Tuesday, November 3, 2009

Obama plays China card, but who holds the ace?


WASHINGTON/BEIJING - Although U.S. President Barack Obama has never set foot there, China cast a long shadow in the Pacific region where he grew up.

Obama, who will visit Shanghai and Beijing for the first time on November 15-18, spent much of his childhood in Hawaii, five time zones away from Washington, D.C.; and beginning in 1967, when he was six years old, he lived in Jakarta for four years.

At the time, China was in the throes of Chairman Mao Zedong's bloody Cultural Revolution. Abroad, the nation was less interested in selling widgets than in promoting Mao's brand of radical communism -- a force the U.S. saw behind communist movements and political upheaval in Vietnam, Indonesia and elsewhere in Southeast Asia.

In 1979, Obama's senior year at Punahou school in Honolulu, China and the United States normalized diplomatic relations, launching a three-decade period in which ties between the two grew inexorably tighter and deeper -- and complicated.

"Think of what China was in 1979: It was an autarkic, insular, inward-looking country that was preoccupied with its own internal things," said a senior U.S. official. "Even 10 years ago ... there was still a sort of sense of 'We're not a part of these global rules, we're not doing this stuff.' Now they see themselves as sitting at the table."

If there were any doubts that China would have a seat at the table from now on, Obama dispelled those when he sent Secretary of State Hillary Clinton there on her first official trip abroad -- not Pakistan, Afghanistan or any other foreign policy hot spot.

"That the first major visit (was) to China, and to Asia as well, is symbolic of where the locus of international economic activity -- and to some degree the locus of international activity, period -- is going to be in the coming years," said economist and author Zachary Karabell, whose new book "Superfusion" posits that the U.S. and Chinese economies have effectively merged.

Beijing, once considered a wallflower on global affairs, is in turn warming to its more prominent role, though it's unclear that will translate into greater cooperation with Washington on issues like climate change and the nuclear disputes with Iran and North Korea -- not to mention human rights differences.

U.S. Deputy Secretary of State James Steinberg highlighted the tension at the heart of the relationship in a speech in September. "Given China's growing capabilities and influence, we have an especially compelling need to work with China to meet global challenges," he said.

But Steinberg added that there was a tacit bargain in which the United States expects China to reassure the rest of the world that its growing role "will not come at the expense of security and wellbeing of others."

That of course includes America's.

"The big challenge there is going to be to maintain a competitive U.S. economy, and at the same time to maintain a high degree of stability and equanimity in the U.S.-China relationship," said Clyde Prestowitz, president of the Economic Strategy Institute think tank.

Indeed, even as the United States and China have grown closer diplomatically, their economic and trade ties have deepened to the point of mutual dependence. Not only does China depend on the U.S. export market to fuel its highflying economic growth rates, the United States relies on China's vast savings to help finance its burgeoning budget deficits.

"It is clearly unsustainable. This relationship helped give rise to global economic imbalances," said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong. "If we are ever going to free ourselves of these imbalances, we need to reverse this relationship, get China to buy things in the U.S. and the U.S. to invest in China."


When it comes to the big foreign policy issues of the day, the Obama White House and that of his predecessor George W. Bush tend to live in opposite worlds. The rare exception is China.

Obama's approach builds on aspects of the Bush administration's stance toward China, which encouraged Beijing to be a responsible "stakeholder" in the global community.

But all indications are that the Obama White House intends to move the bilateral relationship to the next level, making it more of a partnership -- and that in turn is raising hackles among some traditional U.S. allies, who often don't see eye to eye with China and now worry they will be marginalized.

One of the clearest signals of the Obama administration's desire to give China and other large, fast-growing economies more global clout was the decision -- adopted at the Pittsburgh Group of 20 summit in September -- to make the G20 the premier forum for discussing global economic issues.

The shift reduces the role of the G7 and G8, groups dominated by rich Western countries that have long enjoyed elite status in global economic decision-making. And that has led to some European anxiety that the G20 could give way to a G2 of the United States and China.

