The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight: A summary of the news; the latest on the Afghan war; a look at the prospects for a new government in Afghanistan analysis of the economic uproar and chaos in Argentina; and the weekly analysis of Mark Shields and David Brooks.

NEWS SUMMARY

JIM LEHRER: More U.S. troops will join the search for Osama bin Laden and his supporters in the caves of eastern Afghanistan. That was confirmed today at the Pentagon. There was no word on how many Marines or army soldiers would be involved. As of today, 7,0uspected Taliban and al-Qaida fighters were already in custody in Afghanistan. At the White House, President Bush said the U.S. would be patient and relentless until bin Laden himself is found.

PRESIDENT GEORGE W. BUSH: He could be in a cave that has-- that doesn't have an opening to it anymore. Or he could be in a cave where he can get out or may have tried to slither out into neighboring Pakistan. We don't know. But I will tell you this. We're going to find him. I am not the least bit anxious about bringing a particular individual to justice. I know that we've disrupted the al-Qaida network.

JIM LEHRER: The President also said the U.S. would glean even more intelligence once a new Afghan government takes office tomorrow. And in the matter of John Walker, the American Taliban, Mr. Bush said he had not ruled out a charge of treason. He said he'd take time making the decision because it could set a precedent. Tensions between India and Pakistan worsened today. India recalled its ambassador, and shut down rail and bus lines to Pakistan, and each side claimed the other was moving troops along the border. It all stemmed from last week's attack on the Indian parliament that killed 14 people. India blames militants backed by Pakistan, but the Pakistanis deny any involvement. The two countries have fought three wars since gaining independence in 1947. In the Middle East today, the Islamic militant group Hamas called a halt to suicide attacks on Israel. But there was deadly new fighting between militants and Palestinian police. We have a report from Sue Turton of Independent Television News.

SUE TURTON: The statement issued by Hamas leaders referred only to stopping suicide attacks in Israel, not the West Bank or Gaza Strip. The ban on mortar fire, however, will include both Israel and Palestinian territories. It was some sort of breakthrough for Yasser Arafat attending Friday prayers in Ramallah today. His calls for a cease-fire have fallen on deaf ears until now. Afafat's under intense U.S. and European pressure to stop all the attacks on Israel. The Israeli foreign minister, Shimon Peres, was cautious.

SHIMON PERES: I must say that tonight the Palestinian authority started really to act more serious here. I hope it will continue.

SUE TURTON: It didn't look to be even a fragile peace in northern Gaza today. Fighting between Palestinians police and supporters of the Hamas and Jihad groups in a refugee camp left five people dead and dozens hurt.

JIM LEHRER: Late today, doctors said a sixth Palestinian had died in the fighting. Argentina's congress accepted the resignation of president de la Rua today. The leader of the country's Senate, Ramon Puerta, automatically became head of the government. Lawmakers meet again tomorrow to discuss the transition further. Around the country, calm returned to the streets, after two days of riots over economic austerity measures. At least 22 people died during the violence. We'll have more on the story later in the program. The U.S. economy had an even tougher third quarter than earlier estimates. The Commerce Department reported today the Gross Domestic Product fell at an annual rate of 1.3% from July through September. It was the worst showing in ten years. The Department also said consumer spending dropped 0.7% in November, but a closely watched index of consumer sentiment from the University of Michigan was up in December for the third straight month. The Pentagon announced today it will resume test flights of the V-22 Osprey next April. The tilt-rotor aircraft was grounded last year after two crashes killed 23 Marines. A top Defense Department official said several outside groups had reviewed the V-22 program.

PETE ALDRIDGE: While these groups did not find any fundamental reason the airplane would not work, they did make numerous recommendations regarding how to conduct continued flight tests. I personally still have some doubts. But the only way to prove the case one way or the other is to put the airplane back into flight tests.

JIM LEHRER: And the new round of tests should last about two years. During that time, the Pentagon will cut production of the osprey to a minimum. Sportswriter and broadcaster Dick Schaap died today in a New York City hospital. A spokesman said he suffered hip surgery complications. Schaap won many awards for his television reporting. He also wrote more than 30 books, including the 1968 bestseller "Instant Replay," with Green Bay Packers lineman Jerry Kramer. He was 67 years old.

UPDATE - MILITARY CAMPAIGN

JIM LEHRER: Now, the details on the latest in the Afghan war. Kwame Holman reports.

KWAME HOLMAN: It was a reporter's question at today's Pentagon briefing that drew from Defense Secretary Donald Rumsfeld the official word U.S. Troops are actively hunting Osama bin Laden in the caves of eastern Afghanistan.

REPORTER: Are U.S. Troops now in the region, helping Afghan forces search those caves and tunnels, and are, as has been reported, hundreds more, perhaps, on the way to thoroughly search that region?

DONALD RUMSFELD: Yes, and yes.

REPORTER: Could you tell us how many...

DONALD RUMSFELD: Hundreds more.

REPORTER: ...Are going to be sent?

DONALD RUMSFELD: Let me say yes, and whatever is needed will be sent. And it won't be just U.S. -- it'll be coalition forces. So what you have is a bunch of caves. They're being triaged and put in priority order. Then the Afghan forces and coalition forces are going into those caves and looking for information and evidence and people and weapons, and determining, trying to determine, what we can do to deal with terrorists all across the globe. And I must say that there have been... there has been information that has been gathered in Afghanistan that has directly resulted in the arrest of people across the world, in... other side of the globe, and undoubtedly have prevented other terrorist activities. So it's a very worthwhile thing to be doing.

