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LIBRARY
ROOM 5030
MAY 061996
TREASURY DEPARTMENT
Treas.
HJ
10
.A13P4
v.355
u.s.
Department of the Treasury
PRESS RELEASES
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
November 27, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS·
Tenders for $14,035 million of 13-week bills to be issued
November 30, 1995 and to mature February 29, 1996 were
accepted today (CUSIP: 912794X41).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.31%
5.33%
5.32%
Investment
Rate
5.47%
5.49%
5.48%
Price
98.658
98.653
98.655
$10,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 9%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$49,628,012
Accepted
$14,035,132
$44,402,510
1,361,322
$45,763,832
$8,809,630
1,361,322
$10,170,952
3,690,180
3,690,180
174,000
$49,628,012
174,000
$14,035,132
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.20 - 98.686
RR-730
UBLIe DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
November 27, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $14,067 million of 26-week bills to be issued
November 30, 1995 and to mature May 30, 1996 were
accepted today (CUSIP: 912794Y99).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.23%
5.25%
5.25%
Investment
Rate
5.46%
5.48%
5.48%
Price
97.356
97.346
97.346
Tenders at the high discount rate were allotted 98%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$51,234,421
Accepted
$14,067,281
$43,811,400
1,068,821
$44,880,221
$6,644,260
1,068,821
$7,713,081
3,900,000
3,900,000
2,454,200
$51,234,421
2,454,200
$14,067,281
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.24 -- 97.351
RR-731
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OFPUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE AT 2:30 P.M.
November 27, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION CASH MANAGEMENT BILLS
The Treasury will auction approximately $10,000
million of 13-day and $10,000 million of 27-day Treasury
cash management bills to be issued December 1, 1995.
Competitive and noncompetitive tenders will be
received at all Federal Reserve Banks and Branches.
Tenders will not be accepted for bills to be maintained on
the book-entry records of the Department of the Treasury
(TREASURY DIRECT). Tenders will not be received at the
Bureau of the Public Debt, Washington, D.C.
Tenders for the bills will not be accepted from
Federal Reserve Banks for foreign and international
monetary authorities.
This offering of Treasury securities is governed by
the terms and conditions set forth in the Uniform Offering
Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes,
and bonds.
Details about the new securities are given in the
attached offering highlights.
000
Attachment
RR-732
HIGHLIGHTS OF TREASURY OFFERINGS OF CASH MANAGEMENT BILLS
TO BE ISSUED DECEMBER 1, 1995
November 27, 1995
Offering Amount .
$10,000 million
$10,000 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
'
Multiples .
Minimum to hold amount
Multiples to hold .
13-day bill
912794 T6 1
November 30, 1995
December 1, 1995
December 14, 1995
December 15, 1994
$44,052 million
$10,000
$1,000
$10,000
$1,000
27-day bill
912794 W3 4
November 30, 1995
December 1, 1995
December 28, 1995
June 29, 1995
$25,977 million
$10,000
$1,000
$10,000
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitve bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Prior to 12:00 noon Eastern Standard time on
auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
Contact:
FOR IMMEDIATE RELEASE
November 27, 1995
Chris Peacock
(202) 622-2960
RUBIN ANNOUNCES ENFORCEMENT ASSISTANT SECRETARY NOMINEE
Treasury Secretary Robert E. Rubin announced Monday, that President Clinton has
nominated James E. Johnson to be Assistant Secretary for Enforcement.
Mr. Johnson has been Assistant United States Attorney for the Southern District of
New York since March 1990. He also serves as the Deputy Chief of the Criminal Division
of the U.S. Attorney's Office in New York City. From November 1994 to March 1995, Mr.
Johnson was Assistant Director of the White House Security Review, conducted for the
Treasury Secretary by the Office of the Under Secretary of the Treasury for Enforcement.
He was a litigation associate with the law firm of Debevoise & Plimpton in New York City
from 1987 to 1990. From 1986 to 1987 he was a law clerk for United States District Judge
Robert E. Keeton in Boston, Mass.
As Assistant Secretary for Enforcement, Mr. Johnson will assist in oversight of dayto-day operations of Treasury's law enforcement bureaus which include the United States
Secret Service, the Bureau of Alcohol, Tobacco and Firearms, the United States Customs
Service, the Federal Law Enforcement Training Center, the Financial Crimes Enforcement
Network and the Internal Revenue Service's Criminal Investigation Division. He will also
assist in oversight of the department's tariff and trade enforcement.
Mr. Johnson graduated cum laude from Harvard University in 1983 with a B.A. in
social studies. He graduated cum laude from Harvard Law School, where he received a J.D.
in 1986.
-30-
RR-733
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE AT 2:30 P.M.
November 28, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $28,000 million, to be issued December 7,
1995.
This offering will provide about $1,575 million of new
cash for the Treasury, as the maturing weekly bills are
outstanding in the amount of $26,429 million.
Federal Reserve Banks hold $6,853 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $1,967 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Due to the public
debt limit and Treasury's need to plan for the debt level, additional amounts of Treasury bills will not be issued to Federal
Reserve Banks as agents for foreign and international monetary
authorities in these auctions.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-734
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 7, 1995
November 28, 1995
Offering Amount .
$14,000 million
$14,000 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 X5 8
December 4, 1995
December 7, 1995
March 7, 1996
March 9, 1995
$29,728 million
$10,000
$ 1,000
182-day bill
912794 Z2 3
December 4, 1995
December 7, 1995
June 6, 1996
December 7, 1995
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
November 28, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Tenders for $18,264 million of 2-year notes, Series AL-1997,
to be issued November 30, 1995 and to mature November 30, 1997
were accepted today (CUSIP: 912827V90).
The interest rate on the notes will be 5 3/8%. All
competitive tenders at yields lower than 5.479% were accepted in
full.
Tenders at 5.479% were allotted 2%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 5.479%, with an equivalent price of 99.806. The median yield
was 5.469%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 5.430%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$55,060,768
Accepted
$18,263,868
The $18,264 million of accepted tenders includes $1,181
million of noncompetitive tenders and $17,083 million of
competitive tenders from the public.
In addition, $402 million of tenders was also accepted
at the high yield from Federal Reserve Banks for their own
account in exchange for maturing securities.
The $1,181 million noncompetitive total includes
$500 million awarded to foreign official institutions.
RR-735
Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Transcript
Number of Pages Removed: 10
Author(s):
Title:
Background Briefing with Senior Treasury Official
Date:
1995-11-28
Journal:
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
November 29, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $12,002 million of 5-year notes, Series S-2000,
to be issued November 30, 1995 and to mature November 30, 2000
were accepted today (CUSIP: 912827W24).
The interest rate on the notes will be 5 5/8%. All
competitive tenders at yields lower than 5.625% were accepted in
full. Tenders at 5.625% were allotted 9%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 5.625%, with an equivalent price of 100.000. The median yield
was 5.600%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 5.550%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$31,417,962
Accepted
$12,001,742
The $12,002 million of accepted tenders includes $222
million of noncompetitive tenders and $11,780 million of
competitive tenders from the public.
In addition, $350 million of tenders was also accepted
at the high yield from Federal Reserve Banks for their own
account in exchange for maturing securities.
RR-736
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
November 29, 1995
Contact: Chris Peacock
(202) 622-2960
RUBIN TO PREVIEW SOUTH AMERICA TRIP IN SPEECH
Treasury Secretary Robert E. Rubin plans to preview his trip to Argentina and Brazil
in a speech tomorrow, Thursday, November 30 at 9:30 a.m. at the Carnegie Endowment for
Democracy, 2400 N Street NW, 8th Floor.
Secretary Rubin will chair the Summit of the Americas Ministerial Conference on
Money Laundering, Friday and Saturday, December 1-2. in Buenos Aires, Argentina. As a
follow-up to last year's Summit of the Americas, Secretary Rubin will join finance and justice
ministry representatives from 25 nations to work to develop a coordinated hemispheric
strategy to combat money laundering.
Following the conference in Argentina, Secretary Ruhin will travel to Sao Paulo,
Brazil, where he plans to meet with Brazilian President Cardoso and other government
officials.
Thursday's speech is jointly hosted by the Carnegie Endowment for Democracy, the
Brookings Institution and the Inter-American Dialogue. Media interested in attending this
speech should contact Jane Marcus at the Inter-American Dialogue at (202) 463-2562.
-30-
RR-737
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
NEWS
ornCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
ADV 9:30 A.M. EST
Text as prepared for delivery
November 30, 1995
REMARKS OF 1REASURY SECRETARY ROBERT E. RUBIN
ON lHE BUENOS AIRES MONEY LAUNDERING CONFERENCE
AND ARGENTINA/BRAZIL TRIP
TO TIlE CARNEGIE ENDOWMENT FOR DEMOCRACY,
BROOKINGS INSTITUTION AND INTER-AMERICAN DIALOGUE
I'm looking forward to a productive trip -- particularly in the area of combatting
the very real and very serious problem of money laundering. Many of you are well
aware of Treasury's role in matters of tax and economic policy. However, Treasury also
has an important role to play in law enforcement. That role, as it relates to money
laundering and its impact on economies and societies takes on added importance as we
see a globalization of finance and financial crime, and technology makes it increasingly
easy to move ill-gotten proceeds around the world.
However, before discussing the conference, I want to touch on the broader issue
of economic globalization and what has been occurring in Latin America in the past
decade.
In the course of my trip I will be discussing with the leadership in Argentina and
Brazil the central issues of the administration's international economic approach -- the
value of open trading systems and financial markets, strengthening the global economy
against financial crises, and encouraging economic development and reform. Each of
those policy areas are important to the economic well-being of Americans, and to the
residents of other nations. The importance of Latin America to the United States was
reflected in our hosting the Summit of the Americas in December of last year, an event
of great economic and political significance for our region.
RR-738
(more)
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
Latin America has come back from the debt crisis of the early 1980s. That debt
is being worked down. Inflation that was counted by four and five-digit numbers is being
tamed. The "lost decade," as it has been called, was the result of what might be termed
a continental identity crisis. For a long time the policies were statist, inward looking,
based on protectionism. Borrowing billions without a strong base for growth finally burst
the Latin American balloon. The silver lining of the debt crisis, however, was that it
forced a fundamental re-examination of those policies and led to a conclusion throughout
the region that the role of the state should be limited, that economies should be based
on the private sector, and that private savings are a critical source of growth.
Privatization, deregulation and reduced trade barriers have replaced import substitution
and state-sponsored enterprise. There's much more to be done here, and some countries
are dealing with difficult conditions right now, but Latin America is forming a new
consensus. That consensus is very much in their interest, and thus in our interest, and
we need to pro-actively support it.
The new consensus has already brought a reversal of fortunes and renewed growth
possibilities. There have been setbacks, no question, but future prospects are good if
countries continue to follow the path of reform. On the political side of the ledger, the
contrast is just as strong as it is on the economic side. Since 1967, the last time there
was a hemispheric summit prior to last year's Miami meeting, there are 10 additional
democracies. The region is now solidly democratic, and the institutions of democracy are
growing stronger. Civil wars have been settled. A decade or more ago, our discussions
were often about aid. Today, our discussions more often center on how to further
integrate economies, on how to spread capital market development, and on how the
private sector can finance infrastructure and or facilitate investment.
More broadly, economies throughout the region and the world are becoming
increasingly interrelated, through the direct linkage of agreements such as the last GAIT
round, NAFfA and Mercosur, through the globalization of financial markets, and
through a common interest in dealing with financial crises and promoting growth and
reform in the developing world.
In the modem world, economies are affected by the forces of globalization. But
they are also affected by forces within their societies -- political decisions, natural
disasters, societal pressures, and crime. I'd like to focus now on one of those forces,
organized crime, which itself is becoming increasingly global in nature, in part because
the same technology that binds our economies together can now serve the organized
criminal element.
3
Organized crime buys and sells drugs, weapons, assassins, and politicians. A
vantage point for attack on organized crime is that it requires money laundering to
legitimate the large amounts of cash generated in criminal enterprises. Money
laundering, once under way, can on its own undermine financial and economic systems
and destabilize political systems. Banks can be endangered by corruption, and by the
fact that its assets may be subject to seizure or be highly volatile. Laundered money can
buy a public voice through the acquisition of newspapers or TV, or it can finance
political corruption. The act of laundering money can destroy competition. A syndicate
that uses $10 million in drug proceeds to buy televisions from a corrupted wholesaler,
and then sells them at a loss to produce clean money drives legitimate businesses out of
business.
There are estimates that $100 billion in drug money alone moves through the V.S.
economy, and that the Cali cartel has profits of $2 billion a year, more than many major
V.S. corporations.
In sum, money laundering is an essential underpinning for drug dealing and other
illegal activity and also threatens fmancial institutions, legitimate businesses. Further, as
laundered money is used to buy media outlets or corrupt politicians, it even threatens the
democratic form of government. And, if a country is tainted by dirty money, legitimate
money thinks twice about investing there. It is in every nation's self-interest that we
vigorously combat this crime -- to protect our institutions, our economies and our
citizens.
The problem of organized crime and money laundering has surfaced in newly
democratic nations struggling to implement free markets and nurture free market
institutions. Last year 16 Russian bankers were murdered in 30 assassination attempts by
the Russian criminals who want to control the banking system. Controlling the banking
system would allow those criminals to legitimize their proceeds.
