The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight: The news of the day; a Newsmaker interview with Senate Majority Leader Bill Frist; a report from Haiti on the threat of AIDS; some perspective on how the United States should deal with Iran, another country in President Bush's "axis of evil"; and a Paul Solman explanation of the U.S. Dollar's swooning value.

NEWS SUMMARY

JIM LEHRER: American forces in Iraq came under new attacks today. Gunmen opened fire at a military checkpoint in Fallujah, outside Baghdad. The town has been the scene of several other violent clashes since the war. In today's attack, two U.S. soldiers were killed, nine wounded. Two of the gunmen were killed, and six were captured. In Baghdad, a U.S. Army spokesman said it showed again that Iraq remains a dangerous place.

CAPT. DAVID CONNOLLY: There are many signs throughout Iraq and in Baghdad that show that the situation is improving daily, but there is, as I said, more work to be done. Although decisive combat operations were successfully completed we still have these pockets of resistance out there as well as common criminal activity.

JIM LEHRER: Also today, two Americanmilitary policemen were wounded in grenade attacks in Baghdad, and another soldier was killed in a road accident. In the last three days, at least eight U.S. troops have died in attacks and accidents across Iraq. At least a dozen have been hurt. The U.S. Central Command announced the capture of two more Iraqi leaders today. Both were regional heads of the Ba'ath Party. In all, 27 of the 55 most wanted Iraqis are now in custody. The Bush administration insisted again today that Iran is developing nuclear weapons, and harboring terrorists. Iran has denied both charges. And yesterday, it announced the arrests of several al-Qaida members. In Washington today, White House spokesman Ari Fleischer dismissed that claim. He was also asked if the U.S. means to confront Iran.

ARI FLEISCHER: I hope nobody is suggesting that our policy should be to wink at Iran and say to Iran it's okay to harbor terrorists. This president will not do that. This president has a stated, consistent message around the world. And that includes the nation of Iran but there's a diplomatic course that the president is pursuing. It's a course that we trust the Iranian people at its core that the future of Iran will be determined by the people of Iran. That's a diplomatic approach.

JIM LEHRER: In Iran today, the foreign ministry demanded the United States stay out of the country's internal affairs. And in Moscow, Russia's foreign ministry asked Iran to guarantee it is not developing nuclear weapons. Russia is helping Iran build its first nuclear reactor. We'll have more on this later in the program. The U.S. Supreme Court will not consider a dispute over deportation hearings held in secret after the 9/11 attacks. The court today refused to hear an appeal by New Jersey newspapers. They wanted more information on hundreds of foreigners who were rounded up. The government designated at least 760 of them as "special interest" cases. About 500 were later deported. Also today, the Supreme Court ruled state government workers do come under the federal Family Leave Act. As a result, they'll have up to 12 weeks of unpaid leave each year to care for children and ailing relatives. The 6-3 ruling found Congress had the authority to mandate that state employees get the same benefits as private sector workers. President Bush signed a $15 billion bill today to fight AIDS. The five-year plan targets hard- hit African and Caribbean nations. The funds will go to caring for those already infected, preventing new infections, and helping orphaned children. The president signed the bill in a ceremony at the State Department. He said he would challenge other leaders to follow suit at next week's meeting of the world's wealthiest nations. Americans' confidence in the economy rose slightly in May to a six-month high. The Conference Board, a private research group, reported that today. And on Wall Street, the Dow Jones Industrial Average gained nearly 180 points, or 2 percent, to close at 8781. The NASDAQ rose more than 46 points, 3 percent, to close above 1556. And that's it for the News Summary tonight. Now it's on to Senator Frist, AIDS in Haiti, what to do about Iran, and about the U.S. Dollar.

NEWSMAKER

JIM LEHRER: Now the Senate majority leader, Bill Frist, Republican of Tennessee.

I spoke with him a short while ago from the Capitol.

JIM LEHRER: Senator, welcome.

SEN. BILL FRIST: Thank you.

JIM LEHRER: The AIDS bill President Bush signed today, that was a very important piece of legislation to you, was it not?

SEN. BILL FRIST: Yes. We use the word "historic" a lot around here; thiswas a historic bill. This is more money, a larger commitment than any country has ever invested for a specific entity, a specific disease in the field of public health in the history really of the world; this was truly historic.

JIM LEHRER: It's a big problem, though. What will be the practical effect of this $15 billion?

SEN. BILL FRIST: Well, the problem is the greatest, I would argue, moral and humanitarian public health challenge that this country has seen in at least 100 years. We have 23 million people who have died from this little, tiny virus, just a little tiny cagey virus that changes quickly; 23 million people have died, 40 million people infected globally and another 60 million people will die in the best of all worlds.

What the president did, and I give the credit to the president, because it was in the state of the union message that he laid it out, and Congress has appropriately followed, is for the first time to make this a global effort with international leadership with a substantial amount of funds behind it.

And what he accomplished and what this Congress accomplished is a linkage of preventing this disease of caring for the millions, the 40 million people who have this disease and have this virus, and then also treatment, linkage of prevention, care, and treatment, and that will be an effective strategy in reversing this greatest of all pandemics.

JIM LEHRER: But there's very little money that is spent right away, correct?

SEN. BILL FRIST: Well, we'll have to see. You know, this was what we call "Washington speak," the authorization. This is the commitment by the President of the United States and the United States, and he will take it in two weeks to the G-8 Conference and challenge other countries around the world to step up and do likewise. So this money, this commitment will be leveraged.

It's $15 billion over five years in our appropriations, the spending process, which will be determined in the next several weeks and months, we'll see how much that is this year -- $15 billion over five years is a huge, huge, unprecedented investment.

