North Korea restarts plutonium production for nuclear bombs

North Korean leader Kim Jong Un visits the construction site of Ryongaksan soap factory in this undated photo released by North Korea's Korean Central News Agency

By Jonathan Landay, David Brunnstrom and Matt Spetalnick

WASHINGTON (Reuters) – North Korea has restarted production of plutonium fuel, a senior U.S. State Department official said on Tuesday, showing that it plans to pursue its nuclear weapons program in defiance of international sanctions.

The U.S. assessment came a day after the U.N. nuclear watchdog said it had “indications” that Pyongyang has reactivated a plant to recover plutonium from spent reactor fuel at Yongbyon, its main nuclear complex.

The latest developments suggest North Korea’s reclusive regime is working to ensure a steady supply of materials for its drive to build warheads, despite tightened international sanctions after its fourth nuclear test in January.

The U.S. official, who spoke on condition of anonymity, said that Washington is worried by the new plutonium reprocessing effort, but he offered no explicit word on any U.S. response.

“Everything in North Korea is a cause for concern,” the official told Reuters.

“They take the spent fuel from the 5 megawatt reactor at Yongbyon and let it cool and then take it to the reprocessing facility, and that’s where they’ve obtained the plutonium for their previous nuclear tests. So they are repeating that process,” the official said. “That’s what they’re doing.”

North Korea, which conducted its fourth nuclear test in January, vowed in 2013 to restart all nuclear facilities, including the main reactor and the smaller plant at Yongbyon, which was shut down in 2007 as part of an international disarmament-for-aid deal that later collapsed.

The International Atomic Energy Agency (IAEA), which has no access to North Korea and mainly monitors its activities by satellite, said last year it had seen signs of a resumption of activity at Yongbyon.

IAEA chief Yukiya Amano told a news conference in Vienna on Monday that there have been indications of renewed plutonium reprocessing activities at Yongbyon. Reprocessing involves extracting plutonium from spent reactor fuel, one route to obtaining bomb fuel other than uranium enrichment.

“I would agree that there are indications,” the U.S. official said.

The official declined to confirm whether this determination was made from satellite imagery or intelligence sources, or to say how much plutonium North Korea could produce by this method.

South Korea’s Unification Ministry spokesman Cheong Joon-hee said Seoul was closely watching movements related to the North’s nuclear facility “with grave concern” but declined to comment directly on plutonium production.

A spokesman for China’s Foreign Ministry said China, North Korea’s lone major ally, has always promoted the denuclearization of the Korean peninsula and a resolution of the issue via talks.

“We hope all parties can work hard together to put the nuclear issue back on the track of dialogue and negotiations,” spokesman Hong Lei told reporters.

SHROUDED IN SECRECY

North Korea announced at a rare congress of its ruling Workers’ Party last month that it would strengthen its defensive nuclear weapons capability.

It had already declared itself “a responsible nuclear weapons state” and disavowed the use of nuclear weapons unless its sovereignty is first infringed by others with nuclear arms.

While North Korea in the past has often obtained key components for its nuclear program from other countries despite international sanctions, there was no sign of any recent outside procurement involved in reactivating its plutonium reprocessing, the U.S. official said.

There is little proven knowledge about the quantities of weapons-grade uranium or plutonium that North Korea possesses, or its ability to produce either, though plutonium from spent fuel at Yongbyon is widely believed to have been used in its nuclear bombs.

South Korean Defense Minister Han Min-koo said last month the North probably had about 40 kg (88 lb) of plutonium. That would be enough to make eight to 10 bombs, according to experts.

Operating the 5 megawatt reactor could yield about 5-6 kg of plutonium a year, they said.

Experts at the U.S.-Korea Institute at Johns Hopkins University’s School of Advanced International Studies in Washington predicted last year that North Korea’s nuclear weapons stockpile could grow to 20, 50 or 100 bombs within five years, from an estimated 10 to 16 weapons at that time.

North Korea has come under tightening international pressure over its nuclear weapons program, including tougher U.N. sanctions adopted in March backed by China, following its most recent nuclear blast and ballistic missile tests.

The website 38 North reported last week, based on commercial satellite imagery, that exhaust plumes had been detected twice in May from the thermal plant at Yongbyon’s Radiochemical Laboratory, the site’s main reprocessing installation.

