The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight the latest on the Iraq showdown from National Security Adviser Samuel Berger, with reaction from four members of Congress; a Jeffrey Kaye report on Asia's hot money problems; and an Elizabeth Farnsworth look at the new deal between eight states and the tobacco industry. It all follows our summary of the news this Monday.% ? NEWS SUMMARY

JIM LEHRER: The United States stopped further troop buildup in the Persian Gulf today. Secretary of Defense Cohen ordered the stand-down. He said there was still more than enough fire power in the region to punish Iraq. Iraqi President Saddam Hussein agreed over the weekend to allow UN weapons inspectors to go back to work. That averted an American-led military strike as fighters were in the air and bound for Baghdad. President Clinton commented today at the White House.

PRESIDENT CLINTON: The burden of compliance is where it has always been - on Iraq. Baghdad has an affirmative obligation to comply with the UN resolutions that require it to disclose and destroy its weapons of mass destruction and the capability of delivering those weapons. Governments all over the world today stand united in sharing the conviction that full compliance and nothing short of full compliance is needed from Iraq. The world is watching Saddam Hussein to see if he follows the words he uttered with deeds. Our forces remain strong and ready if he does not.

JIM LEHRER: We'll have more on this story, including an interview with National Security Adviser Samuel Berger right after the News Summary. A new tobacco deal was announced today. It's between attorneys general of eight states and four major tobacco companies. The cigarette makers would pay $206 billion to reimburse the states for Medicaid funds spent to treat sick smokers. Today's deal was similar to another reached last year, but federal legislation to implement it died in the Senate. Attorney General Christine Gregoire of Washington State allowed some new promotional restrictions.

CHRISTINE GREGOIRE, It will change the way we see tobacco. Under this proposal, billboards - gone; taxi and transit ads - gone; hats, shirts, back packs with tobacco brand names - gone; Joe Camel and any replacement for Joe Camel - gone. Instead of seeing these images every day, our children under this settlement proposal will finally see the truth.

JIM LEHRER: President Clinton said he'd back the new deal. He said it was an important step forward. We'll have more on this story later in the program tonight. On Wall Street today the Dow Jones Industrial Average closed above the 9,000 benchmark for the first time since July. The Dow was up nearly 92 points at 9011. In other foreign news today Vice President Gore addressed the Asia Pacific Economic Cooperation meeting in Malaysia. He substituted for President Clinton, who remained in Washington to deal with the Iraq crisis. Gore praised pro-democracy demonstrators who have protested the Malaysian government's treatment of political dissenters, including a deputy prime minister, who's been in jail. Here's some of what Gore said.

VICE PRESIDENT GORE: Democracy confers a stamp of legitimacy that reforms must have in order to be effective. And so, among nations suffering economic crises we continue to hear calls for democracy and reform in many languages, people's power, doi moi, reformatsi. We hear them today - right here - right now - among the brave people of Malaysia.

JIM LEHRER: Malaysia's trade minister called Gore's remarks a disgusting, rude intervention into our local affairs.

RAFIDAH AZIZ, Trade Minister, Malaysia: If somebody called Vice President of the United States come here, not only telling us what to do - that's one thing - we can take that - never mind - but don't ever interfere in anybody's internal affairs, and, for heaven's sake, try to understand what really is going on in a country before you open your mouth and put your big foot into it!

JIM LEHRER: We'll have more on Asian investments later in the program tonight. The Japanese government announced the largest stimulus package in the country's history today - large tax cuts and $196 billion in new public spending. Japan and the U.S. also said they'd pour $10 billion into other troubled Asian economies aimed at stopping the global financial crisis. In the Middle East today Israeli and Palestinian leaders threatened to ignore parts of their latest peace agreement. Israeli Prime Minister Netanyahu said he was stopping a troop withdrawal from the West Bank scheduled for Friday. He demanded Palestinian Leader Arafat recant his announced intention to declare statehood in May. Israeli Foreign Minister Ariel Sharon softened an earlier statement urging Jewish settlers to grab more West Bank land before Israeli troops pulled out and the Palestinian minister of planning objected.

ARIEL SHARON, Foreign Minister, Israel: Israel is not building as long as we are still in the negotiations any new settlements, but the government decided to strengthen the existing Jewish communities, and that is exactly what we are doing.

NABIL SHA'ATH, Planning Minister, Palestinian Authority: On the 4th of May, it is our absolute right, based on the agreements that we will announce the formation of - and implementation of an independent Palestinian state. Mr. Sharon has absolutely no authority, no right, no privilege whatsoever to wage war on the rest of Palestine.

JIM LEHRER: In Washington State Department Spokesman James Rubin urged both sides to implement the recent Wye River Accord. He said the agreement did not come with conditions about every word said by every party. John Glenn rode through New York City's Canyon of Heroes today. It was 36 years after he was similarly honored as the first American to orbit the Earth. Today, he and six fellow astronauts from the space shuttle "Discovery" got a traditional ticker tape parade along Broadway to commemorate their recent mission. Afterwards, New York Mayor Giuliani gave Glenn and the other crew members keys to the city. Kwame Ture is dead. The black civil rights activist, whose given name was Stokeley Carmichael, died yesterday of prostate cancer. He lived in Guinea, West Africa, for the last 30 years. He's credited with coining the term "black power" during the Civil Rights protests of the 1960's. He was 57 years old. And that's it for the News Summary tonight. Now it's on to the lateston the Iraq situation, hot money in Asia, and the new tobacco deal.% ? NEWSMAKER

JIM LEHRER: President Clinton's decision not to bomb Iraq this weekend. We begin with a Newsmaker interview with the President's National Security Adviser, Samuel Berger. He joins us from the White House law. Mr. Berger, welcome.