Last year, at the Summit of the Americas, President Clinton and his regional
counterparts committed the nations of the hemisphere to taking action to combat the
scourge of narcotics trafficking and money laundering. And the President reiterated the
V.S. commitment to counter money laundering and crime in a recent Presidential
directive and his United Nations speech.
In a global economy, a comprehensive, international effort is required to choke
off the threat posed by money laundering. Also, the diffusion of responsibilities
throughout government requires a coordinated and cooperative response within each
government. In the United States, we have brought together elements of our Treasury,
State and Justice Departments, and other agencies, to deal with the issue. Globally,
other nations will similarly need to coordinate expertise from across a range of
ministries.
4
There is now, clearly, a broader awareness throughout our hemisphere of the
nature and importance of this problem, and I believe, a greater willingness to act. Our
own country is the major market for drugs, and generates a significant amount of money
to be laundered. We have a growing and very aggressive program within our law
enforcement agencies to take on money laundering, particularly in Treasury at our
Financial Crimes Enforcement Network, or FinCen, which many nations are beginning
study and emulate. Following illicit money as it moves through economic systems will
allow law enforcement authorities to trace the criminals' activities back to the underlying
cnmes.
This weekend, Argentina will host the money laundering conference and the
United States will chair the sessions.
My aim as chairman is to encourage the participants to agree to principles that
will lead the nations of the hemisphere to commit to do several things:
First, enact laws that criminalize the laundering of money from illicit drugs and
other serious crimes.
Second, modify laws and regulations to deny criminals unfettered access to our
financial institutions, establish systems to report possible criminal financial activity, and
create financial intelligence units similar to our Treasury unit called FinCen that support
the prosecution of money laundering and financial crimes.
And third, expand the tools available to law enforcement personnel in fighting
financial crimes, such as broader forfeiture laws and allow a greater sharing among
authorities of financial and commercial information.
Together, each of these pieces support the ultimate goal of the Ministerial
Conference, which is for the nations of this hemisphere to take ownership of this broad
anti-money laundering strategy. Each nation will need to do more than merely affirm
the fine points of the communique. We all share an economic and social interest in
keeping our financial system free from criminal taint.
In addition, because the only way to ensure success is the full and effective
implementation of the recommendations, I believe each nation will be asked to work
with the Organization of American States to produce a candid assessment of its own
compliance.
I want to expand for just a moment on the financial intelligence units concept.
The United States is assisting other nations in creating such units, and in just five years
there are now at least 24 such units in operation or in the planning stages. Their ability
to track transactions and find patterns of suspicious activity offers a vital new tool in
fighting criminals in the electronic age.
5
Such operations can produce significant results. I want to give you an example,
but you will understand that for obvious reasons I've altered some of the details. Our
sophisticated computer software has identified two small businesses which every day for
years have been depositing anywhere from $50,000 to $80,000 in cash in banks -- $120
million in all. Commercial sources say these businesses had sales of well under $1
million a year. Because of our new ability to more rapidly piece together complex webs
of transactions, investigators are now tracking a case they find involves not just money
laundering. It involves crimes ranging from drug dealing to arms sales. And all that
from a computer prcgram and readily available data bases!
This weekend's conference will mark a milestone in what is becoming a global
commitment to attack crime where it hurts, in the criminal's pocketbook. If we deal with
money laundering, if we hamper the criminal's ability to legitimize ill-gotten money, we
can undermine drug dealing and other illegal activities. If we deal with money
laundering, we can prevent the undermining of financial systems and political systems.
In closing, at the Summit of the Americas a year ago our leaders agreed to a
broad range of areas in which the governments of the region should work cooperatively - everything from strengthening democracy and broadening free trade, to dealing with
poverty, the environment, combating drugs and associated problems. The national and
economic security of the United States is increasingly linked to the economic and social
success of the countries of Latin America. I believe the conference I will attend, and the
discussions I will have with the economic and political leadership in Argentina and
Brazil, will contribute to toward those ends.
Thank you.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIAAVENVE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
For Release Upon Delivery
Expected about 10 a.m.
November 30, 1995
STATEMENT OF DARCY BRADBURY
NOMINEE FOR
ASSISTANT SECRETARY FOR FINANCIAL MARKETS
DEPARTMENT OF THE TREASURY
BEFORE THE
SENA TE FINANCE COMMITTEE
Chairman Roth, Senator Moynihan from my home state of New York and members of
the committee, I am pleased to appear before you today as you consider my nomination for
the position of Assistant Secretary of the Treasury for Financial Markets. I am honored to be
nominated by President Clinton, and I want to thank Secretary Rubin for supporting my
nomination_
In the past two years the heart of my job at the Treasury has been management of the
public debt. This is a function that has existed at Treasury, in one form or another, since the
founding of the Republic. In that position I have benefitted from the advice and perspective
of both the career staff as well as many who had the job before me over the past 3 decades.
The focus of Treasury debt management is, and must always be, what is in the best, longterm interests of the taxpayers. The promotion of efficient, liquid and fair capital markets is
essential to carrying out that mission.
That direct participation in the financial markets gives Treasury a unique perspective
from which to make public policy concerning these markets. Unlike many other regulators or
policy makers, we are in the markets every day feeling the impact of economic conditions,
fiscal and monetary policy, and regulatory actions. The broader scope of my new position, to
advise the Secretary on matters concerning the financial markets, will still have that
foundation. I hope that will give my counsel a real world perspective.
-MORE-
RR-739
2
I also believe that Treasury has a special duty to highlight the connections between
Main Street and Wall Street. The savings of average Americans invested in companies'
stocks or cities' bonds has not only benefitted those savers, but it has built our economy.
Whether it's through promoting savings and investment, ensuring adequate information
exchange between investors and financial intermediaries, or working· to reduce possible
sources of systemic risk, we can and must support the vibrant financial markets which are the
foundation of our country's growth and prosperity. Our financial markets are a source of
competitive strength in the global economy, and they must continue to improve and innovate
to support us into the next century.
Finally, I want to thank my family, some of whom are here today: my father for
starting my political education by having the whole family watch the political conventions
every 4 years gavel to gavel, my Welsh mother, who only recently retired at 73, for making
the idea of being a working mother seem like the greatest life, and my husband and 2 sons
who remind me every day what's really important.
I would be pleased to answer any questions the committee may have.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
FOR RELEASE UPON DELIVERY
Expected About 10 a.m.
November 30, 1995
STATEMENT OF JEFFREY R. SHAFER
NOMINEE FOR UNDER SECRETARY OF THE TREASURY
INTERNATIONAL AFFAIRS
Mr. Chairman, I am honored to be here today as President Clinton s nominee to be
Under Secretary of the Treasury for International Affairs. If confirmed, I look forward to
continuing a career in public service which began with a military tour in Vietnam and
subsequently included years of service with the Federal Reserve System and the Organization
for Economic Cooperation and Development. For the past two and half years I have served as
Assistant Secretary of the Treasury for International Affairs, and have had the privilege of
working closely with Secretary Bentsen and Secretary Rubin on a wide range of international
economic issues.
I
A few weeks ago at the annual meeting of the World Bank and the International
Monetary Fund, President Clinton commented that "interdependence among nations has grown
so deep that literally it is now meaningless to speak of a sharp dividing line between foreign
and domestic policy That is why he has put a strong emphasis both on getting our own
economic house in order and securing economic opportunities abroad. Over the past 2 and 112
years we have made great strides on both fronts, and if confirmed as Under Secretary, I look
forward to working closely with Deputy Secretary Summers, Secretary Rubin and this
Congress to continue our progress.
II •
The Under Secretary of the Treasury for International Affairs is charged with managing
a wide array of issues to help promote the economic and financial well-being of the United
States. Responsibilities of this office include promoting macroeconomic coordination,
encouraging sustainable development, supporting transition economies and participating in the
international financial institutions. If confirmed, some of the areas that will be priorities for
me include:
o
RR-740
building on the to further the progress we have made through cooperation in the G-7 to
strengthen global growth;
o
implementing the reforms agreed upon at the Halifax Summit to strengthen the capacity
of the international monetary system to cope with financial instability:
o
continuing to support the integration of transition economies of Central Europe and the
Former Soviet Union into the world economy:
o
encouraging marketbased. sustainable development through U.S. participation in the
multilateral development banks. to spread prosperity: and
o
sustaining efforts to open foreign markets to U.S. goods and services.
I would like to take a minute to expand on this last point because a high priority for
Treasury is the promotion of open and integrated financial markets. I believe this emphasis is
well placed because financial market development is key to sustaining private sector-led
growth in emerging markets around the world. Moreover. it is this growth abroad that will
foster further growth here at home.
We have been working towards the goal of open financial markets on a number of
tracks. including the Summit of the Americas, APEC and the World Trade Organization. We
participated at Treasury concluded a multilateral agreement on financial services under the
auspices of the World Trade Organization last July. This agreement locks in our access to
serve key markets and lays a base of commitment from others. We retained the option of not
providing additional access in our market to countries that do not provide adequate access and
national treatment to U.S. financial firms. Our financial services providers are among the
most competitive and sophisticated in the world. and we need to do what we can to ensure that
they can compete on a level playing field in foreign markets, and we will continue to do this.
In closing, let me reiterate that I am deeply honored to have been nominated for this
position and that. if confirmed, will work conscientiously and assiduously to achieve the goals
that I have set out here today. In so doing, I would also like to stress that I am committed to
keeping those of you who work on the issues I have responsibil ity for involved and informed.
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622·2960
FOR RELEASE UPON DELIVERY
November 30, 1995
STATEMENT OF DAVID A. LIPTON
NOMINEE FOR ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS OF THE TREASURY
BEFORE THE SENATE FINANCE COMMITTEE
Mr. Chairman, I am honored to appear before this distinguished committee in
connection with my nomination to be Assistant Secretary for International Affairs of the
Treasury. I appear before you with Jeffrey Shafer, whose high standard as Assistant Secretary
for International Affairs I will strive to match if Mr. Shafer is confirmed as Under Secretary
of the Treasury and I am confirmed as Assistant Secretary. I am honored that President
Clinton and Secretary Rubin have expressed their confidence in me by nominating me for this
important position.
For the past two and a half years I have served at the Treasury Department as Deputy
Assistant Secretary for Eastern Europe and the Former Soviet Union. During this time, I
have worked to design and implement a policy of U.S. leadership in support of
comprehensive, market oriented reform in the economies in transition. We have engaged the
G-7 and the international financial institutions in pursuit of multilateral backing for that
historic process.
In recent years, I have devoted much of my energy to the policy issues facing the
economies in transition. Before joining the Treasury Department, I spent a year as a Fellow
at the Woodrow Wilson Center of Scholars. For the previous four years, I served as an
economic advisor to the governments of Russia, Poland, and Slovenia under the auspices of
the United Nations Development Program and the World Institute for Development
Economics Research. In these capacities, I studied the problems surrounding economic
transition and advised central and eastern european leaders working to create stable, private
market economies. Earlier, I spent eight years on the staff of the IMF covering a broad range
of stabilization and reform issues in Latin America, Africa, and Asia.
(more)
RR-741
2
If confirmed as Assistant Secretary for International Affairs of the Treasury, I will
work to make sure that the Treasury remains focussed on the five major policy priorities
which Mr. Shafer has just laid out: coordinating macroeconomic policy in the G-7,
implementing the reforms agreed upon at the Halifax Summit in the international financial
institutions, supporting economic transition in central and eastern Europe, encouraging
sustainable development including through the multilateral development banks, and continuing
efforts to open markets to U.S. goods and services. Each of these goals is important to the
United States, because growth and stability abroad means growth and stability at home.
Let me add a few thoughts on the economies in transition, which, as I mentioned
earlier, has been an area of special interest to me. When the Iron Curtain fell, 350 million
people living in 23 countries were left with a failed economic system, a near-worthless
military industrial complex, and deep-seated financial imbalances. These countries lacked the
legal, fiscal, and financial institutions of modem states, as well as the human and financial
capital and technology of modem market economies.
The process of casting off the old system has seen production declines and high
inflation, all in a political context colored by public anxiety about change and by unmeetable
expectations of quick prosperity. But, it has also seen the emergence of a new economic
orthodoxy. Liberalization, stabilization, and privatization have become buzz words, but they
are each steps that must be taken by countries moving down the transition path.
Experiences across the region show that the transition path is arduous and politically
challenging, but that there is a path to modernization and integration. Much of central Europe
is growing again and much of the former Soviet Union is restoring the financial stability that
is a precursor to growth. Our continued bilateral and multilateral support for this transition is
vital. To falter in this effort would be to forfeit for our generation's chance at bringing these
economies into the world economy. These countries could become important new markets for
U.S. exporters. In fact, integration of these economies could provide an engine of growth for
years to come.
In conclusion, let me say that, if I am confirmed as Assistant Secretary for
International Affairs, I will work to ensure that all of the policy issues I have outlined above
are addressed with professionalism and integrity. I believe this is the surest way to meet the
challenges which the United States will face in the international economy and to help ensure
our own economic growth and stability.
Thank you, Mr. Chairman. I would be happy to answer any questions which you or
the Committee may have.
