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IMF Finally Knocks on Uncle Sam’s Door

Dandelion Salad

By David HIrst
ICH
06/30/08 “The Age

IMAGINE the Reserve Bank of Australia, concerned that its friends in the city of Sydney (but perhaps Melbourne) who, having wallowed in wealth all their adult lives, were no longer gainfully employable and their wildly extravagant lifestyles were in danger, and, having the powers to intervene in the market, decided to do just that on their behalf.

Imagine them offering to enter the market and buy shares that would prop up the foolish gambles of the bankers, gambles they had encouraged them, until recently, to take by providing them with cheap money.

On top of that, they told this group they would provide hundreds of billions of dollars in credits to these same profiteers on the grounds they were so big and important to the economy they were indeed too big to fail.

Then, imagine, despite pouring untold taxpayers money into stocks and allowing their cronies access to vast sums, the system continued to fail. So they announced they would need greater power and with it more secrecy.

…continued

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see

“We’re Entering a Two Economy Society. There is No Force Opposing Financial Polarization”

The Shrinking Influence of the US Federal Reserve

Barbara Slavin on Iran

Dandelion Salad

C-SPAN

briggsmedia

Potential for invading Iran

Barbara Slavin on Iran“, posted with vodpod

see

Hersh: US ‘escalates covert Iran missions’

Interview with Iran’s Ambassador to IAEA

Hersh: Congress Agreed to Bush Request to Fund Major Escalation in Secret Operations Against Iran

Preparing the Battlefield by Seymour M. Hersh

Morning Joe: Andrew Card & Katrina vanden Heuvel on the Sy Hersh Leak

Sy Hersh on Late Edition: Inside Iran

Ron Paul: Iran war will triple energy prices

Iranians Float an Offer the West Should Not Refuse

Military official: Iran digging 320,000 graves for invaders

Seymour Hersh (older posts)

Hersh-Seymour (newer posts)

Iran

Hersh: US ‘escalates covert Iran missions’

Dandelion Salad

AlJazeeraEnglish

Al Jazeera’s Ghida Fakhry talks to investigative journalist Seymour Hersh about his latest article in New Yorker magazine, claiming that US congressional leaders have agreed to a presidential request for up to $400 million in funding for covert operations against Iran.

see

Interview with Iran’s Ambassador to IAEA

Hersh: Congress Agreed to Bush Request to Fund Major Escalation in Secret Operations Against Iran

Preparing the Battlefield by Seymour M. Hersh

Morning Joe: Andrew Card & Katrina vanden Heuvel on the Sy Hersh Leak

Sy Hersh on Late Edition: Inside Iran

Ron Paul: Iran war will triple energy prices

Iranians Float an Offer the West Should Not Refuse

Military official: Iran digging 320,000 graves for invaders

Seymour Hersh (older posts)

Hersh-Seymour (newer posts)

Countdown: Jim Webb + McCain Double Talk Express

Dandelion Salad

videocafeblog

June 30, 2008

Jim Webb Interview

Keith talks to Jim Webb about the passage of his GI Bill that President Bush and John McCain then tried to take credit for after trying to block it.

The McCain Double Talk Express

Keith goes through the litany of McCain flip flops.

Worst Person

And the winner is….Bill Kristol. Runners up Bobby Jindal and Monica Crowley.

see

Countdown: Special Comment Obama FISA Bill

Countdown: Special Comment Obama FISA Bill

Dandelion Salad

cmdrgmh

Keith lets Obama Know all about the FISA bill and how he can nail the Bushies to the wall.

see

transcript

Keith Olbermann: Then and now + Olbermann’s reply & Obama’s Secret Plan to Protect the Rule of Law

Ralph Nader says no to wire tapping

AT&T Whistleblower: Spy Bill Creates ‘Infrastructure for a Police State’

“We’re Entering a Two Economy Society. There is No Force Opposing Financial Polarization”

Dandelion Salad

By Mike Whitney
06/30/08 “ICH”

Interview with Michael Hudson

“Our tax laws have shaped the marketplace to favor the debt-financed buying and selling of real estate, stocks and bonds rather than new direct investment. Advocates of this financialization of saving and investment depict it as a viable mode of wealth creation, but the effect is simply to de-industrialize the United States. And this is the tragedy of our economy today.” – Michael Hudson

Mike Whitney: Before John Kennedy took office, anyone making an income of over $200,000 was taxed at a rate of 93 per cent. Corporations also paid a much higher percentage of the total tax burden than they do today. The higher tax rates on the wealthy never hurt Gross Domestic Product (GDP) which was consistently over 4% during these years, and the middle class flourished in a way that was unprecedented in world history. Why don’t we return to the “redistributive” policies which worked so well in the past? Do you think “progressive taxation” is crucial for maintaining democracy and establishing greater equity among the people?

Michael Hudson: I think you’re framing the tax problem too narrowly. At issue is not simply the tax rate on the income that’s being taxed ­ at present, mainly wages, followed by profits. Classical economists focused first and foremost on WHAT should be taxed. From the Physiocrats through Adam Smith and John Stuart Mill to socialists such as Ferdinand Lasalle and America’s Progressive Era reformers, they concluded that the main source of taxation should be unearned income, defined as land rent, monopoly rent, other forms of economic rent (income extracted without playing a necessary role in production) and capital gains on these rent-yielding assets, mainly land sites.

As matters stand today, you could raise the income tax to 100% and still not capture the actual cash-flow revenue of real estate, monopolies, and multinationals who use transfer pricing to manipulate their income and expense statements to show no reportable taxable income at all. So the first concern should be what kind of revenue to tax. Owning a real estate rental property is like owning an oil well in the days of the depletion allowance. In addition to charging off interest as a tax-deductible expense (rather than a financing choice), owners pretend that their buildings are depreciating, despite the fact that property prices have risen almost steadily.

So in most years no taxable income is reported at all. Real estate owners don’t even have to pay a tax on capital gains ­what Mill called the unearned increment if they plow back their sales proceeds into buying even more assets. And this is just what the great majority of wealth-holders do. They keep on trading and accumulating, tax-free. The situation is much the same with companies taken over by corporate raiders. Paying interest to junk bond holders absorbs what formerly were taxable earnings paid out as dividends. This is what really is crippling the U.S. tax system and de-industrializing the economy.

When Kennedy became president, one of the first things he did was to pass the Investment Tax Credit. This gave industrial companies a credit for making tangible capital investment. Real estate got in on the ride too, but the idea was to use the tax system as an incentive to spur investment and employment so as to keep industrializing America.