In Pittsburgh, European officials privately vented frustration at a U.S. willingness to bend over backwards to give China a voice. During one session on International Monetary Fund voting power, a European official became so angry at China's position he had to leave the room to cool down.

At a luncheon, some Europeans were less astonished by China's refusal to include climate change in the communique than by the United States' willingness to go along. Several delegates could barely eat their lunch, according to a former U.S. official who was told of how the discussion played out.

But the Obama administration wants to reassure Beijing that the United States, for one, welcomes China's new assertiveness on the world stage, even if the two countries don't always agree.

Climate change is expected to be a major topic of Obama's meetings with President Hu Jintao when he visits Beijing. Ahead of the December 7 global climate talks in Copenhagen, the administration sees this issue as a key test of whether China will step up to the plate as a truly global player.

"What we're seeing here is for the first time really in the history of U.S.-China relations, truly global issues are moving to the center of the U.S.-China relationship," said Kenneth Lieberthal, who was a top Asia adviser to former President Bill Clinton.


For all the talk of a growing U.S.-China partnership, in many ways the two remain rivals. Both U.S. conservatives and the Pentagon express concern about a decade of double-digit annual growth in the budget of China's secretive military.

"We don't deny the legitimacy, that they're entitled to modernize their military," said the U.S. official. "But given the size of China and its position, its neighbors, we are entitled to ask, 'Why are you doing the things that you're doing?'"

The top concern on both the left and the right in the United States, however, is Beijing's growing economic clout.

Highlighting U.S. ambivalence about China, a Thomson Reuters/Ipsos poll showed that while Americans view China as important, many are wary.

Thirty-four percent of Americans chose China as the "most important bilateral relationship" in a poll of 1,077 adults across the United States. Next were Britain, selected by 23 percent, and Canada, the choice of 18 percent.

When asked to characterize China, 56 percent saw it as an adversary while only 33 viewed it as an ally.

In some sectors, trade issues are going to "pit the U.S. against China" and Obama will need to assert U.S. interests without inviting a "nasty confrontation with China," said Prestowitz of the Economic Strategy Institute.

The Obama administration says it will not shrink from standing up for U.S. economic interests. For proof, it says, look no further than its decision in September to slap a 35 percent duty on Chinese-made tires.

Since Obama took office in January, the administration has twice declined to label China a "currency manipulator" -- a designation that could trigger negotiations leading to possible trade sanctions. But Treasury has made clear it thinks China's currency, the renminbi, is undervalued and the topic is expected to come up when Obama meets Hu.

U.S. manufacturers say Beijing's policy of managing its currency puts them at a big disadvantage because the cheaper renminbi lowers the price of Chinese goods abroad. Last year, imports from China totaled more than $330 billion, making it by far the biggest contributor to the U.S. current account deficit.

But in a sense, no one buys American like Beijing -- at least when it comes to investing in debt securities. Having amassed some $800 billion of U.S. Treasuries, China is the largest holder of the U.S. government debt, giving Beijing new leverage over Washington but also making their economies more closely intertwined than ever.


In what some U.S. analysts saw as a "shot across the bow" of the United States this year, Chinese central bank governor Zhou Xiaochuan called for the creation of a super-sovereign reserve currency, all but saying the U.S. dollar's days as the world's preeminent currency were numbered.

He made the suggestion in an essay published a week before the London Group of 20 summit. Clearly aiming at an international audience, the central bank took the unusual step of publishing the paper in English at the same time as it issued the Chinese version.

"The central bank's discussion really did reflect China's anxieties about its massive forex reserves, the depreciating dollar and U.S. monetary issuance," said Dong Xian'an, chief economist at Industrial Securities in Shanghai.

China fears U.S. authorities will be tempted to "monetize the debt" by allowing inflation to rise, eroding the value of U.S.-dollar denominated assets held by the Chinese.

Premier Wen Jiabao put it bluntly when he spoke in March at the most important Chinese press conference of the year: "We have lent a massive amount of capital to the United States and of course we are concerned about security of our assets. To speak truthfully, I do indeed have some worries."