0
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federal financing
WASHINGTON, DC. 20220
S
November 30, 1995
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of October 1995.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $82.6 billion on October 31, 1995,
posting a decrease of $1,675.7 million from the level on
September 30, 1995. This net change was the result of a decrease
in holdings of agency debt of $809.9 million, in holdings of
agency assets of $635.0 million, and in holdings of agencyguaranteed loans of $230.8 million. FFB made 11 disbursements
during the month of October. In addition, FFB executed 91
maturity extensions and 3 interest rate buydowns on behalf of
borrowers whose loans are guaranteed by the Rural utilities
Service. FFB also received 64 prepayments in October.
Attached to this release are tables presenting FFB October
loan activity and FFB holdings as of October 31, 1995.
RR-742
N
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Page 2 of 6
FEDERAL FINANCING BANK
OCTOBER 1995 ACTIVITY
BORROWER
DATE
INTEREST
RATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
$12,997,191,784.86
12/15/95
5.521% S/A
AGENCY DEBT
RESOLUTION TRUST CORPORATION
Note 28 /Advance #1
10/2
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Foley Square Courthouse
Atlanta CDC Office Bldg.
Memphis IRS Service Cent.
Miami Law Enforcement
Foley Services Contract
Foley Square Courthouse
Foley Square Office Bldg.
Oakland Office Building
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
10/5
10/11
10/20
10/20
10/25
10/27
10/27
10/27
$1,620,194.00
$1,041,754.25
$1,094,117.84
$2,088.45
$49,723.59
$1,140,907.00
$662,768.00
$73,312.40
7/31/25
9/2/25
1/2/96
1/3/22
7/31/25
7/31/25
7/31/25
9/5/23
6.550%
6.523%
5.533%
6.386%
6.414%
6.464%
6.464%
6.455%
10/18
$10,037,056.70
11/2/26
6.396% S/A
7/1/96
7/1/96
7/1/96
7/1/96
1/2/96
12/31/96
12/31/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
5.691%
5.691%
5.691%
5.691%
5.452%
5.736%
5.736%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
GSA/PADC
ICTC Building
RURAL UTILITIES SERVICE
*Allegheny Electric #255
*Allegheny Electric #255
*Allegheny Electric #255
*Allegheny Electric #255
*Allegheny Electric #908
*Allegheny Electric #908
*Allegheny Electric #908
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
$3,625,454.60
$i,319,999.93
$1,056,607.10
$1,862,723.36
$2,621,762.91
$3,083,070.84
$4,408,396.88
$3,545,259.33
$2,712,592.68
$2,211,004.22
$1,610,381.17
$2,131,346.85
$273,562.22
S/A is a Semi-annual rate: Qtr. is a Quarterly rate.
* maturity extension or interest rate reset
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 3 of 6
FEDERAL FINANCING BANK
OCTOBER 1995 ACTIVITY
DATE
BORROWER
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
RURAL UTILITIES SERVICE (continued)
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
#917
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
$2,447,812.03
$2,288,991.86
$572,869.35
$1,166,693.16
$18,413.76
$486,888.97
$456,718.78
$4,232,356.08
$3,954,580.66
$1,013,059.16
$1,111,926.00
$1,427,497.69
$1,756,457.95
$430,221.91
$992,333.09
$1,295,679.60
$2,400,245.42
$2,718,158.26
$61,212.19
$759,101.78
$936,784.45
$2,547,116.85
$509,149.37
$5,183,765.69
$1,191,260.01
$2,387,309.33
$23,970,673.36
$705,671.83
$482,779.73
$2,215,779.21
$1,295,303.55
$1,683,024.20
$2,766,915.32
$2,961,679.48
Qtr. is a Quarterly rate.
extension or interest rate reset
* maturity
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 4 of 6
FEDERAL FINANCING BANK
OCTOBER 1995 ACTIVITY
BORROWER
AMOUNT
DATE
FINAL
OF ADVANCE
MATURITY
$583,051.72
$18,865.67
$1,931,023.62
$994,703.16
$2,677,973.75
$850,794.60
$3,258,783.87
$11,691,363.52
$3,677,686.08
$6,287,681.75
$3,852,682.01
$1,024,075.15
$1,837,317.36
$1,733,234.68
$1,217,042.02
$768,479.18
$2,395,285.66
$7,693,095.36
$79,316,544.51
$18,470,754.13
$1,006,682.22
$22,773,742.74
$6,112,007.94
$9,441,679.10
$10,174,057.89
$7,337,484.20
$7,465,510.05
$3,472,414.97
$13,370,619.99
$5,937,638.08
$3,077,964.27
$921,412.46
$1,647,285.34
$584,001.57
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
9/30/97
9/30/97
9/30/97
1/3/17
1/3/17
1/3/17
12/31/15
12/31/15
12/31/15
12/31/15
1/2/96
9/30/96
9/30/97
9/30/97
9/30/97
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
RURAL UTILITIES SERVICE (continued)
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Coop. Power Assoc. #130
*Coop. Power Assoc. #130
*Coop. Power Assoc. #240
@Kamo Electric #209
@Kamo Electric #209
@Kamo Electric #209
*Kamo Electric #209
*Kamo Electric #266
*Kamo Electric #266
*Kamo Electric #266
*Northwest Iowa Power #907
*Oglethorpe Power #916
*Oglethorpe Power #916
*Oglethorpe Power #916
*Oglethorpe Power #916
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
Qtr. is a Quarterly rate.
@ interest rate buydown
* maturity extension or interest rate reset
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.908%
5.908%
5.909%
6.470%
6.470%
6.470%
6.384%
6.384%
6.384%
6.384%
5.452%
5.685%
5.872%
5.872%
5.873%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 5 of 6
FEDERAL FINANCING BANK
OCTOBER 1995 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
$10,143,460.50
$10,650,752.15
$39,537,323.55
$930,518.58
$11,166,221.78
$3,610,338.18
$3,042,141.39
$3,611,445.70
$3,844,754.48
$4,261,475.99
$1,194,991.11
$909,461.26
$305,136.00
$35,459,000.00
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
1/2/96
12/31/24
1/2/24
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
RURAL UTILITIES SERVICE (continued)
*San Miguel Electric #919
*San Miguel Electric #919
*Seminole Electric #905
*United Power Assoc. #911
*United Power Assoc. #911
*United Power Assoc. #911
*United Power Assoc. #911
*United Power Assoc. #911
*United Power Assoc. #911
*United Power Assoc. #911
*United Power Assoc. #911
*United Power Assoc. #911
*Wolverine Power #349
Oglethorpe Power #335
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/2
10/17
Qtr. is a Quarterly rate.
extension or interest rate reset
* maturity
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
5.452%
6.484%
6.349%
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 6 of 6
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Department of Transportation
Export-Import Bank
Resolution Trust corporation
Tennessee Valley Authority
U.S. Postal Service
sUb-total*
October 31, 1995 September 30, 1995
$
0.0
2,506.3
12,398.7
3,200.0
7,264.7
25,369.6
$
0.0
2,506.3
13,208.6
3,200.0
7,264.7
26,179.6
Net Change
FY '96 Net Change
10/1/95-10/31/95
10/1195-10/31/95
$
0.0
0.0
-809.9
0.0
0.0
-809.9
$
0.0
0.0
-809.9
0.0
0.0
-809.9
Agency Assets:
FmHA-ACIF
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Utilities Service-CBO
Small Business Administration
sUb-total*
1,470.0
3,675.0
21,065.0
8.1
23.8
4,598.9
0.1
30,840.9
1,470.0
3,675.0
21,700.0
8.1
23.8
4,598.9
0.1
31,475.9
0.0
0.0
-635.0
0.0
0.0
0.0
0.0
-635.0
0.0
0.0
-635.0
0.0
0.0
0.0
0.0
-635.0
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Utilities Service
SBA-Small Business Investment Cos.
SBA-State/Local Development Cos.
DOT-Section 511
sUb-total*
3,486.7
85.4
1,688.5
2,282.5
21.0
1,432.1
17,045.3
3.0
352.2
14.5
26,411.1
3,493.0
89.1
1,688.5
2,266.8
21. 0
1,432.1
17,275.5
5.5
355.8
14.5
26,641.9
=========
$ 84,297.3
-6.3
-3.7
0.0
15.7
0.0
0.0
-230.3
-2.5
-3.6
0.0
-230.8
-6.3
-3.7
0.0
15.7
0.0
0.0
-230.3
-2.5
-3.6
0.0
-230.8
=========
$ -1,675.7
=========
$ -1,675.7
=========
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
$ 82,621.6
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
November 30, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-DAY BILLS
Tenders for $10,017 million of 13-day bills to be issued
December 1, 1995 and to mature December 14, 1995 were
accepted today (CUSIP: 912794T61).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.61%
5.65%
5.63%
Investment
Rate
5.73%
5.76%
5.73%
Price
99.797
99.796
99.797
Tenders at the high discount rate were allotted 34%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$35,645,860
Accepted
$10,016,696
$35,644,340
1,520
$35,645,860
$10,015,176
1,520
$10,016,696
o
o
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.62 - 99.797
RR-743
o
o
$35,645,860
$10,016,696
5.64 - 99.796
UBLIC DEBT NEWS
Dcpartnwnt of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
November 30, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 27-DAY BILLS
Tenders for $10,007 million of 27-day bills to be issued
December 1, 1995 and to mature December 28, 1995 were
accepted today (CUSIP: 912794W34).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.37%
5.40%
5.39%
Investment
Rate
5.48%
5.51%
5.50%
Price
99.597
99.595
99.596
Tenders at the high discount rate were allotted 81%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$35,231,520
Accepted
$10,007,270
$35,230,000
1,520
$35,231,520
$10,005,750
1,520
$10,007,270
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.38 -- 99.597
0-744
o
°
$35,231,520°
$10,007,270°
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
December 1, 1995
Contact:
Jon Murchinson
(202) 622-2960
STATEMENT OF SECRETARY RUBIN ON HUD GSE REGULATION
Today, the Department of Housing and Urban Deve]opment published its final
regulation implementing the Federal Housing Enterprises Financial Safety and Soundness Act
of 1992. The new HUD rule is an important step in fostering access to credit for
credit-worthy borrowers. This regulation, the product of extensive coordination between
HUD and Treasury, among others, represents a balanced approach to implementing the
statute while avoiding duplication between HUD's enforcement activities under the reguiatior.
and the banking regulators' existing fair lending enforcement responsibilities. The rule is also
consistent with the Administration's commitment to enforce the fair lending laws without
imposing undue regulatory burden.
The regulation reinforces Fannie Mae's and Freddie Mac's existing responsibilities
under the Fair Housing Act and Equal Credit Opportunity Act. Government Sponsored
Enterprises, as the largest conduit for mortgage credit, have an obligation to ensure they are
not facilitating discrimination by primary lenders. Through careful examination of GSE
business practices and guidelines, we have the opportunity in this regulation to ensure that this
important goal is being met.
-30RR-745
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASHINGTON, D.C•• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
December 1, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $18,750 million
of 52-week Treasury bills to be issued December 14, 1995. This
offering will provide about $1,675 million of new cash for the
Treasury, as the maturing 52-week bill is currently outstanding
in the amount of $17,078 million. In addition to the maturing
52-week bills, there are $26,974 million of maturing 13-week and
26-week bills, as well as $10,017 million of maturing 13-day cash
management bills.
Federal Reserve Banks hold $11,195 million of bills for
their own accounts in the maturing issues. These may be refunded
at the weighted average discount rate of accepted competitive
tenders.
Federal Reserve Banks hold $3,969 million of the maturing
issues as agents for foreign and international monetary authorities. These may be refunded within the offering amount at the
weighted average discount rate of accepted competitive tenders.
Foreign and international monetary authorities are considered
to hold $325 million of the maturing 52-week issue. Due to the
public debt limit and TreasukY's need 'to plan for the debt level.
additional amounts of TreasukY bills will not be issued to Federal Reserve Banks as agents for foreign and international
moneta~ authorities in this auction.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by
the Treasury to the public of marketable Treasury bills, notes,
and bonds.
Details about the new security are given in the attached
offering highlights.
000
Attachment
RR-746
HIGHLIGHTS OF TREASURY OFFERING OF 52-WEEK BILLS
TO BE ISSUED DECEMBER 14, 1995
December 1, 1995
Offering Amount . . . . .
.
Description of Offering:
Term and type of security .
CUSIP number
. . .
Auction date
. . .
Issue date
. . . . . .
Maturity date . . . . . . .
Original issue date . . . .
Maturing amount. . .
. ..
Minimum bid amount . . . .
Multiples . . . . . . . . .
Submission of Bids:
Noncompetitive bids
$18,750 million
364-day bill
912794 2B 9
December 7, 1995
December 14, 1995
December 12, 1996
December 14, 1995
$17,078 million
$10,000
$1,000
Accepted in full up to $1,000,000
at the average discount rate of
accepted competitive bids
(1 ) Must be expressed as a discount rate
with two decimals, e.g., 7.10%
(2) Net long position for each bidder
must be reported when the sum of the
total bid amount, at all discount
rates, and the- net long position are
$2 billion or greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of
competitive tenders.
Competitive bids
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
. . .