The Institute for Science and International Security also reported exhaust emissions from a chimney at the plant, which it said was often associated with reprocessing activities there.

(Additional reporting by Jack Kim in Seoul and Ben Blanchard in Beijing; Editing by James Dalgleish and Nick Macfie)

Congress has launched investigation into FED’s cyber security

The Federal Reserve building in Washington

By Dustin Volz and Jason Lange

WASHINGTON (Reuters) – A U.S. congressional committee has launched an investigation into the Federal Reserve’s cyber security practices after a Reuters report revealed that the U.S. central bank had been hacked more than 50 times between 2011 and 2015.

The House Committee on Science, Space and Technology on Friday sent a letter to Federal Reserve Chair Janet Yellen to express “serious concerns” over the central bank’s ability to protect sensitive financial information.

The letter cited the Reuters report, which was based on heavily redacted internal Fed records obtained through a Freedom of Information Act request. The redacted records did not say who hacked the bank’s systems or whether they accessed sensitive information or stole money.

“These reports raise serious concerns about the Federal Reserve’s cyber security posture, including its ability to prevent threats from compromising highly sensitive financial information housed on the agency’s systems,” said the letter, signed by House Science Committee Chairman Lamar Smith, a Texas Republican, and Barry Loudermilk, a Georgia Republican and chairman of the panel’s oversight subcommittee.

The Fed had declined to comment on the cyber breaches reported by Reuters on Wednesday.

The panel asked the Fed’s national cyber security team – the National Incident Response Team – to turn over all cyber incident reports in unredacted form from Jan. 1, 2009, to the present. It also asked for incident reports from the Fed’s local incident response teams.

Global policymakers, regulators and financial institutions have become increasingly concerned about the security of the international banking system after a string of cyber attacks against banks in Bangladesh, Vietnam and elsewhere linked to fraudulent transaction messages sent across the global financial platform SWIFT.

The probe into the Fed’s security practices followed a separate inquiry by the same committee into the Federal Reserve Bank of New York’s handling of the cyber theft of $81 million from one of its accounts held by the central bank of Bangladesh.

The committee said it has jurisdiction over the Fed’s cyber security because the panel is tasked with oversight of the U.S. National Institute of Standards and Technology, an agency responsible for developing federal cyber security standards and guidelines, under a 2014 federal information technology law.

The panel also requested a “detailed description of all confirmed cyber security incidents” from 2009 to the present, all documents and communications referring or relating to “higher impact cases” handled by the Fed’s NIRT team, all documents and communications with the Fed’s Office of Inspector General related to confirmed cyber incidents, and an organizational chart detailing the Fed’s top cyber security personnel.

The committee requested a response to its inquiry by June 17.

(Reporting by Dustin Volz and Jason Lange; Editing by David Chance and Tiffany Wu)

Iran’s Khamenei says U.S., ‘evil’ Britain can’t be trusted

Iran's Supreme Leader Ayatollah Ali Khamenei

By Parisa Hafezi

ANKARA (Reuters) – Iranian Supreme Leader Ayatollah Ali Khamenei said on Friday Tehran had no intention of cooperating on regional issues with its main enemies, the United States and “evil” Britain.

Khamenei also accused Washington of not being committed to a nuclear deal reached between Tehran and six major powers, including the United States, in 2015 that aims to curb the country’s disputed nuclear program.

Under the agreement, economic sanctions were lifted in January after Iran suspended sensitive nuclear work that the West suspects was aimed at creating a nuclear bomb. Iran denies seeking a nuclear bomb.

Inflation, unemployment and other economic hardships persuaded Khamenei to support President Hassan Rouhani on the nuclear question aimed at improving the parlous state of Iran’s economy.

“America has continued its enmity toward Iran since (the 1979 Islamic) revolution … It is a huge mistake to trust evil Britain and the Great Satan (the United States),” Khamenei said in a speech broadcast live on state TV.

“We will not cooperate with America over the regional crisis,” he said, adding that: “Their aims in the region are 180 degrees opposed to Iran’s.”

Relations with Washington were severed after Iran’s 1979 Islamic revolution and enmity to the United States has always been a rallying point for hardliner supporters of Khamenei in Iran.