JIM LEHRER: Senator, at a time when the growing U.S. budget deficits, we're fighting terrorism, rebuilding Iraq, trying to reform Medicare, trying to bring health insurance to Americans, among many other things, where does AIDS in Africa and the Caribbean fit into U.S. priorities?

SEN. BILL FRIST: Well, I think the president has spoken and the Congress, the legislative branch of government, has spoken, that it is a main priority. It shows that the United States is a caring nation, a compassionate nation that looks to caring for Americans but also people around the globe, including the peoples of Africa.

We are in a challenging overall fiscal or economic climate. At the same time we have - Americans - probably everybody who's listening to me is worrying about, a little bit about their job and job security. Are they going to lose that job? Hundreds of thousands, indeed, millions of people are actually looking for jobs.

So in the same week that we've said that HIV/AIDS is a major priority for this country and for nations throughout the world, expressing our moral effort to express care and compassion, during that same week, in fact, just two days later, we passed a jobs and growth package that addresses those domestic concerns of job security, of creating jobs, and growing jobs. And it shows that we can be both a caring and compassionate nation globally and at the same time address those domestic challenges and problems that we have today.

JIM LEHRER: The president also today, in addition to signing this bill, also signed a bill authorizing the debt limit to be raised to the highest level in history. Are you comfortable with that? Are you Republicans comfortable with being in charge when the deficit is higher than it's ever been in history?

SEN. BILL FRIST: Well, are we comfortable? I don't like it. I don't like the fact that we are having to borrow money today, but after we had the tragedy of 9/11, after we had the stock market technology bubble crash, after we've had this recession over two quarters and coming out in this slow, slow recovery, after fighting a war in Afghanistan, a war in Baghdad, in Iraq, and an ongoing war of terror, it is understandable today why we're running a deficit.

Now is the time to do everything we can as a government, as individuals, as communities to invest and grow in our economy; and that's what we did with this jobs and growth package, and that is to invest now so we can create jobs, grow the economy, make that deficit go away, and by making the deficit go away, we eventually will be able to pay down this debt.

JIM LEHRER: How does raising the deficit make the deficit go away?

SEN. BILL FRIST: Well, not raising the deficit - having a jobs and growth package that actually does that; it makes the overall pie of the economy bigger; it grows the GDP, the Gross Domestic Product; and it does that by doing two things: by giving everybody who's listening to me right now in the next sixty days, next sixty to eighty days, more money to spend, more money in their pocket, more money to invest in their families, to pay for schools, to pay for books, to pay for clothes, to buy food, and at the same time through this jobs and growth package, which, yes, does cost some money now; there's no question about it, does cost some money now, but create jobs by investing in small businesses, by giving the appropriation what's called bonus depreciation, and appropriate deductions so that businesses can go out and hire more people and produce more products. By giving individuals more money to spend and also creating more jobs in the economy, we will be able to grow that economy, which over time will make that deficit disappear.

JIM LEHRER: And that's, of course, what you're talking about is the tax cut bill that the president is going to sign in a couple of days - or tomorrow, right?

SEN. BILL FRIST: Tomorrow.

JIM LEHRER: It's going to be tomorrow.

SEN. BILL FRIST: It'll be tomorrow, a truly historic week.

JIM LEHRER: Well, let me read to you what Sen. Mark Dayton, Democrat of Minnesota, said about this bill: "It is a shameful looting of the federal treasury by the rich and powerful of America, compliments of their friends in Congress. It uses every trick in the budget book to line the pockets of the upper class."

SEN. BILL FRIST: Well, I think that Sen. Dayton and other Democrats, who - as you know - very few voted for this bill - are going to have to in about eight weeks go talk to the 100 million Americans who are going to benefit from it, the 70 million women who are going to receive tax relief this year, there are 36 million married couples - couples - who are going to receive tax relief this year; there are 26 million small businesses, small businesses; many people who are listening to me now that's the engine of economic growth - 26 million of those are going to have more money to invest in growing that small business so they can hire more people.

Or talk to that couple - this class warfare that you hear from the Democrats -- talk to that couple that's earning $40,000, a man and a woman, say there are two children, a family of four, making $40,000 a year; they're certainly not rich; I wouldn't call them rich. Yet, they're going to see a 96 percent decrease in the amount of taxes they pay this year.

Even people who aren't earning any money, who are not working, for every child they have, they're going to receive $1,000 this year in cash, in cash, to spend, to invest. So the Democrats are using the old worn out, tired class warfare issue; they're going to have to be talking to over 100 million Americans here in the next couple of months, and say that either you're too rich to deserve it, or it's not going to do any good for the economy; they're going to have a lot of explaining to do.

JIM LEHRER: Well, not only Democrats. One of the richest men in America, Warren Buffett, said the other day, particularly the dividend part of this tax cuts bill, it was class warfare for the rich.

SEN. BILL FRIST: I really don't understand. You - not just you - but a lot of different shows and the media concentrate on Warren Buffett. I'm personally not that worried about the multi-billionaires and millionaires out there. Who I'm concerned about are the hard working men and women who are worried about losing their job. Warren Buffett is not worried about losing his job, so what they say I don't believe they speak for that school teacher and that policeman who are out there working hard each and every day, who may be worried about losing their job, who have two children that they get up every morning concerned about putting food on the table and buying their blue jeans; those are the people that I'm worried about, the Republicans are worried about; and the President of the United States is worried about. And I don't understand why everybody keeps quoting Warren Buffett and an editorial he wrote; he's not the one we need to be focusing on; it's the people who we need to be able to create jobs for, and that's who this jobs and growth package addresses.