ReceiDt of Tenders:
Noncompetitive tenders
Prior to 12:00 noon Eastern Standard
time on auction day
Prior to 1:00 p.m. Eastern Standard
time on auction day
Competitive tenders
Payment Terms .
. . .
. .
.
Full payment with tender or by charge
to a funds account at a Federal
Reserve bank on issue date
DEPARTMENT
lREASURY
OF
THE
TREAS-URY
,
NEWS
OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
Opening Remarks by Treasury Secretary
Robert E. Rubin
Ministerial Conference Concerning Money Laundering
December 1, 1995
RR-747
For press releases, speeches, public schedules and official biographies, call our 24·llOur fax line at (202) 622-2040
Opening Remarks by Rubin E. Rubin
Secretary of the Treasury
Ministerial Conference Concerning the Laundering
of Proceeds and Instruillentalitics of Crinle
December 1, 1995
4:00 p.m.
W cleome to the Opening Session of the Summit of the Americas
Ministerial Conference concerning the laundering of proceeds of crime.
It's an honor to chair this important meeting of the hemisphere·s
ministers.
I want to thank the Government of Argentina for its
willingness to host this conference, and Minister Cavallo for his
personal efforts to bring it about.
We are here because our heads of state and government agreed
last December at the Summit of the Americas in Miami that there was
a need for intensified action by all of our governments, individually and
collectively, to address the problems of drug trafficking and other
criminal activities. The related criminal activities addressed by our
leaders specifically included llloney laundering.
1
Together, the underlying criminal activity and the subsequent
laundering of the illicit proceeds pose grave threats to societies, free
market econonlies, and democratic institutions of the hemisphere. Just
as drug lords and criminal organizations endanger the security of our
people, drug Dloney and other illicit income endanger our financial
institutions.
Money laundering is essential to organized crime, which must
convert its ill gotten gains into usable resources. Profits that can't be
spent aren't profits. Money laundering investigations therefore offer a
powerful. vaJltagc ,point for atlacking organized, cricle.
Moreover, the money laund,ering industry, like the underlying
criminal acts giving rise to it, crosses national boundaries, and this
globalization will only intensify as technology makes currency transfers
faster and easier.
An integrated and balanced approach -- consistent
with all nations' sovereignty -- is essential to confronting all aspects of
these problems. We therefore have committed ourselves to a broad
2
hemispheric strategy to disrupt drug trafficking and other criminal
organizations, and to prevent money laundering.
Drug money is only part of the problem; money laundering is
a matter that transcends the drug issue. It involves the profits of tax
and tariff evasion, arms smuggling, terrorism and other crimes. Dirty
money drains our econolnic growth, and drug lords a.nd criminal
organizations endanger the security of our people through corruption,
intimidation and violence.
Our leaders agreed in Miami to several specific measures in
order to deal with these
i~sues,
including ratification of the 1988 United
Nations Convention Against the Illicit Traffic of Narcotics amI
Psychotropic Substances, and the criminalization of the laundering of
proceeds of all serious crimes. They agreed to enact legislation to
permit the freezing and forfeiture of the proceeds of money laundering
and to consider the sharing of forfeited assets among governments.
And all nations recolnmended Lhe adoption of laws compatible with the
3
OAS' Model Regulations of the Inter-American Commission on Drug
Abuse Control ('tCICAD~). while those nations who were members of
the Caribbean Financial Action Task Force on Money Laundering
agreed to implement that organization's recornmendations on the issue.
Our leaders also agreed to encourage financial institutions Lo
report large and suspicious transactions to appropriate authorities and
develop effective procedures to allow the collection of relevant
information frolll financial institutions. Finally, they agreed to convene
a working level conference, to be followed by this ministerial
conference, to study and agree on a coordinated hemispheric response
to combat money laundering.
A great deal of work has taken place since December 1994 to
fulfill the Summit directive. Representatives frorn our governnlcnls
met in Washington in April, June and November Lo finalize the text of
our agreement as to the actions necessary in the fight against money
4
laundering.
The work of those conferences has brought us to the
business of this gathering, most notably the issuance of a cOJnmunlque
that will build on the general themes of Miami by providing definite,
concrete measures within each of our nations and across international
lines.
While recognizing current constitutional and legal parameters,
the eonlllluniquc, a sound consensus document, outlines a plan of
specific actions which all participating nations commit
combating tuoney laundering.
Lo
take in
When the principles and action
strategies in the conlmunique have been implemented by each
government, we will then achieve our goals of full compliance
throughout the region with all relevant anti-money laundering
agreements.
By honoring these agreements, and building upon them through
the measures proposed in the communique, we will demonstrate our
comnlitlllcnt to taking the nceessary actions to tracing illicit profits to
5
their crinlinal source and to protecting our banking and other financial
systeJns from penetration, manipulation, and corruption by organized
crime and drug trafficking groups.
I don't want to list all of the measures contained in the draft
cOlnmunique, but do want to point out several significant advances that
it would tnakc.
Most notably, it sets forth several overriding
pdnciples, pursuant to which our governments would recognize that
they must combat money laundering by:
criminalizing the laundering of the proceeds of "serious crimes,"
as such a term is defined by each nation;
lllodifying laws and regulations to deny criminals unfettered
access to our financial institutions; and
expanding the tools available to law enfOrCeIl1ent personnel to
fight tnoney laundering, including the creation of financial
intelligence units that support the prosecution of money
laundering and financial crimes.
A few of our counterparts will address these central themes in
more detail,
so I'IJ just briefly touch upon their importance at this time.
6
First, as to legal or judicial actions, we must reaffirm the basic
notion that the launder:ng of the proceeds of illicit activities should be
a crinle. Thal, in lurn, should be followed by other adjustnlcnts to our
legal codes to allow for the seizure and forfeiture of the proceeds of
criminal activity. In addition, we should move toward agreements that
would facilitate the exchange of information among the nations of the
hemisphere.
Taken together, such actions would send a powerful
signal to criminals that they will have no safe haven among our nations
for the concealment of their illicit profits.
As to regulatory matters, it is ·important to' remember that our
banks and other financial institutions represent an integral part of the
front line of the defense against money laundering. We must create an
effective working relationship between regulatory authorities and the
financial institutions that they oversee - a relationship that includes the
failhful reporting to the authorities of suspicious transactions to prevent
and detect money laundering.
7
Finally, as tu the advancements in law enforcement covered by
the conlnluniqu6, we must give ad(Htional tools to competent authorities
as they enforce the laws and regulations adopted by our nalions.
Included among these tools are financial information units, which
would provide a single collection source and point of contact for
informalion relevant to money laundering investigations.
Failing to take the necessary measures within any of the three
general areas would seriously hinder our efforts to deal with this
complex problem. The participating nations already have taken several
important measures; they must continually test the sufficiency. of those
measures and to determine, on a domestic and international basis, the
need for additional ones.
I look forward to our discussion of these issues at our sessions
tonight and tomorrow. Thank you.
g
DEPARTMENT
OF
THE
TREASURY
NEWS
ornCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Statement as prepared for delivery
December 2, 1995
STATEMENT OF TREASURY SECRETARY ROBERT E. RUBIN
CWSING PRESS CONFERENCE
OF THE BUENOS AIRES MONEY LAUNDERING CONFERENCE
BUENOSA~,ARG~A
DECEMBER 2, 1995
One year ago in Miami, the leaders of this hemisphere's democratic nations directed
their governments to work on a cooperative plan to counter the growing economic and legal
problems of money laundering. They rightly recognized the very dangerous and destructive
effect money laundering has on our economies, and on both our private and public
institutions. Money laundering is central to profit taking in the drug trade.
This communique marks an important milestone in our efforts to protect the integrity
of our economies and the health of our societies. Today, the nations of this hemisphere have
declared there can be no sanctuary for money launderers. Today, the nations of this
hemisphere are telling organized crime that we will work together to make it harder for
criminals to legitimize the proceeds of crime. We are telling the drug lords that every
democratic nation in the hemisphere intends to strengthen its laws and regulations to make
money laundering a crime, and to make it easier to detect, prosecute and punish money
launderers.
This communique provides the countries of this hemisphere a powerful vantage point
to attack the drug trade by denying a haven for its profits. Profits that can't be spent are not
profits.
The plan of action adopted today contains a detailed set of goals, recognizing that
different nations have different levels of legal structures on financial crimes in place at the
moment.
RR-748
(more)
2
To sum up the major elements, frrst, the participants have agreed that laws to
criminalize the laundering of money from illicit drugs and other serious crimes should be
enacted.
Second, because laws and regulations must deny criminals unfettered access to our
financial institutions, countries should establish systems that the United States and other
nations have to report possible criminal financial activity. We believe that countries should
also create financial intelligence units which can help spot money laundering crimes and
support the prosecution of financial crimes.
And, third, nations should expand the tools available to law enforcement personnel in
fighting financial crimes, including making financial transactions more transparent, and
providing for the forfeiture of assets.
Finally, the ministers of the hemisphere here this weekend have agreed to ask the
Organization of American States to undertake candid assessments of the compliance of
individual nations with the principles delineated in the communique.
In closing, let me say that President Clinton has demonstrated a clear and very
vigorous commitment to countering organized crime and the drug sellers of the world. He is
striving at home to reduce demand for illegal drugs, especially through treatment and
prevention programs, and to step up enforcement by deploying more police. We know we
must do a better job in this regard. At the same time, the President has directed me as
Treasury Secretary, and the Secretaries of State and Justice, to take a number of steps that
will be complementary to the broader hemispheric plan of action we have agreed to today.
As he made clear at the United Nations General Assembly in October, money
laundering is a problem of global proportions. In a truly international economy, when
technology allows the rapid movement of large sums of money around the world, we must
not -- as the President said -- allow criminals to wash the blood off the profits of drug sales,
or finance terrorism or underwrite all manner of crime, by leaving open avenues for the
laundering of the proceeds of crime.
Thank you.
-30-
I
DEPARTMENT
OF
THE
TREASURY
NEWS
ffighllghts or Summit or the Americas Ministerial Communique
Ministerial Conference About the Laundering of Proceeds and Instrumentalities of Crime
December 2, 1995
Buenos Aires, Argentina
The Communique was endorsed by ministers from 34 countries in the hemisphere.
The ministers agreed to take "all necessary measures" to combat money laundering on a
hemispheric level.
The nations endorsing the communique have agreed:
•
To criminalize the laundering of proceeds of serious crimes. Such legislation should
make possible the identification, seizure and forfeiture of the proceeds of such crimes.
•
To enact measures for the recording and/or reporting of large currency transactions.
•
To exchange evidence and information among countries of the hemisphere, and to
break down barriers which impede the exchange of such information.
•
To expand the tools available to law enforcement personnel to fight money
laundering, including the creation of financial intelligence units - similar to the u.S.
Financial Crimes Enforcement Network (FinCEN) -- that support the identification
and prosecution of money laundering and financial crimes.
•
To modify laws and regulations to deny criminals unfettered access to financial
institutions.
-30-
RR-749
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960
Summit of the Americas
Ministerial Conference on Money Laundering
Ministerial Communique
Buenos Aries, Argentina
December 2, 1995
RR-750
For press releases, speeches, public schedules and official biographies, call our 24~our fax line at (202) 622-2040
~UMMIT
()F THE AMERICAS
MINISTI;:IUA1.. (;()Nlrm~I~NCF. CONC.I~RNING Tille LAUNI>EIUNG OF
I·I\OCEI~J)S
AND INSTltUMKNTALITIES OF CIUMl!:
(liUlCNOS AIRES, ARGENTINA, DECEMlUi:n 2, 199§)
MINISTEutAL COMMUNIQUE
The lleadA of Slnlc :md GcwCrlllnOlll of the Westenl Hemisphere agreed at the Summit or lhe
Amcrictl:i in J)cccmhcr. )994, thnllhcre
WlI' l\
nGed for intellsilied action by
all of\heir
(loV\;f\UIICllts, iudividuully UIIU L:l1l1c\.:lively, to tldul'cSS the problem of illicit produ~tion 1111<.1
ll'n rfIcking or drugs llnd their
ill~\rult\~nl"lilie~
illc~Il'
use, liS well as the launderlna of lite proceeds, property. flnd
uSl:d in crimi",,) ftCli\lilies:
(h~rC!in"fter
rei'el're.d to RS mOI1~y lnuodf!ring).
The l' leads of StnlC and (JoV~l'Il1m:11l noll.:d lht: work of lhc1992 SUII Aulo'lIiu Summit llnd
endorsed llle efTul'ls oflhe Inler-Americull Commi,sion 4,)Jl Dr\lgAhll~p. Conlrol (CICAn). They
alsn ngrc:cJ h)'''lmld II wOl'king-level Coniel'fnCe, tu be followed by ft minj~tcrinl
C()t1rel'eIlC~, til
S{IJ"ly nnd ngrce 011 :-1 coordinated hel11i~J')heric response, includin~ consiliernliull uf"n inter1\ merir.;", cnllv(,!lllinn. 10 (:nrnnnl l1\(m~y Inllnclerh'B."