Tehran and Washington have common interests and threats across the Middle East. They have cooperated tactically in the past, including when Tehran helped Washington counter al Qaeda in Afghanistan and Islamic State militants (IS) in Iraq.

The United States and its allies in the Middle East accuse Iran of supporting terrorism and interfering in the affairs of regional states, including Syria, Yemen and Iraq.

Tehran is Syrian President Bashar al-Assad’s main regional ally and has provided military and economic support to his fight against rebel groups and IS.

Following the end of the sanctions on Iran, the country has started to increase trade with the West. But some U.S. sanctions remain and U.S. banks remain prohibited from doing business with Iran directly or indirectly because Washington still accuses Tehran of supporting terrorism and human rights abuses.

“They use human rights, terrorism … as pretexts to avoid fulfilling their commitments,” Khamenei said.

“If we remain strong and united and revolutionary, those who are trying to bully Iran and are against us will not succeed,” he told a gathering to commemorate the anniversary of the death of the revolution’s founder, Ayatollah Rouhollah Khomeini, in 1989.

Iran has repeatedly urged Washington to do more to remove obstacles to the banking sector.

Khamenei, whose hostility toward Washington holds together Iran’s faction-ridden leadership, said Iran should “remain cautious in its economic interaction with the West”.

(Writing by Parisa Hafezi; Editing by Gareth Jones)

U.S. expects announcement soon on Korea anti missile system

A Terminal High Altitude Area Defense (THAAD) interceptor is launched during a successful inter

SINGAPORE (Reuters) – Plans for the deployment of the U.S. THAAD anti-missile system in South Korea are moving forward and an announcement can be expected soon, senior U.S. officials said on Thursday.

U.S. Defense Secretary Ash Carter told reporters en route to a regional security meeting in Singapore, at which he will meet his South Korean counterpart, that recent North Korean missile tests showed the need for improved missile defenses, even though the test had been failures.

“There have been five consecutive failures there, but…most of the world continues to be concerned about North Korean missile activity,” Carter said after what U.S. and South Korean officials say was the latest failed test of a North Korean intermediate range Musudan missile on Tuesday.

“Whatever the outcome of the test, the fact remains that they are trying to make those missiles fly – that’s the critical fact,” Carter said.

Carter said deployment of the Terminal High Altitude Area Defense system would come up in his meeting on Saturday with the South Korean defense minister on the sidelines of the annual Shangri-La Dialogue in Singapore, but added: “It’s not something we need to discuss much because the plans are moving forward.”

He waved aside concerns expressed by China that deployment of the THAAD system’s radars on the Korean peninsula could upset the balance of power by reducing the strategic deterrence of the Chinese ballistic missile system.

“This is an alliance decision; a decision of the United States and the Republic of Korea, which is about protecting us both from a North Korean missile attack …The implementation will be a series of decisions that we take together and it’s for our own protection against North Korea. Everybody should understand that.”

Another senior U.S. defense official said they were still “a lot of technical issues to get through,” but “we will have a public announcement soon.” “We are in the process of continuing our discussions on deployment and we will have an announcement when we’re ready,” he said, speaking on condition of anonymity.

The United States and South Korea began formal discussions on deploying the THAAD system in South Korea after North Korea conducted a fifth nuclear test in January and launched a rocket into space the following month as part of a program seen as a cover for intercontinental ballistic missile development.

(Editing by Chizu Nomiyama)

Philippines says China broke deal on South China Sea agreement

File photo of two Chinese surveillance ships which sailed between Philippines warship and Chinese fishing

MANILA (Reuters) – Philippine President Benigno Aquino on Thursday accused China of breaking a U.S.-brokered deal between the two nations on the Scarborough Shoal, an uninhabited rocky outcrop in the South China Sea.

China claims almost the entire South China Sea, believed to have rich deposits of oil and gas. Brunei, Malaysia, Taiwan, Vietnam and the Philippines also claim the waterway, through which about $5 trillion in ship-borne goods pass every year.

Beijing seized control of Scarborough Shoal, near the main Philippine island of Luzon, in June 2012, following a three-month standoff after a Philippine Navy vessel tried to arrest Chinese fishermen found illegally hauling giant clams there.

On Thursday, Aquino said the United States moved in quickly to resolve the standoff, brokering a “face-saving” deal by asking both nations to pull out their ships, but only the Philippines withdrew.