JIM LEHRER: Are you comfortable with the elements of this bill - using the word "tricks" is a word that has been used also not only Sen. Dayton, by others, but the way some of these tax cuts are phased in and out and then cancel themselves out, and that are sunset and all of that, all as a way to get at a figure, an arbitrary figure, of $350 billion, you're comfortable with that?

SEN. BILL FRIST: Well, gimmicks, tricks, sunset; let's put it straight. What this bill accomplished, and it does it better than the original Senate proposals and the original House proposal and the original president's proposal, what we were able to accomplish is to put the power, the thrust, the economic stimulus up front right now, not ten years from now, not fifteen years from now, not five years from now, but right now. It's now that we have the real concern.

So what we're able to accomplish, instead of taking say $350 billion - I wouldn't say it"s arbitrary - it was a hard thing we all fought for - but instead of stretching that out over a ten year period or fifteen or twenty year period, have a little tiny impact now, we move up it all up front, so we can create jobs today, turn this economy around today, and that's the beauty. So you can call it sunset; you can call it gimmicks.

Now, if there's a tax cut, tax relief for married people today, I'm going to fight hard that it's not taken away by the Democrats three years ago; we want to cut taxes; Democrats want to increase taxes. Sure, I'm going to be fighting to see that those sunsets don't end, whether it's the marriage penalty tax, the child tax credit. I can't see the Democrats taking that away three or four years from now, and I'm going to fight that it's not taken away. I'd like to see a trillion dollar tax cut, instead of $350 billion. So you can call sunset a gimmick, and kind of hide behind that. In truth, it allowed us to best stimulate the economy $60 billion this year, in the next three months, $60 billion stimulus to this economy; that's doing pretty good.

JIM LEHRER: On another subject, Senator, Sen. Pete Domenici, a Republican of New Mexico, said the other day that without stability in Iraq, there is a real chance that the people of that country will assume that the victory we claim is not a victory at all. Do you agree with Sen. Domenici, the thing's in trouble?

SEN. BILL FRIST: Well, I don't look at this as being in trouble. We have had a great victory in Iraq to date. People say reconstruction is not going very well. Remember, we're just several weeks after taking over Baghdad, and reconstruction, which I would argue is just beginning, we're just getting things to settle down, is just beginning, and it's going to take not just weeks but months or years. People who thought that we could come in literally and be successful in taking Baghdad and then six weeks later be out, I think are unrealistic or were unrealistic.

It is going to take time. It's going to take investment. We're building a democracy from scratch where a democracy simply has not existed. It is going to take time. I do agree with my colleagues that we need to do whatever it takes in order to complete the job; that we don't want to pull out; tat the ultimate outcome is freedom and liberty and democracy and all the things we celebrated just yesterday on Memorial Day.

And that is going to take time. It's not just going in and having the victory and having just a regime change. It's having those freedoms that we enjoy and that others enjoy. And that is going to take time. And I'm confident we are going to do that as a nation. We will lead. We'll lead with our coalition of the willing, and we will be successful.

JIM LEHRER: Do you share Senator Lugar... of course Senator Lugar's is a Republican from Indiana, chairman of the Senate Foreign Relations Committee that there might be a tendency in Congress and the administration to want to get out of here, in other words claim victory and go too quickly and leave Iraq to kind of fend for itself. You're going to make sure that doesn't happen?

SEN. BILL FRIST: Well, I share Senator Lugar's concern that we went really to capture that elements of the freedoms that we enjoy here. We don't want to shortchange that. People who say we just wanted to get in and win the battle and then leave, I think are not consistent either with what Senator Lugar believes or I believe. We will get the job done. The president will get the job as commander in chief. And I have the utmost confidence in the people who are there now, who are establishing some sense of order so we can build on that with democracy. But it is going to take time. It's going to take discipline. It's going to take focus, and it's going to take investment.

JIM LEHRER: Senator, of the Democratic presidential candidates are going out of their way to make health insurance for the 40 million- plus Americans who do not have health insurance, an issue. Do you think they're right? Should this be a national debate right now and particularly in the upcoming presidential election campaign?

SEN. BILL FRIST: Yes, it should. As you know, most of those people are in the united states senate. I wish they'd stick around here and help us solve some of these initial problems before just running for president. I say that really being pretty serious because in two weeks, in the last two weeks in June I've made it very clear as majority leader-- and that's one of the few things that I have the power to do in the Senate-- is to say and tell my colleagues that we're going to take on one of the biggest health care challenges since Medicare and Medicaid first came into being in the mid-1960s. That challenge is going to be on the floor of the United States Senate in two weeks. So, yes, work for solving all of the other important issues, but help me, in a bipartisan way, to strengthen Medicare, to improve Medicare, to offer seniors the sort of choices that we in the federal government have. Keep what you want to -- if you want to keep traditional Medicare, but you seniors deserve a plan that best suits your needs. I just hope my colleagues instead of running for president right now, or can begin addressing those issues afterwards would help me in a bipartisan way to address the issue that's before the American people.

JIM LEHRER: You're talking about bringing prescription drugs to the seniors.

SEN. BILL FRIST: Prescription drugs, at the same time prescription drugs is important because it is inexcusable and I say this as a physician that in the year 2003 we deny seniors the access to affordable prescription drugs if we're in the business of giving them health care security. That's what we're going to be addressing on the floor of the United States Senate. At the same time, because of the huge demographic shift that is taking place in this country over the next 30 years we have to strengthen Medicare, overall Medicare. We have to improve and protect Medicare overall. We can't just promise the benefit itself without linking it to true modernization. By that I mean strengthening and improvement of Medicare at the same time.

JIM LEHRER: Senator, it sounds like you are comfortable being senate majority leader.