He urged America to maintain its "creditworthiness" and safeguard Chinese assets, a lecture that did not go unnoticed.


Chinese officials have taken umbrage at some suggestions that China's high savings rate contributed to the global imbalances. Some private-sector U.S. analysts say massive capital inflows from China helped fuel the housing bubble that set the stage for the financial crisis.

Zhou said in September that the paper about the dollar had been partly a way of rebuffing such criticisms.

But the central banker's proposal hit a nerve. Persistent complaints from Washington about the Chinese currency have long been a source of friction.

Moreover, the dollar has been sliding lately and public comments about the possibility of it losing its stature could reinforce its weakness, posing dangers for both China and the United States.

So the two countries have since found a way of discussing currencies that causes less of a stir in their capitals and in foreign exchange markets -- and the new name of the game is "rebalancing."

Although it was hesitant at first, Beijing got on board in Pittsburgh with a U.S. call for an economic rebalancing. The idea is for export-driven economies like China to boost domestic demand while big spenders like the United States strive to increase savings.

It is in this context that currencies could come up in the Hu-Obama meeting, said a senior U.S. official who spoke to Reuters on condition of anonymity.

"It will be clear that part of rebalancing is having a more balanced economic growth that depends more on domestic demand and that obviously implicates macroeconomic policy in all its dimensions," the official said.

This official rejected the widely held view that China's vast holdings of U.S. Treasuries are a matter of concern.

"They have an enormous stake in our economic success and we have an enormous stake in their economic success," this official said. "That's not a problem; it's a good thing. It's an enormously good thing and it should be welcomed."

Prestowitz said China's leverage is limited by an awareness that it too, would, suffer drastic consequence if it decided to suddenly unload its holdings of U.S. Treasuries.

"It would be a mutually-assured destruction situation," Prestowitz said in a view shared by many Chinese analysts.

"Under extreme circumstances, it might be possible for Chinese leaders to threaten to sell Treasuries," said Xie Tao, an expert on U.S.-China relations at the Beijing Foreign Studies University.

"But at the moment, I really cannot believe that they would do this," Xie said.

Rebalancing and currency rows are new items on a list of U.S.-China faultlines that has long been topped by Taiwan and human rights.


Taiwan is still the one issue that could trigger war between China, which claims sovereignty over the self-ruled island, and the United States, which is committed by U.S. law to provide weapons for Taiwan's defense.

But Obama's tenure has coincided with a cooling of tensions between Beijing and Taipei thanks to the 2008 election of Taiwan President Ma Ying-jeou, who has sought better ties with China. But potential friction over U.S. arms sales remains.

The Obama administration has angered some for appearing to play down human rights in the interest of gaining Chinese cooperation in combating the financial crisis.

Obama broke with presidential tradition and did not meet the Dalai Lama when the exiled Tibetan spiritual leader visited Washington last month. But U.S. officials reject the idea that Obama snubbed the Dalai Lama and tell critics to judge the policies by their results.

Other foreign policy disputes stem from China's scorching economic growth. China's need for energy and raw materials to fuel its growth has led it to deepen ties with countries which have troubled relations with the United States or face international condemnation for their human rights records or pursuit of banned weapons.

China's oil investments in Sudan drew calls for a boycott of the 2008 Beijing Olympics by critics who said China abetted the perpetrators of atrocities in Darfur. China's energy trade with Iran is seen as helping Tehran withstand Western economic sanctions over its nuclear ambitions.

Drew Thompson, director of China Studies at the Nixon Center in Washington, said the United States has started to take into account how Chinese "resource needs and self-perceived insecurities" influence its foreign policy.

"The more we address those insecurities and resolve them as much as possible, the more we will get from China in terms of shaping the behavior of other nations, such as Iran, Sudan and Zimbabwe," he said.


The new dynamic in Sino-America relations was on clear display last April, when Obama brokered a dispute between Hu and French President Nicolas Sarkozy at the G20 summit in London in April.

