditions for at-risk populations–-and we have also not done enough to improve the ability of moderates to voice their views and strengthen opposition to violence.

Adopting a tailored-approach to countering violent extremism does not mean we can neglect broader structural problems. There is no denying that when children have no hope for an education, when young people have no hope for a job and feel disconnected from the modern world, when governments fail to provide for the basic needs of their people, when people despair and are aggrieved, they become more susceptible to extremist ideologies. But a tailored-approach to CVE requires identifying which of these problems are driving radicalization and are amenable to change with the help of local governments and leaders who understand the problems best.

Over time, the measures and the methods I have described above will reduce terrorists’ capacity to harm us and our partners. No element can be neglected if we are to succeed since they reinforce one another. Global engagement builds coalitions based on mutual interests and mutual respect. And these coalitions, in turn, help us partner with individual nations to enhance their capacity to counter extremism. This, finally, enables us to work with them to develop tailored-approaches to preventing extremists from becoming violent extremists.

I don’t want to leave you today with the impression that we have figured it all or that there won’t be real setbacks in the future. The contemporary terrorist threat was decades in the making and it will take many more years to unmake it. There is much we still need to learn, especially about how to prevent individuals from choosing the path of violence. But I believe we now have the right framework for our policies, and ultimately, I am confident, this will lead to the decisions and actions that will strengthen security for our nation and the global community.

Thank you for the opportunity to speak here today.

Water and Development Alliance Brings Sanitation and Clean Water to Rural South Africa

Water and Development Alliance Brings Sanitation and Clean Water to Rural South Africa
USAID, December 8, 2009

WASHINGTON, D.C. - The U.S. Agency for International Development (USAID) and The Coca-Cola Company (TCCC) have partnered through the Water and Development Alliance (WADA) initiative to bring more than 12,000 people in Ramotshinyadi Village of South Africa access to clean drinking water.

The WADA project aims to shift the way Ramotshinyadi villagers experience and conceptualize healthcare provision, and therefore will emphasize how clean, running water promotes good health. Family Health International South Africa (FHISA), Mvula Trust, and Re-Solve are collaborating to implement the program in Ramotshinyadi.

Malik Jaffer, USAID/Southern Africa HIV/AIDS technical officer, expects the WADA project to improve health in the region. "USAID wants to help South African children and their families get the basic essentials they need to lead happy, healthy lives," he says. "Without clean water and sanitation, these kids don't stand a chance."

WADA is investing a total of $1.6 million over a three years period to build the appropriate water infrastructure in Ramotshinyadi Village - a priority health district in Limpopo Province--and two other villages, ensuring that every street has water pipes.

"The Bophelo Ka Metsi project further demonstrates Coca-Cola's commitment as a company to contribute towards the development of our communities. Our continent's chronic water shortage also prompts us, together with strategic partners such as NGOs and government, to act immediately in overcoming this challenge," said Tulisiwe Mkatshwa, community affairs manager for Coca-Cola South Africa.

Water and health education and knowledge sharing exhibitions showed residents how to practice good hygiene and illustrated the consequences of drinking dirty water. These events culminated in the formal WADA launch on Nov. 27, attended by representatives of the Limpopo Provincial Government; the Greater Tzaneen Municipality, led by Mayor Mushwana; donors USAID; Coca-Cola; Family Health International; and traditional leaders. All attendees pledged to work together to ensure the sustainability of the project.

WADA is a joint initiative between USAID and The Coca-Cola Company that operates in 22 countries worldwide, contributing to protecting and improving the sustainability of watersheds, increasing access to water supply and sanitation services for the world's poor, and enhancing productive uses of water. The Alliance is a positive example of how public-private partnerships can give localized support to those with the greatest needs for water and sanitation services, ensuring that water resources are managed to serve future generations.

For more information about USAID and the WADA initiative, please visit: www.usaid.gov.

Views on PM Hatoyama and the Futenma issue

Views on PM Hatoyama and the Futenma issue. By hikki1224
Dec 07, 2009

Prime Minister Hatoyama publicly pledged to reach the conclusion over US military base issue at Futenma before year-end. However without any explanations, he postponed the conclusion to the next year. This is not responsible behavior as a leader of Japan. At the same time, he emphasizes, as part of his ‘friendship (yuai)’ foreign principle, the increasing importance with Asian countries while proposes to reframe the US-Japan relationship. It is natural to conclude that he gives priority to Asian countries over the US. Some people may even think that his friendship foreign policy may find it difficult to cope with US military presence in Japan.

The Prime Minister should not be indifferent to history. He needs to fully acknowledge the fact that the trust and obligation with the stakeholder countries were not built over night. He is not empowered to scrap all those efforts.

BIS Quarterly Review

BIS Quarterly Review

Dec 07, 2009

The BIS Quarterly Review released today is divided into two parts. We begin with an overview of recent developments in financial markets, before turning in more detail to highlights from the latest BIS data on international banking and financial activity. This is followed by five special feature articles: the first discusses the use and limitations of macro stress tests; the second analyses the relationship between monetary policy and risk-taking by banks; the third provides estimates of the link between government size and macroeconomic stability; the fourth draws lessons from loan provisioning regimes set up in Asia after the crisis of the late 1990s; and the fifth looks at factors driving the appreciation of the US dollar in late 2008.

Overview: continued record low rates spur markets

From early September to late November, a steady stream of mostly positive macroeconomic news reassured investors that the global economy had in fact turned around, but investor confidence remained fragile. This was clearly illustrated towards the end of the period under review, when prices of risky assets dropped sharply as investors reacted nervously to news that government-owned Dubai World had asked for a delay in some payments on its debt.

Market participants expected the recovery to continue, but at times grew wary about its pace and shape due to uncertainty about the timing and speed of withdrawal of monetary and fiscal stimulus as well as the associated risks to economic activity. The unease was compounded by the unevenness of the recovery among different regions of the world, which in turn was seen as increasing the risk that harmful imbalances could build, thereby adding to challenges for policymakers.