111 Iu:curdnm:c: with tilt: Summit
ur tin; Al1ll:ril,;ll:S titcisillll:l. working level confetcn~s were held
in Wo!;hingmn. D.C.. J\pril19-20, June 22-23. lind November 20-21,
mini~tel'jl\1
199~ lO
prepare for
ft
conlt.'I'l'I1Ct.!,
In nll'lhe!' rul1iUlncnl or the Summit numuote, lhe
Minisler~
representing the thiny-rour
"urllclrnllng Stlltes or the Summit or lhe AmericD!!, and responsible fUf addrcs~ilJ~ lhe:: Jll"\Jbh:J11
fit
Il\on,~y l;lIl1ld~rinl!., Iltt!t
lti{-750
in
Blleno~ I\ire~, AI'gcllliliB.
·rlte Mini!tter~ elldor~ed the following
I,rindl"c.c, IlIlri in lII:enrrlnucp. wilh,
iuJ.fL1lli.cJ.. thr. ohlignlion9 lJ"dertflk~n hy their (In''~l'mncnt~
11I)on ..ali (icnlion of the 1918 United Nations Convontion Assinst Illicit Traffic in Narcotic J)rug~
ilnu P~ycholr()flic Suh:etnllcC!I (the 19R5 UN Convention) f1gr~d to recommend (0 Iheir
O(,vernmelll~
Inundcl'illg.
a 1'''111 nf Action for 1\ coordl118reli heml~pherIc response to combat money
Mini~t~r~
frn", the Onvcrnmt.nb (lr H~1i7r. • .InrnFlir.1l, ancf SAint Lm:in. which "n~
'ClI1$itlering rHliticntion of the 1988 UN Convontion. h:lye :ll~o endoNied this Sl:ltelllcnl or
'1', il1\;jpic:s UIlI.l t.lJ,!r,,~cllIU rccol1ummu tIll: ('lull t1r A~tiull 1u their Ouvcrmm;nts for lIdoptiull "Ill)
implr.ml~nl'ltinn
This nCliuJI pltml'lhou\d
not
be interpreted 8S 8n intent tn discourage the now <l( licit
C(lpiltil
"lid
invcsllllculliflmOlli/. l.:ulIl1lrics. The Minislers reaffirmed the commitment made by iheir
C.ilWCI·nmelll~
C(}Il1I'OIlCIlt.
in
th(~
Summit or (Itt! AmericD!I Action !llnn lhal investments lire rhe
of tile ecollomic grc)wlh in the WC!jlcrn HClni!l),hcrc. The Ministers
.i II \'eSllll~1I1s lllu.l.lhl:
the commitment
lib~HlI iattiuu t111~1
fllnd~men'(ll.
el11rhD~i7.cJ
inlc)J.mtiull ~r ulluket~ should. be encuurlllLC:c.J;
JI~
thnt
wc:lI !IS
or ClIlintrie.~ to sll'engthen the ml!cluUli~m~ for 'he pmmntinn :Inti ~I'ntectinll nf
the l1uw of ~I'ilnl nnd ilWQ!Hmcnts in the rClgiun.
"I he
Millislcr~
agreed to lnke nil
cunfcll'Inily with lhcir IlRtionul
s)'~l~ms. 1.<.'
ncce~snry
me:lsurc... , including legi"'Ativc
c()Il~lilutiollnl
~lI1c1 admllli~h'lltVC. in
principles, laws Ilnd tbe buic concepts of their IC2-!l1
cumlml moncy I(lUlldcrillt; on Q h,ltli~pheri, level in ruJl accordcnce with the
dclillitiolls eSlablished In the 1988 UN Cn/lvelltlon, where ol)pllcnble.
A.
A. J
IJECI.AI{ATION
CrilllinnJi~,a1.i()1l
{)If
I'IUNCIIJLF.S
01' tlnlg 1ll0IH.:y loundC:l'ing olT,fues j, an obligation or the 1988 UN
(u/lvcnliull. The lIllIlSfc:t, culluc:uion and Invesuncnt of iIIicil proceeds from drui
lrnlTIcking und non-dl'lIi lrnfl'ickini relAted seriOlli crimel eonslilute Q Jeriou. ehallenge
(0 the m:\ill(~nMce or law Q"ti oruer thro\lahout tho Homisphere and m~)' thrclltcl~ the
jntcgl'i\y. rt.~lil\hililYI und 3ta"'ilil), t'f governments, fillan~it\l 5yslcl11~, I1nd c:ommCJI,;C.
Therefore, it is 1I~t;c~~ury ror ftll Summit of the Alnerieas participant ~t8le!l to Illake the.
laundering of proceeds or scri()lI~ crimes (those predicate otIcnses clel1ned in n~Lionnl
legi~ll\li()1\ which ltiYCI ri:1e to nloney lriulldcring) (\ criminlll oJ'fcl1l.e. Serinu~ crhnts.
property flnd inshulllentulilics uf crime will be de1ined by the legislation of each country.
A.2
Measures to Hlcilitate th~ rrevenlloll, investigntion and Pl'oscculiull of money laundering
,hmllu be
implcl\1~nleu
by &til OO'Y\:wlIIl:uls. Persons who commil cril11e~ 5hnuld be
deprived
or the use of the f'roceedg nnd l'lfO(jt~ of their iHp,gAI Ar.rivj(ies. nit well n!-:
Ilropcrly
\Is~d t~,
commit
lh~
illegal
nctivi(ie~.
Therefore.
Inw~, regulnli(,"~,
'lI1d other
policies should be issued or l~..,i!fcd to d~t\1 with lhi~ crime and crrct.livdy fnl.:ilitH.l~ Lht:
A.:l
i..tenli liculioll .• ~cil.urc, Bnd
rorreitur~
dnll1cSlic mlll internationAl
jnve~liBntiOI\~.
(J(lvcrI1mc:n(s IIhould implcl11Clll
of the proceeds and lnsu-wncm£llilies, in rel4J1onse to
l1~CCS~UI:y Illetl~mc~
lu
~IJIIKJwc::r
their c(Jurt, or
cumpeLent cmlhmitic5 ll' shnre nnallcial nnd commercial information where
reLJu~~Ip.d
thl'Ol\gh al'rl'Opril\t~ nulhorillel for lhe purpose of invcslignling or pro8oeuling lnOI\ey
IrlUl1dering
1\.4
OrrOIl~es,
Em~h (lOVCI'IlI11CI)[
or lhe hemisphere shures a direct intere~t in full cOlnl"linnee with
e:\i~ljnlJ inlcrnnlional nel'ccm~"t~ on money luundering, porliculnl'iy the ob1i8a~i(ms,
3
ticclunuinn.!', CIIlU principlf:S ~onLaineu in the 1988 UN Convention. Also.
lh~y.
reconlmena the ncloplinn of Inws whkh are compu.libll; with the Mode) Regulation,
concerning Lllllllc.l~ring ()nel\~1!9 connected to lIIi,il Drug Tn,r~ekilJg "lid l~olnled
on~n~t~~
nrOAS/CICAD(OAS/CICAD ModcI'Rcgu16tionJ). In accmdoncc wilh Lhis
hemispheric nppwnch to counLer money hmndering, the mClllhcrs of the Caribbcan
fhumcial Action TSISK Force reartirm lheir commitment to the recommendation!
cnnlllined in the Kingslon l,)ceIBrnlil~11 IIn,t fKOl11mcnd thnt nOll-member" consider the
udoptiull of Iho~~ Kina~lon Dec\arntion Recolllm""ulations which
D.
lUll)'
be applicable.
PLAN OF ACTION
13.1 In relBtion lO the decision aclnr1p.d hy th~ Heads of State Dnd Government 10 in~trl1cl
the
Mjnl~tcr~
"to st\ldy and agree i'1l n (,,oordincted hemispheric response, including
the c()nsiderution of an [nler·AmcriclIll Ci'llvll.ntio~, to eQmbt.lt 1110ney Jaunderinlt.
(he: Mitl'i~ter~ rec(lmmend to
CJroLlp to
<,;ulIsiu~r
submit 10 the OAS, the e~lablishment ('If a Working
thill suggestion amllo identify lht prionlle~
'or hUlk
hurln()lli7.uliol1 oC llfttiollal htws directed Rtlhe same purpose.
B.2 The Mini~lcr! FUlthcl' rcached lhe fClllowjnu conclusjol1~ concerning the coordinated
h~misphcric
rupic.l
re'ponse, iu legitl. I'C~ul8lory nnd enforcement Inlltter~ that will allow
rr(')sre~..
in the !tru,,,,lc &lgflillS\ ~lilHillUI ncLivilies f,?lilled to money .Iuundering.
C()l1E:etluenUy, the Minillters support and firmly recommenu the implemematiol1 <'I'
the lollowillg PI",n of Ac:tion.
4
LE(jJ\l.I ACTIONS
C.
C,I
The Inundcriny of the l\rU(:et~(I( of seriOlii crimes Qhould be nlRde
Je~i~lalioll.
dume!ftic
:I
criminol
orfc'n~ in
Sm:h le~i~ll\lion ~hould make: pn,sjbl~ the identification, fi:izuu:
f\l'1\1 fOl'fdllll'\! or the pro,eeJ~ tllIll instrumentalities of such crimes, In addition, d"me..czlie
laws aud n:~lIJuliolls should be adopted and ;m(:lementeri, And inlernational
fndlilnlillg Iht.'! invesligntiun lind prolc~u(ion thereof should be ngrecd
luccesRrul in~(!:lti8nlion, .. nd pro$e~ulio;l
UpOll,
inRlrulllenl~
The;
of mon~y laundcrina crjlne~ and the seizure nlld
fc:)!'fcitUTc of' the pro,c:cds lhcuJrum require th~ close coopernlioll orthe int~rn8h('nnl
comnH1nilY iillhe exchnnge nf information I\ndevjdeJ1cc.
C.l
tn :ldditian to t.he nbove, it i! nCCc3Sill'Y
fimmcinl
ilJ~tilLllions
La ~nu\,;llhos,
measures re\lulred lhnt wili allow
to provide. in accordance wirh legAl proeedures. to competent
J\nlionnl allthorities infol'malioll about lht) identity of their cli~nts, bank n~~O\lnt nctivity,
nnd othel' filltlnlo:inl tmmlflctions, ftnd which at the ~itmc lime will permit Lhe sharing of
such infomUHioll 1II11(l11~ dilTercn( countries fol' the investig4tinn
AUe! j'r(1~e.clltiUll uf
muncy hHllu.kring crimes. The inlonnulioll exchange betweon dif!~rcnt coul\Lric~ 1ll1l3t be
J"~I'J(mn~d
in tlgreemcnt ""ilh the naliollllilaws Gnd applicable internatiolls1 judidul
insh'ulncnlt'. using competent authorities.
c.~
In ()rder to
invcsliBH1~
lInd
rrn~c:lIle
cllidcncu ,uKI infol'lm\liol1 "mOil"
burl'icrj which
il11pcd~
IllOlleoy h,unuerin.:, (0 lucHitate the cxchnnge
lhe cou'llric:~ ofthc hemisphele, unu (0 break. down
the cAdu.mgc:: uf :-luch informolion, if lhe fund8lnenhll
prtndpll~ uf
their Icglll systems permit, Governments Sllould:
C4
nuti Iy whcl'~ ;Ipplicllhle, ond implement the
fieri incnt lq:.i~lutioll for
()f
its full UJlr,\.i,ntion;
5
1988 UN Convcntiun, om) enm':llhc
c.s
Atlo(,)t d"lIJcsti~l1l1y, where Ilpplicable. law):! compatible with lhe OAS/CICAD
Mudd
C,o
R~lo;.ulntion5:
Enact aUld illll,Icmcnt 1~ltl'lnlion to pt.:r1nh the seizure and forfeiture of tha
procccd~
uf money Inundering, as
wellll~
p.nac( laws that make it possible to
I,rovide un ude<lunte r"aponse (1 requests for Itgn) assistance: from uther
00 vcmmCll L,;
C.7
Concllltle nno illlj,'emp,nt ~ihllernl and lUultilaterAI agreements tClIl!iow for the
er]llilnl\le shnring betwoen OoYcrJ1ltlents of properly thl.11 hus been fnrJeiled
rc~ult
I.lJ
the
of cool,cra!ive clTOI (!S ill lhe inve~lilZlllion and pro~eeutit)1\ of mOll~y
lU1.J1U.l1!1 in~ C.1SCS:
e.R
Cnn~ider cnllclin~
nncl cnroreing domesllc luws which approve the use of
invcstignlivc lcclllli'IU~S. sLlch os unc.1cH'CQVCr policf! ol"eratiom; and electronic
,
slIlvcillnllce with judicialllJ'pnwAI, h') fncilitale the idenlificn\;on and prn~~culi()n
('If nllmc.mhC'fs
of criminnlorg3nizlttioM and the forfeiture uf the pf()ceeo~ or lheir
criminnl nClivilic;,;
C.9
Review luw!\ pennining tn hnnk ~eC'.rec>, and
pcrmit (lis('ll.~,:ure
C.10
A'geSB
tho extent to which these Inws
or fillancial inslitutiolls' record, to comp,telll HUlhorhies:
Foster the ,'IJuplion of neccss.:uy legislalive, r(!guiAlory and other moasures to
ellsure that clcUI' nno coltlplp.lp. rt.(!OI'd. are maintained to deJcribc ncctu'aldy
lilluncml Inmscldions: .tnt! lhul 'he records be prc~crved Dlld be millIe uvnihlhle. as
(;
CII
Consider nc"oliolinil nn<llmplcmcnliny inlcrnnti(1llnll\grccmcnl~ lor the direcl
exchnnge 01' !inanei,,1 inrorll1ation. such 11, ush In:Ul~aclions. stock-exchDnltp.
trum;al.:\iun~.