The G20 was under enormous pressure to show unity amid fears financial markets could face another wave of turmoil after the chaos of late 2008 and early 2009.

But at a luncheon of beef and asparagus, Hu and Sarkozy were deadlocked over the French president's proposal to crack down on international tax havens. China was concerned about the potential impact on the Hong Kong and Macau banking sectors.

Ratcheting up the pressure was a threat Sarkozy had issued on the eve of the summit to walk out unless the G20 talks yielded a firm commitment on financial regulatory reforms.

Obama pulled each leader aside and urged each to give ground, even though his own view on tax havens was closer to Sarkozy's.

At a news conference later, he spoke approvingly of the rise of countries like China and said it was a good thing decisions were no longer made by "Roosevelt and Churchill sitting in a room with a brandy."

"That's an easier negotiation but that's not the world we live in, and it shouldn't be," Obama said.

Karzai Vows Corruption Fight, but Avoids Details

New York Times
KABUL, Afghanistan — President Hamid Karzai, in his first speech since he was declared the winner of the much disputed presidential election, said Tuesday that he wanted to tackle corruption but made no specific commitments to reorganizing his administration.“Afghanistan has been tarnished by administrative corruption, and I will launch a campaign to clean the government of corruption,” he said.Asked if that might involve changing important ministers and officials, he said: “These problems cannot be solved by changing high-ranking officials. We’ll review the laws and see what problems are in the law, and we will draft some new laws.”Mr. Karzai’s cabinet and members of his campaign office attended the news conference, and he was flanked by his two vice presidents, Karim Khalili and Marshal Muhammad Qasim Fahim. Marshal Fahim is among the powerful Afghans the international community has accused of abuses or corruption and has been pressing Mr. Karzai to act against. He is accused of drug trafficking, as is Mr. Karzai’s brother, Ahmed Wali Karzai.Mr. Karzai said he would try to strengthen an anticorruption commission that was set up last year.Although he said repeatedly that his government would seek to unify the country and that he wanted to work with all Afghans, Mr. Karzai did not offer his former rival, Abdullah Abdullah, a place in the government and pointedly avoided answering questions about what role he might have.On Monday, Mr. Karzai was declared the winner of the fraud-marred Aug. 20 presidential election, after Mr. Abdullah’s withdrawal from the runoff.The next days and weeks will be absorbed with choosing Mr. Karzai’s new cabinet and balancing the many demands of his political allies who supported him in the election race and international pressure for competent and reform-minded ministers.He is expected to reach out to Mr. Abdullah and bring some members of Mr. Abdullah’s team into the government in the interests of national unity.No date has been set yet for the inauguration, but Western diplomats are already hoping that Mr. Karzai will use his inaugural speech to lay out an agenda responsive to international concerns ahead of a donors conference in December in Kabul.

Citizens’ security top priority: Hoti

PESHAWAR: The NWFP government is taking measures to guarantee the security of the citizens, NWFP Chief Minister Ameer Haider Khan Hoti said on Tuesday. Addressing a press conference at the Frontier House, Hoti said the provincial government had deployed 300 former army personnel in Peshawar, adding that another 700 officials would be deputed soon. “The government is taking serious steps to protect the citizens and their property,” he said. Hoti ordered the Finance Department to release the funds he had approved for the Police Department. The CM lauded security forces for rendering sacrifices in the war against militancy. Hoti did not rule out the “possibility of involvement of foreign hands in terrorism”, adding that such elements wanted to destabilise Pakistan. He said the masterminds of the recent bombings in Peshawar had been arrested and were being interrogated. The CM also said the NWFP would get an additional Rs 157 billion as interest on the actual amount of arrears of the net hydel profit.