Fast forward to today. The tax system favors speculative gains and absentee ownership. Ironic as it may sound, really wealthy people prefer not to make any income at all. They prefer to focus on total returns, which they take in the form of capital gains. This is why hedge fund billionaires pay a much lower tax than their secretaries. Real estate is still our largest sector ­most of its market price consisting of the land’s site value ­ rather than industry and other means of production. Given the existing loopholes, I would prefer not to tax corporate profits or even income at all, if the government could tax the free lunch of economic rent at its source. The discussion of WHAT to tax therefore should take precedence over how highly to tax the scant income that wealthy people are obliged to declare from the FIRE sector ­ finance, insurance and real estate.

Perhaps the best way to frame the issue is to call this a re-industrialization discussion. Obviously, the more regressive the tax system is, the more poverty and inequality there will be. And as Aristotle said, democracy is the political stage immediately preceding oligarchy. That’s what the economy is now evolving into.

MW: Why are Democrats so squeamish about taxing the people who have benefited most from our system? Do you see any sign that liberals will join the fight against the far-right ideologues who have dominated the economic debate for 30 years?

Michael Hudson: The short explanation as to why Democrats haven’t taxed wealth is the power of lobbyists whom the special interests hire and the public relations think tanks they employ to promote Junk Economics. Most wealth is gained by special tax privileges these days, and the financial sector is the largest contributor to political campaigns, followed by real estate. The Democrats traditionally have been based in the large cities. As Thorstein Veblen pointed out in Absentee Ownership, urban politics is essentially a real-estate promotion project.

A century ago the tax issue was at the forefront of American politics. Reformers fought hard to enact the income tax ­ just the opposite of today’s attempt to abolish it. The reason was that the first income tax fell mainly on the wealthy, and specifically on real estate, mining and monopolies, which were the main sources of wealth then, just as they are today.

The deep problem is an absence of economic philosophy of how the economy works as an overall system. Without distinguishing what kind of investment and wealth-seeking we want, it’s hard to define a fiscal policy. The idea of a flat tax, for instance, is that all income is equally worthwhile ­ except that the flat tax avoids taxing property or cash flow that FIRE-sector lobbyists have managed to get the IRS to counts as costs. So it is not only value-free, it is explicitly anti-labor. You can find it applied most purely in the former Soviet countries such as the Baltic States.

I don’t see the tax issue being discussed by Congress, except by anti-government tax cutters. And I don’t see a realistic discussion beginning until people define just what progressive taxation means. It has to start with defining some kinds of income and investment as more economically productive than others. This would end the tax subsidies for debt leveraging and financial speculation.

MW: How should Obama approach the issue of “debt relief” for the victims of the housing boondoggle who are now losing their homes in record numbers? African Americans were particularly hurt by the subprime fiasco. Is there a way to minimize the losses of people who were trapped in a banker’s scam?

Michael Hudson: Foreclosures are an age-old problem, so there is a broad repertory of ways to deal with them. In my mind the most effective law is New York State’s law of Fraudulent Conveyance. On the books back when New York was a colony, it was retained when New York joined the United States. The problem was that rapacious English creditors sought to grab New York’s rich upstate farmland. Their ploy was to lend mortgage money to farmers who pledged their land as collateral. Then they would foreclose ­ sometimes before the crop was in and farmers simply lacked the liquidity to pay. Other lenders would lend too much for the borrowers to pay back when the loan was suddenly called in ­ as could be done back then. So New York passed a law ruling that if a creditor made a loan without having a realistic idea of how the debtor was to pay it back, the transaction would be deemed to be fraudulent and the debt would be declared null and void.

In the 1980s, companies brought this defense against corporate raiders using junk bonds as their weapon of choice. Targeted companies claimed that they would be forced to downsize radically or even have their assets stripped to the point of bankruptcy. I thought that Third World countries that borrowed from the large New York banks should have raised this defense, as the only way they could pay was by either borrowing the interest, or (as matters turned out) stripped their assets by privatizing their public domain to raise the dollars.

Today, fraudulent bank loans such as Countrywide is accused of making would be prime examples of junk mortgages that should be annulled. But the mayor of Cleveland went further. He brought public nuisance charges against banks whose mortgage lending has led to foreclosures leaving homes vacant. They’re being stripped by robbers and used as crack houses. Junk mortgage lenders should be liable to pay the clean-up costs of the debt pollution they’ve created.

MW: That sounds pretty radical.

Michael Hudson: But that’s where the law itself is moving. Just last week, on June 26 after attorneys general in California, Illinois and Connecticut brought fraud charges against Countrywide, the Wall Street Journal quoted a California law professor spelling out that if the states can persuade the courts to grant restitution, it could be a staggering blow against Countrywide, requiring it to give back its profit on all those loans and conceivably give back houses on which it has foreclosed. Financial fraud is a serious matter. The remedies have long been on the books.

MW: Is there a less radical way to keep people in homes which may be too expensive for their incomes or should we be looking for other alternatives?

Michael Hudson: The answer depends on how you define homes as being too expensive. If you’re talking about the mortgage’s interest-rate jumps and amortization payments being too high to be afforded, then one way to keep them there is a partial write-down of the mortgage loan. Treasury Secretary Paulson already has endorsed a step that remains market-based: to assess what a realistic market price for the property would be, and write down the mortgage to that price.

The problem comes from homes that are WAY too expensive. This might be the result of a sudden expensive health problem, in which case they probably will have to move, as the United States doesn’t have European-style health insurance and prefers to blame the victim for having gotten sick or injured. But if the lender knowingly made a bad loan in the first place and the buyer does have to move because their income is insufficient to begin with, they should get some relocation compensation at the very least, and the full legal remedy for fraud at best.

MW: Is their a viable alternative to “free trade” or will American workers continue to face persistent job losses, lower living standards and a “race to the bottom?

Michael Hudson: The reason U.S. labor has lost its competitiveness is not simply a race to the bottom. To see why U.S. exports are being priced out of world markets, you need to look not only at the take-home pay of workers, but also at what employers are not investing to raise capital productivity, and what they don’t get from government in the form of basic infrastructure support.

One reason why employers have not invested as much in raising the productivity of their plant and equipment is that they are saddled with having to pay out more of their cash flow as interest to bondholders and banks, and dividends to assuage shareholder activists, the new euphemism for financial raiders.

U.S. corporate philosophy has been more driven by knee-jerk ideology than by enlightened self-interest. General Motors has pointed out that it has to pay enormous health care costs that its foreign competitors don’t. Some sixty years belatedly it’s finally discovered that socialized medicine is more efficient that health care privatized by predatory financial and insurance operators. Government services don’t build in interest rate costs, dividends, exorbitant management remuneration, stock options and legal fees. All this absorbs a big part of the corporate expense for its work force ­ without raising labor’s living standards in the process.