“Now, their continued presence is something that we have continuously objected to,” Aquino told reporters in his hometown in Tarlac, north of the Philippine capital.

“There was a deal, which we observed religiously. We hope the other side will do what we have done.”

China’s embassy in Manila did not respond to Reuters’ request for comment on Aquino’s remarks.

Beijing has denied ever making a deal with Manila and Washington, a Philippine diplomat who was involved in the negotiations told Reuters, on condition of anonymity, because he was not authorised to speak to the media.

China has reclaimed seven reefs in the Spratlys islands, building two airfields, ports, lighthouses radars, and other military structures, which the United States has called a clear move to militarise the disputed area.

In March, Washington warned that China might next reclaim the Scarborough Shoal, after Beijing sent survey ships to the area, although a Philippine military aircraft despatched to check the reports did not find a survey ship there.

“China is not reclaiming Scarborough Shoal,” Aquino said, allaying the fears that Beijing might reclaim the shoal, just outside the former U.S. naval base in Subic.

There have been many “red lines” in China’s assertive behaviour in the South China Sea, Aquino added, such as harassing a survey ship hired by an Anglo-Philippine firm seeking oil and gas in the Reed Bank.

Both Reed Bank and Scarborough Shoal lie in the Philippines’ 200-mile exclusive economic zone, Aquino said, calling China’s actions a violation of a 2002 pact on the South China Sea between China and ten Southeast Asian nations.

(Reporting by Manuel Mogato; Editing by Clarence Fernandez)

Wall Street rises more than one percent as bank, tech stocks jump

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S.

By Tanya Agrawal

(Reuters) – U.S. stocks rose to their highest in the last seven sessions on Tuesday, helped by gains in technology and financial stocks.

The S&P financial sector got a big boost from a rise in banking stocks as investors speculated on the possibility of a June interest rate hike.

Bank of America, JPMorgan, and Citigroup,were all up more than 1.5 percent each.

Minutes of the Federal Reserve’s April meeting suggested a June rate hike had not been ruled out, surprising investors who had thought the Fed would stand pat until the end of the year.

“I think investors are becoming more comfortable with an early rate hike because even if the Fed does raise rates in June, it will remain extremely accommodative,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

“I think the Fed wants to recalibrate the market’s expectations regarding a hike.”

Several Fed officials struck hawkish tones in separate speeches on Monday, calling for two-three rate hikes in 2016 if supported by economic data.

Fed Chair Janet Yellen speaks on Friday.

Traders are now pricing in a 39 percent chance of a June hike, up from 4 percent last week, as inflation creeps toward the Fed’s 2 percent target rate and the labor market strengthens.

Data on Tuesday showed new U.S. single-family home sales surged to a more than eight-year high in April and prices hit a record high, offering further evidence of a pick-up in economic growth.

The Philadelphia Housing Index climbed to a one-month high after the data.

At 11:07 a.m. ET (1507 GMT) the Dow Jones industrial average was up 209.97 points, or 1.2 percent, at 17,702.9,  was up 26.04 points, or 1.27 percent, at 2,074.08 and the Nasdaq Composite was up 79.28 points, or 1.66 percent, at 4,845.06.

The S&P rose above its 50-day moving average for the first time in four days. The index has not closed above the closely watched metric in almost two weeks.

The gains were broad-based, with all 10 S&P sectors in the black. The technology index’s 1.65 percent rise led the advance.

Oil reversed early losses to turn positive, as investors awaited crude oil inventory data from the United States that was expected to show a shrinking supply overhang. [O/R]

Toll Brothers shares were up 5.4 percent at $28.55 as the company’s quarterly revenue beat expectations.

Twitter fell as much as 4.8 percent to a record low at $13.72 after brokerage MoffetNathanson downgraded the company’s stock to “sell” from “neutral”.

Advancing issues outnumbered decliners on the NYSE by 2,351 to 549. On the Nasdaq, 2,090 issues rose and 515 fell.

The S&P 500 index showed 25 new 52-week highs and one new low, while the Nasdaq recorded 66 new highs and 18 new lows.