KWAME HOLMAN: Joint Chiefs Vice Chairman Peter Pace said U.S. warplanes bombed a convoy moving near the town of Khost, about ten miles from the Tora Bora area. It was the first American air strike in the region in three days.

GEN. PETER PACE: We had some intelligence indicators that were cross- referenced and were determined by central command that, in fact, what we had was a convoy of vehicles, about ten to 12, that contained leadership. Those targets were attacked by AC-130 gun ships and by fighter aircraft from the carriers and the compound from which they left. The command-and-control compound from which they left was also struck.

DONALD RUMSFELD: We are continuing without pause, but it's in a somewhat different phase, and one does not bomb unless there is something to bomb. That is to say that you have an identified target that you feel would be worthwhile to attack, and it is not appropriate to be bombing in Tora Bora when in fact you have people crawling around in caves and tunnels. That would be highly inappropriate.

KWAME HOLMAN: But as high- security preparations for tomorrow's swearing-in ceremony of the new government got under way in the capital, Kabul, today a new report about the convoy emerged. The Pakistan-based Afghan Islamic press claimed the convoy was not al-Qaida, but a group of tribal elders heading to the inauguration. Secretary Rumsfeld was asked about the U.S. relationship with the new government.

DONALD RUMSFELD: I can assure you that we have all kinds of assurances at the present time that they share our desire to deal with the al-Qaida and the Taliban leadership, and the only thing that will have changed is that you've now got the interim government and the coalition forces with the same goal, but it will require interaction between the two of them because they will be a government, for the first time, in place of the Taliban.

KWAME HOLMAN: Meanwhile today, the first contingent of the multinational force intended to help the interim government take power moved into Kabul from the Bagram air base, and a team m of New York City firefighters and police officers visited ruins in the Afghan capital.

SPOKESMAN: Thanks for sticking up for us, fellas.

KWAME HOLMAN: They met with American troops at Bagram air base, and buried a piece of the World Trade Center in honor of their comrades who died in the September 11 attacks.

JOSEPH HIGGINS, NY Firefighter: This is full circle. Be have just left ground zero in New York and traveled for a few days to come to ground zero here in Afghanistan. And we're very proud to be here. We want the Afghan people to know that we support them. We want them to be free. We want them to live the way we live.

KWAME HOLMAN: The New Yorkers greeted Afghan orphans, and helped distribute gifts and the latest shipment of humanitarian aid.

FOCUS - RULING AFGHANISTAN

JIM LEHRER: Now more on tomorrow, Afghanistan gets a new government. Margaret Warner has that story.

MARGARET WARNER: The new interim government is the first to come to power peacefully in Afghanistan in nearly 20 years. Its 30 members were chosen at a conference in Bonn earlier this month. They will hold power for just six months, until a Loya Jirga, or Grand Council, can be held to choose a more permanent government. David Rhode of the "New York Times" is covering the story in Kabul. I talked with him this afternoon. Welcome, David. Thanks for joining us.

DAVID ROHDE: Thank you.

MARGARET WARNER: First, give us an idea: What is the atmosphere like in Kabul on the eve of this new government taking power?

DAVID ROHDE: It's interesting. Delegations from around the world and around the country have arrived here. The intercontinental hotel, which has been packed with journalists is until now, is actually full of Afghans. We've gotmen from western Afghanistan showing up dressed in white turbans. Across the room from them are Northern Alliance military commanders from northern Afghanistan, and sitting in the middle of them are... Is a delegation from another part of the country. You can see heavy weapons being removed from the city tonight. That's part of the Bonn agreement to demilitarize the city. And lots of... There's some heightened security, but it's generally very calm here and people are very excited. They've... The average people here are exhausted from the fighting and desperate for this government to work.

MARGARET WARNER: So what's going to actually happen tomorrow?

DAVID ROHDE: Tomorrow there will be a formal ceremony. Each will be a peaceful transition of power here, which is, you know, a remarkable occurrence. Burhanuddin Rabbani, who is the head of the Northern Alliance, who was... Briefly controlled Kabul and president of Afghanistan in the early 199 he was driven from the city by the Taliban but he retained the title of president and some international recognition as president. He will be turning power over to Hamid Karzai, who was chosen as chairman of the interim government in the Bonn conference. And then there will be 29 heads of different departments here that will then be sworn in by Mr. Karzai after he's sworn in, and a military honor guard will then present themselves to Mr. Karzai. He, actually, at one point will be escorting Mr. Rabbani to a car and will wave to him good- bye. But it's a real triumph, I think, for this country if this is pulled off.

MARGARET WARNER: Tell us a little about Mr. Karzai and how has he been getting ready for this. He has been in Kabul for what, ten days or so now?

DAVID ROHDE: He came here ten days ago. In what was, in a sense, at least a politically risky arrival. He showed up in the city, which was controlled by the Northern Alliance, which is military men with ethnic Tajiks -- showed up on a delegation on a UN Plane and trusted the Northern Alliance with his security and they actually have embraced him. The leadership in the Northern Alliance has gone out of its way to show some ethnic unity here. He met with leaders here in the capital and then flew off to meetings in London, and then met with Rome with the former king, Zahir Shah. And in terms of Mr. Karzai himself, he is an ethnic Pasthutn. That's the largest ethnic group in the country. He's from Kandahar area, which is in southern Afghanistan. And he comes from sort of aristocratic family, a very prominent family and a Pasthutn tribe in southern Afghanistan. And you know, he appears to be doing his best to bridge the gaps here between ethnic groups.