Meanwhile, educating doctors, dentists and nurses is much less costly abroad. Here, they emerge from medical school with hundreds of thousands of dollars in debt, and then have to take on more debt to set up their offices, then they need to buy expensive liability insurance. Once they get on an HMO schedule, they usually have to wait for a year or so to actually get paid. Meanwhile, they have to hire their own full-time bookkeepers just to deal with the HMOs. Doctors, dentists and nurses are being put on rations.

Most of all, the price of labor reflects the high cost of housing here ­mainly the cost of carrying a home mortgage ­ plus non-mortgage debt. Labor doesn’t benefit from these costs. And as matters have turned out, industry hasn’t benefited either. It’s the price the U.S. economy as a whole is paying for having become financialized and privatized in a dysfunctional way.

MW: You have said that the financial crisis is analogous to a “boa constrictor wrapping itself around the economy and slowly strangling it.” Would you elaborate on that?

Michael Hudson: I was referring to debt deflation. As the debt overhead grows exponentially, it siphons off more and more money from being spent on production and consumption. For the financial sector, this is applauded as being the miracle of compound interest. The volume of loans keeps on growing by purely mathematical principles, without much regard for the economy’s ability (or inability) to generate a large enough surplus to pay. More and more wages, corporate profits and tax revenues have to be earmarked to pay creditors. These creditors then turn around and lend out their flow of debt service to yet new borrowers. This involves finding more and more risky markets, while the debt becomes heavier and heavier.

To pay the carrying charges on these debts, wage earners cut back consumption while debt-wracked companies cut back on new capital investment, research and development. State, local and federal governments also pay interest on their deficits by cutting back on spending to maintain infrastructure or improve services. These cutbacks shrink the domestic market, leading to lower investment and hiring. All this is applauded as the magic of the marketplace in allocating resources. But it’s the financial sector that is doing the applauding, not industry.

MW: Does that mean that there will be sudden jolts to the system like a major bank–perhaps Citigroup or Merrill—keeling over and sending the stock market crashing?

Michael Hudson: The economy reaches a Ponzi stage where banks lend their customers the interest to keep payments current. More and more mortgage loans have been structured this way in recent years. When creditors stop making these loans, there’s a break in the chain of payments and defaults spread, crashing markets.

MW: Is the dollar doomed, or can the US lower its dual-deficits (fiscal and trade deficits) and continue to attract foreign capital in the future? And if the recession takes hold, business slows and unemployment rises, would that strengthen the dollar?

Michael Hudson: I assume that by doom you mean that the dollar will continue to sink against foreign currencies, while price inflation eats away at what wages will buy. The idea that a worse economy will be self-curing is IMF anti-labor ideology and Chicago School propaganda. This is indeed what Nobel Economic Prizes are given for, I grant you. But it’s Junk Economics. A falling dollar threatens to become self-reinforcing. For starters, dollar-denominated stocks, bonds and real estate are worth less and less in terms of euros, sterling or other harder and foreign currencies. This doesn’t provide much incentive for foreigners to invest here. And if we go into a recession (not to speak of depression), there will be even fewer profitable opportunities to invest.

Meanwhile, U.S. import dependency will continue to rise as the economy de-industrializes ­ that is, as it is further financialized. U.S. overseas military spending will throw yet more dollars onto the world’s foreign exchange markets. So a weak economy here does NOT mean that the dollar will strengthen; it means we have a bad investment climate! Austerity will make us more dependent on foreign countries. For a foretaste, just look at what has happened when the IMF has imposed austerity plans on Third World debtors. And remember, last time when Robert Rubin was given a free hand, in reforming Russia under Clinton, the result was industrial collapse and bankruptcy.

MW: Wouldn’t it be better for the world if there were no “reserve currency” at all and the value of money was simply dependent on economic strength and balanced budgets? As long as there is an “international currency,” like the dollar, there will be an Empire, because the paper money of one country (US) dominates all others. Is democracy really possible without greater parity between the world’s currencies?

Michael Hudson: Exchange rates are independent of political systems. That being said, oligarchic economies tend to go bust as a result of shifting the tax burden off real estate, monopolized and privatized infrastructure, and onto labor and industry. This makes them uncompetitive. For instance, the military-industrial complex operates on a cost-plus basis rather than a cost-minimizing basis. The question therefore is whether they can extort foreign tribute from other countries by enough to compensate. Spain couldn’t do this from the New World after 1492, and Rome earlier simply destroyed Asia Minor and other imperial appendages.

Can the United States succeed better today? Dollar hegemony looks like the only way it can pull it off. By definition, a reserve currency is a loan from one government to another. This ends up becoming taxation without representation. It’s inherently inequitable.

There are two reasons for central banks to hold dollars. One is for stabilization purposes to prevent currency raids such as occurred in Asia in 1997. The other is that keeping dollar receipts in the form of dollar-loans back to the United States holds down the price of their own currencies, and hence the price of their exports. This effect also could be achieved by imposing a floating tariff against imports from countries whose currencies are depreciating, with the money provided as a subsidy to exporters. But foreign countries aren’t yet ready for this great a quantum political leap out of the American financial empire.

Regarding tax policy, there’s not really a need for balanced budgets. Starting with the greenbacks during the Civil War years, the United States has demonstrated that governments don’t have to raise taxes to spend money. They can simply print it. That’s what the commercial banking system does, after all. In either case, the money is created spontaneously. The Treasury and Federal Reserve created $1 trillion in bailout credit for the financial sector in April alone ­ while making the hypocritical asymmetrical claim that Social Security will be broke in 40 years because of ITS trillion-dollar deficit. Iraq added another trillion or so.

The moral is that economic strength consists of the ability to create credit that fuels economic growth. But the privatized banking sector is crippling this strength in the United States these days. Instead of creating credit to fund industrial capital formation, the banking system is lending to bail out bad financial pyramiding.

MW: Do you see the growth of the financial sector as a positive development, or not?

Michael Hudson: Its behavior has become antithetical to the development of industrial capitalism. 19th century reformers inspired by Henri St. Simon in France sought to reorganize finance from debt financing to equity financing. But today’s economy is going in just the opposite direction. It’s replacing stocks with bonds and loans by banks and buyout funds, creating debt that is not being used to build up the productive capacity to pay back this debt with its interest charges. The result is what classical economists called unproductive debt.

MW: The financial sector seems less inclined to lend to develop useful products and enterprises. It prefers to repackage other people’s debt (like mortgage-backed securities) and market them to gullible investors. Are the investment banks responsible for the massive expansion of credit and debt presently destroying the middle class and ruining the country?

Michael Hudson: That’s what’s happening. But a major reason why savings are flowing into these banks because the tax laws make it more profitable to debt leverage than to invest in industrial capital. The tax system has shaped a market where it pays more to speculate than to invest in building up new means of production. The financial sector has been deregulated on the logic that whatever makes the most money is the most efficient. The product that banks are selling is debt, and help in corporate takeovers, mergers and acquisition. Credit is a product that’s almost free to create. Its main cost of production is the lobbying expense to buy Congressional support.