SAMUEL BERGER, National Security Adviser: Good evening, Jim.

JIM LEHRER: First, have there been any developments today following the agreement? Has anything happened in a positive or negative way?

SAMUEL BERGER: Well, I believe that Chairman Butler has indicated that he is anxious to get the UNSCOM people back. There may have even been some people who went back into Baghdad today. But certainly over the next few days he will begin to flow his people back, begin to check the monitoring situation, and presumably then go on to complete his inspections.

JIM LEHRER: So roughly 100 inspectors are going back, is that right?

SAMUEL BERGER: I think there are about 120, I believe, that were withdrawn, but - in that neighborhood.

JIM LEHRER: And what are they going to do within the - as soon as they get there to test whether or not Saddam Hussein in this case is serious about complying?

SAMUEL BERGER: Well, I think this is essentially a professional judgment that Chairman Butler and his team will make. They are extraordinarily committed to their mission, which is to obtain full compliance with the resolutions of the Security Council to detect and destroy weapons of mass destruction. How they will proceed to do that really is, I think, a judgment they will best make. I know they will proceed expeditiously, but they obviously have to do it in a way that is professionally sound.

JIM LEHRER: Does the agreement allow those inspectors free access to everything they want to see unannounced, et cetera?

SAMUEL BERGER: The agreement - not the agreement, the statement - the letter that was sent to the Security Council on Saturday evening said that the Iraqis would comply, would cooperate fully with UNSCOM, in accordance with all relevant Security Council resolutions, which means essentially that they have access. There are certain arrangements that have been developed over the years between UNSCOM - with UNSCOM. But they will be able to function within the rules of UNSCOM.

JIM LEHRER: One of the concerns before, Mr. Berger, as you know, that was expressed by Scott Ritter and others, a former UN inspector, American, who resigned was that there was so much advance notice that was forced to be given to the Iraqis, they just kept moving things around. And there was no way to keep that from happening. Is there anything in this new letter, anything in the new understanding from your point of view that could keep that from happening?

SAMUEL BERGER: Well, it's certainly one of the important reasons why it's important to get UNSCOM back in and why the President decided when to test the willingness of the Iraqis to allow UNSCOM to come back in and to comply. Without UNSCOM, they can reconstitute their weapons of mass destruction in a matter of months. But certainly the time while they were out, which was a few weeks, is time that things could have been moved. Let me make something clear, though, Jim. The obligation here is not on UNSCOM to find the hidden weapons. The obligation is on Saddam Hussein to disclose everything he has - to account for all discrepancies between what we believe he had before the Gulf War and what he has not accounted for. This is not an exercise of finding the needle in the haystack. This is an obligation of Saddam Hussein in a sense to put the haystack out in the lawn and said here it is. And that, as President Clinton said yesterday, the affirmative obligation is on the Iraqis to comply.

JIM LEHRER: But have you or others in the US Government on behalf of President Clinton sat down with the people or in some ways - Mr. Butler and others at the UN -- worked out some kind of either timetable or checklist, or whatever, so the President will know, okay, this thing has worked; they have passed the test, or whatever, or is it just a case you're going to wait until Butler says, okay, they're okay, or they're not okay?

SAMUEL BERGER: Well, UNSCOM is an independent organization under the UN and a very professional one and a very vigorous one and one very dedicated to its mission. They will, I am sure, proceed as expeditiously as they can. Chairman Butler went to Iraq back in the summer and said, here's a road map; if you want to come into compliance, here's what you have to do. And you can do it over a period of months if you are committed to complying. So we're going to test that out. And if there is non-compliance in a serious way, the President's made it very clear, we're prepared to act, we're prepared to act swiftly.

JIM LEHRER: What I'm trying to get at, Mr. Berger, not very well, I guess, is --

SAMUEL BERGER: I'm sorry.

JIM LEHRER: No. No. I think it's the way I'm asking the question here. I mean, is there some kind of -- is this thing going to be over soon, one way or another? I mean, are we talking a matter of days once those inspectors get on the ground, a matter of weeks, a matter of months, or is there, do you have your own kind of timetable - you and the President - as to whether -

SAMUEL BERGER: I don't think - actually, I heard Mr. Ritter this morning on another network say that we should not force Mr. Butler to do this under an artificial deadline - that he needs - if we forced him to do that, in a sense, he'd go off and inspect things and find nothing. But this has to be prepared in a careful professional way, so that he's going places and looking for things and seeking documents that really are important and where he believes there are things that have not been disclosed. So I don't think there's an artificial deadline. I don't know how long this period will take. One of two things will happen. Either there will be compliance, or it will be perfectly clear that there is no intention to comply, and the President's made clear what our response will be under those circumstances.

JIM LEHRER: Now, the President also said that he called for a new government in Iraq. What exactly does he have in mind?

SAMUEL BERGER: Well, I think, Jim, anybody who has watched the suffering of the Iraqi people over the last 10 years -- this is a government that has gassed its own people. This is a government that has fought a ghastly war with Iran in which tens, if not hundreds of thousands of people were killed, subjected its people to the punishing tack of the Gulf War, anybody who has watched that - meantime in the last seven years refused the UN's offer to let him sell oil to buy food to feed his own people - has to reach the conclusion that we need to help the Iraqi people have a government that will represent and be reflective of their interests, rather than repress their interests. What that means is that we will work in a prudent, effective way with opposition voices, opposition groups, to strengthen their ability, strengthen their capacity to bring about change. This is not a short-term proposition. This is not a quick fix, but this is something over the long-term which we are committed to doing.