MARGARET WARNER: And what about some of the other top members of this government? You've written about this triumvirate of young leaders right under Mr. Karzai.

DAVID ROHDE: Yeah. One of the interesting things is to watch here... Mr. Karzai will be included in terms of his age. The four top leaders are all younger generation of almost technocrats who are trying to show that they're different from the older generation, such as Mr. Rabbani, that sort of let the government fall apart into the civil war, which has ravaged the country. And the three leaders beneath Karzai are the defense, interior and foreign ministers. That's General Mohammad Fahim, Dr. Abdullah Abdullah, and Kanuni. They're all young, actual former aides of Ahmed Shah Massoud-- I'm sorry-- Ahmed Shah Massoud, the leader of the Northern Alliance that was assassinated, it appears, by members of al-Qaida. -- they are... They've really emerged after Massoud's death as a real force here. There's some fear that they may be too strong and they could overshadow Karzai. They do control the three most powerful ministries. But to their credit, they say they gave up power here. They let Mr. Karzai become chairman. They're going to let him, you know, easily the most powerful official here tomorrow when they control the city militarily. And they promise that they're different and they promise a new form of governance here.

MARGARET WARNER: The first members of this British-led UN peacekeeping force arrived, I understand, last night. Are they visible yet in Kabul?

DAVID ROHDE: They... Frankly, they didn't have an auspicious start. The reason they're here officially is to provide security so that new members of Mr. Karzai's administration who are not members of the Northern Alliance, you know, who are not ethnic Tajiks, could feel comfortable when they came into the city. The royal Marines were at the airport today, available to escort newly arriving members of the government into the city so they would feel safe. What happened was that none of the newly arriving members asked for an escort.

MARGARET WARNER: There are also reports here on the wires of a difference between, I guess the UN mandate for this force in terms of being able to use force and carry weapons, and what Mr. Fahim, the defense minister is saying. What can you tell us about that?

DAVID ROHDE: There's both sides have left the agreement to the -- vague --so they can sell it to their own constituencies. What the arrangement appears to be is that the British will go out joint patrols with the Afghans. When they're out on the patrols, they're free to use force if they want to but it is going to be coordinated by the Afghans.

MARGARET WARNER: All right. Well, David, thank you very much for joining us.

DAVID ROHDE: Thank you.

MARGARET WARNER: And for more now on the challenges the new government in Afghanistan will face, we're joined by Barnett Rubin, Director of Studies at the Center on International Cooperation at New York University. He has written widely on Afghanistan and a consultant to the United Nations team that helped organize the Bonn Conference, and Marin Strmecki, Director of Programs at the Smith Richardson Foundation, which funds public policy research. He has been a foreign policy assistant to Richard Nixon, a Senate staffer, and a Defense Department official. He spent time in Afghanistan in the 1980s, researching the Afghan Soviet War.

Welcome to you both. Mr. Rubin, beginning with you, what does this new government-- it has only six months life, what does it have to do, what are the most important things it has to do to be judged a success?

BARNETT RUBIN, New York University: The main thing it has to do is really to build up the institutions that will enable it to function as a government or as an administration, which is what it's called in the Bonn agreement. We shouldn't think that this is just a group of new leaders who are taking over some kind of existing structure. The institutions of governance in Afghanistan have been destroyed in 20 years of war. So they will have to figure out how to pay the administrators, how to hire them, how to incorporate the various armed groups into official army and police, how to organize an effective national currency, a legal structure. And only after it is able to do some basic things like that can it then start presiding over solutions to the country's immense problems.

MARGARET WARNER: Mr. Strmecki, what would you add to that?

MARTINSTRMECKI, Smith Richardson Foundation: I would say that the most important thing that it has to do is to overcome some of the agreements in the Bonn Agreement to try and achieve a true sharing of power that can lead to a broad representative government that will take over at the end of the six months. I think the Bonn Agreement left the Northern Alliance with a disproportionate share of power, so there is going to be a struggle of power during this six-month period to see who will be able to control the Loya Jirga that will appoint the transitional authority next year.

MARGARET WARNER: And what would you say are the biggest challenges or hurdles for the government to be able to achieve that?

MARIN STRMECKI: The problem is that in this government, the Northern Alliance controls about half of the seats inside the cabinet, which enables it to do almost anything it wants to at will if it is able to pick off one person on the other side. And the control of all the power ministries by the Northern Alliance really puts it in a position that it doesn't have to cooperate, and it may use those instruments of force to intimidate the other political actors on the scene. Now, in the previous report, we heard a lot of optimistic statements that the Northern Alliance has changed its stripes from the way it governed in the early '90s. But the real challenge is to see whether or not this new government will behave that way and whether the international community will be able to enforce genuine transition to representative government.

MARGARET WARNER: Mr. Rubin, what do you see as the biggest challenges?