MW: So we’re back to politics. What do you know about Barack Obama’s economics advisors? Should we expect a repeat of Bill Clinton’s “Rubinomics”, where Wall Street got everything they asked for and American workers got NAFTA, currency deregulation, the repeal of Glass Steagall and other “trickle down” policies? Is there any hope that Obama may chart a new coarse and move in a progressive direction? What policies should President Obama enact to rekindle the American dream and breath some life into the battered middle class?

Michael Hudson: I’m not in any position to speak about what Mr. Obama will do. As for, economic advisors, their role in a political campaign usually is not so much to shape policy as to mobilize their constituency to support the candidate. The role of Mr. Rubin and his associates, at least at present, is therefore to round up Wall Street support. What influence such advisors will have after next January is yet to be seen. It probably will depend on the circumstances.

I can only hope that Mr. Obama will not pull a Tony Blair New Labor turnabout and revert to Clinton’s pro-Wall Street, anti-labor type of policy. If that really were to happen, it would cause such disillusionment that it could fracture the Democratic Party irreparably.

I hope the opposite will happen, and I’m doing what I can to help bring that about. But regarding politicians, I can only speak for my friend Dennis Kucinich. He has asked me to organize a Roosevelt-type Brains Trust of economic and political advisors to develop a program to re-industrialize America and save it from succumbing to the kind of polarization that was known as the Spanish Syndrome after the 16th century, and the Roman Empire syndrome before that: an economy where the wealthy magnates made themselves tax-free, shifted the burden onto labor and industry, and withdrew into their estates as economies lapsed back into localized subsistence production.

So all this has happened before, again and again. There is no automatic guarantee of progress. It has to be steered. Right now the only parties steering it are the large financial institutions on behalf of their wealthy clients. Hardly by surprise, their attitude is anti-labor.

I think economic circumstances will help impel Mr. Obama to make a swing back toward more classically progressive economic and tax policies. And I can’t think of any other candidate who is in as good a position to force Congress to go along with his reforms. He can come out and back candidates willing to oppose the more recalcitrant Democratic Congressmen and Senators.

MW: On CBS “60 Minutes”, Alan Greenspan admitted that he supported the invasion of Iraq. That’s hardly surprising, since it is difficult to imagine that a nation can trudge off to war without the support of the banking establishment. How much of a role do the major financial institutions and corporate giants actually play in determining foreign policy? Is there something particular to our economic system (or our financial institutions?) that drives us to war over and over again?

Michael Hudson: I don’t think the invasion of Iraq was a result of a financial sector decision. As for Mr. Greenspan, he’s a public relations specialist, not a global strategist. I think that banks just try to maneuver as best they can in any given political system. But as a sector, they rarely support wars.

When I was at Chase Manhattan in the mid-1960s, Wall Street was not pushing the Vietnam War. Chase’s CEO, George Champion, said it was fiscally irresponsible. It set in motion an inflation that led to a steady 35-year downturn in the bond market.

Think of it. Thirty-five years of rising interest rates, from 1945 to 1980, pushing down bond prices. Bonds always have been the key more than stocks. The rise in interest rates meant that the price of existing, lower-rate bonds went down steadily. And that was the result of the war’s balance-of-payments deficit and Pres. Johnson’s guns and butter approach encouraged by Junk Economics at the hands of faux-Keynesians such as Gardner Ackley, Johnson’s Chairman of the Council of Economic Advisors.

The moral is that you can’t really have a grab for empire ­and the wars that go with it ­and at the same time have a booming economy.

Something has to give, as we’re seeing now. The remarkable thing is that people are not relating America’s attempt to create a unipolar empire with the spreading economic polarization and financial squeeze that’s going on. Industry for its part is losing out to finance, but simply has sought to make money by financializing itself.

MW: Paul Harris wrote a terrific article in the UK Guardian, “Welcome to Richistan, USA” in which he discusses the huge wealth-disparity in America today. He says:

“America’s super-rich have returned to the days of the Roaring Twenties. As the rest of the country struggles to get by, a huge bubble of multi-millionaires lives almost in a parallel world. The rich now live in their own world of private education, private health care and gated mansions. They have their own schools and their own banks. They even travel apart – creating a booming industry of private jets and yachts. Their world now has a name, thanks to a new book by Wall Street Journal reporter Robert Frank which has dubbed it ‘Richistan’.

In 1985 there were just 13 US billionaires. Now there are more than 1,000. In 2005 the US saw 227,000 new millionaires being created. One survey showed that the wealth of all US millionaires was $30 trillion, more than the GDPs of China, Japan, Brazil, Russia and the EU combined. The rich have now created their own economy for their needs, at a time when the average worker’s wage rises will merely match inflation and where 36 million people live below the poverty line.”

So here’s my question: The middle class is being squeezed like never before while the chasm between rich and poor gets bigger and bigger. Do you think we are we approaching a crisis phase in this inequality gap, or am I being an alarmist?

Michael Hudson: For a crisis to occur, there needs to be at least two opposing forces or trends. The worst problem about America’s present quandary is that there seems to be no force opposing financial polarization. Without a counterforce, without an opposition to the financial Counter-Enlightenment that’s taking place, economic horizons will continue to shrink here.

We’re indeed entering a Two Economy society. John Edwards picked up the theme and almost the same wording that British Prime Minister Benjamin Disraeli made popular in the late 19th century. He created Britain’s Conservative Party in its modern form, recruiting compassionate conservatives known as Young England. Much like the socialists decrying the unfairness of the market economy in the brutal form it took in Britain. Their dream was to make industrialization compatible with a more socially minded morality. Disraeli’s major political adversary was not socialism but liberal free-market ideals that urged nations to compete by lowering their wages ­ what today is called a race to the bottom. His welfare legislation was highlighted by the public health system introduced from 1874 to 1881 and promoted under his motto Sanitas sanitatum, Health, all is health. Compare that to today’s conservatives!

In 1845, three years before the Communist Manifesto and the revolutions that swept across the European continent in 1848, he addressed the horrors of unbridled laissez faire in a novel, Sybil, or The Two Nations. The subtitle referred to the rich and the poor, “two nations between whom there is no intercourse and no sympathy, and . . . who are not governed by the same laws.” Although Disraeli placed his hopes in a morally regenerate aristocracy, he assigned the loftiest ideals to Sybil, the daughter of a factory worker. In the following passage the novel’s protagonist, Egremont, asks about conditions in Britain’s cities. A young stranger, dressed modestly in black, explains that although:

“men may be drawn into contiguity, they still continue virtually isolated. . . . In great cities men are brought together by the desire of gain. They are not in a state of co-operation, but of isolation, as to the making of fortunes. . . Christianity teaches us to love our neighbour as ourself; modern society acknowledges no neighbour.’