(:,12
currency cxch'\I\~c. uml iuu:rnntlonal lrRIlSPOrl81ion of eUl'l'eney;
Ctmciude and implement hi Internl and Oluhiintellli mULuallcgul Zlssistance treaties
10 H\cililllle Ihl" t'xc.hnngl! of .\lidenc~ uhd informatiull in cases of money
laundering investigations and prosecutions Qnd in
th~
idel)tiiicntion, seizure, nnd
f(>rli:itlll t: or proceeds Ilnd propp-rty nf Rueh crime; Gild
Col J
Ct'1I1dlld~ :lilt"!
implement cKlradilion lrc;nli\:J; 10 facilitate the eFficicnr I'fOsecutlC)I\ of
IU~(aJl ..AT01~Y
D.
D.I
ACTIONS
Only a cUJllprchel1~i ve nnli-mollr.y launderinG proirnm, including cffe~li yely enforced
laws, I'cglllnliot1J flnd policies,
will contribute tu the: prevenlion, inve~tigfll"ioJl nlld
pn)secuti('11 of rn'onc::y Jllunde"ill~ offenses nnd lhe icip.nrificalion. seizure, and forfeiture of
lhe
D.2
procccd~
of thc:~c olrcnses,
Finandnl inslitliliul'ls un~ their rc&;ulolory IlIU.i ,upervisory authorities should work
(ogethQr in nil effol·t tu I'l'tvcnt tilt; I,;rimc of money Inunriering and ~s818t competent
aUlhoritk., Iv apply adl11inisll'alive and crilllinallQn~tjon•. Finllnc;lal institutions.
Including non·hanle 111lallcill1 illstitutiollG. should report suspi\;iou, or unusunl
to cmnpelcnl llulhorili"!I.
C.nl1~cqucllt\y,
tron~acliClIIS
we f:1)(;ourage Slales which do nnt require such
rcpol'ting tn begin ~on5idcdn~ the adoption of such. llleRSures. Financial institutions
rcpor~ill~ sll~pjcious
or unu~lInl trarlS3clions should be insulotcd from Io:ivilliftbilily for
.,
reporting ill eno" faith. foinAnciG\ inslittlli()t1s should fUllnulutc llnd Implement
COlll1"l'chcm;i\lc I1m B/anls onuj&cllcml
SlIlri !IIrnlllle~ ,,~uinSll'\OC10Y
D.)
PI'UCOdllrelJ \0 c:n~un:
tomplhmcc wilh cJlistinl,t l(lw~
Inundcrins,
NUlllerolis <.lovernmcllls of the Hen'isphere haye: enoellld measUre:J for the recording
and/nr "CIX1I'ling of huge currenc), irnnsuI;tion3 and the inter llotiollKllraIlsportation 0 r
currency, bCl\I'cr in~lrumcnt~. un'" uther monetary inslrwnenls. including traveJer. c:heclc:e:.
hnnk
cJl'ulh, cushil:l"s checks ono ~iJ1lilllf in~lrumcmlg. Recognizing 1hot orill1inul~
~mugg'e their currency
I·Cl\llil"'.I)}('nllO. nil
,tnt! stich inlitrul1lenls from countl')' to C:Dulltry to c:vlldc these
Oovemmenl'1 sh~uld t:ol15idel' \:lIIl.ublishin~ nnd implementing
reGulnliolls !,")r the rt!con.ling allli/or reponing. to competent
nulhnriti~~
within jt, Dwn
c()ull(ry. (}f liI!"ge tnl/lsnc~iolls in currenc), find !luch in,tl'Urnellts snd the lron'portnlion of
!o;uch ClI\'I'Cl\cy :'Ind instrumenls m:ross nnliollol b(l(dcr"
D. ,.,
The l'cguln()fY anJ/"1 \lvcl"~igh\
rurmuhlle lIml implement
nllencies !lhould he vested with sufficient a~llhori\)' lo
ep.llt.rall1orll1~
:md pro,odures against the InuluJering of moncy,
(0 perform adequnte ovetJlighl nnd sup..,r ... i~iOl' of rUltlUt:ial in:nilulions a.nd, where
npl,licab)e. to im'po~ admini5lralive sam;liuns when an institution dop.~ not comply with
the nfurClln!lIti()JlCO rulcs an<.l proceclllreq.
I L~
J(r.pJ'f"Jl!ntolivus of ~O\lernl1lcnt, Inw cnlorccment lIud fill.neinl in~titulions shQJI
ollniY1.c, on (\ periodic bft5is. tm(j-money laundering norl"~J
nJld
shall evaluate
I!vulvill)l. technologlcs which mlly bl'! used ill JU()Iley l1'lundeJ'ini-, nnd :thall
formu~ale J't~r,(lll1me.'ndnli()I1Q
I).6
Oc,lverI1Ol~nt:J ~hnJl
SYlih.Jlls for
Jor action.
cvnh.mtc thl;;
LIse
of lhe domestic und inlemRlinnal funds trnn,rcr
money laundering derived from serious cl"jmtJ~. and in light of thllt
8
cvnluntiull. develop nl'lwnprifltc recoru kecploi requjrp.nlen\~ ft)f fil1ftHcinl instituliuns IIml
wire tmn~millcrs.
n.7
in order to implemenllhe arorcmelllioll&:~' DeLlons the GovernmentJ lhould. in aeeordnlll:c
with their ctmJlllilulion nncl domt.:slic lnws. adopt rules, hl.wc Rnd regulnlions lhut fl~
con~islcl\t
wilh the l.ll"ovisions anu reconmlendations ofth~ OAS/CICAD Model
RCklulutions.
ENFORCEMENT ACTIONS
E.l
()Illy lhro\l~h
the ftlll and errective enfol'cement of IHWS and regublti"lls can muncy
lnllndl~rin" ~c pr~vcn\cd
tr~fIicking alld ulh~r
Cl1fi.)IL;L!IllC\H
and I1wJt; ,JlIllishnblc. Dnct Ihe proceedl: from illicil drull
criminlll uclivili~s be seil.ed and forfeited. Thl: ~JTectivc
of law~ and regulaliolls rC(lllircs the ac~ul(\le sml timely idenlilkntiull of
pCl'son~, aCt~()l1l\t~.
nnu c{ll1lmerciallransar.;tiul1! related tnt. nnd property derived from.
illt)gal ncli vilie!:l. The: t:~lIeclion and nnnly!lis of such intormation in tllimely
r(l~hinll. a~
.".,ell D~ lh.: "ggre~~l"e l'UI'~mit of criminals, hlt ...~ rC8ullc:d in the di,ruplinl1 rtf r.rilllinnl
\lr.,:,ani7,.QljoI1S
an" the ~l'i2Ur(~ and rorreiturc of their trimillally derived properly. III ,m,lcr
to I',,'cilitalc thl'
I)lOI1I.l),
~l"\l"rcl3menl
()naws and rcgulenions de~iBI\r.d to prev"nt t\t\d
ll1ul)d~ril\g, UOY!;1I11rJCIIlS
will cousldf'.r laking the
flJllQwing
pCI\t\lj~
measulC:S,
to the
eJo:lcnt c.nmpnliblc: Wilh their I\l\liollnl legnl 6Y:llems:
E.2
Pmlllot~ the crealion
al\d nuthori1.O its
~ulhorilics.
u~e
of n notiolla\ !udeiwre fund to adl\\inistel' forfeited property
or ,,1\lI~u(i()n to :iUpport the progroms of Inw cnfor'clllcl"
sodnl ['wg.mll'" !luch 118 edu;ntion, crime pl-';'w'cntion al1d heAlth·
related pmgl'<m]l, or other pUrpO.!iC5 (\) iN: delermined by enr.h Government;
9
E. 3.
C:r;blblish til' dcsh:nlllc. in m:corclnncc with their resrcelivc reSOUlc,;;\!~ um\ abliities. n cen\er
in each country I(ll' (he collection, lInuIY!'i5, nnJ shndng Wilh tOln]lel.ent .-ulhol'ltics, all
I'ele:.wont inlol'llllllh'lll rcln(e~1 tu munc=y luundering to enSlIre effective enforc:ement (If ~(lch
country's Jnw~ lLncJ regulalions, Develop, preventative :;tralc:gi~5 nnd uu::lhounloiics lO
filothl this ~rime BIld, to lhlll end, creDLe intcructivc: &ruupJ lhaL brinK together (he public:
nnd ~rivnk !a~c(ors;
E.4
Aulh('l(ilics uf ..:nch country. under lenn9 of the Universal P')tltnJ Union
COl1ventions and in :ltcordance wilh jts legal systems. will lake (he mC:Mures
IWl~t:~S~H")' It) J.'r0V~nl
the uliliznliul\ o( poslal servjces fnr rh~ c.oJlllllission of
moncy Imllldering Orrell~~)i HI1(.1
E,~
f)Clllbli~h "rt)grum~
for the ex'hun~e and lillilling or law en(on:p.Iflr.lll of1icers,
including finnncial in5lilutl(lu 1lI1d non-bank finnncial institution regulntors, in
lInli-l1lon~,:y
laundering invesliSl1lions nnd procedures, In udditiuJI, establish
lraillin~ c()urs\;~s lill"
b:tnkcl·s. r~guhllor~ .. pulic~.
In i"'l)rovc Ihr.!il' knowJcd{;c
(If
plo~t!culors
and jl~dicinl nfIicials
JllOW:Y lnundcrlllg nnd the mcnlt~ to p..ev~l\l it
l'1l0GIU!SS £VALUATION
F, J
Ollly the 1i.11I nnd effective illlplel1lcntaliun uf eat.:h ~lep of 1.I1i~ coordinatod hemispherie
I'espouse eM gunrflnt~ its l!iUCCI:SS.
Accordingly. (Jovernments should prc:ss
ahc:~d
with
this Phlll uf AClion to achieve Ihe coordinated hemispheric re~pOllse tu 1ll(,.lIlCY laundering
mnnda\cd hy Ihe H~bds of Stale Dm1 Govel"ltlTIclll Qllhe Summit of the AmericRS.
FUI'lhcr, (;OYel'nlllent:t intend tv imHitme ~ngoing as!ie~~mC1\ts of the impleOlcIllnl;on or
lhis Plan of AClioll within the o,,~ frnmework.
10
DEPi\RTMENT
,
OF
THE
TREASURY
NEWS
omCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
Statement by President William J. Clinton
Summit of the Americas
Ministerial Conference on Money Laundering
December 2, 1995
RR-751
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040
THE W~IT' HOUSE
IY Til
,a••
IDaIt WZ'LIAX 31"IR.0I CL!.~O.
lUMMI! 0' ' I I IXZ21CA.
Kt.tIT •• laL OO.'la.ICI OJ MOWlY LaVWDaa!Ma
.TA~BMCN!
DIGIKI .. I, 1.1.
Today, Treasury '.cr.ta~y lubin, r.~re •• nt.tive. of the
of JUlt1ce and the D.p.r~.lnt or .tat., 'oined the
other nation. of thie beai.phere in 119ft1n, a h1Ito~1~ anti-money
launcSe:rj,nt cOUluftiqua. ,.1\11 aeccrd wlll milt. it .ore d1ffic\l1~
fer internaticnal orqaftll.~ crimi, incl~.ift. dru9 tralfiokAra to
p~oti~ from their ort.inal activit!...
a. I a~.~ed in ~r Adar •••
~o ~he Uftitad Nations General A••• mbly in oc~ob.rt ve muat .and ~
cl.ar and un~~bi9uOU. m••• a98 to the cartal. that prof1~ from
d~u, trafficking a"d o~h.r •• rioue cr1m••• you~ di~ty laund~y ia
no lon;ar welcome. You will no lon,er be able to w.ah the bloo~
ott p~otit. f~o. ~h • • ale of druq. fro. ~e~~Qr or from orianiz8d
erlme.. I have Ufged the nation. ot the wo~ld, and e.pec1ally
~ho.e ~n this hemi.phere, to b~1n9 th.ir banks and financial
.y.t.me into conformity ~ltft 1ft~.rn.tlon.l anti-.onoy launderinq
.taftdard.. This co~mun1q~. 1. an important acep 1n that
D8p.r~.ant
c1ir.f;~ion.
Tft. commun!qud .ffirm8 the oo•• it~.nt .ad. durin, the
1"4 Su.alt of A.arieal "ln1.~.~i.l 1n Hlami, 'lorida.
DUTiftq that conferenc., with U.'. l •• de~.h!p, ., ~.~la~.~ion of
Principl.s, lnclud1n, a .trat.,y for comba~tln9 ~h. p~gblc. ot
orqanile4 crime .n4 ftonay laund.r1n9, VI. a~opted by the ••.par
nations. The oomm~n1qua .pacifically direet. the .a~ber na~1on.
to enaet laws that .a~ •. tha llund.r1n; ot p~gce.4. fro. dru9.'and
other serious cr1~8. unlawful. It p.r~it. the .ei.ure of
proceed. and the .qult.~la .ha~in9 of thoae •••• t. by the
1nv•• t!qatinq na~ionl. In additiOn, 1~ allgw. for ~oop.rativ.