BARNEY RUBIN: Well, of course that is one challenge, but the fact that the Northern Alliance -- and actually it's not the Northern Alliance per se, it's core of the Northern Alliance which is the group organized by Masood, which is often in competition with other parts of that alliance, does controls as Marin said the power ministries. That's not a result of the Bonn Agreement. It's the result of the decision of the United States to bomb the front lines North of Kabul before there was a political agreement and essentially let them into Kabul to control those ministries. So the problem is that they're the one organization in the country that really controls organizations of coercion that are effective and which can form the core of a government structure if they reach out and make political alliances -- as Marin said -- with other people in the country. Now key to this will be the way that the international community, the way the donors, UN, and others come in and start distributing money for reconstruction assistance. If they do it in a way that reinforces the institutions set up in the Bonn Agreement, then it will be possible to build those alliances. If they come in and each start acting on their own, that will reinforce the tendencies toward warlordism and clientalism in Afghanistan itself.

MARGARET WARNER: We're talking a lot about the institutions of power and power sharing. But what about what we think of as government, which is taking control of things that actually affect people in their day-to-day lives? Mr. Rubin, you helped-- of course you were at the Bonn conference -- is the intention here that this interim government will actually have authority over things like health or water and sewer or food, the things that really affect people day to day all over the country?

BARNEY RUBIN: Well, yes--.

MARGARET WARNER: Is it something less than that?

BARNEY RUBIN: That's the intention; that is the Bonn Agreement does not set up a UN administration like in Kosovo or East Timor. But at the same time these interim authorities, at this point, have very little capacity to carry those things out. And the role of the United Nations and the donors then is to get in there, work with Afghans, help bring back the ex-patriot Afghans from Pakistan, Iran and the West, who have some of the skills that are needed, and set up the institutions that are able to do that. In order to do that, of course, you need security; you need effective administration and political power. So you need those kinds of basic structures of legality and basic financial structures so you can pay people in order to do that. But the government will be working along side the international agencies and will preside over that process.

MARGARET WARNER: Marin Strmecki, what is your sense of Mr. Karzai? Is he the right man for the job, and does the structure that's been set up give him the authority he needs?

MARIN STRMECKI: I think he is in a very difficult spot. He does not have a great deal of legitimacy, even among the Pashtun ethnic group from which he comes. He was someone picked by the United States, by the Central Intelligence Agency really to be our client in the Pashtun areas to try to challenge the Taliban. And being chosen by an outside bar power is not a good way to achieve power in Afghanistan because you don't have inherent legitimacy. He also didn't help himself by having to be rescued by Special Operation Forces and basically to be shown that he didn't have a great deal of military skill. I think he is not a high ranking in the social structure tribal chief. He is a mid ranking person. And so he will not be viewed as a natural leader by many more senior individuals in the Pashtun tribal structure.

MARGARET WARNER: Mr. Rubin, what is your view of that, Mr. Karzai's role here and whether he's the man for the job?

BARNEY RUBIN: Well, part of the difficulty is that no Pashtun leader has really emerged. Hamid Karzai was active for years trying to build alliances with Masood and with the core elements of the Northern Alliance to form what he always called not a broad-based government, but a national alternative to the Taliban. I've known him to be working on that long before he was chosen by the CIA, actually. The problem is, he didn't emerge as Marin said, as the leader of the Pashtuns; no one has. I think what he'll benefit from right now is first, the need of the core elements of the Northern Alliance who really control the levers of power to legitimate their power by at least appearing to have something more broad based and they have a certain degree of confidence in him, and, second, the strong desire on the part of the ordinary people in Afghanistan and the major institutions of the international community to make him into an effective leader. Now, that said, there are all kinds of obstacles to that in the warlordism, lack of resources, competition for power and so on, but if he can play his cards right, that he is in a position to turn what is, in fact, a position of weakness into a position of greater strength over the next six months.

MARGARET WARNER: All right, Mr. Strmecki, let's talk about warlordism and the history of Afghanistan. The recent history of course is that all these governments dissolve into sort of factional violence, ethnic violence, and so on, and there are pockets of lawlessness all over Afghanistan now with local warlords. Is that a big problem? Are these warlords going to have too much power?

MARIN STRMECKI: It is a major problem. In fact, I think it will take years to undo the warlordism that currently exists in the country. We made a mistake in this war in terms of not preparing the political groundwork before we started the bombing and the military action. If we had forced the Afghans together into one political unit and then used them as an ally for channeling support to anti-Taliban forces, you would have had in place a provisional political authority that could have transitioned into a government and would have been able to avoid some of the problems with warlordism.

MARGARET WARNER: So what is the danger?

MARIN STRMECKI: Well, the danger is that the government in the central-- in Kabul, will not be able to rule. And also in the warlord areas, external powers can easily arm people to essentially destabilize the central government in order to advance their regional influence.

MARGARET WARNER: How much of a danger do you see of that, Mr. Rubin?

BARNEY RUBIN: Well, obviously that is in a way, the central danger of the internal governance of the country. But these warlords are not a natural phenomenon, as Marin said. Actually, most of these warlords have been totally eclipsed and defeated by the Taliban. We brought them back because they were the most readily available military tools and they were funded and armed essentially by us. And that's why they're back there. The challenge in the coming months will be to channel the funds that are now coming in through legitimate institutions so that the soldiers that are now serving those warlords have an incentive to shift the loyalties to the institutions so the warlords have the opportunities to become generals, politicians, businessmen or something legitimate within institutions that are just being built. And key to that will be the regional actors, who, as Marin said, have been relatively quiescent now, in particular Pakistan and Iran, but may have motives to come back and muddy the waters.

MARGARET WARNER: And, briefly, Mr. Strmecki, your view of the role of this UN peacekeeping force - is it really going to have much ability to affect the outcome here?