SEN. BILL FRIST: Well, let me say we've been at it four months. If you look in the foreign relations field we had NATO expansion and we had the Moscow treaty. In terms of social issues, we passed the ban on partial birth abortion and at the same time we passed an element of the patients' faith- based initiative. We talked about tax policy. We passed a budget on time which the last congress did not. We passed a jobs and growth package that will benefit all Americans as we go forward. And we have passed the largest single public health bill on a specific disease that's ever been passed in this country. So in four months I'm pleased where we are. We have another huge challenge next month in reforming and strengthening and improving Medicare.

JIM LEHRER: Senator Frist, thank you very much.

SEN. BILL FRIST: Thank you.

FOCUS - TARGETING AIDS

JIM LEHRER: One country to receive new U.S. funding for its fight against AIDS is Haiti. Fred de Sam Lazaro of Twin Cities Public Television reports on the AIDS situation there.

FRED DE SAM LAZARO: For Haitians, the HIV epidemic has been long, painful, and at times humiliating. At first, scientists thought the AIDS virus was brought to the U.S. from here. Haitians were put on a watch list of four "h"s, along with heroin users, hemophiliacs, and homosexuals. First Lady Mildred Aristide lived in New York at the time.

MILDRED ARISTIDE: I was a college student in '83 or so, and we were going to do a blood drive. And that was one of the questions asked by the Red Cross, that was collecting blood: Whether I had recently visited Haiti or was of Haitian origin. And so that has made it a special issue, because there had been an attempt to label Haitians as being a cause of the disease.

FRED DE SAM LAZARO: Although unfairly stigmatized, Haiti does have a serious AIDS problem, one that experts tie directly to its extreme poverty. Two-thirds of Haitian adults are unemployed. Some 300,000 people-- about 5 percent of the population-- is infected with HIV, the AIDS virus. It's the highest incidence in the western hemisphere. Still, Dr. Jean William Pape, who returned to his native Haiti from New York 20 years ago, says the number is well below what might be expected.

DR. JEAN WILLIAM PAPE: We have all the factors that would predispose this country to have rates as high as 40 percent, 50 percent -- especially the disease started here early; it spread very fast in the heterosexual population. We have the highest rate of sexually transmitted diseases. We have also... we're the poorest country with a very high rate of commercial sex workers who are HIV-infected. If you put all this together, this is the best recipe for an explosion of the HIV epidemic. Yet this has not occurred.

FRED DE SAM LAZARO: One reason it hasn't occurred is the work done in Dr. Pape's Gheskio Center in the capital, Port au Prince, and a rural project called Partners in Health. They've developed low-cost approaches to prevention, testing, and care-- for example, controlling the incidence of sexually transmitted diseases, which increase the risk of HIV Infection; and for those already infected, treating complications like severe diarrhea. Their success recently earned Haiti an award of up to $67 million over the next five years from the U.N.'s global fund for AIDS, Malaria, and tuberculosis. It will greatly expand the public health effort, and also make available medicines including antiretroviral drugs. Haiti will be the first developing country in which these so-called cocktail drugs will be somewhat widely distributed. These medicines have allowed AIDS patients in rich countries to lead almost normal lives. But they've long been considered too expensive and not feasible in poor countries like Haiti. Dr. Paul Farmer has long campaigned to change that thinking.

DR. PAUL FARMER: One of the biggest set of myths we're dealing about are about therapy for HIV "HIV.. it can't be done in a placed like this; you know, people don't have other rights; they don't have a concept of time; they don't have wristwatches; the medications have to be refrigerated; it's not cost effective." You know, it's not anything you would ever initiate in a really poor country.

FRED DE SAM LAZARO: For 20 years, Dr. Farmer has divided his time between Harvard Medical School and the Zanmi Lasante, or Partners in Health Project, he founded in Haiti's remote central plateau. Since the late '90s, when prices for some AIDS drugs to decline, partners in health has provided antiviral medications to as many patients as it can. On a limited budget, the drugs are funded mostly by private donations, and like all services here, free to patients, most of whom could not afford them anyway. 41-year-old San Coeur Francois says he feels like a modern-day Lazarus. He was brought in three years ago so close to death his family had purchased a coffin. With drug therapy, he quickly recovered and has had almost no health problems. Life is still a struggle. Francois cannot find employment. His wife and two daughters moved temporarily to Port au Prince to find work. But he's thankful for the chance to see his children grow up.

SAN COUER FRANCOIS ( Translated ): After god, I am most thankful to dr. Paul. My weight was 95 pounds. I'm up to 142 now. The medications have done so much for me. In Haiti, certainly those in port au prince knew these medicines existed, but the price was so exaggerated. But here, patients don't pay anything for the medications.

FRED DE SAM LAZARO: One unanticipated benefit of bringing antiretroviral therapy to rural Haiti is that many more people are coming into clinics to be tested for the AIDS virus. For the first time, doctors say, people have been able to witness AIDS patients, people dying of AIDS, get better.

DOCTOR: Suddenly you have treatment, and a lot more people want to be screened; you're going to get a lot more people who are negative, who are sero- negative-- that is, they don't have HIV. And that's where you can start making interventions to keep them from getting HIV.

FRED DE SAM LAZARO: There are other benefits as well, even for those who don't receive the limited supply of drugs. They can be treated for opportunistic infections, which kill thousands of AIDS patients in poor countries. Tuberculosis is rampant in Haiti, for example, yet easily treated for just a few cents per patient. 19-year-old Ketya, who is HIV-positive, lost her mother and two siblings to tuberculosis. She now lives with her father. Both have been treated for T.B. To ensure medicines get to patients like Ketya, who are too poor and too far away from the clinic, volunteers like Estany Deomille are recruited to visit patients every day. Some days a doctor comes along, like David Walton, a recent Harvard Medical School graduate. Ketya may need aids drugs later, he says, but for the moment, she needs money. The small plot they farm cannot cover rent on their tiny home, or the fees to help Ketya finish school. Partners in Health will provide the money, an investment in AIDS prevention.