~.tho~. for report1n~ Buapiclou. bank .rane.ctlen., tftclUdinQ
Dece~ber,
.peclo1 eftOl"ta to
pr.ven~
a",d detact financial crime ...
A- 1 have .aid ~afty ~im •• , Afteriea wSll flqhe tne war on
dru.8 and eri~a Oft All fronta, both .~ hom. an4 abroad. Today,
w1~h our ne1qhbcrB in ~h. re;ion, Ya are takln~ an tmportan~ .tap
by t.~;etLft' ~he cartel_ aftd eriminal. vfto, until nov, have moved
vast .u~. of ill-Gotten vaina thrOY9h ~h. interna~ioftal f1naneia!
8y.t.m with .~.olut. !a,unlty. Finally, the na~1on. or th1.
homisphere are .taftdlnq a. en. tD .ay, "No mor •• "
RR-7S1
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OFPUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
A Letter by Tresury SecretalJ'Robert E. Rubin
to the Members of the Buenos Aries Jewish Community
De~ember 2, 1995
RR-752
For press releases. speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
OEPARTMENT OF THE TREASURY
WASHINGTON, D,C.
TO THE MEMBERS OF THE 8UIN05 Allt!S 3EWISH COMMUNITY:
Shabbat Shalom. While I am hera in this 9reat country, I fQsl it
i . important tor ~8 to vi.it th1_ me~orial and reflect on its
Biqniticanee to people around the world. I am particularly
pleased to do so just one day after w~ have seen·progrssD in
sOlv1n9 this crt.e.
This site, wh1ch once housed the Argent1na-l.raeli Mutual
Assoolation (AHIA), truly aymbolizsd ~.wisn l1re -- not only. in
Arqentina, but ~var.ywhere. It was a center of le~rninq, a~lace
of reflection an~ a focal point for ~he community. When
.
terrorists bombed the AMrA last year, they didn't merely .tr1k.
at a building -- ~hey attacxed a way 01 lite. This yea a
cowardly, horrible oct.
No aoo1aty is immune fl'om teZ"Z"ol'ism. Thi8 Wa.C' A lllA.on t.o the
American people when ~erro~1.t. bQmb8~ • qovernment ollice
buildi"~ in Oklahoma City this year. t went to Oklahoma ciey
after that traqedy. And that experiance helped me understend hov
painful, how profound and how tragic you~ 10.s is as I stand at.
th11 .itA ~cday.
I am proud that my count.ry 8too~ with you ee your time of loaR.
after the bombinq, agents of the Tr@8sury Dapartmentte
Bureau of Alcohol, Tobaceo ~U',d Firearms were on the scene
a •• i8ting in the. invest1qat!on. They returnod from Buenos Aires
overwhelmea by the devQstation. But th~y were uplifted by the
spirit of thQ 3ewish community wh1ch turned o~t in ~ultitudea to
VOltlnteer at the bomb site, removin9 debris and ~Aving thousands
of bOOKS from the beautiful library.
~hortlY
In just t.wo weeks, the holiday of Hanukkah will hagin. At. this
joyous time, there should be a rp.dedicat1on to rebuildin9 the
AMIA, And finally brlnq1nq to Justice all of the perpetrAtors or
th1. horrible cri~ •• R.oon.~ruction and ~u.t.10. ~111 be the most
fitting tributAR. to ~he memoria. ot tho •• who p.riahad h.ra, and
a last.in; monument to the dedication of tho •• ~h8y 18f~ behind.
Sincerely,
Robert E. Rubin
RR-752
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
December 4, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $14,025 million of 13-week bills to be issued
December 7, 1995 and to mature March 7, 1996 were
accepted today (CUSIP: 912794X58).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.27%
5.29%
5.29%
Investment
Rate
5.43%
5.45%
5.45%
Price
98.668
98.663
98.663
Tenders at the high discount rate were allotted 70%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.28
RR-753
98.665
Received
$51,936,369
Accegted
$14,025,069
$47,096,865
1,494,449
$48,591,314
$9,185,565
1,494,449
$10,680,014
3,252,955
3,252,955
92,100
$51,936,369
92,100
$14,025,069
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239
FOR IMMEDIATE RELEASE
December 4, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26 -WEEK BILLS
Tenders for $14,020 million of 26-week bills to be issued
December 7, 1995 and to mature June 6, 1996 were
accepted today (CUSIP: 912794Z23)
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.17%
5.19%
5.19%
Investment
Rate
5.40%
5.42%
5.42%
Price
97.386
97.376
97.376
Tenders at the high discount rate were allotted 43%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$46,987,136
Accepted
$14,020,376
$40,660,875
1.274.061
$41,934,936
$7,694,115
1.274.061
$8,968,176
3,600,000
3,600,000
1.452.200
$46,987,136
1,452.200
$14,020,376
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.18 - 97.381
RR-754
DEPARTMENT
OF
THE
TREASURY
NEWS
'IREASURY
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C•• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
December 5, 1995
STATEMENT OF MOZELLE W. THOMPSON
DEPUTY ASSISTANT SECRETARY OF THE TREASURY
GOVERNMENT FINANCIAL POLICY
BEFORE THE
HOUSE COMMITTEE ON TRANSPORTATION AND
INFRASTRUCTURE
SUBCOMMITTEE ON WATER RESOURCES AND ENVIRONMENT
RR-755
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
1
Chairman Boehlert, Congressman Borski, and distinguished members of the
subcommittee, 1 appreciate this opportunity to appear before you to discuss an important
issue affecting the long-term economic health of the nation, the need for a
comprehensive and fiscally sound approach to natural disasters.
We commend the subcommittee, under your leadership, Mr. Chairman and
Congressman Borski, for addressing this issue. Within the Administration, we have
closely followed the subcommittee's efforts in developing the National Disaster
Partnership Act, H.R. 1856. As you know, Secretary Rubin recently expressed our
concern regarding certain aspects of the legislation. Nevertheless, there is common
ground between the Administration and the Congress on the importance of reducing
societal losses from disasters, improving the nation's ability to handle the losses that do
occur, and rationalizing the federal response to natural disasters. We all recognize the
magnitude of the costs associated with disasters in recent years and share concerns about
the current problem in the private insurance industry in providing affordable disaster
insurance in communities across the nation.
The Clinton administration has also taken a long, hard look at how the federal
government, together with the states, localities and private sector, can assist Americans
and their communities to withstand natural disasters and their aftermath. We recognize
the difficult choices that need to be made and the limited resources available for
developing a fiscally sound policy for natural disasters -- including mitigation efforts,
insurance, and post-disaster needs. On February 16, 1995, the Administration forwarded
to the Congress a comprehensive set of proposals on disaster assistance and disasterrelated insurance. (I have attached the Administration's proposals to my written
testimony submitted to the subcommittee.)
With the recognition of the problems facing American communities, we believe
there is an opportunity to work together to establish a federal policy on natural disasters.
My colleague from FEMA has already addressed aspects of H.R. 1856 relating to
mitigation and post-disaster efforts. I would like to comment on disaster insurance
needs. To this end, 1 will discuss:
(1) problems that need to be addressed regarding natural disaster insurance;
(2) principles that provide a solid foundation for a government response;
(3) some of our concerns with the approach of H.R. 1856; and,
(4) recommendations for a common solution that will address many of the
national needs for natural disaster insurance.
2
PROBLEMS THAT MUST BE ADDRESSED
The private insurance market plays a major role in providing financi~ protection
to those living in disaster prone areas. Insurers have paid out over $35 billion since
September 1989 for claims arising from major disasters. Equally important is the role
insurance companies play in providing incentives to take action to prevent or reduce
damage. In well-functioning markets, insurance premiums should fully reflect expected
losses and provide home owners with discounts for undertaking actions to mitigate
against future losses~ Home buyers who understood their exposure would take these
costs into account when deciding whether to insure or accept these risks and when
deciding where to locate. Builders would also take homeowners' decisions into account
in electing where and how to build.
I believe there is growing recognition that the insurance market for natural
disaster insurance for homeowners is not functioning well. Losses incurred by primary
insurers and by reinsurers in recent disasters have been substantially higher than
expected. This has led insurers to recognize the scope of their exposure and attempt to
raise premiums significantly, or, failing that, to restrict coverage or pull out of markets by
refusing to write new policies or to renew existing policies.
It is clear that the current crisis in natural disaster insurance coverage is the result
of several inter-related factors. Problems of insurance availability and affordability occur
because of the mismatch between the perceptions of risk by insurance companies and
those by consumers. Insurance availability concerns tend to occur when insurers cannot
raise rates sufficiently to cover expected losses. Consumers, however, tend to
underestimate the likelihood of major disasters. State regulators balance consumers'
demand for low rates against insurers' demands for higher rates to cover expected costs;
state regulators are also concerned with protecting insurance companies and state
taxpayers against insurer insolvency. A separate factor is that real estate markets do not
reflect expected disaster damage adequately in pricing and land use decisions. Finally
there is the rapid development of high hazard areas within the United States. Another
factor is the apparently widespread expectation of federal government assistance in the
aftermath of a major disaster.
PRINCIPLES TO SHAPE A FEDERAL RESPONSE
On its face, H.R. 1856 appears to share many of the principles laid out by the
Administration in discussing a national approach to natural disasters. Both recognize
that any solution must reflect federal budget constraints, as well as work within the
established framework of the private insurance industry. Furthermore, both approaches
acknowledge that current premiums cannot sustain the levels of insurance coverage
currently being provided in high-risk areas. In addition to these basic principles, we
believe that a responsible approach should also meet the follOwing criteria:
3
•
initiatives increasing the liability or responsibility of the federal government
should explicitly define and bound that liability;
•
initiatives that can be implemented in the private sector and without 'a large
federal bureaucracy are preferred -- large, new federal programs should be
avoided;
•
insurance programs should not result in a federal guarantee of solvency without
regulatory authority or in the separation of rate-setting from solvency regulatory
authority; and
•
initiatives should maintain the flexibility of the federal government to spend funds
where most appropriate under particular circumstances of a truly catastrophic
event which traditional disaster response mechanisms, including the private
insurance system, are not designed to handle.
There is an array of possible approaches that are consistent with these guidelines.
We. are interested in recommending changes to H.R. 1856, as it does contain a number
of worthwhile provisions. However, there are a substantial number of items within H.R
1856 that conflict with basic principles that we believe should shape a federal response.
CONCERNS WITH mE APPROACH OF H.R. 1856
Our principal concerns with H.R. 1856 rest with the proposed new Natural
Disaster Insurance Corporation (NDIC) as a solution for disaster-related primary
insurance and reinsurance. We are the first to commend the active involvement of the
private sector. However, this bill would grant monopolistic powers to a corporation
controlled by industry members without any independent oversight and would require
homeowners to purchase the NDIC's disaster insurance (or the equivalent). The
combination of monopolistic powers backed by federal borrowing authority with a
federal mandate for the purchase of insurance coverage will crowd out private reinsurers
and place consumers at a substantial disadvantage. We also have concerns about the
financial viability of the NDIC and believe the proposed structure opens the federal
government to substantial and unlimited liability.
Some problems with the NDIC are:
1.
Establishing the NDIC with ability to borrow from the federal government would
expand the government's liabilities without explicit bounds. H.R. 1856 states that the
federal government would not provide a subsidy for NDIC bqrrowing and would not be
at risk of nonpayment. The legislation provides that the terms under which the NDIC
borrows from the federal government must ensure repayment within twenty years and be
at interest rate that does not result in a federal subsidy.
4
Unfortunately, the intent to shield the federal government from liability will not
be realized under this structure. A serious flaw is that the bill provides insurance
protection to the NDIC in the form of a debt instrument after the occurren~e of a major
disaster. This feature runs counter to sound insurance principles that direct the
prefunding of contingent liabilities. As a result, the federal government and the taxpayer
will be responsible for paying off what is likely to be a very large amount of unfunded
insurance losses. H.R. 1856 states that the federal government will provide a loan to the
NDIC after the occurrence of a major disaster and then collect loan payments over a
period of twenty years. Prior to approaching the federal government, NDIC must
exhaust other avenues of funding the insurance claims which are in excess of its reserves.
With greater actual liabilities after the occurrence of a major disaster, the NDIC would
have negative equity and would be insolvent - clearly a credit-risky borrower.
As H.R. 1856 directs the federal loan to be at an unsubsidized rate, the debt
financing to such a poor credit risk would be very expensive. After providing the longterm debt financing, the federal government would stand in a position very similar to an
equity holder in the corporation, encouraging the NDIC to continue to operate and
collect future premiums in order to repay its obligations to the federal government.
NDIC premiums would probably be extremely high as they would need to support both
the repayment of the loan and the estimated costs of future disasters. Such rates might
well lead to the collapse of the corporation and the default on the federal loan. Further,
even if the initial federal loans to the NDIC were priced to meet the criteria imposed by
legislation, a proximate occurrence of another large disaster would overwhelm the
corporation's ability to borrow from the private sector or from the federal government
under the required terms, resulting in a default by NDIC on its federal obligations.