(Reporting by Tanya Agrawal; Editing by Anil D’Silva)

U.S. security union wants more screeners to ease airport delays

Passengers make their way through a terminal at O'Hare International Airport in Chicago, Illinois

By Suzannah Gonzales

CHICAGO (Reuters) – The union for transportation security officers on Tuesday urged the U.S. Congress to pay for 6,000 more full-time workers who conduct screenings to alleviate long lines at U.S. airports, a problem that caused a shakeup in the U.S. Transportation Security Administration’s management.

The American Federation of Government Employees, the officers’ union, asked lawmakers to approve emergency legislation to fund additional screeners needed after years of staffing cuts and growing numbers of passengers, it said in a statement.

“It’s time for Congress to stop the waiting games and give TSA the resources it needs to meet growing demands at our nation’s airports,” J. David Cox Sr., the union’s national president, said in the statement.

Long security lines at U.S. airports this spring have frustrated travelers and caused thousands of passengers to miss flights. The TSA has blamed the problem on a lack of security screeners and an increase in passengers.

In a letter last week to the U.S. Senate Appropriations Committee, 22 Democratic senators and one independent also asked for more TSA funding to help address long wait times.

Republican U.S. Representative John Katko, chairman of a House transportation security subcommittee, called on the Senate to act on his TSA PreCheck proposal, which would streamline screening for low-risk passengers who undergo an assessment.

The TSA’s head of security was removed from his position after the agency was criticized for long lines at airport security checkpoints.

Kelly Hoggan, who had been TSA assistant administrator for security operations since May 2013, was replaced by his deputy, Darby LaJoye, on an interim basis, according to an internal memo from agency head Peter Neffenger.

The TSA has about 42,000 officers, down from 47,000 in 2013, the union’s statement said.

Meanwhile, the volume of passengers has increased 15 percent to 740 million currently and is projected to exceed 800 million this year, the union said, citing federal data.

Neffenger told a news conference on Friday that his agency was accelerating plans to add security staff and bomb-sniffing dogs at Chicago’s two major airports after a “breakdown” that included not having enough checkpoint lanes open.

(Reporting by Suzannah Gonzales; Editing by Daniel Trotta and Lisa Von Ahn)

In Iran, opportunities of nuclear deal are slow to appear

Iran's President Hassan Rouhani speaks during a news conference in Islamabad, Pakistan

By Samia Nakhoul and Richard Mably

TEHRAN (Reuters) – Hopes that Iran would quickly reintegrate with world markets after its nuclear deal, bringing investment and opportunities to a young population, are turning to frustration. An opaque business environment in Iran and political uncertainty in the United States are to blame.

Tehran’s hotels are buzzing with businessmen keen for a slice of a big new emerging market, more industrially developed than most oil and gas-rich nations but isolated since the 1979 Islamic Revolution that turned Iran into a pariah state for most of the West and many of its Middle Eastern neighbors.

Yet potential foreign investors have found that the removal of international sanctions in exchange for monitored curbs on Iran’s nuclear program is only part of the story.

Barriers to entry include resistance from hardliners within Iran who worry an opening to the world will undermine their entrenched interests, and fear among foreign investors of falling foul of residual U.S. sanctions.

Under the nuclear deal, the U.S. and Europe lifted sanctions in January. But other U.S. restrictions remain. These include a ban on Iran-linked transactions in dollars being processed through the U.S. financial system and sanctions on individuals and entities identified as supporting “state-sponsored terrorism”.

The chief target of the anti-terrorism sanctions is the Islamic Revolutionary Guard Corps (IRGC), the theocratic establishment’s enforcer at home and strike-force abroad. The IRGC is also behind a business empire, encompassing construction to banking, and is expert at hiding its involvement.

Investors and top-tier foreign banks fear U.S. action could shut them out of the international banking system if they deal, even by mistake, with sanctioned bodies.

Adding to the uncertainty, Iranian analysts and foreign executives say, is the rise of Donald Trump, the U.S. tycoon set to clinch the Republican nomination in this year’s presidential election, who has threatened to tear up the Iran deal.

Yet even without this uncertainty, prospective dealmakers are finding themselves blocked.

 

IRGC TIES

Foreign executives scouting for business in Iran say when they examine the tangle of ownership behind companies they approach, they often detect IRGC ties.