DR. DAVID WALTON: If she didn't had money to pay the house, and she didn't go back to school, she'd have to do something to put food on the table and to help her father, and that may entail maybe going to Port au Prince or choosing a partner who has... who can give her some kind of financial assistance.

FRED DE SAM LAZARO: Prostitution, in essence?

DR. DAVID WALTON: In a way, you can view it as such.

FRED DE SAM LAZARO: Paul Farmer called it survival sex yesterday.

DR. DAVID WALTON: That's perfect-- survival sex. She'd have to have sex with this person to survive, and this person would likely have other partners, and so she'd be exposed again. And then if he wasn't sick, she'd be exposing him. So, I mean, this is the way in which we epidemiologically can kind of step in and stop the progression and the spread of disease.

FRED DE SAM LAZARO: But Haiti has numerous other hurdles that hinder public health. Poor roads means it takes too long to get medical care.

SPOKESMAN: Bonjour, Isaac.

FRED DE SAM LAZARO: Isaac was brought in too late, suffering from typhoid, a common waterborne killer in a country where 80 percent lack safe drinking water.

DOCTOR: I don't think he's going to make it.

FRED DE SAM LAZARO: Reporter: Despite all the hurdles, Dr. Pape says Haiti has significantly curbed the incidence of HIV and related infectious diseases. And those efforts will get a major boost with the global fund grant. (Baby cries) But ironically, most of the money will go toward uncovering yet more need. 25 new testing and counseling centers will be opened across the country. Haiti's first lady, who oversees the government's AIDS effort, says many more people will get HIV tests, and this could greatly help in prevention.

MILDRED ARISTIDE: I think the most important tool that the global fund project brings is this capacity, because then Haitians and women specifically-- because the women, in my estimation, have been the most vocal in wanting to know their status-- could be active agents of prevention, information, education, passing that onto their children. But they need to know, and right now, we don't have the capacity for folks to be able to be tested.

FRED DE SAM LAZARO: Dr. Pape's goal is to reduce Haiti's HIV prevalence by half. That won't eliminate the epidemic, but he's optimistic it will bring it under control.

DR. JEAN WILLIAM PAPE: We used to say that only the optimist people have stayed in Haiti. So you are talking to an optimist person.

FRED DE SAM LAZARO: Reporter: Experts share that optimism, and say it could translate into hope for many developing countries ravaged by AIDS.

JIM LEHRER: Still to come on the NewsHour tonight: How to deal with Iran, and the falling dollar.

FOCUS - THREAT FROM TEHRAN?

JIM LEHRER: Gwen Ifill has our Iran story.

GWEN IFILL: The suicide bombings that rocked foreign compounds in Riyadh, Saudi Arabia, earlier this month put terrorism back on the radar screen. U.S. officials immediately suspected al-Qaida. And they immediately suspected the attacks were planned in, or directed from, Iran. Secretary of Defense Donald Rumsfeld:

DONALD RUMSFELD: Well, I'll leave the analysis to others, but just from a factual standpoint, there is no question that there have been, and there are today, senior al-Qaida leaders in Iran. And they are busy.

GWEN IFILL: Administration officials and senior U.S. lawmakers have accused Tehran of harboring al-Qaida operatives. But Iran's U.N. ambassador denies this. He says Iran has done its part to stem the tide of terrorism.

JAVAD ZARIF: We have probably captured more al-Qaida people in the past 14 months than any other country. We have had a number of al-Qaida people in custody, and we continue to keep them in detention and we continue to interrogate them. And once we have any information from them, we will pass them to friendly governments.

GWEN IFILL: But White House spokesman Ari Fleischer said today, Iran has not done enough.

ARI FLESICHER: The steps that the Iranians claim to have taken in terms of capturing al-Qaida are insufficient. It is important that Iran live up to its commitments and obligations not to harbor terrorists.

GWEN IFILL: The Bush administration also contends that Iran is developing nuclear weapons at facilities like this one. Iran says the plants are used to produce energy.

ARI FLEISCHER: They maintain that it's for peaceful purposes, to produce fuel for civil nuclear reactors, but the United States rejects that argument as a cover story. Our strong position is that Iran is preparing instead to produce fissile materials for nuclear weapons.

GWEN IFILL: The Bush administration also believes that Iranian Shiites may be trying to influence the future government of neighboring Iraq. Leaders of Iraq's Shiite majority have vigorously protested the American presence in Iraq since the war ended last month. Iran, a country of 66 million, slightly larger than Alaska, was one-third of President Bush's "axis of evil." The U.S. has had no diplomatic relations with Iran since 1979, after Islamic fundamentalists overthrew the monarchy and held 52 Americans hostage for 444 days.

GWEN IFILL: Now, for more on U.S. concerns about Iran, we're joined by Flynt Leverett, a visiting fellow at the Saban Center for Middle East studies at the Brookings Institution in Washington. Until recently, he served on the National Security Council. David Albright, president of the Institute for Science and International Security, which helped identify secret nuclear sites in Iran. And Rob Sobhani, an adjunct professor of government at Georgetown university. He has written widely on the politics of the Middle East. Flynt Leverett, why Iran? Why now?