MARIN STRMECKI: I think this UN force is critical but I think it may be misshapen. The Northern Alliance would like to see its military forces transition into being the national military force. I think a better use of UN military power would have been to essentially remove military forces and police forces from Kabul and then start anew with a new military force that would be loyal to whatever government comes out of the political process. If the Northern Alliance succeeds in the transitioning its forces into the national army, then there will be an army loyal to the faction, not to the national government.

MARGARET WARNER: All right. Gentlemen, we have to leave it there. Thank you both.

JIM LEHRER: Still to come on the NewsHour tonight: The Argentina story; and Shields and Brooks.

UPDATE - UPHEAVAL

JIM LEHRER: The chaos in Argentina; Ray Suarez has the story.

RAY SUAREZ: There was relative calm in Buenos Aires and elsewhere today, in contrast to the looting of the past four days, it was quiet. For Fernado de la Rua, who resigned as president yesterday, the public's message was clear, fuera: Get out. This morning as the Argentine parliament formally accepted his resignation, de la Rua offered no apologies for his country's economic ruin.

FERNANDO DE LA RUA, Former President, Argentina (Translated): I leave for history the message that I have with loyalty and honesty and with the most profound conviction that I have done what is necessary, what is correct, and what I understood to be the most important for this country.

RAY SUAREZ: On Wednesday two, weeks of scattered protests escalated as Argentine's condemned the government's belt tightening programs, cuts in spending to with the massive debt. They targeted banks to protest the latest austerity measure, a $200 limit to bank withdrawals, right before Christmas. Another target: McDonald's, a symbol of the free-market policies that many on the street blame for the country's four- year recession.

MAN (Translated): All social classes are in the same boat here. All social classes are victims to the economic interests here.

WOMAN (Translated): We have no way out. We have no way out, and we are desperate.

RAY SUAREZ: The most deadly violence followed the widespread store looting. Shopkeepers fired on the crowds taking their goods. More than 20 people have died in street violence. Many store owners, like this man, lost everything. Two merchants committed suicide. Much of the chaos came Wednesday night, despite the emergency state of siege declared by the president and the resignation of the unpopular economic minister, Domingo Cavallo, once celebrated for his inflation-busting reforms. Today Argentina's economy is in free fall: Four in ten Argentines live in poverty, unemployment is near 20%, the country owes $132 billion to foreign lenders, and exports are down-- they're relatively expensive overseas because the Argentine peso is tied to the strong U.S. Dollar. Yesterday in Buenos Aires, as the president's helicopter lifted off from the Casa Rosada, the presidential palace, demonstrators cheered the end of de la Rua's two years in office. One of de la Rua's final acts was to lift the state of siege. The opposition Peronist Party is in charge, and plans to hold elections within three months. Today the interim president reinstated what he called a partial state of siege on the streets.

RAY SUAREZ: And joining me now are Miguel Diaz, the director of the South America Project at the Center for Strategic and International Studies, and Carol Graham, senior fellow in economic studies at the Brookings Institution. Well, let's try to break it down. What happened to bring this crisis now to Argentina, Carol Graham?

CAROL GRAHAM: Well, I think it hasn't been a question of whether. It's been a question of when. I think people have been expecting something to happen for several months. It was very clear that the combination of public expenditure policies and an exchange rate policy were unsustainable. In particular, having the peso tied to the dollar has meant that Argentine exports have been relatively expensive compared to others. The currency is overvalued. And it has been a drag on growth. This was a policy that in the early 1990s was sort of the pinnacle of the inflation fighting, the inflation stopping policies implemented by the same finance minister that just resigned, Domingo Cavallo. In the early 90s, it was controversial but proved to be very effective. By the late '90s, it was widely seen to be something no longer sustainable and had to be changed. The problems are or the problems still are but particularly were a reason for not changing the policy in time was that the alternatives are very costly. One is dollarization. And the second is devaluation. The first has a number of costs, including --

RAY SUAREZ: And by dollarization, you mean basically using the U.S. Dollar as -

CAROL GRAHAM: Giving up the peso.

RAY SUAREZ: -- the currency of Argentina.

CAROL GRAHAM: That means that the Argentines then give up their ability to make monetary policy at all because their currency becomes a dollar and all monetary policy becomes subject to what the US Treasury is doing for the US. In terms of devaluation, the other alternative, the problem with that is that a lot of Argentina's debt -- all the external debt, but the internal debt, a lot of pensions, mortgages, whatever, are dominated in dollars. So if you devalue, the amount that people owe is going to increase dramatically. And the risk is that a lot of banks and businesses and individual consumers go out of business.

RAY SUAREZ: So Miguel -- if you're paying a mortgage, if you're buying goods overseas to stock the shelves of your stores, devaluation means suddenly if it's big enough, you could be wiped out?

MIGUEL DIAZ Argentines are already suffering. And a devaluation would make things worse. The big risk of devaluation is that it could spark hyperinflation. It has happened in Argentina. It is something everybody has been trying to avoid for a long time. And that is the risk. If I could just backtrack and add to what Carol was saying, there is a substantial political component to what happened yesterday. The president hasn't been able to exert any leadership. The public hasn't been able to see a way out, a light at the end of the tunnel. And with the week before Christmas, I think the Argentine public just got tired decided to take to the streets to get rid of de la Rua.

RAY SUAREZ: Help me understand this a little more because in the recent past Argentina was considered a pretty -- becoming a pretty stable place. It had democracy, governments that succeeded each other through the ballot. They had sold off a lot of state industries, which they had been encouraged do by international lending agencies, low inflation, decent growth, people were making a little money. How did all this collapse?