Claude Begle, executive chairman of SymbioSwiss, a logistics and infrastructure company, says he found that one exploratory project turned up such links.

“We did a lot of due diligence and we found that the names of institutions appearing on the OFAC (the US Treasury’s Office of Foreign Assets Control) sanction list are sometimes not far away,” he said in apparent reference to the Revolutionary Guard.

“When you look at the shareholders structure at the second or third level, then you see that such names may appear. They are sitting there.”

“Very often when you look at Iran’s successful companies, you can see that. And unless those companies are willing to modify accordingly their board structures, it will be very hard to raise international financing to work with such entities.”

The central problem for potential foreign investors is that even unwitting contact with an Iranian counterparty under sanctions could result in heavy U.S. Treasury penalties, effectively cutting them off from America’s financial markets – a powerful disincentive for any globalized business.

Alexander Gorjinia, part of the second German business delegation to visit Iran since August 2015, says “the biggest problem is the banks”.

While businesses and banks may have German go-ahead to operate in Iran, OFAC “puts the responsibility of establishing whether the (Iranian) company is clean on the foreign company.”

“The foreign company has to investigate the Iranian company, whether it is linked to or is part of the Iranian Revolutionary Guard,” Gorjinia told Reuters.

“It has to investigate their dealings, how they operate behind the scenes. We have to work with companies that have money in their pocket and most of them are part of the Revolutionary Guard. This is what our information tells us.”

European companies feel all these rules are part of a U.S. administration plan to block business between Europe and Iran, he complains.

Part of the problem is that units of the Revolutionary Guard are intervening in several of the wars across the Middle East.

In Iraq, Iran is aligned with the U.S. in the fight against the jihadis of Islamic State. But in Syria it is on the opposite side along with Russia, propping up the government of President Bashar al-Assad, while in Yemen Tehran has backed the Shi’ite Houthi insurgency that last year prompted U.S. ally Saudi Arabia to launch an air war across its southern border.

Few expect the U.S. to loosen sanctions on the IRGC and its business empire against this backdrop.

 

FEAR AMONG BANKS

While Western businessmen commonly assume that their Chinese or Russian counterparts would be less inhibited by US sanctions, one Chinese executive in Tehran, who asked not to be named, also highlights the issue that international banks, fearful of being locked out of US capital markets, are so far spurning Iran.

Representing an oil and gas machinery company, he has visited Iran several times after the nuclear accord, but has yet to sign a single deal. Most Iranian companies, he says, even when there is clear demand for his drilling equipment, “don’t have money to pay”.

“They ask the sellers to provide financing,” he says “but that is impossible because throughout the world no foreign bank dares to do business with Iranian banks because they are scared…until the big (international) banks start doing business, but European banks are still scared of U.S. banks.”

Iranian leaders are complaining they have been short-changed on the sanctions relief part of the nuclear deal.

“On paper the United States allows foreign banks to deal with Iran, but in practice they create Iranophobia so no one does business with Iran,” Ayatollah Khamenei said last month.

Begle, the Swiss executive, says President Hassan Rouhani earlier this year asked the visiting Swiss president to press leading Swiss banks to start financing foreign operations in Iran.

“But of course the Swiss government cannot tell a private company to do this,” Begle says. “It can indicate that it would see it favorably, it can even consider some guarantees, but after all, it is a decision for the bank itself.”

HOSTILITY

There are other obstacles. The IRGC and other vested interests built up by hardliners grouped around Ayatollah Ali Khamenei, the Supreme Leader, are hostile to foreign entry into Iran’s economy.

Khamenei, whose power far outweighs that of Iran’s elected officials in parliament or the presidency, gave decisive support to the nuclear deal which greatly strengthened the position of Rouhani, the reform-minded centrist president.

Rouhani, in coalition with reformists and independent conservatives, wrested back control of parliament from hardliners in February’s elections. This, some of his allies believe, should make it easier for the government to introduce business-friendly laws.

Yet four years ago, parliament passed a law intended to reduce the state’s role in the economy, put in place credible regulators and investor guarantees, and eventually get entities like those controlled by the IRGC to pay taxes. It has not been implemented.

Rouhani embodies popular expectations that IRGC-linked vested interests seem determined to thwart, some Iranian analysts believe, because sanctions have enabled them to win and keep control of the economy.