JIM LEHRER: So you want the people of Iraq to revolt against Saddam Hussein?

SAMUEL BERGER: We want over time for the government of Saddam Hussein to - for there to be a different government. I don't think we want to create any artificial or dangerous situations. I think we need to be, as I said, prudent in what we do - not create unreasonable expectations. But I think to the extent there are - there are voices and forces in Iraq that seek change, we will work for that change.

JIM LEHRER: Are you concerned, Mr. Berger, that - and a potential Iraqi revolutionary, an anti-Saddam Hussein Iraqi citizen hearing the President's words, might go out and foment something, and then Saddam Hussein's forces crush him or her and their efforts, and then he looks at Port Washington and says, okay, I did what you said, now what are you going to do, are you going to help me out -- what are we going to do if that happens?

SAMUEL BERGER: I think we'll have to take any situation on its own merits. I think that's why the President has said that we'll act in a prudent manner, we'll act in a manner that we believe is most effective, and that this will be a long-term enterprise.

JIM LEHRER: But you're talking money, right? You're talking about that kind of support to anti-Saddam Hussein forces?

SAMUEL BERGER: Well, there are a number of things that are already happening. We have funded Radio Free Iraq so that the people of Iraq are now able to hear the truth, rather than simply the propaganda of the government. We have helped to broker a rapprochement between the two Kurdish factions opposed to the government so at least they're not fighting with each other. And there are many other things that we could do. Congress has recently passed something called the Iraqi Liberation Act, which gives the President other authority to act. And , as I say, this should no be seen as an overnight enterprise or as a quick fix but as a long-term effort to de-legitimize that regime and bring about change.

JIM LEHRER: Finally, to come back to where we began, Mr. Berger, this whole thing, should this be seen as some kind of final resolution of our problems with Iraq, or just another chapter in the confrontation?

SAMUEL BERGER: Well, I think that what we have now is Saddam Hussein more isolated than he has been at any time since the Gulf War. No support, not the Russians, not the French, not the Chinese, not the Secretary-General of the UN - the whole world now is watching. Will he comply, or will he not? If he complies, fine. If not, I believe the international community will support whatever action is necessary.

JIM LEHRER: Mr. Berger, thank you very much.

SAMUEL BERGER: Thank you, Jim.% ? FOCUS - GOOD CALL?

JIM LEHRER: Now, some congressional reaction to all of this and to Margaret Warner.

MARGARET WARNER: We get four perspectives on the President's decision. They come from two Republican Senators, who serve on the Defense Appropriations Subcommittee, Sen. Arlen Specter of Pennsylvania, and Sen. Kay Bailey Hutchison of Texas; and two Democrats, Sen. Joseph Biden of Delaware, the ranking Democrat on the Senate Foreign Relations Committee, and Representative Lee Hamilton of Indiana, the ranking Democrat on the House International Relations Committee.Sen. Hutchison, what do you make of the administration's rationale for calling off the attack as laid out by the President and just now by Mr. Berger? Was it the right decision?

SEN. KAY BAILEY HUTCHISON, [R) Texas: Well, I don't think we need to talk so much about what has happened. But I think what we need to do is make this different from all the other stop and go, push, pull efforts that we have made with Saddam Hussein. I think clearly he knows that he can pull our string and we've got to show him this is different. We've got to show resolve, and I think we need to set some clear deadlines. If we go in and we say we want to see a certain site, then within six hours of not being let in, we bomb.

MARGARET WARNER: But do you think -

SEN. KAY BAILEY HUTCHISON: The thing that bothers me -

MARGARET WARNER: Do you think he - as you put it - pulled our chain this time too?

SEN. KAY BAILEY HUTCHISON: Yes. I think he definitely has, because he doesn't think we're serious, because we keep backing down. What Sandy Berger said earlier was we'll either know or we won't know, we'll either be let in or we won't. I fear another option, which is that Saddam Hussein will wait three to six months. We will be in a lull situation, and then he will start the process of shutting it down and we will have the same situation. I think we've got to be very firm. I think we've got to show a resolve. Saddam Hussein is in control right now. America should be in control.

MARGARET WARNER: Sen. Biden, your view on the decision to hold off.

SEN. JOSEPH BIDEN, [D) Delaware: Well, you know, it's a tough call. If I'd been sitting there and the President asked me, I may have said go ahead, but I can't second guess the decision and I'd disagree with Sen. Hutchison in one sense, that I don't think Saddam pulled anybody's chain this time. I think Saddam vastly overplayed his hand and miscalculated. He had hoped that he could split the coalition that had mounted against him, including the Arab world, and he backed down in an ignominious way. Our hand is strengthened significantly if we use force, but I agree with Sen. Hutchison in terms of what next, and that is that if, in fact, he fails to produce documents, if, in fact, he fails to allow inspections, if, in fact, he fails to meet the terms of the agreement, then I think there should be no time short of whatever safety and military considerations have to be taken in consideration, no interval between the refusal and our using military force.

MARGARET WARNER: What did you think, Sen. Biden, of what Mr. Berger said in terms of how the administration is going to judge whether he's complied?