In this environment, market developments continued to be driven to a significant degree by ongoing and expected policy stimulus, in particular expansionary monetary policy. As investorsd priced in expectations that interest rates in major advanced economies would remain low, prices of risky assets continued to increase. Equity prices generally rose, in particular in emerging markets. Investment grade credit spreads were little changed, while sub-investment grade spreads narrowed further. Expectations of a prolonged period of low policy rates kept long-term government bond yields down, as did low term premia. Some market commentary pointed to the risk of higher inflation going forward, but both market- and survey-based indicators continued to suggest that price pressures in the largest advanced economies were expected to remain well contained.

The low interest rates in the advanced economies, together with the earlier and stronger recovery in a number of emerging economies, continued to drive significant capital inflows into emerging markets, particularly in Asia and the Pacific. Although difficult to quantify, a related development was increasing FX carry trade activity funded in US dollars and other low interest rate currencies. This resulted in rapid asset price increases in several emerging economies as well as substantial exchange rate appreciation with respect to the US dollar.

Highlights from the BIS statistics

Banks’ international balance sheets continued to contract during the second quarter of 2009, albeit at a much slower pace than in the preceding six months. The $477 billion decline in the total gross international claims of BIS reporting banks was considerably smaller than the reductions registered in the prior two quarters, but was still the fourth largest in the last decade. The shrinkage in international balance sheets was entirely driven by a contraction in interbank claims, which fell by $481 billion. By contrast, international claims on non-banks increased slightly (by $4 billion). Reporting banks’ cross-border claims on emerging market borrowers also showed signs of stabilising. Conversely, their local positions in local currencies in many countries contracted modestly for the first time since the onset of the crisis.

In the first half of 2009, notional amounts of all types of over-the-counter (OTC) derivatives contracts rebounded somewhat to stand at $605 trillion at the end of June, 10% higher than six months before. In contrast, gross credit exposures fell by 18% from an end-2008 peak to $3.7 trillion. Gross credit exposures take into account bilateral netting agreements but not collateral, so they provide a measure of counterparty exposures. The increase in outstanding amounts was due in large part to interest rate derivatives. By contrast, continuing a trend that began in the first half of 2008, outstanding notional amounts of CDS contracts fell to $36 trillion at the end of June 2009.

Activity on the international derivatives exchanges stabilised at around 60% of the pre-crisis level in the third quarter of 2009. Total turnover based on notional amounts was unchanged from the previous quarter, at $425 trillion.

Seasonal factors weighed on activity in the primary market for international debt securities in the third quarter of 2009. Net issuance almost halved to $475 billion, the lowest level since the third quarter of 2008. Depending on the method used, seasonally adjusted issuance either remained stable at a high level or went up slightly. The decline in activity was mainly driven by lower net issuance by borrowers resident in developed economies (–45%), which account for the bulk of borrowing on the international debt securities market. Residents in emerging market economies took advantage of the improved financing conditions and issued $34 billion of international debt securities. This was 52% more than in the second quarter and well above the quarterly average for 2006 and early 2007, prior to the crisis.

Special features

Macro stress tests and crises: what can we learn?

Few, if any, of the macro stress tests undertaken before the current crisis uncovered significant vulnerabilities. Rodrigo Alfaro (Central Bank of Chile) and Mathias Drehmann (BIS) examine the reasons for this poor performance by comparing the outcomes of simple stress tests with actual events for a large sample of historical banking crises. Their results highlight the fact that structural assumptions underlying stress testing models do not match output patterns in many of the past crises. Furthermore, unless macro conditions are already weak prior to the eruption of the crisis, the vast majority of stress scenarios based on historical data are not severe enough. Last, the authors go on to emphasise that stress testing models are not robust, as statistical relationships tend to break down during crises. These insights have important implications for the design and conduct of stress tests in the future.

Monetary policy and the risk-taking channel

In this feature, Leonardo Gambacorta (BIS) argues that low interest rates can encourage banks to take on more risks. He notes that monetary policy may influence banks’ perceptions of, and attitude towards, risk in at least two ways: (i) through a search for yield process, especially in the case of nominal return targets; and (ii) through the impact of interest rates on valuations, incomes and cash flows, which in turn can modify how banks measure and price risk. Using a comprehensive dataset of listed banks, Gambacorta goes on to show that low interest rates over an extended period cause an increase in banks’ risk-taking.

Government size and macroeconomic stability

M S Mohanty and Fabrizio Zampolli (BIS) examine the potential role of government size in stabilising the economy. They find that larger government size, as measured by the share of expenditure in GDP, had been associated with a modest reduction in output volatility in OECD economies since 1970, but that this link, which was small to begin with, seems to have weakened even further since the mid-1980s. Instead, output volatility is driven by factors such as trade openness and exposure to terms-of-trade shocks as well as the volatility of inflation. Interestingly, the same set of factors help to explain the severity of recessions.

Issues and developments in loan loss provisioning: the case of Asia

In the aftermath of the Asian financial crisis of the late 1990s, many jurisdictions in Asia strengthened their approaches to loan loss provisioning, including the adoption of discretionary measures. In this feature, Sarawan Angklomkliew (Bank of Thailand), Jason George and Frank Packer (BIS) discuss how authorities in Asia changed the provisioning regimes in their jurisdictions, and how these changes have strengthened banking systems in the region.

Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging

Many observers were surprised by the US dollar’s appreciation in late 2008, the sharpest in the period since generalised floating began in 1973. In their feature, Robert McCauley and Patrick McGuire (BIS) argue that a combination of factors contributed to this development. First, the US dollar benefited from the global flight to safety into US Treasury bills. Second, the dollar profited from the reversal of carry trades. Third, a dollar shortage in the international banking market resulted in high dollar interest rates in private markets, which supported the currency. Finally, writedowns of dollar assets left European banks and institutional investors outside the United States overhedged. The resultant squaring of their positions in turn may also have boosted the dollar.