Hossein Raghfar, professor of economics at Tehran’s Alzahra University, says “there are many interest groups that have become very rich because of the economic crisis. They don’t want sanctions to be lifted.”

Saeed Laylaz, an economist close to Rouhani, says Iran’s economy was brought to its knees more by mismanagement than by sanctions. Jailed after hardliners cracked down on protests at the allegedly rigged presidential vote that gave Mahmoud Ahmadinejad a second term in 2009, he does not underestimate the hostility of vested interests towards a more open economy.

“I strongly believe some clear part of the regime has and had the project of creating sanctions against Iran to hide their mismanagement and their organized looting of economic wealth.”

To change the general atmosphere for business in the country, the Supreme Leader, the Revolutionary Guard and the judicial system must all be on board, Laylaz says.

“These are very important elements to attract foreign investment, just having the support of parliament doesn’t work at all. Because of this I am not too optimistic about it.”

(Created by Samia Nakhoul, editing by Janet McBride)

End to embargo on sales of arms to Vietnam

Vietnamese soldiers of a commando unit march during a parade marking their 70th National Day at Ba Dinh square in Hanoi,

By Matt Spetalnick

HANOI (Reuters) – The United States announced an end to its embargo on sales of lethal arms to Vietnam on Monday, an historic step that draws a line under the two countries’ old enmity and underscores their shared concerns about Beijing’s growing military clout.

The move came during President Barack Obama’s first visit to Hanoi, which his welcoming hosts described as the arrival of a warm spring and a new chapter in relations between two countries that were at war four decades ago.

Obama, the third U.S. president to visit Vietnam since diplomatic relations were restored in 1995, has made a strategic ‘rebalance’ toward Asia a centerpiece of his foreign policy.

Vietnam, a neighbor of China, is a key part of that strategy amid worries about Beijing’s assertiveness and sovereignty claims to 80 percent of the South China Sea.

The decision to lift the arms trade ban, which followed intense debate within the Obama administration, suggested such concerns outweighed arguments that Vietnam had not done enough to improve its human rights record and Washington would lose leverage for reforms.

Obama told a joint news conference with Vietnamese President Tran Dai Quang that disputes in the South China Sea should be resolved peacefully and not by whoever “throws their weight around”. But he insisted the arms embargo move was not linked to China.

“The decision to lift the ban was not based on China or any other considerations. It was based on our desire to complete what has been a lengthy process of moving towards normalization with Vietnam,” he said. Obama later added his visit to a former foe showed “hearts can change and peace is possible”.

The sale of arms, Obama said, would depend on Vietnam’s human rights commitments, and would be made on a case-by-case basis.

HUMAN RIGHTS GROUP OUTRAGED

Human Rights Watch reacted with dismay to Washington’s decision to toss away a critical lever it might have had to spur political reform in the Communist party-ruled state.

Phil Robertson, the watchdog’s Asia director, said in a statement that even as Obama was lifting the arms embargo Vietnamese authorities were arresting a journalist, human rights activists and bloggers on the street and in their houses.

“In one fell swoop, President Obama has jettisoned what remained of U.S. leverage to improve human rights in Vietnam – and basically gotten nothing for it,” he said.

Obama told the news conference with President Quang Washington would continue to speak out for human rights, including citizens’ right to organize through civil society.

Obama is scheduled to meet with a group of activists on Tuesday.

Quang, who actually announced the lifting of the U.S. embargo before Obama could do so, was until recently minister of public security, which activists say harasses and arrests dissidents.

Dissent was once the domain of just a few in Vietnam, but while the party has allowed more open criticism in recent years, it is quick to slap down challenges to its monopoly on power.

LEVERAGE ON ARMS DEALS

Though the communist parties that run China and Vietnam officially have brotherly ties, China’s brinkmanship over the South China Sea – where it has been turning remote outcrops into islands with runways and harbors – has forced Vietnam to recalibrate its defense strategy.

Security analysts and regional military attaches expect Vietnam’s initial wish list of equipment to cover the latest in surveillance radar, intelligence and communications technology, allowing them better coverage of the South China Sea as well as improved integration of its growing forces.

Washington has allowed sales of defensive maritime equipment since 2014. Hanoi’s military strategists are expected to now seek drones, radar, coastal patrol boats and possibly P-3 Orion surveillance aircraft from the United States.