SEN. JOSEPH BIDEN: Well, I think he had to say what he just said, because the truth of the matter is that if we - if we make UNSCOM a US agency, then we lose, it loses all its credibility. I read between the lines in what he said, and it may not be appropriate, but I read between the lines to say the following: that we know what we need. UNSCOM knows what they need. They know the documentation they need, and they know they will take a little while - several weeks - to figure out what the new road map will be to get to the point where they - they need to be. I spent a lot of time with Scott Ritter after our hearing, when he and I went at it, and - but then in my office - and he, as others have explained to us, we know they know - UNSCOM knows where they want to go, what the grit is, what they want to look at. And so I think that what you saw - what I heard Sandy Berger saying was that it's not a secret -- what we need to know -- and it won't be a secret when we're not allowed to see it. And it will have to come from UNSCOM to say they weren't allowed to see what they needed to see, rather than us make that judgment up front, because if we make the judgment, then we alienate, once again, the Arab world, we alienate the United Nations, and we alienate our allies. And I think the President - quite frankly - has done a very skillful job in keeping our allies boxed, our French friends silent - the Russians and Chinese out of the picture, and the Arab world unified in suggesting that Saddam had stepped over the line.

MARGARET WARNER: Congressman Hamilton, how much confidence do you have that the trade-off, as the President really described it, will pay off between bombing this week - past weekend - versus letting UNSCOM reassert its role and having that work?

REP. LEE HAMILTON, [D) Indiana: I think the President made the right decision. After the second or third communication from Iraq, not the first one, but after the second or third one, the conditions that the Security Council had laid down had been met by Iraq, at least on paper. And at that point, it seems to me, there was a viable diplomatic option. I do not think the United States should use force, except as a last resort, and certainly not when you have a viable option. So I think the President's decision was a correct one. At this point in time I'm inclined to agree with the other Senators. I think that we have to be very firm in our judgment, we have to test them. That test should come sooner, rather than later, with regard to the inspections. It doesn't look to me as if it's all that complicated a question. Either they cooperate, or they don't. It's very clear to me what the United States want. We want unfettered access. It is by no means clear to me that the Iraqis have agreed to that. I don't like the kind of language that they threw into their - their several communiqu s, and even Mr. Berger a moment ago, I thought, was not as direct I would like to have had him be with respect to what the United States is prepared to do. Look, if we don't get cooperation, we should resort to military strikes. Those strikes ought to be massive; they ought to be sustained.

MARGARET WARNER: Senator Specter, do you think the United States, for instance, talking about UNSCOM's role, should support say surprise inspections, the kind of things Scott Ritter wanted to do in the past few months, and by all accounts the United States did not support?

SEN. ARLEN SPECTER, [R) Pennsylvania: Absolutely. I think that the surprise inspections are indispensable if we're really to find out what is going on. It would be my hope that Mr. Butler could make a determination of whether Saddam Hussein is going to cooperate relatively promptly. Mr. Butler spoke over the weekend about his ability to get the inspectors back into Iraq in 24 hours. Well, it doesn't necessarily have to be within 24 hours, but I think that the momentum ought to be maintained. And I think that Mr. Butler ought to do everything he can. He's very experienced in this field. There were some documents, which had been kept away from the UN inspectors. I think he ought to insist on prompt access to those documents, which showed what Iraq and Saddam Hussein had been doing, so that we make a determination as early as possible whether or not there is cooperation. Then it would be my hope that the Congress of the United States would be involved. I'm still of a view that a missile strike, air strikes are acts of war and only the Congress of the United States has the authority to declare war under the Constitution. And I am inclined to support the use of force, but I would like to see the Congress involved and getting into this matter in some depth, and the long-term strategy about really how we topple Saddam Hussein. I think we're pussyfooting on that issue. I think we really want to overthrow that government, and the sooner we face up to that directly and make plans accordingly, the better off the world will be.

MARGARET WARNER: Sen. Hutchison, do you agree with that, that that should be a goal, getting rid - overthrowing Saddam Hussein?

SEN. KAY BAILEY HUTCHISON: Well, I definitely think we should have a long-term strategy of undercutting that regime.

MARGARET WARNER: And how far would we go? For instance, you heard Jim talk to Mr. Berger about it. Are we talking about military assistance? What if there's an uprising, should the US support it with military action?

SEN. KAY BAILEY HUTCHISON: I think that first we should take the step that Congress has laid out, and that is to try to find dissidents in Iraq or people living outside of Iraq who are Iraqi expatriates and help them come in and foment revolution. Secondly, I think a Radio Free Iraq, I think a no-fly zone containing Baghdad, a no-drive zone, I think sanctions have got to be totally enforced, and our allies have got to stand with us. We cannot have some of our allies not enforcing sanctions because it undercuts us totally. We have got to be totally together on this, and I hope that we would have a united front and have help from our allies financially as well.

MARGARET WARNER: Congressman Hamilton, you heard Sandy Berger say it's not going to be -I think his word - it's not an overnight proposition. I mean, is there a viable game plan here really for creating what the President said he wanted, a new government in Baghdad?