Ozawa's power, Hatoyama's ulterior motives lie behind Futenma delay

Ozawa's power, Hatoyama's ulterior motives lie behind Futenma delay. By Mariko Yasumoto
Japan Today, Dec 06, 2009

TOKYO — Behind Prime Minister Yukio Hatoyama’s indecisiveness on the future of a U.S. military base in Okinawa Prefecture seems to be the firm determination of his former boss, Ichiro Ozawa, to keep a grip on parliament and even a bigger ulterior motive of the two politicians.

Hatoyama, head of the ruling Democratic Party of Japan, has put on hold a decision on where to relocate the U.S. Marine Corps’ Futenma Air Station, as the leader of a junior partner in the coalition has threatened to leave it if the DPJ goes ahead and moves the base within the prefecture under the existing Japan-U.S. deal.

The threat by Social Democratic Party leader Mizuho Fukushima came as Foreign Minister Katsuya Okada and Defense Minister Toshimi Kitazawa were seeking to solve the relocation issue by the end of this year.

Hatoyama is putting more weight on maintaining power in parliament over the already soured relationship with Washington, which has pressed Japan to resolve it quickly and move the Futenma base in line with the accord.

The DPJ, which won a landslide victory in the August election for the House of Representatives, had to form a coalition with two small partners despite differences over security and foreign policies, as it needs their cooperation in the House of Councillors.

Speculation is now growing that a decision on the U.S. base issue will not be made until after next year’s upper house election, in which the DPJ is widely expected to secure a majority and it can decisively break off what appears to be an awkward coalition.

Political observers say that behind the delay is DPJ Secretary General Ozawa who is widely believed to have wielded his influence behind the scenes over the Hatoyama government since its launch in mid-September.

According to sources close to Ozawa, he has pressured the prime minister’s office and Defense Minister Kitazawa to deal with the relocation issue in a way that would not result in the collapse of the coalition.

At the upper house, the DPJ currently holds less than a majority and needs to join hands with the two parties—the SDP and the People’s New Party—to ensure smooth passage of legislation.

Eiken Itagaki, an independent political analyst who is well-versed in DPJ politics, said that Ozawa warned that the government needs to avoid what the previous Liberal Democratic Party-led government had gone through in a divided parliament.

But there is also a view among some pundits that Hatoyama simply used the coalition partner’s threat as a reason for delaying a decision, as he himself hopes to move not just the Futenma air station but also the entire U.S. military facility outside Okinawa or even outside the country and wanted to take time to find a better solution.

Since the DPJ was in the opposition camp, Hatoyama has repeatedly made comments to that effect.

‘‘I truly wonder if it is appropriate that a military of another country will continue to station in this country forever,’’ he said a few weeks after taking office in mid-September.

Kazuhiro Asano, professor in politics at Sapporo University, said should the DPJ kick the SDP out of the coalition after the election, ‘‘I don’t think Prime Minister Hatoyama will decide to move the Futenma facility to Henoko.’‘

Under the 2006 deal, Tokyo and Washington agreed to transfer the Futenma air station, which currently sits in the center of a residential area in the city of Ginowan, to the coastal area of the Henoko district in Nago, another Okinawa city, by 2014.

Hatoyama has indicated that he wants to wait and see the results of the Nago city mayoral election scheduled for January to determine the will of local voters before making any decision on the relocation.

‘‘He is looking for evidence and reasons that would help him decide to move the base outside the prefecture,’’ Asano of Sapporo University said.

Ozawa, a former DPJ chief, is also against hosting another country’s military in Japan and once advocated for the stationing of a United Nations-sponsored military for the defense of the country.

Itagaki said both Ozawa and Hatoyama are truly seeking a foreign policy stance that depends less on the United States and more on close relationships with such other countries as China and Russia, as promised in the party’s campaign pledges.

Ozawa has once expressed the view that the role of the U.S. military in Japan should be trimmed down, saying the U.S. Navy’s 7th Fleet based in Yokosuka would be ‘‘enough for the U.S. presence in the Far East.’‘

At the bottom of it, the foreign policy that Ozawa and Hatoyama are pursuing over a long term is not so different from that of Fukushima, chief of the pacifist, leftist SDP, the analyst said, suggesting that the DPJ may end up keeping the party in the coalition even after the upper house election.

Recently floated ideas include transferring the Futenma facility to the U.S. territory of Guam, a Japanese coastal airport or a remote island, according to several government sources.

Unconventional monetary policies: an appraisal

Unconventional monetary policies: an appraisal. By Claudio Borio and Piti Disyatat
BIS Working Papers No 292
November 2009

Abstract:

The recent global financial crisis has led central banks to rely heavily on "unconventional" monetary policies. This alternative approach to policy has generated much discussion and a heated and at times confusing debate. The debate has been complicated by the use of different definitions and conflicting views of the mechanisms at work. This paper sets out a framework for classifying and thinking about such policies, highlighting how they can be viewed within the overall context of monetary policy implementation. The framework clarifies the differences among the various forms of unconventional monetary policy, provides a systematic characterisation of the wide range of central bank responses to the crisis, helps to underscore the channels of transmission, and identifies some of the main policy challenges. In the process, the paper also addresses a number of contentious analytical issues, notably the role of bank reserves and their inflationary consequences.

JEL Classification Numbers: E40, E50, E52, E58, E60

Keywords: unconventional monetary policy, balance sheet policy, credit policy, quantitative easing, credit easing, monetary policy implementation, transmission mechanism, interest rates

Ten propositions about liquidity crises

Ten propositions about liquidity crises. By Claudio Borio
BIS Working Papers No 293
November 2009

Abstract:

What are liquidity crises? And what can be done to address them? This short paper brings together some personal reflections on this issue, largely based on previous work. In the process, it questions a number of commonly held beliefs that have become part of the conventional wisdom. The paper is organised around ten propositions that cover the following issues: the distinction between idiosyncratic and systematic elements of liquidity crises; the growing reliance on funding liquidity in a market-based financial system; the role of payment and settlement systems; the need to improve liquidity buffers; the desirability of putting in place (variable) speed limits in the financial system; the proper role of (retail) deposit insurance schemes; the double-edged sword nature of liquidity provision by central banks; the often misunderstood role of "monetary base" injections in addressing liquidity disruptions; the need to develop principles for the provision of central bank liquidity; and the need to reconsider the preventive role of monetary (interest rate) policy.