‘Well, we live in strange times . . . society may be in its infancy,’ said Egremont . . . ‘but, say what you like, our Queen reigns over the greatest nation that ever existed.’

‘Which nation?’ asked the younger stranger, ‘for she reigns over two… Two nations; between whom there is no intercourse and no sympathy; who are as ignorant of each others habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets; who are formed by a different breeding, are fed by a different food, are ordered by different manners, and are not governed by the same laws.’

‘You speak of—’ said Egremont, hesitatingly.

‘THE Rich and THE Poor.’”

Disraeli depicted financial interests as the villain (popularizing the myth of the Jewish banker). His major political adversary was not socialism but liberal free-market ideals that urged nations to compete by lowering their wages – what today is called a race to the bottom. The Conservative Party’s economic compassion, however, was limited by the fact that it also was the party of landowners, above all those in the House of Lords who blocked the Liberal attempt to tax groundrent in 1909.

The dichotomy is not merely between an elite and the masses, or between the vested interests and the downtrodden, the cultured and the great unwashed. It is something much more specific. These two nations, two cities, actually are two economies – Economy #1 (production and consumption) vs. financial and property-based Economy #2 which controls the economic surplus in the form of savings and investment. And the different characteristics of these two economies go far beyond the merely economic dimension.

I cite this example to show what a true compassionate conservatism might be. It would be a good framework in which Pres. Obama might present his policies in ways that would maximize support from groups that used to be called liberal Republicans. Much of the business community might come on board if he balances his program well. In fact, it was a British Conservative banker, Geoffrey Gardiner, who drew my attention to Disraeli’s novel.

Charles Dickens Tale of Two Cities expressed the same idea of cities divided between the idle rich and those who had to work for a living. It is hard to imagine any politician writing such a novel today, although the socialist Michael Harrington popularized the theme in the 1960s in The Other America, and Democratic Vice-Presidential candidate Edwards campaigned in 2004 on the two Americas theme.

What is missing today is a specific critique of the financial interests which Disraeli depicted as the villain (popularizing the myth of the Jewish banker). The dichotomy is not merely between an elite and the masses, or between the vested interests and the downtrodden, the cultured and the great unwashed. It is more specific. These two nations, two cities, are indeed two economies ­ Economy #1 (production and consumption) vs. financial and property-based Economy #2 which controls the economic surplus in the form of savings and investment. And the different characteristics of these two economies go far beyond the merely economic dimension.

MW: How do we turn this trend around and push for changes to strengthen the middle class while providing a safety net for those who have slipped through the cracks? Do we need to rethink how we deal with people who are stuck in a cycle of grinding, unrelenting poverty?

Michael Hudson: The left wing focuses on people who have slipped through the cracks, the poor and the homeless, and ethnic and racial minorities. But the most serious problem lies at the economic core. Failure to restructure it and take control of finance will lead to excluding more and more people from participating in what you call a middle-class life.

As the Roman Empire polarized, the economy and its political wrapping were beyond saving. All that Christianity was able to do was provide charity on an individual basis. It could deal only with symptoms, not root causes. When the point has been reached where you can deal only with people who have slipped through the cracks, the long-term game is lost.

The problem is that the economic system as such is broken. So we’re back to the beginning of this interview: What is needed is an alternative to the post-classical economics of the Chicago Boys and their fellow financial lobbyists.

Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com

Interview with Iran’s Ambassador to IAEA

Dandelion Salad

by Mohammad Kamaali
(source: CASMII)
www.campaigniran.org
Sunday, June 29, 2008

Attachment Size
Podcast: 080618_mk_soltanieh.mp3 4.36 MB

Mohammad Kamaali, board member of CASMII UK speaks to Iran’s Ambassador to the IAEA Dr Ali Asghar Soltanieh who was recently in London to attend an international conference on a Middle East Weapons of Mass Destruction Free Zone, organised by the School of Oriental and African Studies, SOAS.

In this interview Dr Soltanieh explains the reasons behind Iran’s determination to develop an indigenous uranium enrichment capability and why Iran believes the countries pursuing or relying on nuclear weapons are making a mistake. He also gives his viewpoint on how international institutions such as the UN Security Council are in practice used as instruments of political pressure by a select few member states, ultimately undermining the authority and credibility of those institutions.

The following is a transcript of the interview with minor editing for clarity. A Podcast is also available to download at the [beginning of this post].

Mohammad Kamaali: Thank you Mr Ambassador for agreeing to talk to us. If you could please briefly explain the history of Iran’s nuclear programme, where it started, what stage is it at present and what are your future plans.

Dr Ali Asghar Soltanieh: It is simple, Iran’s nuclear programme did not start yesterday for it to be stopped tomorrow as it is today demanded by some countries like the US. Nuclear activities in Iran go back to half a century ago, before and after the [1979] revolution. In fact, I myself started my work before the revolution in the Atomic Energy Organisation (AEO) and I have witnessed the double standard approach before and after the revolution.

A very simple question that is always addressed to us is what is the justification for Iran to have nuclear energy while it has huge amounts of natural resources of oil and gas. This question was never raised before the revolution when the [oil] resources were much more than today and the population was about half. [Today] the added value of the oil bid for application in our chemical and petrochemical industry is much more because we now have a lot of advancements in this area which we can use for producing a great amount of by-products. So the added value is much more than thirty years ago, in addition to the price of oil which is of course increasing everyday.

Therefore there are good technical and financial justifications for having also nuclear energy as an option. But at the same time we have never envisioned an ambitious programme so as to consider nuclear energy as the only option. We have always thought of the policy of diversifying energy resources. We have used a technical/scientific program in the IAEA namely the VASP programme; with which countries use all their data to find out in a scientific way what share nuclear energy can play for them. Using this programme we have come to the conclusion that in the next twenty years, roughly by 2020, we will have up to 20,000 megawatts from nuclear energy. Right now in our national grid we have about 35,000 megawatts and if Bushehr becomes operational, the share of nuclear energy will be 1,000 out of 35,000 megawatts. But given the constant growth of industry and naturally for many other uses across the country, the energy demand is increasing. Therefore 20,000 megawatts by the year 2020 again will be perhaps a small portion of this sort of energy. It is not 400% therefore it is not that ambitious, it is a more realistic approach so that step-by-step we can have a gradual contribution from nuclear power.

Now the issue which I think has been made so much politicised but is mainly technical is when you have nuclear energy and you want to have nuclear energy for different applications including nuclear power then the issue is that you need reactors and reactors need fuel and the fuel should be assured.

MK: Could you explain what those other purposes might be?