Carl Thayer, an expert on Vietnam’s military at Australia’s Defence Force Academy, said the steep costs of U.S. arms would remain a factor for Hanoi, pushing it toward its traditional suppliers of missiles and planes, particularly long-time security patron, Russia. On the other hand, the lifting of the embargo will provide Vietnam with leverage in future arms deals with those suppliers.

China sees U.S. support for rival South China Sea claimants Vietnam and the Philippines as interference and an attempt to establish hegemony in the region. Washington insists its priority is ensuring freedom of navigation and flight.

However, China’s response to the announcement in Hanoi was muted. The foreign ministry said it hoped the development in relations between the United States and Vietnam would be conducive to regional peace and stability.

Underlining the burgeoning commercial relationship between the United States and Vietnam, one of the first deals signed on Obama’s trip was an $11.3 billion order for 100 Boeing planes by low-cost airline VietJet.

China is Vietnam’s biggest trade partner and source of imports. But trade with the United States has swelled 10-fold over the past two decades to about $45 billion. Vietnam is now Southeast Asia’s biggest exporter to America.

In the commercial hub, Ho Chi Minh City, formerly Saigon, Obama will on Tuesday meet entrepreneurs and tout a Trans-Pacific Partnership trade deal he has championed.

Obama said at the news conference he was confident the trade pact would be approved by U.S. legislators, even though it is an election year. He said he had not seen a credible argument that the deal, which will group 12 economies, would hurt U.S. business.

(Additional reporting by Mai Nguyen, Ho Binh Minh, My Pham and Martin Petty in HANOI and by Greg Torode in HONG KONG; Writing by John Chalmers)

Fed’s Bullard: rates too low for too long, risky

St. Louis Fed President James Bullard speaks about the U.S. economy during an interview in New York February 26, 2015.

By Elias Glenn

BEIJING (Reuters) – U.S. interest rates being kept too low for too long could cause financial instability in future and stronger market expectations for a rate rise are “probably good”, St. Louis Federal Reserve President James Bullard said on Monday.

A relatively tight labor market in the United States may also exert upward pressure on inflation, raising the case for higher interest rates, Bullard added.

His comments come as financial markets have increased expectations for a U.S. interest rate hike in June or July and a range of policymakers are now stating that a rise is firmly on the table for the next policy meeting in June.

“I do worry that keeping rates too low for too long could feed into future financial instability even if it doesn’t look like we’re in that situation today,” Bullard, a voting member of the Fed’s policy-setting committee, told reporters.

Market assessment for a Fed rate rise had been close to zero, and the idea it has come off zero is “probably good”, he said. “It does depend on the data and it’s certainly not 100 percent, but it’s not zero either. Some probability in between is the right thing to think at this point.”

Bullard said the U.S. labor market was performing well and global headwinds that had partly prevented the Federal Reserve from raising rates again may have waned.

The Federal Open Market Committee has laid out a data-dependent “slow normalization” of rates, he said, thereby the nominal policy rate would gradually rise over the next several years provided the economy evolves as expected.

“Labor markets are relatively tight. This may put upward pressure on inflation going forward,” he said. “This is an important factor supporting the FOMC view on the expected path of the policy rate.”

Expectations for a June rate hike rose last week following minutes from the central bank’s April policy meeting released on May 18 that showed Fed officials felt the U.S. economy could be ready for another interest rate increase.

A possible British exit from the European Union in a vote next month will not affect the Fed’s upcoming decision on rates, Bullard said.

“Even if it’s a vote to exit the EU, the next day nothing happens, because you have two years of negotiation during which new trade arrangements have to be set up,” he said. “I also see the probability of an exit vote has fallen somewhat lately.”

Some policymakers at the April meeting had said they were concerned financial markets could be roiled by Brexit or by China’s exchange rate policies.

In deciding whether to raise rates, the Fed looks for improvement in the economy and jobs, and evidence inflation is moving toward its 2 percent target.

The Fed last month kept its target overnight interest rate in a range of 0.25 percent to 0.50 percent. It raised interest rates in December after keeping them near zero for nearly a decade to help the economy recover from a steep recession.

(Writing by Kevin Yao; Editing by Jacqueline Wong)