JEL Classification Numbers: E50, E51, E58, G10, G14, G18, G28

Keywords: market and funding liquidity, liquidity crises, deposit insurance, central bank operations, monetary base

What Can the U.S. Learn from China’s Energy Policy?

What Can the U.S. Learn from China’s Energy Policy?
IER November 20, 2009

How to Break Up the Banks - Solving the "too big to fail" problem in the future structure of the global financial system

How to Break Up the Banks. By Adrian Blundell-Wignall
Solving the "too big to fail" problem in the future structure of the global financial system.
The Wall Street Journal, page A13

The financial crisis that sparked the worst recession in decades is in abeyance, but not yet over. Nonperforming loans and other assets of doubtful quality still weigh on many banks. Financial reform to date has focused on improving capital rules and processes. What has not yet been addressed is the future structure of the global financial system.

Contagion risk and counterparty failure have been the main hallmarks of the crisis. While some large diversified banks that focused mainly on commercial banking survived very well, other smaller and less diversified banks, particularly those focused on mortgages, and financial conglomerates that built on investment banking, the structuring of complex derivatives and proprietary trading as the main drivers of growth, suffered crippling losses. In principle, sound corporate governance and a strong risk-management culture should enable banks to avoid excess leverage and risk taking. But human nature being what it is, there are likely always to be some players eager to push complex products and trading beyond the sensible needs of industry and long-term investors in order to drive profits. Indeed, right now such activity is driving the rapid profit growth of some banks, with little having been learned from the past.

As the system will always be hostage to the "gung-ho" few, the question is whether there is a better way to structure large conglomerates in order to isolate commercial banking functions from such high-risk activities. In discussions at the OECD, we have been reviewing possible options. One proposal, which we now submit for consideration, is that banking and financial service groups could be structured under a variant of non-operating holding companies (NOHCs), in all countries.

Under such a structure, the parent would be non-operating, raising capital on the stock exchange and investing it transparently and without any double-gearing in its operating subsidiaries—say a bank and a securities firm that would be separate legal entities with their own governance. The subsidiaries would pay dividends through the parent to shareholders out of profits. The nonoperating parent would have no legal basis to shift capital between affiliates in a crisis, and it would not be able to request "special dividends" in order to do so.

These structures allow separation insofar as prudential risk and the use of capital is concerned without the full divestment required under Glass-Steagall or in response to the recently-expressed concerns of Paul Volcker and Mervyn King—such extreme solutions should remain the proper focus of competition authorities. With an NOHC structure, technology platforms and back office functions would still be shared, permitting synergies and economies of scale and scope. Such a transparent structure would make it easier for regulators and market players to see potential weaknesses. Mark-to-market and fair value accounting would affect those affiliates most associated with securities businesses, while longer-term cost amortization would dominate for commercial banking. It would create a tougher, non-subsidized environment for securities firms, but a safer one for investors.

If a securities firm under this structure had access to limited "siloed" capital and could not share with other subsidiaries, and this were clear to the market, this would be priced into the cost of capital and reflected in margins for derivative transactions. The result would likely be smaller securities firms that are more careful in risk-taking than has been the case under the "double gearing" scenarios seen in mixed or universal bank groups.

Finally, if a securities affiliate were to fail under such a structure, the regulator could shut it down without affecting its commercial banking sister firm in a critical way—obviating the need for "living wills." Resolution mechanisms for smaller, legally separate entities would be more credible than those needed in the recent past for large mixed conglomerates—helping to deal with the "too big to fail" issue. To protect consumers, deposit insurance and other guarantees could apply to the bank without being extended to the legally separate securities firm.

The world is still waiting for a full reassessment of what banks do and how they compete. Until now, the implementation of regulatory standards and accounting rules has been eased. Fiscal policy has supported the economy and interest rates are being kept low to support the underlying earnings of banks and their ability to issue new equity in rising markets. This strategy may work in the short term. But it can't go on forever. Sooner or later we will have to exit from the extraordinary measures that have used trillions of taxpayer dollars to save the institutions that took the world economy to the brink of another Great Depression.

The structure of organizations and how they compete will be critical to future stability. Going forward, the aim must be to keep the "credit culture" and the "equity culture" separate so that government implicit and explicit insurance does not extend to cross-subsidizing high-risk market activity, and so that contagion and counterparty risk can be reduced. The right balance must also be struck between sufficient size conducive to diversification and strong competition to meet consumer needs at reasonable costs.

The capital and derivative markets are inherently interconnected globally, so counterparty risk looms large. Under present structures, if one participant fails, everyone is in trouble. We can't let the world go through that turmoil again.

Mr. Blundell-Wignall is deputy director of financial and enterprise affairs at the OECD.

"[C]reating a new entitlement program, which, once established, will be virtually impossible to rescind"

Confessions of an ObamaCare Backer. WSJ Editorial
A liberal explains the political calculus.
The Wall Street Journal, page A24

The typical argument for ObamaCare is that it will offer better medical care for everyone and cost less to do it, but occasionally a supporter lets the mask slip and reveals the real political motivation. So let's give credit to John Cassidy, part of the left-wing stable at the New Yorker, who wrote last week on its Web site that "it's important to be clear about what the reform amounts to." [http://www.newyorker.com/online/blogs/johncassidy/2009/11/some-vaguely-heretical-thoughts-on-health-care-reform.html]

Mr. Cassidy is more honest than the politicians whose dishonesty he supports. "The U.S. government is making a costly and open-ended commitment," he writes. "Let's not pretend that it isn't a big deal, or that it will be self-financing, or that it will work out exactly as planned. It won't. What is really unfolding, I suspect, is the scenario that many conservatives feared. The Obama Administration . . . is creating a new entitlement program, which, once established, will be virtually impossible to rescind."