Pakistanis Seek Blame for Bombing

PESHAWAR, Pakistan — It has been a week since the bomb exploded at the women’s market here, but people still talk about the images of its aftermath: women’s bodies, naked and broken. A hand with hennaed nails. An arm still wearing bracelets.
Even for Peshawar, a city that has long been pummeled by violent attacks, the bombing in the Meena market last week felt different. The violence was aimed not at soldiers or the police, but at society’s most vulnerable members — poor women and children, who made up about half of the bombing’s 114 victims.
In two days of interviews, Pakistanis here said they believed the war had taken a dark new turn, with civilians now bearing the brunt of insurgents’ fury. But that does not mean greater public anger at the Taliban.
The attack was so disturbing that people refused to believe that their countrymen were the culprits. If anything, it was met with disbelief or anger at the government for failing to protect civilians.
“The Taliban talk about morality and women’s dress, but they wouldn’t do such a thing to us,” said Muhamed Orenzeib Khan, a gas station attendant who lost nine members of his family in the blast. “Their target was never the common people.”
The brutality of the bombing and people’s reaction show just how complicated Pakistan’s militancy problem has become. The military is now in the third week of a campaign against the Taliban, and though it has widespread public support, there is still a great reluctance to accept that Pakistanis or fellow Muslims are the ones doing the killing.
Like Iraqis in the early days of their war, many Pakistanis insist that foreigners carry out the most devastating bombings, and turn to conspiracy theories to explain a reality that is otherwise too awful to face.
“It’s not easy to say our countrymen are in any way involved,” said Altaf U. Khan, a professor in the journalism department at the University of Peshawar. “There is a feeling of extreme helplessness: ‘We have no power, so why take responsibility?’ ”
Denial brings its own problems, namely the risk of prolonging the insurgency, because people do not know who their enemy is. That seemed to be the case for Muhammed Afzal, an oil trader whose building was damaged in the blast. “I know my tribal people,” he said, sitting on a couch in a room with blown-out windows. “They aren’t strong enough to do something like this.”
Mr. Afzal, who has relatives in Texas and Florida, offered a view of who was responsible, similar to many others interviewed here. “I’m telling you categorically — the people behind this bomb are the Indians and Mossad,” he said, referring to Israel’s intelligence agency. India and Pakistan are archenemies, and India figures into many Pakistani conspiracy theories.The Meena market is packed with vendors selling fabrics, spices and soap. But it is best known as the place where poor families shop for weddings, whose season begins this month, when Pakistan’s boiling weather cools.
The Khan family members who were killed — among them six children — had gone to the market to buy bangles and new shoes for the children for a wedding that they calculated would cost about $1,250, a sum that took them five years to save.
“These people are merely spectators in our society — they don’t have any say,” said Professor Khan of the University of Peshawar. “They grasp these small happinesses.”
The bombing, he said, “has stabbed at the weakest part of our hearts.”
As confused as people were about the perpetrators of the bombing, their anger at the government was clear and sharp.
Why does the government protect five-star hotels like the Marriott and Serena, where Islamabad’s elite celebrate, but not places like the Meena market? Sonia Khan asked angrily. “This blast targeted poor people,” she said, kneeling in a room without power in an apartment near the market that her family rents. “All the machinery is put toward guarding the rich, and we are left out in the open.”
On Monday, rescue workers were still digging for 15 people who remained missing. Mazar Iqbal, the owner of a plastic-bag shop, stood watching. He was saved by sugar — his wife had asked him to buy some just minutes before the blast — but his neighbor was crushed to death when his shop collapsed from the force of the blast.
Mr. Iqbal said he could not get the images of the women out of his mind, their naked bodies lying on the pavement, a deeply unnatural sight. “We are confused,” he said, as a backhoe scraped at what was left of his shop. “We are not blaming anyone. We are not ready to believe that this was done by a human being.”

Pakistan’s Army Captures Taliban Stronghold in South Waziristan

Pakistan’s army said it captured a Taliban stronghold at Sararogha in South Waziristan as troops try to complete an offensive to clear fighters from the region before winter starts next month.

“Security forces have commenced sanitization of Sararogha” and are clearing the area of explosive devices, the army said in a statement yesterday. Pakistan says the offensive in South Waziristan has cut off escape routes to prevent the Taliban from fleeing in large numbers.

The Taliban denied their forces are being defeated, saying they are withdrawing in order to fight a “long war,” the Associated Press reported yesterday, citing a spokesman for the group.