REP. LEE HAMILTON: I think the President said he thought we should address that question. Sandy Berger's certainly right. It's not going to be a short-term matter. We've been working at this for seven or eight years. This was our policy right following the Gulf War. It's a very difficult proposition. I think it is part or should be part of our policy - apparently it is - to try to replace that government. But the Iraqi opposition is very divided; they live in Washington and Paris and London. Some of them are in the North of Iraq, some in the South of Iraq. You've got the Kurds and the Shiites. You've got many, many of these groups to deal with. And no one should think that uniting the opposition is going to be easily done. Secondly, if we decided to support that opposition, I think it is incumbent on us to make very clear what we are prepared to do and what we are not prepared to do with regard to military support so that we do not put these populations on the ground at risk. Are we prepared to put air power in there in case they get into a difficult situation? Are we prepared to put ground troops there? Are we not prepared to do those things? I think we have to be very clear about our intentions here or otherwise, as has happened in the past, some people are going to get hurt relying on the United States to do something that they thought the United States was committed to do.

MARGARET WARNER: Sen. Biden, what do you think - briefly because I want to get to Sen. Specter too - but what do you think should be the answers to those questions ultimately?

SEN. JOSEPH BIDEN: And the answer to those questions are we shouldn't do what we did in the past; that is, in 1991, there were genuine uprisings in the South of the Shias, and there were genuine uprisings in the North with the Kurds. We let Saddam go in and crush them. We should have used air power to take out his helicopters, take out some of his forces. Secondly, this is a process. It's going to take time. It's going to take time to rebuild the notion among the population that we would be of assistance at least in air and in use of air power. Thirdly, the point made by Congressman Hamilton is correct. We should not over promise this. We're not looking for another Bay of Pigs. We're not looking for promises that cannot be met. And so it seems to me the policy now is contain and over time replace and if contain does not work, because he violates the agreements with regard to UNSCOM, then it's deter, which means strike him and replace. But the replace part takes time.

MARGARET WARNER: And Sen. Specter, your view on what it ultimately will take, are we talking about US military action, perhaps even US ground forces?

SEN. ARLEN SPECTER: I believe we made a decision in 1991 not to use ground forces. By 2020 hindsight perhaps that was a mistake. We had a united Arab world behind us. Whether they would have been with us if we had gone on the ground really remain to be seen. I would not be inclined to make a judgment on a sound bite to use ground forces, but I think if we're talking about missile support, if we're talking about air power, where we do not risk significant US military casualties, I think that's the kind of support we ought to be prepared to give to any group which is in a position to overthrow Saddam Hussein.

MARGARET WARNER: All right.

SEN. ARLEN SPECTER: I think he's an overwhelming menace. I think that if we do not clear up this problem, you may well find him using chemical warfare at a big city in the United States. I don't think we ought to underestimate him. And we ought to do whatever it takes within the limits of not spilling American blood.

MARGARET WARNER: All right. Well, thank you, Senators, very much, and Congressman Hamilton.

JIM LEHRER: Still to come on the NewsHour tonight, Asia's hot money problem and the new tobacco deal.% ? FOCUS - HOT MONEY

JIM LEHRER: Jeffrey Kaye of KCET-Los Angeles has the Asian economy story.

JEFFREY KAYE: In a Los Angeles warehouse, Jeffrey Tedja and his brother Nelson recently helped pack goods to ship to their native Indonesia. The brothers used to export high-tech satellite equipment there. Now the businessmen are packing food for a relief operation.

NELSON TEDJA: Since the food shortage over there, the price on the food is about four or five times more higher than regular price. And some food like rice or cooking oil, it's very hard to find them.

JEFFREY KAYE: The charity effort provides a small window on the Asian financial crisis. The food will be shipped out on what would have been an empty cargo container. These days, most Asia-bound crates are empty since Asians can no longer afford to buy as many US exports as they could in the past. That's just one effect of the economic tidal wave that started a year ago and continues to unfold throughout much of East Asia. The region faces increasing poverty, unemployment and food prices -- a stark contrast to the prosperous years of the early 90's when a massive influx of foreign capital fueled high growth and a tremendous building boom. How to handle those boom-bust cycles is a prime topic for leaders of the Asia Pacific Economic Forum, or APEC, meeting in Malaysia, according to economist Richard Feinberg.

RICHARD FEINBERG: The Asian countries, themselves, are going to want to talk about this financial crisis, which has left some of their economies very depressed and very devastated. And they will be arguing that there should be some changes made in the international financial system, as well as in their own domestic financial markets.

JEFFREY KAYE: Last year's APEC meeting came in the midst of the crisis as investors were withdrawing billions in foreign funds. Malaysian Prime Minister Mahathir Mohamed triggered an international debate when he advocated controls on the flow of foreign capital - regulations he subsequently imposed two months ago.

MAHATHIR MOHAMED: It would be wrong for a government to abdicate and leave all to the private sector. This is because left to itself, the private sector will not give sufficient consideration to the needs of the public. They tend to focus only on their profits to cut costs and maximize returns.

JEFFREY KAYE: While the Malaysian prime minister represents one side of the debate, the chairman of the US Federal Reserve, Alan Greenspan, represents the other. Earlier this month, he called for better banking practices in Asia, rather than capital controls, which he said discourage foreign investment.

ALAN GREENSPAN: Capital controls, which worked in part to contain international flows earlier in this post war period, are unlikely to be effective over the longer run. They would cut off capital investment inflow to an economy, and the higher level of technology and standards of living that normally accompany access to such flows.

JEFFREY KAYE: Leaders on both sides of the Pacific agree on the need to encourage long-term investments in factories and businesses and to minimize the boom and bust effects of so-called "hot money." That's the term for funds from investment companies, banks, and currency traders - seeking a high rate of return on a short-term commitment. Hot money can be pulled out quickly if a better deal comes along.