CAROL GRAHAM: Well, even by the mid-1990s, even when Argentina's economy was growing quite rapidly and it was seen to be a success story, the warning signs were out there about two things, possibly three. The first was the fact that this convertibility policy of tying the peso to the dollar was resulting in an overvalued exchange rate, and that that was having a cost on the country's ability to export and grow and therefore even at the height of the high growth unemployment was quite high. This was as a result of this. So there were warning signs as much as six or seven years ago that this was probably not a sustain sustainable policy.

RAY SUAREZ: So creating any new job in Argentina was becoming more expensive than it had to be.

CAROL GRAHAM: Right. That was one problem. The other problem is what was going on on the public expenditure side, which is both municipal governments indebted to the federal government and the government basically spending more than it had. And the third is the external debt burden. Argentina's external debt burden is about six times its export earnings. Take Peru as a counter example. Its burden is only twice its export earnings. So its external debt burden is very high. One has to think about what kind of debt is sustainable, particularly when a country is not growing quickly. In other words, what was sustainable in the mid 90s when the country was growing with debt service became unsustainable by the late 90s as the country went into recession.

RAY SUAREZ: So, Miguel if you are an Argentine who's still in work, go off to whatever job you're doing, the government decides to default and pushes off the payments of its debts far into the future, how does that affect you in your shop or in your office or in your home?

MIGUEL DIAZ: Well, it affects you in a number of ways. For one, default is a sign of failure for the entire country. Nobody is going to invest in the country, especially foreign investors, if there's a perception that the country cannot meet its obligations. If a country cannot meet its obligations, the corporations in those countries and individuals in those countries are also not going to be -- are going to be deemed as incapable of meeting their obligations. There is a panic that started actually a long time ago but the default just kind of seals it that's led to capital exodus. Argentines are taking their money to Miami, they're not investing in the country. And that impacts the worker, the average worker on the street as well.

CAROL GRAHAM: Just on this topic of default this, I think this highlights a need for something the international community is already thinking of but should move more quickly on and that is a mechanism for sovereign countries to negotiate -- renegotiate unsustainable debt burdens. There is a proposal that was floated by Ann Kreiger, who's the number two person at the IMF, several weeks ago that proposes a mechanism for doing this, similar to the way firms declare bankruptcy. It really is just a proposal that would require a lot of agreement by a lot of different -- by many, many countries. But the point is that if countries had a structured and orderly way to renegotiate their debt, a mechanism that brings creditors and debtors to the table, that you can avoid this kind of messy, messy crisis and default kind of scenario, which is really the worst possible outcome for people in the country and Argentina. And it is not a great outcome for creditors.

RAY SUAREZ: Does this have the possibility of pulling down the country's neighbors so if you're sitting next door in Chile or Brazil and your country has been not doing some of these things that got Argentina into trouble, you might suffer as well?

MIGUEL DIAZ: Right. All signs point that it won't impact its neighbors. The markets have reacted that way over the last couple of days. Brazilian debt, for example, hasn't been impacted. Fundamentally, Brazil imports very little to Argentina anyway. So it's not going to be impacted in terms of its exports. Now, the concern is if there is a further meltdown of the Argentine situation -- and things could get worse in Argentina -- that investors will be scared away from investing in countries like Brazil, which have substantial capital financing needs next year. That is a concern. But for the time being, it doesn't seem like it is going to have much of an impact. The markets have seen this train wreck coming for a very long time and they have been preparing themselves for it. So a lot of those institutional investors, for example, who will be purchasing Brazilian debt or potentially will be purchasing Brazilian debt have been positioning themselves and should be in a good position to still be involved in the markets for next year.

CAROL GRAHAM: But I think it's quite important that this is quite distinct from say the Asia crash or the Russia crisis, which were big surprises to the market and therefore you got this panic or herd behavior. As I mentioned earlier with Argentina, it was a question of when not whether that some kind of crisis was going to occur. And so investors have been prepared for it. Argentina is distinct from its neighbors in that it was the only country that had this kind of exchange rate policy that was very clearly a red flag in terms of something that wasn't going to last.

RAY SUAREZ: So, short-term, what does the prognosis look like for everyday Argentines, for the leadership of the country?

MIGUEL DIAZ: Well, this play has yet to be played out completely, the story has yet to be played out completely. You still have to make very important decisions on the exchange rate regime in Argentina -- whether to dollarize or whether to devalue -- those are very important decisions that the new president is going to have to be making at some point. There are very serious risks in neither of those approaches; the devaluation, as I said before, entails the risk of a hyperinflationary-type scenario. Dollarization is also a very difficult option, especially considering the fact that they don't have sufficient foreign exchange research to carry it out, which will require, in turn then, for the US to take a very supportive role for any dollarization effort to

RAY SUAREZ: Miguel Diaz, Carol Graham, thank you both.

FOCUS - POLITICAL WRAP

JIM LEHRER: Finally tonight, some analysis by Shields and Brooks; syndicated columnist Mark Shields and David Brooks of "The Weekly Standard." Congress has recessed. There is no stimulus package. Mr. Shields, why not?