The army began its largest operation against militants in the tribal region bordering Afghanistan last month. The offensive provoked suicide bombings and attacks that have killed more than 300 people.

“There is no place for the Taliban in Pakistan,” the Associated Press of Pakistan cited Interior Minister Rehman Malik as saying in a radio interview yesterday in Islamabad. “The entire nation has said no to the Taliban.”

Fifty-one percent of people supported the government’s offensive, according to a poll by the Gilani Research Foundation conducted by Gallup Pakistan, the Dawn newspaper reported yesterday on its Web site. Thirteen percent of more than 2,700 people surveyed across the country opposed the military action and 36 percent were undecided, the newspaper said. It didn’t give a margin of error for the poll.

Stocks Rise

Pakistan stocks rose for the first day in six yesterday with the benchmark Karachi Stock Exchange 100 Index gaining 0.8 percent. The gauge fell 5.4 percent in the previous five trading sessions, driven down by the resurgence of terrorist attacks, including a suicide bombing in Rawalpindi Nov. 2 that killed 35 people queuing outside a bank.

“We are prepared for a long war,” AP cited Azam Tariq, a Taliban spokesman, as saying by telephone yesterday. “The areas we are withdrawing from, and the ones the army is claiming to have won, are being vacated by us.’

The move is part of the Taliban’s strategy to draw the army into a trap deep inside South Waziristan, he said.

Accounts of the fighting are difficult to confirm as Pakistan bars foreigners from the tribal areas and local journalists have been forced out by the government and Taliban.

Pakistan’s government earlier this week offered cash rewards of $5 million for the capture of Taliban leader Hakimullah Mehsud and 18 of his fighters.

The United Nations said two days ago it is withdrawing some international workers from the Federally Administered Tribal Areas that include Waziristan and North West Frontier Province, leaving only those vital for emergency work.

As many as 300,000 people fleeing the fighting have arrived in the Tank and Dera Ismail Khan area and “around 25,000 more are expected to arrive in the next few weeks,” Khalid Fayaz Khan, director of the Fida Welfare Organization, a charity working with those displaced from South Waziristan, said in a telephone interview yesterday.

Hydel profit to help NWFP stand on its feet: CM

PESHAWAR: Chief Minister Ameer Haider Khan Hoti on Tuesday said that his government planned to invest in hydel power generation, oil and gas exploration, tourism and mineral development to generate resources and enable the province stand on its own feet.

‘Internal security remains high on our agenda but our major thrust would be on investing in sectors that generate resources for us. This is very, very important for the future of our province,’ the chief minister told a news conference.

The chief minister lauded his government’s efforts for effectively pleading the case of the province with reference to the long-stalled issue of net profits from hydel power generation.

He was flanked by senior ministers Bashir Ahmad Bilour and Rahimdad Khan, Finance Minister Humayun Khan and NWFP representative in the National Finance Commission Haji Muhammad Adeel and former chief secretary Khalid Aziz.

The chief minister said that the federal government had agreed to pay Rs10 billion on account of NWFP’s liabilities towards Wapda, while the remaining Rs100 billion would paid in four equal installments over a period of four years.

He said that he had already directed all the concerned departments to complete their spadework and prepare feasibility reports to utilise the money in a proper way.

‘We better prepare ourselves, so that we don’t squander precious time,’ he said.

Mr Hoti said that his party leaders had struggled for provincial autonomy and provincial rights and termed the federal government’s decision to own Wapda’s liabilities as a big achievement.

He also thanked other political parties for their support in achieving provincial rights. ‘This is a major achievement but much remains to be done,’ he remarked.

‘At a time when we are in a state of war and need extraordinary support, not only did the federal government recognise our role but also supported us by giving what has long been our due right.’

He said that matter relating to the balance payment of Rs157 billion on account of mark-up and unpaid dues from 2006 to 2009 had been handed over to a technical committee.

He hoped that the matter would be resolved in two to three months time.