RICHARD FEINBERG: By hot money, they mean speculative money; money invested for the short-term. It can go in rapidly; try to make a quick killing; rapid rate of return. But it can also move very quickly, and it's hot like a potato. You had, in the two years prior to the bubble bursting in the developing countries of Asia, some two hundred billion dollars flowed into the region; massive amounts of money. During the crisis, you had actually money flowing out.

JEFFREY KAYE: Globalization of commerce has turned the financial markets into international, 24-hour-a-day bazaars where fortunes change hands at the click of a computer keyboard.

TRACEY WARSON: Well, we trade about 8 billion a month.

JEFFREY KAYE: That's 8 billion US dollars in foreign currency trading at Wells Fargo Bank in San Francisco. That figure, according to bank vice-president Tracey Brophy Warson, is a small fraction of the currency traded daily worldwide.

TRACEY WARSON: Worldwide -- over a trillion dollars a day. And it's a twenty-four hour market. It's an unregulated market, which is very interesting. So that basically means there's a lot of participants. There's banks, there's corporations, there's brokers, there's investment houses, but it's a completely unregulated market.

JEFFREY KAYE: A market which traders track minute to minute, taking advantage of volatile rates.

TERRY HAGGERTY: In 30 seconds, you can make or lose thousands of dollars. It moves very quickly.

JEFFREY KAYE: Traders like Peter Connolly continually take the pulse of markets, buying and selling at will.

PETER CONNOLLY: If you're very, very good, you might be in front of the trend, but at the very least, you want to be with the trend. You don't want to be contra trend.

JEFFREY KAYE: That mentality among international traders is not unlike the thinking that drives casino gamblers. That's the view of economist Feinberg who spelled it out for us in America's monument to wishful thinking, Las Vegas.

RICHARD FEINBERG: Well, there are a lot of similarities between casino and private capital markets. People in both cases hope to place down their money and to win; and if they win they'll put down more money and they'll keep winning until maybe at some point the bubble bursts.

JEFFREY KAYE: And that, says Feinberg, is exactly what happened in East Asia. In a casino, Feinberg spotted another phenomenon common to global financiers and Las Vegas gamblers.

RICHARD FEINBERG: Psychology is so much a part of the movement of capital flows just as it is part of the decision of each and everyone of these gamblers to bet or not to bet. Is there a herd mentality? People move in where they see a lot of optimism, where it's positively contagious. But suddenly, for a certain table that looked like people were winning, a couple of bad rolls, they say: Well, this table is going dead. Let's quickly get out. Let's pull out our money.

JEFFREY KAYE: Like this table; this table's crowded.

RICHARD FEINBERG: This table right now is hot; this is Asia before the crisis. People were coming in; they felt optimistic; they saw other people winning; they herded in. They wanted to be part of the action. And it's, in that sense, a self-fulfilling prophecy. Animal spirits produce that optimism, that spontaneous urge to invest, and prices rise.

JEFFREY KAYE: So in this analogy, the pull out of Asia would be akin to these guys here deciding that their luck has run out.

RICHARD FEINBERG: If the table suddenly goes cold, a couple of bad rolls, people then decide this place is going down the tubes. I don't want to bet here anymore; I'm going to pull my money out; I'm going to go to another table, another country, another market.

JEFFREY KAYE: And that's what happened?

RICHARD FEINBERG: And that's what happened in Asia.

THOMAS TUTTLE: The herd mentality, particularly in the Asian markets, the herd mentality was almost a self-fulfilling prophecy.

JEFFREY KAYE: Fund manager Thomas Tuttle was among the first to pull out of the most troubled Asian economies in early '97. His Newport Tiger Fund specializes in Asian stock. But where he once invested in nine countries, he is now down to three. Tuttle says restrictions on capital flow tie his hands. He refuses to re-invest in Malaysia, which has curbed currency trading and requires foreign investors to keep their funds in the country for at least a year.

THOMAS TUTTLE: We have to have the ability to be able to move our capital freely, country to country. And that's how we make our decisions. So, by implementing capital controls with no prior warning and freezing foreign public investors for a year, then he's basically put us out of the market. We can't legitimately take our money and go into Malaysia at this point.

JEFFREY KAYE: Thailand has rejected the Malaysia model. But Foreign Minister Surin Pitsuwan says Thailand must also stem short-term flows. In a recent speech, he suggested his country had been too easily seduced by the allure of hot money.

SURIN PITSUWAN: Henry Kissinger asked earlier this year in Bangkok -- we were all intoxicated by prosperity --- but guess who supplied the alcohol?

JEFFREY KAYE: In order to control capital flow, Pitsuwan wants nations to act together, rather than unilaterally, as Malaysia did.

SURIN PITSUWAN: Incentives will have to be given for long-term investments, for meaningful investment in the country.

JEFFREY KAYE: And disincentives for short-term?

SURIN PITSUWAN: Somehow. I think they are thinking now in the international community to tax or to give some period of control, rather than coming in and going out in the next day or right away after making profits. Some will have to be kept inside the country. And these are the things that will have to be discussed.

JEFFREY KAYE: Feinberg says a tax on hot money would increase economic stability.

RICHARD FEINBERG: For example, a lender could be told: Well if you want to, you can lend short-term to country X, but we're going to put a tax on that short-term transaction. He can still make that transaction if he wants; it's still a free market, but he'll be less likely to do so. That can reduce the volatility, therefore, of short-term flows.