FLYNT LEVERETT: I think there are two things that are driving the intensified concern about Iran. One is the issue of the Iranian nuclear weapons program. Discoveries, disclosures that have been made over the last nine or ten months have led most knowledgeable observers inside and outside of government to conclude that Iran is much closer to having a nuclear weapons capability than we heretofore believed. The other issue of course is terrorism. Iran has longstanding links to a number of international terrorist groups, most noticeably Hezbollah, but in addition there's the more immediate problem of a small cell of al-Qaida operatives that appear to be holed up in north Eastern Iran, a fairly inaccessible part of the country.

GWEN IFILL: What is your sense about what the United States government should be doing about this, what approach it should be taking?

FLYNT LEVERETT: I think our policy since September 11 toward Iran has been really a neither fish nor fowl policy. We've had a limited tactical dialogue with Iran about Afghanistan and to some degree about al-Qaida but we haven't taken the next step up and had a real broad-based strategic dialogue with them. At the same time, we also haven't adopted a formal policy of regime change toward Tehran. Now I think there are people within the administration arguing that we should move toward a policy of regime change. I don't think anyone in the administration is really making the case for broad-based strategic engagement, hard-nosed dialogue with Iran on the whole range of our issues of concern with them, and I think that's a pity because I think that's really the wisest course for our policy.

GWEN IFILL: Rob Sobhani, are we at a critical moment and what should the United States be doing?

ROB SOBHANII think we have an historic opportunity actually as it concerns Iran because you have the people of Iran who are now basically rejecting Islam as a form of government, not faith but as a form of government. And the irony is that Iran is an Islamic country. I think the opportunity for the United States is a very historic one. For the first time in 20-some years we have a nation, Iranians willing to get rid of their government. What we need to do is provide them moral support, economic support, diplomatic cover, and I believe that it would bode well not just for the Iranian people but certainly for the deep strategic interests of the United States as well.

GWEN IFILL: When you say get rid of the government and when Flynt Leverett alludes to regime change, what are you talking about? Are you talking about getting rid of the president of Iran, getting rid of the clerics who seem to have so much control? What do you mean and how?

ROB SOBHANI: I think one of the fundamental misconceptions in Washington has been that the dynamic inside Iran has been between the hard liners and moderates. The dynamic inside Iran is between the people of Iran and the government of Iran including its president. And, therefore, the policy should be to empower the people of Iran to set the course that they wish to choose, but we need to give them the moral support.

GWEN IFILL: David Albright one of the big questions in all of this as Flynt Leverett and as we said in our opening piece is Iran's nuclear capability. What do we know about Iran's nuclear capability at this point?

DAVID ALBRIGHT: The main thing we know is they're proceeding relatively rapidly with the capability to make a nuclear explosive material called highly enriched uranium. It's made in uranium enrichment plants and it's further along than people expected. It could be within a couple years of being within a capability of being able to make enough highly enriched uranium for one or two nuclear weapons a year.

GWEN IFILL: So what should the United States' role be? We have seen that the care with which U.S. policy toward North Korea has been because of the possibility that they already possess nuclear arms. And yet there seems to be some opening for negotiating with Iran which appears to be on the way to having similar capabilities.

DAVID ALBRIGHT: In the short term, it's very important for the United States to work with the international atomic energy agency to insist that Iran be fully transparent. In fact be more transparent than it's required under various international agreements like the non-proliferation treaty. So it's very important, for example, when the Iranian opposition groups identify sites that the agency follow that up and that the United States be supportive of the agency in trying to get Iran to be completely transparent and then see what happens. I would say that it's better to try to engage Iran. I mean, Iran may say, look, we'll be transparent to a point. If you want us to be more transparent, then we want some agreement like you'll let us finish some of our nuclear sites that are not as threatening.

GWEN IFILL: Let's talk about how one goes engaging Iran. Colin Powell the secretary of state said today that the United States will have contacts with Iran that will continue. What does that mean?

FLYNT LEVERETT: Well, as I said, since September 11, really going back before September 11, we've had a dialogue with Iran about Afghanistan in a multi-lateral framework at the united nations.

GWEN IFILL: Moving toward reestablishing diplomatic relations?

FLYNT LEVERETT: No. We have kept it very focused on tactical issues pertaining to Afghanistan, the overthrow of the Taliban regime, setting up a new political order in Afghanistan and some related issues like the problem of al-Qaida personnel transiting across Afghanistan's western border into Iran. We have not so far been willing to take it up to the next step where we would be willing to engage Iran on all of the issues of concern to both countries, for us most importantly the nuclear program and Iran's ties to terrorist groups like Hezbollah. For the Iranians they would want to take up issues like economic sanctions on them, frozen assets here in the United States, and whether or not the United States is prepared to afford some legitimacy to Iranian security interests in the Persian Gulf.

GWEN IFILL: Mr. Sobhani, is that the correct approach?

ROB SOBHANI: I would argue that engaging any form of engagement with a government of Iran other than tactical would undermine the president's message of hope and democracy for the people of Iran. The President of the United States rightly has identified two parts: The people of Iran and the government of Iran. And he has said repeatedly that we should support the people of Iran. Any engagement with the government of Iran would only undermine the president's message. We should not engage outside tactical issues with the government of Iran, and instead we should focus on the process of change that's occurring today in Iran because the prize is enormous, both for the United States and the region: A secular, democratic, pro American Iran would mean peace in the Persian Gulf. It would mean stability in Afghanistan. It would mean stability in Iraq. It would be an end to Iran's nuclear program. It would immediately put an end to terrorism, and it would add weight to... in a positive way to the Arab-Israeli peace process, a democratic Iran I think is a better Iran as opposed to an Islamic Iran that we are trying to engage.

GWEN IFILL: You believe that any kind of back channel discussions with people who are currently in power is not the way to go about this?