He said that the amount of net profits from hydel generation had been capped at Rs6 billion. It would be uncapped and worked out in accordance with the agreed formula, he added.

‘What we need to see is that now that financial space has been created, what will be our priorities,’ he asked.

He said that social sectors would not be sidestepped and much of the money would be spent on developing vital sectors to secure the future of the NWFP and expand its financial base.

He said that the NFC would meet in Karachi and then reconvene in Lahore to finalise its recommendations. The chief minister said that internal security would continue to be high on his government’s agenda and priority.

He pointed that the entire amount of Rs24 billion from the federal government was being spent on enhancing pay and packages of the police, giving them better arms, ammunition and equipment to meet their security requirements.

He said that the prime minister had agreed to announce a special package for Peshawar and southern districts of the NWFP amounting to Rs23 billion.

Karzai readies for second term as Afghan president

KABUL : President Hamid Karzai prepared for a second term of office on Tuesday with US President Barack Obama telling him to wipe out corruption and world leaders urging him to unify Afghanistan.

Karzai was declared president for another five years after the cancellation of a run-off by the country's election commission, which followed the withdrawal at the weekend of his only challenger, Abdullah Abdullah.

Obama and UN chief Ban Ki-moon led world powers in congratulating Karzai, who is due to give a press conference around 10:00 am (0500 GMT) Tuesday.

But the US president said he had told his opposite number to make "a much more serious effort to eradicate corruption" while calling for a "new chapter" in cooperation between the two countries.

"This has to be point in time in which we begin to write a new chapter based on improved governance," Obama said he had told Karzai in a telephone call.

Karzai "assured me that he understood the importance of this moment but... the truth is not going to be in words, it's going to be in deeds," Obama added.

Earlier the White House declared Karzai the "legitimate leader of the country" but said it would begin "hard conversations" with the new president, with Obama expected to make a decision on whether to deploy thousands more troops "in the coming weeks".

Former foreign minister Abdullah Abdullah quit the contest on Sunday, saying there were no safeguards against a repeat of widespread fraud that resulted in the throwing out of nearly a quarter of votes cast in August.

Karzai's anointment by the Independent Election Commission followed intense diplomatic pressure and sought to draw a line under two months of political chaos in a war-torn nation where 100,000 Nato and US troops are battling an increasingly violent Taliban insurgency.

UN chief Ban met Karzai and Abdullah amid a concerted diplomatic push to bring a quick end to chaos that has undermined Western efforts to cultivate democracy in Afghanistan eight years after a US-led invasion.

IEC chief Azizullah Ludin, a Karzai appointee who oversaw a fraud-riddled first round, said the decision had been made in line with the provisions of Afghan electoral law and constitution and was "consistent with the high interest of the Afghan people".

British Prime Minister Gordon Brown, whose country is the second biggest contributor of foreign troops in Afghanistan, telephoned Karzai to urge him to plot a course of national unity.

"They discussed the importance of the president moving quickly to set out a unifying programme for the future of Afghanistan," said a spokesman for Brown.

Nato powers France and Germany urged Karzai to work with his defeated rival to end the political strife.

Congratulations also came from Pakistan and Russia, which said the election had "opened the way for the formation of the new national government, whose great task is the key problem of stabilising conditions in the country."

There had been great unease about staging the November 7 poll at a time when a Taliban insurgency is gathering pace.

The IEC's deputy chief electoral officer Zakria Barakzai said the commission would have been in breach of article 61 of the constitution -- which states two candidates must contest a run-off -- had they allowed the contest to go ahead without Abdullah.

First-round turnout was as low as five percent on August 20 in areas worst hit by the Taliban insurgency and with the militia threatening fresh attacks, the numbers voting this time were likely to have been even lower.

Analysts said Karzai, already tainted by the first round fraud, would struggle to proclaim his legitimacy in such circumstances.

After Karzai snubbed a series of demands promoted by his rival as a chance to avoid a repeat of massive first-round fraud, Abdullah said Sunday that he saw no point in standing, but had stopped short of calling for a boycott.