MARK SHIELDS: I think there's a couple of reasons, Jim, that are really significant. First of all, if you take the last two recessions the country has had, both coincidentally with a President Bush in the White House, 1991 and 2001, the profound differences in the American psyche in those two recessions in 1991 Americans were fearful that the country's best days were behind it, that America was in a definite decline and that Japan was ascendant in the world. That is not the case today - and, in fact, President Bush the first, did not act aggressively and responsively hurt him in the 1992 election. In 2001, American voters basically are very bullish, very upbeat about the future, very optimistic. There's a sense that the American economy is a dominant economy in the world and we've just hit a rough patch. There isn't that sense of urgency. I think that's the first psychological, political factor that is so important. The second one, Jim, is that there really wasn't a cry for it in the country. Dick Gephardt, House Democratic leader, strangely enough was in New Hampshire last weekend, does that from time to time. But he was just really talking along bakeries and coffee shops, to people. Not a single person brought up the stimulus package to him. All they wanted to talk about was the war. And Bob Dole, the great Republican leader of the Senate once said there is no poor people's political action committees, no unemployed people's political action committee. Unemployed people don't have much clout in Washington. They don't buy tickets to soft money fund-raisers on either side of the aisle. They're not heard that much.

JIM LEHRER: You agree, David, there wasn't a push in the country for it so the politicians didn't have to do anything?

DAVID BROOKS: There was no push in the country. On the merits it was a pretty bad bill. It was very hard to make the case it would actually stimulate the economy in time to get us out of the recession. But I think that was a sliver, those to things. This bill, which was a terrible bill died a political death and it died and Tom Daschle has his fingerprints on the knife. In order to get this passed both sides had to get something: The Republicans had to get some accelerated tax cuts. The Democrats had to get some spending on unemployment insurance. The Democrats and Tom Daschle want to run in 2002 and 2004 against the Bush tax cuts. You can't run in 2002 against the Bush tax cuts if you vote to accelerate them in 2001. So somehow he had to get to "no." He had to destroy this bill. He didn't want his fingerprints on the tax cuts. All the maneuvering over the past few weeks, the cockamamie idea that two-thirds of the Democrats have to support anything that passed, that was all engineered to getting to no. Daschle did that.

JIM LEHRER: Do you agree that this was Tom Daschle's work?

MARK SHIELDS: I think Tom Daschle deserves credit, blame, depending where you sit. He is a formidable leader. We see that in the drumbeat, the organized drumbeat. My fax machine is just alive with Republican faxes telling me that tom is probably responsible for the disappearance of Jimmy Hoffa and Judge Crater. There is nothing that easygoing, mild-mannered Tom Daschle isn't responsible for. But I think there was a deal, there was a deal, Jim I don't think David will disagree with this, when they went out to Chicago after-- for the first time on airport security, the President flew out on Air Force One. The leadership was with him and they sketched out -- he and the Democratic leaders sketched out what was to be the part of it. There were accelerated tax cuts for business, accelerated depreciation. There was to be more unemployment insurance. There was to be the $300 for everybody who hadn't got it the first time around. And, you know, there was really--.

JIM LEHRER: Hadn't got a tax cut.

MARK SHIELDS: Hadn't got a tax cut. So there was a broad outline. And I think, if anything, two things happened: K Street got involved.

JIM LEHRER: Where the lobbyists live.

MARK SHIELDS: Business lobbyists, the corporate lobbyists in this country -- the Gucci shoe crowd. They said this is our chance after September 11. We can sail through with every tax cut we ever had. And I think Bill Thomas, the able but abrasive chairman of the ways and means committee loaded it up in a fashion that made it impossible for Democrats in the Senate and Democrats in the Senate to look at the bill seriously.

JIM LEHRER: Guilty as charged, David?

DAVID BROOKS: You're beating up on Bill Thomas so much Tom DeLay is going to get lonely. I disagree a little. I think the banality came at the beginning; the Republicans launched all those corporate favors. That was at the beginning; at the end of the process, the Bush people were afraid it wouldn't pass because they were going to take the blame if the recession passed. They need that inoculation; we passed a stimulus bill. So at the end of the day, the Republicans were giving away, giving away, but there was never enough to give away.

JIM LEHRER: Let's talk about Tom Daschle and beyond the context, you can't talk beyond the context of the stimulus package but you heard what Mark said, I mean he really has become the villain of the conservatives and the Republicans. Does he deserve it?

DAVID BROOKS: He deserves their scorn because he is effective. The guy looks like Bambi, bites bike Jaws and he is just a very deceptively good politician. The Republicans point to this guy and say he's blocking everything. He's obstructionist is the word we're taught to use, Republicans, Daschle and obstructionist. We had an agreement on ANWAR, the drilling in Alaska. The Democrats and Republicans got together, he scotched the deal. We had an agreement on terrorism insurance. He scotched the deal. He is a really bad guy. Then they point over to him and he's doing his choirboy routine and none of it stick so far. Tom DeLay looks nasty when he is giving to the Salvation Army. Tom Daschle could commit murder and look like a saint. It hasn't been politically effective.

JIM LEHRER: Speaker Hastert was on this program last night as was Tom Daschle. Speaker Hastert said it may not be all Daschle's fault - that is --I don't have the direct quote, that he was hamstrung by the liberals in the Senate certain things he has to do for them. Does that make sense to you?

DAVID BROOKS: I really don't think so. I think the Democrats have made a pretty intelligent decision that the big issue over the next couple of years is these tax cuts that the Bush administration passed, because in their view there's going to be a deficit in the next couple of years. Who knows where the economy is going to be and for the suburban voters who want a balanced budget, they will respond to the charge that the tax cuts were irresponsible. That's the core issue that Daschle has been pushing through here to preserve the issue for the next two elections.