Why are they doing it? Because, according to Mr. Cassidy, ObamaCare serves the twin goals of "making the United States a more equitable country" and furthering the Democrats' "political calculus." In other words, the purpose is to further redistribute income by putting health care further under government control, and in the process making the middle class more dependent on government. As the party of government, Democrats will benefit over the long run.

This explains why Nancy Pelosi is willing to risk the seats of so many Blue Dog Democrats by forcing such an unpopular bill through Congress on a narrow, partisan vote: You have to break a few eggs to make a permanent welfare state. As Mr. Cassidy concludes, "Putting on my amateur historian's cap, I might even claim that some subterfuge is historically necessary to get great reforms enacted."

No wonder many Americans are upset. They know they are being lied to about ObamaCare, and they know they are going to be stuck with the bill.

Guidance to Assess the Systemic Importance of Financial Institutions, Markets and Instruments: Initial Considerations Report & Background Paper

Guidance to Assess the Systemic Importance of Financial Institutions, Markets and Instruments: Initial Considerations Report & Background Paper
Nov 07, 2009

Prepared by staff of the International Monetary Fund, the Bank for International Settlements and the Financial Stability Board and submitted to G20 Finance Ministers and Governors.

November 7, 2009

The report and background paper respond to a request made by the G20 Leaders in April 2009 to develop guidance for national authorities to assess the systemic importance of financial institutions, markets and instruments. The report outlines conceptual and analytical approaches to the assessment of systemic importance and discusses a possible form for general guidelines.

The report recognizes that current knowledge and concerns about moral hazard limit the extent to which very precise guidance can be developed. Assessments of systemic importance will necessarily involve a high degree of judgment, they will likely be time-varying and state-dependent, and they will reflect the purpose of the assessment. The report does not pre-judge the policy actions to which such assessments could be an input.

The report suggests that the guidelines could take the form of high level principles that would be sufficiently flexible to apply to a broad range of countries and circumstances, and it outlines the possible coverage of such guidelines. A set of such high level principles appropriate for a variety of policy uses could be developed, further, by the IMF, BIS and FSB, taking account of experience with the application of the conceptual and analytical approaches described here.

There are a number of policy issues where an assessment of systemic importance would be useful. One critical issue is the ongoing work to reduce the moral hazard posed by systemically important institutions. The FSB and the international standard setters are developing measures that can be taken to reduce the systemic risks these institutions pose, and the attached papers will provide a useful conceptual and analytical framework to inform policy discussions. A second area is the work to address information gaps that were exposed by the recent crisis (the subject of a separate report to the G20 from IMF staff and the FSB Secretariat), where assessments of systemic importance can help to inform data collection needs. A third area is in helping to identify sources of financial sector risk that could have serious macroeconomic consequences. We will keep you informed on our respective future policy work in these important areas.

Report to G-20 Finance Ministers and Central Bank Governors (PDF 29 pages, 679 kb) & background paper (PDF 46 pages, 955 kb) downloadable @ http://www.bis.org/publ/othp07.htm?sent=091109

At the Ends of the World: Projects at Remote Locations

At the Ends of the World: Projects at Remote Locations. By Fabio Teixeira de Melo, PMP
PMI eNews, Nov 06, 2009

We have all heard that the world is getting smaller and smaller. However, some projects challenge that view: namely, those performed at remote locations.

For project management, a remote location is a place where:

Access to resources is more difficult; Both public and private sectors have less presence, or no presence at all; Local communities have little connection with the “civilized world.” Successfully executing a project at these locations requires a specific approach for some of the unique challenges you’ll face. Here are a few suggestions:

Logistics:
You should creatively explore what alternatives are available for supplying materials and consumables, and know the risk for each one. You have to consider natural factors, such as flood and dry seasons and their impact in site access, as well as frozen, blocked and / or dangerous access roads.

Consulting local communities is vital for gaining knowledge on alternatives, potential risks and contingency plans. Keep in mind that it is not only about bringing equipment in: it is about feeding and supporting your site team.

Communication:
Communication depends heavily on wireless phone and internet access. These options facilitate working at remote locations, but they do not always function properly. Between thunderstorms, heavy rain, energy shutdowns and frozen equipment, many things can go wrong.

Communicating through traditional, hard-copy mail is safe and reliable, but takes more time. Consider adding redundancy—exchanging data electronically but also sending hard copies through traditional mail—to the communications management plan, logistics plan and schedule. It can make the difference between taking advantage of wireless communication and suffering from the lack of it.

Local Community:
With very few exceptions, remote locations are inhabited, usually by poor and unassisted communities living in a subsistence economy. They often lack proper authorities, which is an invitation to the actions of drug producers, smugglers and others who interact with the local community. You should consider them as a part of it – in fact, sometimes they even act as the “local authority.”

Base your approach on the core values of respect and honesty. Show interest for the community and try to build trust without interfering in their relationship with potential outlaw groups. For those groups, try to negotiate your relationship in the basis of non-interference, but consider their presence in your risk management: it’s not unheard of for project managers to be kidnapped by local gangs or terror groups.

Social Responsibility:
Your project will probably impact the local community. Hiring its people is a good way to inject money to the local economy, but you have to be cautious as to how many people will be employed and what jobs they will take.

Resist the temptation to hire everybody, since they will have to continue to live after you demobilize. If you train them to work on your project—for example, to operate your bulldozers—when you finish they either will be unemployed or will have to leave the region in search for a job.

Instead, give them insight and training on how to improve and market what they currently produce for their living. Help them get more productive and organized. Your project will certainly bring them closer to “civilization,” and you should help them make that encounter more of an opportunity than a risk.