AS: Yes, in fact I have been twice the director of nuclear research centre in Tehran (NRC). One of the main applications of nuclear energy is in producing various radioisotopes for medical, agricultural and industrial purposes. Right now over 200 hospitals and clinics are using the radioisotopes produced in Tehran’s 5 megawatts reactor; and of course in addition to these applications the sources also could be used for many leakage applications in industry as well as agriculture of course.

We do have for example a gamma radiation centre in Tehran. Everyday trucks of the chemical by-products and in fact the material used in the medical applications are sterilised by gamma radiation by cold sources there. There are various applications which are increasing everyday not only in Iran but in the whole world.

Therefore for all these we come back to the nuclear material used for that purpose, for either radioactive sources or reactor. But then the question is you need fuel and the fuel should be assured. The main question is why we started to choose our own way for enrichment in order to produce the fuel indigenously.

I explain this to you very briefly; I am sure that your colleagues will be convinced because this is part of history and these are well documented facts. First of all we have a confidence deficit for the last thirty years particularly after the revolution when Western countries immediately stopped their nuclear cooperation [with Iran.] We paid $2m before the revolution in order to have new fuel for the Tehran reactor which produces mainly radioisotopes. The Americans neither gave the fuel nor the $2m that they received. Therefore when I was the Ambassador to the IAEA 26 years ago, I raised the issue of an urgent need for fuel with the Director General at the time, Hans Blix, and asked the IAEA to do something as intermediation for this problem. The IAEA in fact wrote to different potential suppliers, reflecting our request; unfortunately none of them agreed to even give the fuel for Tehran’s research reactor which has been under the IAEA’s full-scope Safeguards.

MK: Were they obliged to accept Iran’s request at all?

AS: Yes, because this is under the IAEA. First of all the US was legally obliged because they had a contract; they received $2m out of $2.3m before the revolution. The fuel was ready to ship and they stopped the shipment of that fuel. Finally when the Argentineans had success in enrichment, they announced their readiness to give fuel to Iran under the auspices of the IAEA and that is what happened. Therefore the Tehran reactor right now is working with Argentinean fuel and this was in fact a good sign of South-South cooperation.

Now I give this as one example and there are many examples both bilaterally and multilaterally that have affected us. I want you to consider these and then everybody could easily judge if they were in Iran’s position whether or not they would have taken the same decisions [as we did] . This is one reason. The second reason is this: Iran was part of Eurodif, an enrichment company in France, to which the Shah gave $1bn as a loan thirty years ago. Right now that I am giving this interview, Iran holds 10% of the shares of that company, but we have not even received 1 gram of uranium from that factory, uranium which is being produced under the full-scope of [the IAEA] safeguard. That is also another reason why Iran was disappointed and frustrated, and therefore it had to decide otherwise.

The next issue of course is the Bushehr power plant which is a tragedy in fact among all industrial projects of the world. It was supposed to be in operation almost twenty eight years ago and after thirty years it is still not in operation. We spent another $1bn [in dealing] with the Russians and it is still not in operation. And I want to inform you that, while we thank the Russians for their cooperation, they have only given the fuel so far for the first load and the first year. They have not provided any guarantees on paper for the fuel in the next five or ten years. Therefore there is no guarantee for even the Bushehr power plant.

Having all these in mind and with this background we had no choice but to have our own enrichment and fuel production. However, there was also another important development in the international arena which in fact pushed Iran to make this decision. In the IAEA there was a committee for guaranteeing nuclear supply. That committee collapsed in 1987 after seven years of negotiation. It means that after seven years of negotiation, they were not able to have one piece of paper as a legally binding assurance for guaranteeing nuclear fuel.

MK: Was there any particular reason for that?

AS: The reason was because the industrialized countries did not want to give that assurance and this is their historical mistake. This was 1987 and if you refer to the IAEA website and reports you will see that the IAEA has reported that Iran in fact decided to go after enrichment by coincidence after 1987. It means that when we lost all hope in international arrangements and also the bilateral problems we had after the revolution when [our partners] did not cooperate, altogether pushed Iran and Iranian decision-makers to the position that there is no other choice but to go for indigenous enrichment and fuel production. So we have designed the Natanz nuclear plant so as to produce, if it works annually with 54,000 P1 type centrifuges, the fuel required for the annual consumption of the Bushehr nuclear plant

MK: Is the Natanz nuclear plant under IAEA inspections?

AS: Natanz is under the full-scope of IAEA inspections and beyond . In order to remove any ambiguity and provide 100% transparency guarantee, we agreed and negotiated a legal text with the IAEA and have accepted further legal obligations. These two legal texts are called Facility Attachment and Safeguard Approach for Natanz Enrichment. It means that the operator inspectors do not need to discuss each time what to see, how to see, where to install or not to install cameras.. Therefore this is the legal obligation that Iran has accepted that everything is under the most intrusive and robust inspections. Apart from that we have also agreed that the agency could have short notice snapshot inspections, within two hours or so. This is of course maximum transparency and assurance.

MK: Do these measures apply to other nuclear sites across Iran as well?

AS: Yes, in fact this is the case. Since it was established over 35 years ago, the Tehran research reactor has been under continuous Agency surveillance and there is also a Facility Attachment for Tehran research reactor as well as in Isfahan and other [sites]. Therefore even in Isfahan which is a Uranium conversion [facility] we do have IAEA cameras. In fact I took the ambassadors of the Non-aligned Movement (NAM), G77 and the Arab League to Isfahan and in that visit I invited and permitted over 100 international journalists to also accompany me to visit all parts of the Isfahan [facility]; they were able to see with their own eyes the IAEA cameras installed in different corners of that facility. Similar facilities in other countries do not have these cameras and therefore we have accepted additional measures to make sure that everything is under the full-scope Safeguards.

MK: So what has the IAEA or its Director General expressed concern about, especially in its latest report?

AS: We implemented the Additional Protocol for two and a half years voluntarily but a historical mistake was made by the US and a couple of other Western countries that after so much cooperation and having even suspended these activities, they conveyed this file to New York. Of course it was not officially referred because it was not following the provision of the statute of the IAEA Safeguards.

In fact immediately after the involvement of the UN Security Council in this issue, which is in fact an unlawful involvement, the Iranian Parliament passed a law restricting the government to only accept the Comprehensive Safeguards of the NPT. Therefore we were not going to discuss the issues beyond our legal obligations such as the so called “outstanding issues.” However after one year that we stopped these discussions we as a matter of fact showed our maximum flexibility and concession. Under the work-plan which was negotiated and agreed with the IAEA we decided to resolve those issues. But of course the Agency asked not only Iran but many other countries to sign, ratify and implement the Additional Protocol. Because of the unfortunate decision to get the UN Security Council involved and the ongoing resolutions that they are passing against Iran, one can not expect a parliament in a democratic society to ignore this fact and pass and ratify the Additional Protocol. I want to say that the Director General [of the IAEA] has reported that over one hundred countries at present do not implement the Additional Protocol and therefore this is not only about Iran.