JIM LEHRER: Mark, what do you think?

MARK SHIELDS: Obstructionist is the mildest thing.

JIM LEHRER: That was Vice President Cheney's term. He used that on "Meet the Press" for Daschle.

MARK SHIELDS: Right. And David Brooks on the Lehrer NewsHour used the word obstructionist. But what is really revealing, President George W. Bush got elected on a pledge to change the tone in Washington. There is no question he redeemed that pledge on September 11. But now whether he's powerless over the control of the apparatchiks in the White House and the Republican National Committee. Daschle Democrats, Frank Luntz, who's a leading Republican pollster, said we have to personalize this with Daschle. That's the memo he sent out to Republicans. We have to personalize it. Somehow he is the devil. And Rick Santorum--.

JIM LEHRER: Senator from Pennsylvania.

MARK SHIELDS: A notorious gift for hyperbole -- called Daschle a rabid dog. Rush Limbaugh, who hasn't been heard from recently, calls him el Diablo, the devil. Republicans are still fighting the last battle of Newt Gingrich trying to make Newt Gingrich out of Tom Daschle. Tom Daschle has become the leader of the opposition which Newt Gingrich did and fell to 18% favorable in the country which is pretty low. So they're saying if they could do that to Daschle, it could really hurt the party. They can't for a couple of reasons. One, Newt Gingrich on a regular basis said things that were so outrageous that people just said my gosh, this guy has taken leave of his senses like Susan Smith, the mother in South Carolina who tragically drove her own two children and drowned them. He said that's product of a Democratic Congress was Gingrich's explanation of it. And things like that. Tom Daschle reminds Republicans of George Mitchell. And Republicans to this day, a part of Republican dogma that George Mitchell, mild mannered, quiet softly spoken, terribly smart and terribly, terribly shrewd legislator sabotaged the first George Bush into breaking his no new tax pledge. So they're saying Tom Daschle is going to try to do the same thing to George W. Bush and we have to get him first. I got to tell you, it is a fool's errand.

JIM LEHRER: A fool's errand?

DAVID BROOKS: I agree. The idea of personalizing Tom Daschle as newt Gingrich is not going to work because fur a suburban voter in Morristown, New Jersey, you look at Daschle and say he is a pretty good guy. You didn't look at newt Gingrich that way. And that is the problem the Republican Party has. Here's a party trying to reach out to Hispanics, they're trying to reach out to other groups, which is all very intelligent for the party. They're losing the suburbs. Tom Daschle plays right to the suburbs, which is the Democratic growing strength.

JIM LEHRER: Senator Jeffords, the man who put Tom Daschle in that job by switching-- becoming an independent, out of nowhere, it seemed, voted against the education bill. Education was the issue on which he was-- special help for disabled in education, he ended up voting against the education bill. Why? What was that all about?

DAVID BROOKS: Daschle opens his speeches by saying I've been mowing Jim Jeffords lawn.

Jim Jeffords is having a bad Christmas season. He quit the Republican Party to be an independent to vote with the Democrats for two reasons. He is supportive of the special education legislation. He wanted a lot of money, $200 billion put into that legislation -- n this education bill he didn't get it. The Democrats didn't fight for it the way he wanted. The second thing is dairy price support is very important in New England. He wanted there to be this continuation of dairy price support program. It's not dead but he hasn't gotten it so far. He has come down and gotten two little lumps of coal for Christmas. He is a lonely guy these days. He is detested about it Republicans, not particularly liked by the Democrats. He is just wandering in between.

JIM LEHRER: How do you read that?

MARK SHIELDS: Democrats are enormously grateful to Jim Jeffords.

JIM LEHRER: As well they should be.

MARK SHIELDS: Pat Leahy, the chairman of the judiciary committee instead of Orrin Hatch of Utah. We go through Joe Biden of Delaware chairman of the Senate foreign relation instead of Jesse Helms of North Carolina because Jim Jeffords made the move. The education bill is a story unto itself and Jim Jeffords included. Jim, it's wonderful to read Bill Bennett and the others ranting and screaming against any mandatory national testing. That was a creation of the devil by Bill Clinton and I heard Trent Lott, the Republican leader stand up when President Bush, who had made this centerpiece of his campaign and centerpiece of his administration say this is the most important education legislation in 35 years. J

IM LEHRER: We had Senator Kennedy and Congressman Boehner on this week on the program the night it was passed and the two of them talked in the most non-partisan way I have seen in a long time about this bill. They were both so proud of it. They knew exactly what was in it. They thought it was a major day for America. Very conservative Republican and a very liberal Democrat.

MARK SHIELDS: John Boehner to his credit saying he was for abolishing the Department of Education and now believes in the tradition of Lincoln and Eisenhower that it's a federal responsibility.

JIM LEHRER: It is my responsibility to say good night and thank you to both of you.

RECAP

JIM LEHRER: Again, the major developments of this day. Defense Secretary Rumsfeld confirmed more U.S. troops will join the search for Osama bin Laden and his supporters, in eastern Afghanistan. India recalled its ambassador to Pakistan, amid growing tensions along the border. And the militant group Hamas said it would stop suicide attacks inside Israel. A reminder that "Washington Week" can be seen on most PBS stations later this evening. We'll see you online, and again here Monday evening. Have a nice weekend. I'm Jim Lehrer. Thank you and good night.