When you plan for a project at a remote location, don’t associate the challenge with logistics only. Remember that the communications and stakeholder management for these projects have particular requirements, which, if not properly performed, can be as harmful to your project as a natural disaster.

Fabio Teixeira de Melo, PMP, is a Site Manager working for Odebrecht, a Brazilian multinational construction company with projects in over 20 countries. An LI ’04 graduate with more than 15 years of experience in construction project planning and management, he was founder and first President of PMI Pernambuco – Brazil Chapter; participated in the elaboration of the Construction Extension to the PMBOK® Guide, served a 5-year term as DPC SIG Latin America Chair and contributed with articles for the SIG’s newsletter. You can contact him writing a comment to this post.

A ground-breaking study shows that New York City's calorie labeling law is ineffective

After Calorie Warnings, Diners Order More Calories. By ALLYSIA FINLEY
A ground-breaking study shows that New York City's calorie labeling law is ineffective.
WSJ, Nov 06, 2009

Before food czars get any more punch-happy on their own Kool-Aid, they need to be purged of the illusion that their laws are actually working. Last month, New York University and Yale medical professors published a ground-breaking study, which shows that New York City's law requiring fast food chains to post calories on their menus doesn't reduce their customers' caloric intake.

Lawmakers everywhere should take note. Efforts to require fast food restaurants to post nutritional information on their menus have been gaining ground across the country. Sixteen municipalities including California, Seattle, and Portland have passed laws similar to NYC's, and the Menu Education and Labeling Act, which would impose labeling regulations nationwide, is pending in Congress. The bill would extend the Nutrition Labeling and Education Act of 1990, which requires food manufacturers to include nutritional information on their packaging, to restaurants. We all know how effective that law was. Since 1990, obesity has more than doubled.

Published online in the journal Health Affairs, the NYU and Yale study is noteworthy because it considers the practical significance of food labeling laws. The researchers examined 1,100 restaurant receipts from McDonald's, Wendy's, Burger King and KFC franchises in low income, high-minority neighborhoods where obesity is most prevalent. They found that the poor fast-food customers that the law intended to help weren't affected.

Only half of the customers said they noticed the caloric information, and only about 15% said they used the information. But the researchers' most striking finding was that customers actually ordered more caloric items after the law went into effect than before, despite the fact that nine out of ten customers who reported using the information said they made healthier choices as a result of the law. This disconnect can partly be explained by response bias in which people tell surveyors what they think the surveyors want to hear.

But the problem may also be more complex. It's possible that people who are less educated may actually think they are eating more healthily than they are notwithstanding the calorie numbers staring them in the face. Calories as a measure of food intake (or more precisely, energy consumption and output) may be as foreign to them as the metric system is to many Americans.

The poor are also extremely price sensitive---especially in a bad economy. Give them the choice between a $2 double quarter pounder with cheese and a $5 chicken salad, and they'll make an economically rational decision and order the $2 burger. And with the extra three bucks saved, they'll order a side of fries and a Coke. Why should they care how many calories they're eating if they're getting good value?

Under pressure to subvert the NYU and Yale study, the New York City Health Department last week came out with its own report, which it nicely packaged in a press release and power point presentation (evidently, the Department didn't want to confuse the media with an actual scientific study). Though the Department's results are equivocal, New York City lawmakers are using the data to argue the efficacy of the law.

The Department is boasting that 56% of customers saw the caloric information and that 15% said they used it. But these figures demonstrate the law's failure---not success. Despite the fact that people were readily presented with the nutritional information, 85% of them ignored it.

The lawmakers who enacted the calorie posting regulations succumbed to the fallacy that everyone thinks like them. They probably reasoned that because they would make healthier choices if presented with nutritional information, everyone else would as well. But maybe what consumers actually want is a delicious meal at a low price.

While information is important, even fully informed people won't always act as lawmakers think they should, especially if it's economically irrational. Any public health legislation won't significantly change people's behavior unless it 1) provides proper incentives for people to put their long-term well-being above temporary gratification and 2) takes into account the economic rationality of people's behavior.

Unfortunately, many lawmakers refuse to swallow this inconvenient truth, preferring the taste of their Kool-Aid.

Ms. Finley is Assistant Editor of OpinionJournal.com

When Regulators Fail - 'Systemic risk' is not only for banks

When Regulators Fail. WSJ Editorial
'Systemic risk' is not only for banks.
WSJ, Nov 04, 2009

Financial Services Authority chief Adair Turner has finally stopped attacking bankers for their paychecks and started talking about the real issue—what to do about the banks deemed too-big-to-fail. Unfortunately, he's still worrying too much about how to prevent failure and not enough about how to facilitate it.

In his speech Monday to an international group of central and private bankers, Lord Turner identified three possible approaches to the problem:

• Make failure less likely by increasing capital requirements;
• Make banks smaller or less "systemic" by either narrowing what they can do or making them less interconnected;
• Or, finally, make failure easier by developing bankruptcy procedures or other "resolution" mechanisms for large financial institutions.

Of these, the last is the most important for reducing the moral hazard that did so much to contribute to the financial panic, as Bank of England Governor Mervyn King has persuasively argued. Even before the panic, systemically important banks enjoyed considerable advantages over their less "important" rivals, and many of these advantages were created by or made more acute by government regulation and rules.

As Lord Turner noted Monday, the Basel II standards on bank capital actually allowed large financial firms to hold less capital than their smaller brethren, on the theory that large meant diversified and sophisticated and so less risky. Looking back, this was clearly a crazy policy—but it's worth recalling that it was propagated by the same luminaries who are now proposing to prevent the next crisis by tinkering with the regime that contributed to the last one. At a minimum, this should be an occasion of some humility from the wise men of bank regulation.

We now know that this presumption of safety in size was false. We also know that the costs of being wrong about such things—both for the public fisc and the real economy as a whole—are much greater than was commonly assumed before the panic.