MK: The latest report of the IAEA contains some issues mentioned in the media especially with regards to the contents of that particular laptop and there are the explosives and detonator tests, missile re-entry vehicles and the uranium metal document. These are the things that have been raised and branded as outstanding questions with regards to Iran’s nuclear programme. Some of it has been answered in the work-plan, some of it even contradicts the actual work-plan. How does Iran view the latest report in particular with regards to the track record of its relationship with the IAEA?

AS: The work-plan, which we agreed with the IAEA [Aug. 07], has resolved all six issues, called the outstanding issues, and the Director General has clearly reported to the whole world that they are resolved in the past reports.

One issue which was not categorized as an outstanding issue was the issue of “alleged studies.” That is the allegation by the US that there were some studies on Green Salt, high explosives and re-entry missiles. And as you correctly mentioned it was the issue the so-called “laptop”. After the first process i.e. the six outstanding issues which were all nuclear-related matters and within the domain of the IAEA, was over, in a compromise we accepted to also discuss these matters. Because missiles or explosives are not within the contents of the statute of the IAEA. These are outside the domain of the IAEA. But we showed flexibility and we said OK let us have the documents, we will study them and give our assessment.

In the work-plan it was clearly mentioned that the Agency was obliged to deliver this document and we were only obliged to give our assessment of it. No discussions, no interviews, not even visits. That was the agreement and understanding with the IAEA. The high officials and the head of the legal department, policy making and technical safeguard departments were also present when this text was finalised. It is interesting that in spite of the Americans’ march against Mr ElBaradei and the IAEA secretariat about the [IAEA-Iran] work-plan, this document was supported almost unanimously in the IAEA and even in the Board of Governors it was discussed and many European countries and others welcomed the IAEA for having achieved this work-plan.

Therefore this work-plan has an important status and both sides should fulfil their obligations. Unfortunately the Americans prevented the IAEA to fulfil its obligation by not delivering the documents and not permitting the IAEA to deliver the documents to Iran. But again we showed flexibility and we accepted that the documents could only be shown so that we could put an end to this endless process. Finally [the documents] were shown and we explained comprehensively why these papers are forged and baseless. We had many meetings, over 200 pages of explanation have been given in a confidential manner to the IAEA and unfortunately the Americans are still trying to keep this file [open] by continuing to make ceaseless allegations.

MK: How were these documents shown to you? Was it in a paper format? Was it digital? Did they have any confidential seals?

AS: That is an important point you raised. In the first round of our meeting, they simply brought some sheets of papers in hard copy and said that we were not allowed to take them outside the room or make a copy. Then in the second round the secretariat was further embarrassed and they apologised to Iran and said that this time the Americans had not even permitted [the IAEA] to obtain or show hard copies [of the documents]. Therefore they brought us electronic versions, which were shown on a computer laptop screen. This has created a lot of problems for the secretariat and Iran; the Director General has in fact complained about the US actions creating impediments in the work, and in the last report he has indeed criticised this.

MK: Doesn’t this play with the credibility of the IAEA as a whole and if it does, is it the case that the IAEA has to do whatever the US asks it to do?

AS: That is exactly the concern reflected in the Non-Alignment Movement statement. Here over one hundred countries expressed their serious concern and dissatisfaction and objection to this status quo. That one country is somehow interfering in the impartial and professional work of the IAEA. It is absolutely a violation of the spirit and the letter of [the IAEA] statute that one state has allegations against another state and gives documents to the IAEA but dictates what to do with it and how to do it and when to do it. This is 100% against the statutory obligations of each member state. That is exactly what happened.

Apart from these issues, among all the documents and material received from the United States against Iran, those essentially forged documents and communications, none of them have any seals of “confidential” or “highly confidential” or “top secret”. How can one imagine that a country has had some sort of a Manhattan nuclear weapon project and all these communications between the Ministry of Defence and all other organisations related to it lack any level of confidentiality on such papers and that this is just normal communication? While they have put some secret codes in order to show that they are some secret projects, at the same time one of the sheets in the third line in parenthesis explains that 111 or 12 or whatever, that this code is about a “nuclear weapon warhead”! This is ridiculous; and there are numerous points like this that we have fully explained to the agency inspectors.

In the meeting we had in Tehran, every problem, every shortcoming and inconsistency was thoroughly discussed and reflected. Therefore this matter is in fact over and I just want to conclude by saying that for the last five years there have been over twenty seven allegations about military sites in Iran and at least 248 samples have been taken from military sites and have been fully analysed which proved that none has any evidence of nuclear weapons or nuclear material. Therefore they have been baseless.

MK: Do you expect any more UN Security Council sanctions against Iran, given that IAEA reports have been in the passed used as justification for UNSC resolutions?

AS: No, in fact there were some attempts in this direction by the US before June in the Board of Governors. For almost two weeks they made much effort to lobby and convince many member states by talking to their capitals. The US mission in Vienna tried hard to convince the member states to have a resolution in the IAEA against Iran. Based even on that report they were unable to succeed. It means that the member states of the IAEA, who are the same members of the United Nations, disagree [with the US] because they do not assess this report as negative, because over ten paragraphs are very positive in the report particularly the paragraphs which repeat that there is no evidence of diversion of nuclear material and facility, towards military nuclear purposes and that all nuclear material are accounted for. This is a very important message.

MK: What about the UN Security Council itself and if another sanctions resolution is passed what would be Iran’s likely response?

AS: Well I have to say that these resolutions have been in fact counter-productive. It has in fact undermined to a great extent the authority of the IAEA and it has not had any effect on our nuclear activities. We have even speeded up and tried to show our determination that by sanctions or resolutions or threats of military attack, Iran will not give up its inalienable right for these activities. But at the same time we follow a policy which makes the US administration very disappointed. In spite of the disappointment and frustration about the UN Security Council resolutions which have been in fact very negative on the UN ['s image] and proved that the UNSC is used as an instrument against countries, Iran decided not to react to reduce or halt its cooperation with the IAEA. Therefore despite those resolutions we continue our cooperation with the IAEA within our legal obligations under the Comprehensive Safeguards of the NPT agreement and therefore we neither suspended enrichment nor we suspended [our cooperation with the IAEA]. That is exactly the policy which has upset the US administration. Because they love to hear the news that Iran has decided either to stop or reduce the inspections or to withdraw from NPT and we have not done either.

MK: Does Iran have any incentive to go after Nuclear weapons given Israel’s presence and Pakistan’s and other countries around Iran?