ROB SOBHANI: I think those back-channel discussions are used by the government of Iran to portray some sort of a relationship which in turn then deflates the hopes and aspirations of the people of Iran that the President of the United States has actually inflated by arguing that we are with the people of Iran. What I am arguing is that it's all right to have tactical engagement with the government of Iran on core issues such as Afghanistan and Iraq, but beyond that we should make it clear that our policy is to engage the people of Iran and to invest in the people of Iran and to democratic change.

GWEN IFILL: David Albright, on the nuclear issue, do we have any reason to believe as firmly as the White House has been saying that there's not a chance that this nuclear activity is being used for peaceful purposes to create electricity?

DAVID ALBRIGHT: Well, some of it would be. I mean if you look at the sheer size of the enrichment plant they're building, it probably will be used for civil purposes, but it's what else is going on is the concern. I think that it's actually quite... in my mind because the clock is ticking I would say it's more important to engage Iran on this and engage the government because maybe the government of Iran will fall. But maybe it won't. Maybe a democratic Iran will want nuclear weapons. Democracies want nuclear weapons often more than totalitarian states. So I think we need to come out with a practical set of incentives and disincentives to kind of steer the Iranian government away from nuclear weapons, away from terrorism and toward a more benign state that is integrated more in the international community.

GWEN IFILL: Mr. Leverett?

FLYNT LEVERETT: I think David has raised a very good point. My main concern about a policy of regime change toward Iran is that if it plays out, it won't play out in a time frame that's meaningful for us to get at our core policy concerns regarding Iran particularly the nuclear weapons program but also on terrorism.

GWEN IFILL: What's a meaningful time frame?

FLYNT LEVERETT: Well, given the latest discoveries about Iran's nuclear program, I know knowledgeable experts who watch this program every day who would say that it may be two years or less before Iran is capable of producing enough fissionable material to start building nuclear weapons.

GWEN IFILL: Is that your sense as well, Mr. Sobhani?

ROB SOBHANI: I would agree with Flynt. I think the experts on this issue are correct in terms of the time frame, but I would also argue that the people of Iran demonstrated in 1977-78 that they can get rid of their own governments within the span of several months. If the United States adopts a robust policy of empowering the people of Iran and make it very clear that that is our goal, I think that we will see a change in government in Iran peacefully through a referendum within the next two years and it might very well end up helping us instead of hurting us.

GWEN IFILL: Let me jump on that. You said a couple of times that the United States' approach should be empowering the people of Iran. Does it matter who the United States is empowering? For instance, in Iraq there's been some concern that members... leaders of the Shiite majority from Iran are coming and basically making it more difficult to set up an interim government in Iraq. Are those same individuals going to create a problem for any kind of engagement in Iran?

ROB SOBHANI: The dynamic inside Iran is very different from Iraq. Iraq was a totalitarian government. In Iran, people have access to satellite television. They listen to the Voice of America. They listen to Radio Freedom. They listen to the BBC and Radio Israel. So Iran is a much more engaged society. The Iranian people are a much more engaged society. Therefore, when the president speaks, they listen. When the secretary of state speaks, they listen. I think what they're looking for is no ambiguity on our part. They're looking for a robust policy. And that will then translate into street demonstrations and hopefully, as I said, a peaceful transition that we can then, as Flynt mentioned address the core issues we're concerned about, the nuclear issue and terrorism.

GWEN IFILL: Mr. Sobhani, Mr. Leverett, and Mr. Albright, thank you all three very much.

FOCUS- DOLLAR'S DECLINE

JIM LEHRER: Finally tonight, the drooping U.S. Dollar. Today it hit an all-time low against the euro. Our economics correspondent Paul Solman of WGBH-Boston looks at what's going on.

PAUL SOLMAN: For more than a year now, the U.S. Dollar has been falling in value against other currencies. And when the dollar drops, it has economic implications for us all. But how serious is it? At a recent meeting of finance ministers in France, U.S. Treasury Secretary John Snow made the seemingly casual comment that the recent drop has been "modest." But that prompted the further dumping of dollars on world currency markets, driving the value even lower. To understand why the dollar's been drooping, and whom it affects, we sat down to talk with international economist Fred Bergsten.

Fred Bergsten, welcome.

C. FRED BERGSTEN: Glad to be here.

PAUL SOLMAN: What's happening to the dollar?

C. FRED BERGSTEN: The exchange rate of the dollar against other world currencies has been dropping for about 15 months. It's come down 25 percent against the European euro. It's only come down about 10 percent on average against the whole basket of currencies we deal with, and that suggests to me it's only gone about half way; we've got another 10 percent or so to go over the next six to 12 months.

PAUL SOLMAN: And that means that when we Americans buy things with dollars, we have less that we can buy. We have less purchasing power because the dollar is worth less against those currencies.

C. FRED BERGSTEN: Right. When the dollar goes down in value, it costs more dollars for an American to buy euros or yen to in turn buy products from Europe or Japan. So those products become more expensive to us, less attractive to us as a result.

PAUL SOLMAN: Why is the dollar weakening?

C. FRED BERGSTEN: I think the main reason the dollar is weakening is because the U.S. has run huge trade deficits over the last couple of years.

PAUL SOLMAN: So we buy more from them than they buy from us.

C. FRED BERGSTEN: We have been buying about $500 billion a year more from them than they buy from us. That's over 5 percent of even our huge economy. That's a big deficit, clearly unsustainable. That's the main reason why the dollar has been coming down for over a year.

PAUL SOLMAN: And mechanically, how does that work? Why does that drive the dollar down?

C. FRED BERGSTEN: When the U.S. buys $500 billion a year more from foreigners than they buy from us, it puts a huge amount of extra dollars in the hands of the world.