JEFFREY KAYE: But many investors, particularly currency traders, oppose measures that would reduce volatility, because they often profit from market swings.

PETER CONNOLLY: Every minute it changes, so the volatility as mentioned before, enables us to go into the market and take positions where we think we can make some quick turnaround as far as the value of the dollar.

JEFFREY KAYE: The challenge now facing the APEC leaders is how to temper the volatility in global markets without discouraging investors.% ? FOCUS - NEW DEAL

JIM LEHRER: Finally tonight, the new tobacco deal and to Elizabeth Farnsworth in San Francisco.

SPOKESPERSON: It's time to stop the legal bickering -

ELIZABETH FARNSWORTH: After five months of negotiations, attorneys general for eight states and the nation's four largest tobacco companies announced a proposed $206 billion deal today. It's aimed at reimbursing state governments for costs of treating sick smokers.

DENNIS VACCO, Attorney General, New York State: This document represents far and away the best deal, the best plan that we could have accomplished. And it is far more comprehensive than anything that has been achieved through litigation or legislation involving our nation's tobacco control policy in over 40 years.

ELIZABETH FARNSWORTH: Today's deal provides payments to states over 25 years. New York, for example, would get roughly $25 billion and Wyoming $487 million, bans most outdoor advertising, such as billboards, and limits sports stadium advertisements. The deal bans targeting youth in advertising, promotions, or marketing, including cartoon characters, bans merchandise with tobacco product logos, protects companies from state but not smokers' lawsuits. The agreement announced today does not deal with the authority of the Food & Drug Administration to regulate nicotine as a drug.

SPOKESMAN: I'm very pleased to convene this morning's executive session to market up comprehensive bipartisan tobacco legislation.

ELIZABETH FARNSWORTH: That was one element of a much broader tobacco deal reached last year, which needed congressional approval. That legislation died in the Senate earlier this year. At that point, eight of the states in the original settlement began negotiating with the tobacco industry again. Four other states settled their suits against the industry as the cases were about to go to court. In recent months the industry has won several major cases against plaintiffs seeking damages. It also has won a decision in federal appeals court denying the FDA's authority to regulate nicotine. Ultimately, the new deal could cover costs for smoking-related illnesses in 46 states. They have until the end of the week to decide to accept or reject the accord.

ELIZABETH FARNSWORTH: And with us now Washington State Attorney General Christine Gregoire, who led the team that negotiated the proposed settlement, and John Garrison, executive director of the American Lung Association. Tobacco industry representatives declined an invitation to join us.

ELIZABETH FARNSWORTH: Attorney General Gregoire, why is this a good settlement?

CHRISTINE GREGOIRE, Attorney General, Washington State: Well, I think the issue here is how much could we get in a courtroom in America? I'm in my eighth week of trial back in Washington State, and I know that I've got much greater than what I can get in that trial, not only financially but, most importantly, what money can't buy, the public health gains that we've been able to achieve in this settlement cannot be achieved in a court in any state in this country. So what we've offered is every state to participate. The largest financial settlement in the history of the world and the most restrictive curtailment of the conduct of an industry in any lawsuit in America - it's time that we got out of litigation, on to making progress in America today, and call on Congress to do their job where they left off and didn't accomplish it this last year.

ELIZABETH FARNSWORTH: When you say the public health gains, beyond what we mentioned in the setup, what public health gains are you talking about?

CHRISTINE GREGOIRE: Well, the thing I think is probably the single most important aspect of the settlement is it creates a foundation nationally, the purpose of which is to tell us what's the most effective cessation program for children and women and people of color and men, what's the most effective advertising and counter-advertising campaign, and it also has a $300 million a year for five years comprehensive, sustained, counter-advertising program so that we can get into the home of every American with the truth about the addictiveness and the health impacts of the use of tobacco.

ELIZABETH FARNSWORTH: And, Ms. Gregoire, how do you compare this to last year's settlement?

CHRISTINE GREGOIRE: Well, in many respects, it's better. For example, the states would have received about $196 billion in the June 20th proposal. But what this has with four states already having settled is approximately $250 billion to the states. Secondly, last year's proposal had some restrictions, no punitive damages, no class actions, restrictions on private lawsuits. None of that has been given to the industry in this settlement. And where we left off in litigation we've left to legislation. June 20 was legislation. This is settlement of lawsuits. But now we've called on Congress to finish where we left off, give full FDA authority, and make sure that what we've done is simply step one of a multi-step process.

ELIZABETH FARNSWORTH: John Garrison, how do you view this settlement? [network difficulty) I'm not hearing you.

JOHN GARRISON, American Lung Association: The American Lung Association -

ELIZABETH FARNSWORTH: I'm sorry. I don't believe we're hearing you. Keep talking for one second. If we can't fix it, I'll go back to the attorney general.

JOHN GARRISON: The American Lung Association is very concerned with what we think should be rejected. There are lots of problems with this settlement. The major problem is that it preempts local government lawsuits. And I'm afraid that the rhetoric doesn't match the reality. We don't think that local government lawsuits should be preempted. What we would have preferred much more is something like what happened in Minnesota, that Skip Humphrey got there. There was significant dollars, far more dollars than this particular settlement would agree, all kinds of public health provisions. But very importantly, it did not in any way diminish local government opportunities to bring about their own lawsuits. So that is a major problem with this. This is not a good first step. This is a step backwards.