So the price that large banks pay for the privileges of size should be a great deal higher than it was before. Whether banks benefit from the explicit guarantees of deposit insurance or the implicit protection of being too-big-to-fail, or both, governments have a right to demand that banks not ride free on the backs of taxpayers.

But whether it's less leverage, more capital, or restrictions on banking activities, no one should be under any illusion that the same people who failed to detect the last bubble and crash will be able to design a system capable of catching the next one in time. The relative risks of being too lax or too restrictive may be hard to gauge, but either way the odds of getting it wrong are substantial if not overwhelming.

This is why putting the risk of failure back into the system should be the sine qua non of any effort at reform. If regulators around the world get nothing else right, the final backstop has to be bankruptcy and/or dissolution for firms that have earned it.

So it's too bad Lord Turner spent precious little time on this particular question, preferring to ruminate on the relative merits of really narrow banking vs. moderately narrow banking, and how to make capital requirements more countercyclical.

We understand that regulators find it uncomfortable to ponder what should happen when all their best laid plans fail. The bankruptcy of a systemically important bank is, necessarily, also a failure of the regulators who were overseeing it.

Implementing US Gov't Wildlife Surveillance Project to Detect and Predict Emerging Infectious Diseases

Implementing USAID Wildlife Surveillance Project to Detect and Predict Emerging Infectious Diseases
USAID, November 3, 2009

[There is a collection of articles on this. This is one of them, titled Implementing USAID Wildlife Surveillance Project to Detect and PREDICT Emerging Infectious Diseases, using Predict as an acronym. Other articles are here and here]

Washington, D.C. - The United States Agency for International Development (USAID) Bureau for Global Health is pleased to announce a partnership with UC Davis to monitor for and increase the local capacity in "geographic hot spots" to identify the emergence of new infectious diseases in high-risk wildlife such as bats, rodents, and non-human primates that could pose a major threat to human health. UC Davis leads a coalition of leading experts in wildlife surveillance including Wildlife Conservation Society, Wildlife Trust, The Smithsonian Institute, and Global Viral Forecasting, Inc. This is a five-year cooperative agreement with a ceiling of $75 million.

This project, named PREDICT, is part of the USAID Emerging Pandemic Threats Program - a specialized set of projects that build on the successes of the Agency's 30 years of work in disease surveillance, training and outbreak response. PREDICT will focus on expanding USAID's current monitoring of wild birds for H5N1 influenza to more broadly address the role played by wildlife in spreading of new disease threats.

PREDICT will be active in global hot spots where important wildlife hosts species have significant interaction with domestic animals and high-density human populations. In these regions, the team will focus on detecting disease-causing organisms in wildlife before they lead to human infection or death. Among the 1,461 pathogens recognized to cause diseases in humans, at least 60 percent are of animal origin. Predicting where these new diseases may emerge , and detecting viruses and other pathogens before they spread to people, holds the greatest potential to prevent new pandemics.

PREDICT will be led by Dr. Stephen S. Morse of Columbia University Mailman School of Public Health, a leading emerging disease authority. Other key staff include Dr. Jonna Mazet, the project's Deputy Director; Dr. William Karesh, Senior Technical Advisor; Dr. Peter Daszak, Technical Expert; and Dr. Nathan Wolfe, Technical Expert.

America's Natural Gas Revolution - A 'shale gale' of unconventional and abundant U.S. gas is transforming the energy market

America's Natural Gas Revolution. By DANIEL YERGIN AND ROBERT INESON
A 'shale gale' of unconventional and abundant U.S. gas is transforming the energy market.

The biggest energy innovation of the decade is natural gas—more specifically what is called "unconventional" natural gas. Some call it a revolution.

Yet the natural gas revolution has unfolded with no great fanfare, no grand opening ceremony, no ribbon cutting. It just crept up. In 1990, unconventional gas—from shales, coal-bed methane and so-called "tight" formations—was about 10% of total U.S. production. Today it is around 40%, and growing fast, with shale gas by far the biggest part.

The potential of this "shale gale" only really became clear around 2007. In Washington, D.C., the discovery has come later—only in the last few months. Yet it is already changing the national energy dialogue and overall energy outlook in the U.S.—and could change the global natural gas balance.

From the time of the California energy crisis at the beginning of this decade, it appeared that the U.S. was headed for an extended period of tight supplies, even shortages, of natural gas.

While gas has many favorable attributes—as a clean, relatively low-carbon fuel—abundance did not appear to be one of them. Prices had gone up, but increased drilling failed to bring forth additional supplies. The U.S., it seemed, was destined to become much more integrated into the global gas market, with increasing imports of liquefied natural gas (LNG).

But a few companies were trying to solve a perennial problem: how to liberate shale gas—the plentiful natural gas supplies locked away in the impermeable shale. The experimental lab was a sprawling area called the Barnett Shale in the environs of Fort Worth, Texas.

The companies were experimenting with two technologies. One was horizontal drilling. Instead of merely drilling straight down into the resource, horizontal wells go sideways after a certain depth, opening up a much larger area of the resource-bearing formation.

The other technology is known as hydraulic fracturing, or "fraccing." Here, the producer injects a mixture of water and sand at high pressure to create multiple fractures throughout the rock, liberating the trapped gas to flow into the well.

The critical but little-recognized breakthrough was early in this decade—finding a way to meld together these two increasingly complex technologies to finally crack the shale rock, and thus crack the code for a major new resource. It was not a single eureka moment, but rather the result of incremental experimentation and technical skill. The success freed the gas to flow in greater volumes and at a much lower unit cost than previously thought possible.

In the last few years, the revolution has spread into other shale plays, from Louisiana and Arkansas to Pennsylvania and New York State, and British Columbia as well.

The supply impact has been dramatic. In the lower 48, states thought to be in decline as a natural gas source, production surged an astonishing 15% from the beginning of 2007 to mid-2008. This increase is more than most other countries produce in total.