PAUL SOLMAN: So we ship out $500 billion a year to the rest of the world...

C. FRED BERGSTEN: Right, and then they have to decide what to do with it. If they turn around and buy U.S. financial assets-- treasury bills, bank deposits, U.S. stocks-- then there's no effect on the exchange rate.

PAUL SOLMAN: Also, and if they buy Pebble Beach or Rockefeller Center, same thing.

C. FRED BERGSTEN: Exactly, and they still buy a lot of those, but not enough to finance equally this huge trade deficit that we've been running for the last couple of years.

PAUL SOLMAN: So in other words, some of those dollars that we ship abroad, they say, "hey, I don't want these, and I don't want to buy anything in America; I'm going to put them up for sale, or I'm going to resell them somewhere else." And that then means big supply of dollars, not as much demand for the dollars, like any other product...

C. FRED BERGSTEN: Exactly.

PAUL SOLMAN: ...Or commodity, the price goes down.

C. FRED BERGSTEN: The exchange rate of a dollar is floating. It's a flexible exchange rate, not fixed like in the old days. It's determined by supply and demand in the daily market-- incidentally, a trillion and a half dollars or more every day transpiring. And out of that mix of supply and demand comes the exchange rate.

PAUL SOLMAN: So, then why didn't this happen sooner? If we've been running these huge deficits, why hasn't the dollar been going down?

C. FRED BERGSTEN: The deficits were not quite so huge until a year or so ago, but the main reason that the dollar did not go down previously was that the U.S. economy was doing so well, and U.S. financial assets looked so attractive. In the late 1990s, our economy was growing 5-6 percent. The stock market was booming. Interest rates were a lot higher than they are today, and higher than they were in Europe or elsewhere. So at that time, U.S. financial assets looked very good. And not only they took the amount of our amount of trade deficit and put it in here, they actually put more money in here. That's why the dollar exchange rate went up, which in turn hurt our competitive position, made the trade deficit worse.

PAUL SOLMAN: Yeah, but our stock market has been in the doldrums for years now. They were just sticking with us on the chance that we were going to come back?

C. FRED BERGSTEN: They stuck to us for about a year after the economy slowed down and the stock market peaked in early 2000, but that was partly because Europe itself looked weak, Japan looked weak. There were no great alternative markets. But then when our interest rates started to come down, and when doubts started to arise about how fast we were going to come back, and when the trade deficit got to these really huge levels, that's when they started to sell dollars on balance, about a year and a half ago.

PAUL SOLMAN: So I see. So it's a critical mass phenomenon-- the trade deficit is getting bigger-- and interest rates not as attractive in the United States. Just like any of us look where to put our money, the foreigners look there, too, and say, "the United States is not as attractive as Europe is now, and so we'll not lend our money to the United States."

C. FRED BERGSTEN: Right. And one more effect: The market dynamics themselves. The rule in the currency market is, "the trend is your friend."

PAUL SOLMAN: So the psychology of it?

C. FRED BERGSTEN: The psychology of markets is crucial. Herd mentality. The dollar had been going up already for five, five-and-a- half years. It continued for a whole other year after we went into recession, after the stock market tanked. Then a little over a year ago, it turned around. Now it's been declining for over a year. That trend is likely to be the friend of the market. That's a key reason why it's likely to continue going down for a while.

PAUL SOLMAN: Once it starts going down, it keeps going down. Finally, who's happy, who's not? Or maybe who should be happy, and who shouldn't be happy about this phenomenon?

C. FRED BERGSTEN: The happiest people from the lower dollar are the American firms who compete with foreign goods and services. American exporters get a price cut out of the decline of the dollar, so they can sell their product abroad much more competitively. American firms who compete with imports here get a price cut, while the foreign price actually goes up. So now they can sell more competitively. So those firms and workers like it. American importers who like foreign products to put in their own machinery, or who want to buy foreign cars, or who want to take foreign trips on the Riviera...

PAUL SOLMAN: This is... this is... not the Riviera, but importers, you mean like me or you who buy foreign products, after all, maybe visit abroad as well.

C. FRED BERGSTEN: You and I buy lots of foreign products now. It's a globalized world. When the dollar exchange rate goes down, it means it takes more dollars to buy Japanese yen or euros. That means a European or Japanese product is more expensive to an American.

PAUL SOLMAN: So if I was thinking about buying a Toyota, six months ago, it was a lot cheaper than it's going to be today, and maybe even today, is cheaper than it's going to be in the future.

C. FRED BERGSTEN: That's right. The price of those foreign products is up, so we as consumers don't like it. We as a country might not like it if the dollar's decline went far enough that it began to push up inflation in the economy as a whole. We have not seen that. Inflation is under control. I don't think that will happen, but it could be an adverse result of the lower dollar over time.

PAUL SOLMAN: But meanwhile, in the final analysis: Good for our exporters, but it hurts your and my standard of living, doesn't it?

C. FRED BERGSTEN: It hurts our standard of living just because our money doesn't go as far. On the other hand, our money was going artificially far for the last five or six years when the dollar got so strong. What we want is to find a level that will be stable and sustainable. As I say, I think it's got a ways to go before we hit that level.

PAUL SOLMAN: Fred Bergsten, thanks very much.

C. FRED BERGSTEN: My pleasure.

RECAP

JIM LEHRER: Again, the major developments of the day. Iraqi gunmen killed two U.S. soldiers and wounded nine in a town outside Baghdad. And President Bush signed a $15 billion bill to fight AIDS worldwide. On "the NewsHour," Senate Majority Leader Frist said AIDS is the greatest humanitarian challenge of the last 100 years. We'll see you online, and again here tomorrow evening. I'm Jim Lehrer. Thank you and good night.