AS: The answer is very simply, no. It is not a slogan, I have some logic for it. First of all there are religious fatwas or decrees that we are against weapons of mass destruction. We have proved this by our action during the eight years of imposed war by Saddam where Iraq used chemical weapons and over 100,000 people were affected; over 30,000 are still under treatment. Everybody knows that Iran had at that time considerable advanced chemical and petrochemical technology. We could have produced and used [such weapons.] We didn’t do that. This is a clear example at a time when we were facing to be or not to be.

The second reason is if a country like Iran or other developing countries decide to have nuclear weapons, how many can they have? Maybe a couple of them? They cannot have 1000s of nuclear bombs in order to compete for example with the United States. Then the quantity would be the crucial factor in competing with the adversaries where they are.

Therefore nuclear weapons create vulnerability for the country. As soon as a country obtains nuclear weapons they will have a problem because they cannot compete in this way. We know in the cold war the Soviet Union and the US were just competing over the number of their warheads because it was this quantity that was playing the role. Therefore this is a historical mistake for any country to go after nuclear weapons. We do not need it.

Apart from this, the [Iranian] revolution for the last 30 years since its triumph has had one simple message; that the Islamic Republic and this democratic system that has been established after the revolution could only be sustained by popular support and the unity of the people who play their role for the sustainable and continuous progress of the country. Therefore this is the main thing the government respects namely to have the popular support and also to make every effort that our cooperation with all countries of the whole world is promoted every day. And that we will always be committed to international laws. That is why you have never heard any news that Iran has had any problems with its neighbours.

MK: Finally I want to touch upon the way forward. How do you see this current crisis -if it is a real crisis, if it is even a nuclear crisis- can be resolved? There are various ideas floating such as a joint consortium [for enrichment], you’ve got the temporary suspension of enrichment, the Additional Protocol ideas. How do you think this can be resolved?

AS: I will try to be very concise. We are going to continue our cooperation with the IAEA. All our activities are under routine inspection. We have already given our explanations to the IAEA on the last issue of so-called alleged studies; and that if there are any questions or ambiguities for the IAEA or even member states we are well prepared to answer them because we are transparent and we want to make sure that all member states are confident that everything is for peaceful purposes.

At the same time and with the same mentality we welcome all member states in parallel to work with the IAEA to come to the negotiating table. Negotiating table means they can come and we can discuss the common elements about international issues and many things that concern all of us. International security, regional security, international cooperation, energy, energy safety and many other issues. That is why we have given our package which includes all these elements and we were open minded and we have received the 5+1 or the so called 3+3 package. We are studying these carefully. I personally hope and I am optimistic that if the 5+1 showed they have a political will and they want to prove their political and good intention, they should immediately come to the negotiating table without any preconditions and we can have two proposals on the table for discussion.

MK: Would Iran be prepared to accept the Additional Protocol if Iran’s file is returned from the UN Security Council to the board of the IAEA?

AS: Well of course this question should be addressed to the Parliament. But I can say that the file has not officially been referred to [the UNSC]. But let’s say if the UNSC stopped its illegal involvement, engagement or interference, this of course will help and the environment will be better. Because as long as the UN Security Council is involved and passes resolutions, they just continue to poison the environment and put the spirit of cooperation in jeopardy. Therefore if they will do this, that is a right step in the right direction. In the Board of Governors last week I said that if this issue is removed from the agenda of the board and if the [IAEA] Safeguards is implemented in a routine manner then Iran will show more flexibility to take voluntary steps such as those which were discussed during the visits of the Director General to Tehran. So we will show [flexibility] and this is part of our Iranian culture with thousands of years of civilisation. We cannot accept threats, intimidation and humiliation but if there is a civilised environment and a language of dialogue and a constructive environment then we will show flexibility in order to make sure that the other side also will have enough confidence. Therefore the building of confidence is a two way process. They make accusations against Iran over some issues or in the past over confidence deficit, while in fact we have a large amount of records regarding confidence deficit vis-à-vis Western countries particularly the US and some of the European countries including EU3, specifically the UK and France. They have done much [wrong] against the Iranian nation and this is a time for them to compensate.

MK: The sanctions resolutions passed were initially based on the concern that Iran may divert its nuclear program towards a military goal; but the IAEA has already confirmed that this is not the case. Perhaps that would mean the previous sanctions would have to be removed and future ones should not be passed. Why do you think the Security Council is still willing to accept the US agenda of pushing Iran into isolation? And -I know this may be a difficult question- but do you think that the comments of the Iranian President regarding Israel has helped this process, this push for sanctions against Iran?

AS: Two different things. First of all, on the resolutions they tried to justify it by saying it is because of the “outstanding issues.” The Director General has always said that this issue is in New York not because of verification or any problems that Iran has created; Iran is in fact continuing its work and the Director General has continuously reported that the Agency is able to continue its verification. Therefore the involvement of the UNSC in New York is not because of a problem between the IAEA and Iran within the statute of the work. Iran is not like the case of other countries such as North Korea who withdrew from NPT and therefore technically and legally this matter was passed and referred to UN Security Council. We are continuing our work with the IAEA and routine inspections continue. But they then raised the issue of outstanding issues. Now that the outstanding issues are resolved and the Director General has reported in March also that all six outstanding issued are resolved, there is no technical justification and any merit for suspension. Because they asked to suspend enrichment until the Agency and Iran resolved these outstanding issues. That is why the [idea of] suspension has lost its technical and even political merits that the proponents of the resolutions were raising.

Secondly, we have to bear in mind that since the victory of the [1979] revolution, our people have been echoing to the whole world that they oppose any mentality that is against humanity. Genocide, discrimination, aggression, apartheid and Zionism, these are all the categories that the people of Iran have said they are committed not to accept and they will not support this kind of mentality. That is the reason immediately after the revolution, Iran in fact stopped its diplomatic relation with the Apartheid regime of South Africa and the Zionist regime of Israel. After the revolution, we did not even stop our diplomatic relationship with the US which was the first adversary, having many issues with our people from the coup [of 1953] and onward interventions in our country. It means that was our first priority and as soon as the apartheid mentality was removed and a popular government was in place, we supported the South Africans and we now have the best relationship with the South African people and the South African government. Therefore that is the problem and the message of the Iranian officials and the Iranian people is that we cannot accept that a group of people occupy a place and make many innocent people homeless. This is a matter of principle against humanity, that was the whole issue. At the same time we have clearly mentioned and our supreme leader also had a message over four years ago that if people there -in occupied Palestine- Palestinians, Jews, Christians and Muslims, who are all followers of divine religions come together and follow a democratic referendum and choose a democratic government, then we will support that. That is exactly what we want. The homeless Palestinians also have the right to live there and this is the minimum that we expect. Because this is a right of human beings to have a home and to live there in peace and in equal footing. We are always for peace and prosperity in that region, the Middle East and also in the whole world.

MK: Thank you Mr Ambassador for speaking to us.

AS: Thank you indeed.

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