Equally dramatic is the effect on U.S. reserves. Proven reserves have risen to 245 trillion cubic feet (Tcf) in 2008 from 177 Tcf in 2000, despite having produced nearly 165 Tcf during those years. The recent increase in estimated U.S. gas reserves by the Potential Gas Committee, representing both academic and industry experts, is in itself equivalent to more than half of the total proved reserves of Qatar, the new LNG powerhouse. With more drilling experience, U.S. estimates are likely to rise dramatically in the next few years. At current levels of demand, the U.S. has about 90 years of proven and potential supply—a number that is bound to go up as more and more shale gas is found.

To have the resource base suddenly expand by this much is a game changer. But what is getting changed?

It transforms the debate over generating electricity. The U.S. electric power industry faces very big questions about fuel choice and what kind of new generating capacity to build. In the face of new climate regulations, the increased availability of gas will likely lead to more natural gas consumption in electric power because of gas's relatively lower CO2 emissions. Natural gas power plants can also be built more quickly than coal-fired plants.

Some areas like Pennsylvania and New York, traditionally importers of the bulk of their energy from elsewhere, will instead become energy producers. It could also mean that more buses and truck fleets will be converted to natural gas. Energy-intensive manufacturing companies, which have been moving overseas in search of cheaper energy in order to remain globally competitive, may now stay home.

But these industrial users and the utilities with their long investment horizons—both of which have been whipsawed by recurrent cycles of shortage and surplus in natural gas over several decades—are inherently skeptical and will require further confirmation of a sustained shale gale before committing.

More abundant gas will have another, not so well recognized effect—facilitating renewable development. Sources like wind and solar are "intermittent." When the wind doesn't blow and the sun doesn't shine, something has to pick up the slack, and that something is likely to be natural-gas fired electric generation. This need will become more acute as the mandates for renewable electric power grow.

So far only one serious obstacle to development of shale resources across the U.S. has appeared—water. The most visible concern is the fear in some quarters that hydrocarbons or chemicals used in fraccing might flow into aquifers that supply drinking water. However, in most instances, the gas-bearing and water-bearing layers are widely separated by thousands of vertical feet, as well as by rock, with the gas being much deeper.

Therefore, the hydraulic fracturing of gas shales is unlikely to contaminate drinking water. The risks of contamination from surface handling of wastes, common to all industrial processes, requires continued care. While fraccing uses a good deal of water, it is actually less water-intensive than many other types of energy production.

Unconventional natural gas has already had a global impact. With the U.S. market now oversupplied, and storage filled to the brim, there's been much less room for LNG. As a result more LNG is going into Europe, leading to lower spot prices and talk of modifying long-term contracts.

But is unconventional natural gas going to go global? Preliminary estimates suggest that shale gas resources around the world could be equivalent to or even greater than current proven natural gas reserves. Perhaps much greater. But here in the U.S., our independent oil and gas sector, open markets and private ownership of mineral rights facilitated development. Elsewhere development will require negotiations with governments, and potentially complex regulatory processes. Existing long-term contracts, common in much of the natural gas industry outside the U.S., could be another obstacle. Extensive new networks of pipelines and infrastructure will have to be built. And many parts of the world still have ample conventional gas to develop first.

Yet interest and activity are picking up smartly outside North America. A shale gas revolution in Europe and Asia would change the competitive dynamics of the globalized gas market, altering economic calculations and international politics.

This new innovation will take time to establish its global credentials. The U.S. is really only beginning to grapple with the significance. It may be half a decade before the strength of the unconventional gas revolution outside North America can be properly assessed. But what has begun as the shale gale in the U.S. could end up being an increasingly powerful wind that blows through the world economy.

Mr. Yergin, author of the Pulitzer Prize-winning "The Prize: The Epic Quest for Oil, Money, & Power" (Free Press, new edition, 2009) is chairman of IHS CERA. Mr. Ineson is senior director of global gas for IHS CERA.

CIT's Bankruptcy Lesson - Treasury proves it can't identify systemic risk

CIT's Bankruptcy Lesson. WSJ Editorial
Treasury proves it can't identify systemic risk.
The Wall Street Journal, page A20

The $2.3 billion of Troubled Asset Relief Program money that will likely be lost in the bankruptcy of commercial lender CIT is hard to swallow, but it may be the most instructive loss taxpayers absorb all year.

Just as the Treasury Department is urging Congress to junk the bankruptcy process and hand over virtually unlimited bailout authority to the executive branch, CIT is proving two things: Bankruptcy works—even for financial firms—and the U.S. Treasury judges systemic risk out of its political hip pocket.

Treasury provided the $2.3 billion TARP injection last December. Then when CIT was on the ropes last July, Treasury urged the Federal Deposit Insurance Corp. to provide debt guarantees to help the company raise capital. Treasury made the case that a CIT failure posed a systemic risk given the number of small and medium-sized companies that rely on CIT for short-term financing.

We argued against this in July. More importantly, FDIC Chair Sheila Bair rejected it. Since her wise decision, CIT has been providing a laboratory to observe the recuperative pain of bankruptcy in an experiment uncontrolled by politicians.

With no federal lifeline coming, the company's major bondholders quickly agreed to a $3 billion secured loan facility and the company began restructuring its liabilities. It became clear that bankruptcy would be necessary and the company recently gained the support of almost 90% of its voting debt holders for a prepackaged reorganization plan that could allow the lender to emerge from Chapter 11 by the end of the year.

While the holding company declared bankruptcy on Sunday, its operating subsidiaries remain outside Chapter 11 and continue to serve customers. Some are choosing to continue with CIT, others are choosing to go with a competitor. Armageddon it is not.

Bankruptcy is a process under the rule of law that is demanded by the Constitution. "Markets not ministers," says former SEC Chairman Richard Breeden in summing up his preference for bankruptcy guided by judges over interventions crafted by politicians. Let's hope CIT's example brings the former back into fashion.