ELIZABETH FARNSWORTH: Attorney General Gregoire, how does this deal with the local lawsuits?

CHRISTINE GREGOIRE: Well, let's remember what Minnesota did. This not only has every public health aspect of Minnesota but far greater public health gains of those contained there. My applause to Minnesota for what they accomplished there. We built on that. And we've doubled what is provided in Minnesota in the public health arena. What this settlement does, as in any settlement, is it settled government lawsuits. And so the citizens, for example, of the State of New York will enjoy a return of approximately $25 billion over 25 years for both local and state governments. That's what these lawsuits were intended to settle, and that's what we've provided today.

ELIZABETH FARNSWORTH: John Garrison, what about - yes, go ahead.

JOHN GARRISON: But if New York had settled at the same level that Minnesota settled, they would have had $40 billion, and, as I indicated, Minnesota did not give up any local government - any local government legal protections. The local governments can sue under the Minnesota findings. They cannot under this one, and that is a major disadvantage.

ELIZABETH FARNSWORTH: So, Mr. Garrison, what is your analysis of what happened here, that the cigarette companies are more powerful now than they were a year ago or six months ago, when the other settlements were made?

JOHN GARRISON: The tobacco industry is very happy about this settlement. I don't think there's any doubt about that. They now have a lot of stable situations in the state, including local governments. They know where they are in that regard. The public health provisions are not as strong as some of us would have hoped. They can still go the vending machine route. They can go the Internet route. They can do a lot of things. They can still put small billboards up. So there are a lot of problems with this. And, as I say, the rhetoric doesn't match the reality.

ELIZABETH FARNSWORTH: And, Mr. Garrison, what would be wrong with what the attorney general said, seeing this as one step and then other steps could be taken by Congress later?

JOHN GARRISON: Well, the major problem is that this does preempt local government lawsuits. If that were out of there, it would be a tremendous improvement. We don't think that there's as much money as there should be. We don't think the public health provisions are as strong as they should be. But the item that is really troubling the American Lung Association is the fact that local governments cannot bring their own lawsuits.

ELIZABETH FARNSWORTH: Ms. Gregoire, respond to that and then tell us how the provisions of this agreement will be enforced: For example, if a company does put up billboards that they shouldn't, or does something else.

CHRISTINE GREGOIRE: Well, the advantage that we have with regard to that is that we're going to enter in a consent decree in every state in this country. So rather than having to file a lawsuit, as we did here, and line up with every other lawsuit and wait for our turn to have it heard over years, if they violate - let's say they put up a billboard and it's particularly a billboard of Joe Camel, I can go into my court in Washington State, I can get it enjoined within 24 hours, I can ask the judge to impose a penalty, and if they continue to violate, even a criminal penalty for that conduct. But let's talk about where we go in terms of how we can fund it. We have set up a $54 million fund available to attorneys general to ensure that they can enforce this entire settlement and they can enforce compliance with state laws with every tobacco manufacturer. Those moneys are key to our being able to bring about change in this country, consistent with our proposal.

ELIZABETH FARNSWORTH: Mr. Garrison, on the enforcement provisions and what are you recommending to the states who have not signed on so far? There are 38 states out there that have to make a decision. What are you recommending?

JOHN GARRISON: We are recommending to the states that they not settle, that they not sign on, that they not settle at this time. We think that this agreement, which is very complex, should undergo public scrutiny. We think there should be at least 30 days of public scrutiny. The tobacco industry has a history of being very deceptive and very manipulative. And we need to make sure that there aren't any loopholes there. We just don't trust the tobacco industry, and we hope the states will not sign on, and that they will carefully review the - all parts of this agreement.

ELIZABETH FARNSWORTH: Ms. Gregoire, why have the states been given only until Friday to make their decision?

CHRISTINE GREGOIRE: What we did is we provided a - it's called a term sheet to all of our attorneys general in July. And we've had conference calls with them throughout the negotiations. They've been major players in these negotiations. Thirty days ago we provided them with a copy of the agreement and had one on one discussions with attorneys general. And now we're simply asking them to finish their review and make a decision by Friday. This isn't legislation like June 20, where it goes out for public comment and public review. This is settlement of lawsuits, and the issue for every attorney general will be very basic. Can I achieve greater than what I have achieved in this settlement, which is guaranteed, or do I risk going into court for years of litigation, years of appeal, and the status quo, where billboards are all over our highways, our children are walking billboards? We need change now. We need a step forward now for every state, whether they've filed or not, whether they've lost their lawsuit or not. This is available to every American, not only financially but in the public health arena.

ELIZABETH FARNSWORTH: And very briefly, Ms. Gregoire, how many states must sign on for this to take hold?

CHRISTINE GREGOIRE: We're going to meet this coming weekend. We want to guarantee this industry has full board approval, and they will accept the responsibilities that have been provided in the settlement. And at that point we'll indicate how many states that we have signed on. I'm optimistic that every state asking themselves how much they can gain in court will say that this is good for Washington State, it's good for my citizens.

ELIZABETH FARNSWORTH: Thank you both very much. Sorry. That's all the time we have.% ? RECAP

JIM LEHRER: Again, the other major story of this Monday, the US halted its troop buildup in the Persian Gulf. It warned Iraq it would be hit without warning if it blocked UN weapons inspectors. National Security Adviser Berger said on the NewsHour tonight it should not take long for UN inspectors to determine how cooperative Iraq will be. We'll see you online and again here tomorrow evening. I'm Jim Lehrer. Thank you and good night.