2.
The NDIC would effectively be a monopoly and a creature of the insurance
industry. The NDICs access to the government's virtually uDJirnited liquidity will give it
a unique capacity to issue homeowner disaster insurance. Indeed, the entire rationale of
H.R. 1856 in creating the NDIC is to address the lack of financial reserves of the largest
companies in the insurance industry, allowing them to issue homeowner disaster
insurance to the extent of their current market share of traditional homeowner insurance.
Moreover, the legislation would create a mandate for all homeowners with federallyrelated mortgages to purchase such insurance.
The NDIC would have exclusive power to set rates, as well as policy terms and
conditions, and would escape traditional rate-setting and solvency regulatory authority.
The Corporation will be controlled by private insurers -- nine of the fifteen NDIC board
members will represent insurance companies; they will effectively set insurance rates for
the industry. Although H.R. 1856 would establish a private board of actuaries to review
rates, this would be entirely ineffective as a brake on anti-competitive behavior. The
legislation would allow the board of actuaries only to disapprove the plan of operation as
a whole, and then only against a difficult standard of it being "materially inconsistent
with the provisions" of H.R. 1856. Further, the board of actuaries could only disapprove
5
rates in situations where "compelling and substantial actuarial evidence is presented on
the record that the rates or methodologies are materially inconsistent with the actuarial
soundness requirement."
Consumers would have little recourse in dealing with the NDIC. Most consumers
would have few options for obtaining disaster insurance satisfying the purchase mandate
other than the NDIC program and then would lack most of the institutional protections
from anti-competitive or corrupt behavior that are provided by current law. H.R. 1856
would preempt state regulatory authority over rate approval and claims settlement
procedures for disaster insurance, at the same time it would relieve the NDIC from any
liability under federal or state law.
3.
The NDIC would significantly distort private reinsurance markets by crowding out
private reinsurers. The NDIC would enjoy funding advantages over private reinsurance
firms and private investors in the catastrophe market that could enable the NDIC to
crowd out private participants. First, the NDIC can "piggy-back" its reinsurance coverage
on primary insurance policies for participating insurers. Secondly, the NDIC would have
an automatic link to the liquidity of the federal government through the federal loan
back-stop provision. Finally, the federal loan would provide a strong impression that the
federal government stands behind the continued operation of the NDIC, which could
result -- as in the case of. other government sponsored enterprises - in a lower liquidity
and default premium on NDIC-issued debt. All of these factors would help lower the
cost of funds for the NDIC in the private market below the funding costs of other
reinsurance companies.
4.
The NDIC would inappropriately bailout private insurance companies in the
absence of major disasters. H.R. 1856 would protect an individual company when its
losses are in excess of 20 percent of its surplus regardless of whether a major disaster has
hit the entire industry. In effect, individual companies could be rescued from poor
decision-making on their part.
AN ALTERNATIVE APPROACH FOR NATURAL DISASTER INSURANCE
We believe there is an alternative structure that will accomplish the critical goals
of increasing the capacity of the private insurance industry to issue primary disaster
insurance, as well as the capacity of the private reinsurance industry to provide coverage
for major disasters.
A.
Primary Insurance
Rather than establishing a corporation that will issue primary disaster insurance,
we suggest working with companies, regulators and consumers to develop a phased-in
required policy for one-to-four family residential dwellings with mortgages issued or
owned by federally-related lenders and secondary market entities. States would regulate
6
the terms and pricing of the required policies. Coverage of mortgages on new
constructions could be required one year after enactment of legislation; on all new
purchase money mortgages, four years after enactment; and, on all new mo~gages, seven
years after enacnnent. In this manner, the capacity of the private sector would be given
time to build to cover the expanding demand for primary disaster insurance.
B.
Reinsurance
We believe that one of the main reasons for the falloff in availability of primary
disaster insurance coverage is the unavailability of reinsurance to cover the losses of
insurance companies in circumstances where total industry losses from a single disaster
are in excess of $25 billion. The private reinsurance industry is reluctant to provide this
coverage in part because of the uncertainty in setting reinsurance premiums for
catastrophic events of such magnitude and in part because of the amount of capital and
liquidity needed to support the coverage. As a result, private reinsurers offer coverage,
if at all, only· at premiums set high enough to compensate for the risk of insolvency
associated with especially large disasters, making private reinsurance for such events
prohibitively costly. If the federal government were to encourage an expansion of the
supply of catastrophe reinsurance, the private insurance industry would acquire greater
capacity to write primary disaster insurance.
To complement and support the expansion of all-hazards insurance, we
recommend that the subcommittee consider the value of adopting an excess-of-loss
program to provide a specific and limited layer of reinsurance-type coverage that is
flexible and improves the distribution of loss protection across industry participants. We
have spent a considerable amount of time developing this model, and have received
favorable comments from members of the insurance and reinsurance industries.
The excess-of-Ioss program would rely on the structural advantage of the federal
government: Its llnlimited liquidity and ability to spread large losses over time,
permitting the program to offer unsubsidized catastrophic coverage at rates that are
currently below those the private reinsurance industry could charge for coverage that
involves a serious insolvency risk. We contemplate that this type of program would
include certain protections, such as a trigger, cost-of capital adjustment, and scheduled
sunset, to ensure that it would not crowd out the private reinsurance industry.
This approach is not intended to be the unlimited guarantor of insurance industry
solvency contemplated under H.R. 1856. Rather, it permits the federal government to
backstop the industry in a crucial segment of the disaster insurance, without requiring
subsidy and in a manner limiting government liability. The excess-of-Ioss contracts also
avoid the problems of moral hazard and adverse selection that are common in creating
federal financial backstops for financial institutions, problems that we recognize as
manifest in the S&L bailout.
7
We believe that the excess-of-Ioss approach more effectively complements the
existing insurance and reinsurance industries and the system of state insurance
regulation, while boosting the private sector's ability to meet the financial claims
resulting from a disaster without the need for a taxpayer bailout. Additiomilly, the
approach more evenly distributes the benefits of additional federal reinsurance
protection to policyholders, whereas the monopolistic NDIC plan allocates a large
.
portion of the benefits to the equity holders of the largest insurance firms.
Under the excess-of-Ioss approach, the federal government would annually auction
federal excess-of-Ioss contracts to cover a portion of - initially - the $25 to $50 billion
layer of insured commercial and individual losses arising from a single natural disaster.
The contracts would be priced based on, and offer a payout triggered by, total industrywide insured losses, not losses incurred by a single company or policyholder. For
example, assuming that each contract paid $1 million for every $1 billion of total
insurance industry losses that exceed $25 billion (and below $50 billion), a contract
holder would be paid up to $5 million for actual losses in the event of a disaster
generating $30 billion of total insurance industry losses. Eligible buyers would consists of
insurers, reinsurers, state insurance and reinsurance pools, regional insurance and
reinsurance pools, and a privately-established and capitalized national pool. The
program would be fully funded by setting an auction reserve price consisting of a riskbased price plus a cost-of-capital adjustment. Based on this structure, there would be no
federal subsidy and no adverse budget scoring impact.
To fund losses, the federal government would place in a reserve fund the riskbased part of the excess-of-Ioss contracts. The cost-of-capital portion would be placed in
a pre-disaster mitigation fund to be used to provide assistance, including training, to
communities concerning building code adoption and enforcement. Half the proceeds
from sales in excess of the reserve price would also be transferred to the mitigation fund,
and the remaining half would be retained in the loss reserve fund.
Contracts would be fully transferrable and divisible (before and after a natural
disaster), which would enable smaller companies and those who suffered losses but had
not purchased contracts to benefit. The contracts would be automatically renewable for
a pro rata premium for the remainder of the contract year if a disaster requiring a
payout occurred. The maximum recovery on any contract would be the amount of loss
incurred by the claimant, up to the contract amount. To ensure that the federal
government would withdraw its presence as the private sector expands its ability to cover
large-scale disasters, the Secretary of the Treasury could increase the trigger and cap
levels for the contracts and the program would phase out over a five-year period,
beginning in year fifteen.
*
*
*
8
In conclusio~ Treasury supports this subcommittee's efforts to address critical
problems associated with natural disasters. We strongly believe that any legislative
solution be integrated and comprehensive. I believe that by combining our efforts, such
a result should be obtainable. We would look forward to working with the Congress to
produce an effective piece of legislation.
Thank you Mr. Chairman and members of the subcommittee.
Administration Policy Paper
Natural Disaster Insurance
and Related Issues
Over the past five years there has been growing concern that the costs of natural
disasters - in terms of lives lost, property damaged, and economic dislocation are simply too high, both to society as a whole and to the federal government. We
have made substantial improvements in preparedness and loss prevention, which
have clearly saved lives. Nevertheless, property losses and federal outlays are
increasing, and the frequencies of hurricanes, earthquakes, and other major
disasters appear to be undergoing at least a cyclical increase. Federal disaster
assistance and insurance industry payments resulting from seven major disasters
since Hurricane Hugo in September 1989 have totalled over $67 billion. The
federal government has spent almost $34 billion for emergency assistance and
rebuilding after major disasters, including $9.5 billion in 1992 for Hurricanes
Andrew and Iniki and Typhoon Omar, $7.3 billion in 1993 for the Midwest floods,
and $12 billion in 1994 for the Northridge earthquakE[!.
We have submitted for congressional consideration a request for a supplemental
appropriation for the funds required to respond fully to the needs of the citizens
and communities affected by the Northridge earthquake and other disasters.
During the past two years the Administration, working with the Congress, has been
able to answer effectively the needs of individual communities affected by natural
disasters. During this past year, we have also begun developing a set of integrated
initiatives that would begin to reduce the direct and indirect societal and federal
costs of such events. In developing these initiatives, we have consulted with
interested parties and have laarned from ideas and proposals put forth in Congress
and by others.
The Administration's proposed initiatives, which are described below, result from
these discussions and studies. They reflect an increasing consensus that individual
and community responsibility in planning for, moderating the consequences of, and
responding to a disaster are critical: except to the extent it has unique capabilities
and responsibilities for the national well-being, the federal government cannot and
should not be expected, whether through direct assistance or a public insurance
program, to take on more of this responsibility. The initiatives are designed to be
internally self-funding and not to have any adverse budget scoring impact. We
look forward to taking up with you the issues reflected in these initiatives as soon
as possible.
Statement of the Problem
The federal government plays an important role in handling natural disasters,
providing early warning, emergency assistance, and resources to help long-term
recovery. But the federal government is only one of a complex set of interlocking
-2institutions the nation utilizes for dealing with natural disasters. Individuals and
businesses use commercial insurance and self-insurance to protect against financial
losses and use damage prevention or loss mitigation techniques to reduce the
frequency and extent of damage. State and local governments play critical roles
through land use controls and adoption and enforcement of building codes, and by
regulating insurance markets. State and local governments are also the first line of
action for post-disaster response and recovery. These institutions and the incentives they create are highly interdependent.
Private insurance has played an especially important role in providing financial
protection to those living in disaster-prone areas, furnishing victims with rebuilding
assistance and paying for emergency living expenses and reducing income losses in
the event of a disaster. Private insurers have paid out over $33 billion since
September 1989 for claims arising from major disasters, including $21.3 billion for
hurricanes and typhoons, and $11.4 billion for earthquakes.
Equally important is the role insurance can play in providing an incentive to mitigate
losses, that is, to take actions to prevent or reduce damage, particularly before an
event.. In well-functioning markets, insurance costs should reflect expected
damage from hurricanes, earthquakes, or other natural disasters. Buyers should
take these costs into account in determining whether or not to accept the risk of
damage (e.g., in deciding where to buy property) as well as in assessing the degree
to which they desire additional financial protection through insurance. Builders
should take expected damage into account in deciding where and how to build.
The evidence indicates that these markets are not functioning well. This is
especially true with respect to natural disaster insurance for homeowners. Losses
incurred by primary insurers and by reinsurers in recent disasters have, for a variety
of reasons, been substantially higher than expected. This has led insurers to
attempt to raise premiums Significantly, or, failing that, to restrict coverage (for
example, to exclude wind damage from standard homeowners' policies along the
Florida and Texas coasts) or pull out of markets by refusing to write new pOlicies or
to renew existing policies. In some areas, catastrophic coverage for homeowners
is available only because of state intervention, on a non-competitive basis through
state-operated risk pools. The market for natural disaster reinsurance contracted
significantly after Hurricane Andrew, and some believe this market has still not
recovered fully.
Problems of insurance availability and atfordability Occur because of a mismatch
between the perceptions of risk by insurance companies, on the one hand, and of
insurance consumers, on the other. Problems of availability tend to occur when
insurers are unable to raise rates sufficiently to cover expected losses. Natural
disasters occur infrequently, so estimates of risk tend to be highly uncertain, and
-3 each new catastrophe conveys a great deal of new information. The hurricanes
and earthquakes of recent years indicate that disaster risks (expected losses) are
greater than previously believed, leading insurers to try to raise rates. Consumers,
however, tend to be slow to revise their perceptions of risk in the aftermath of a
disaster, and it is welf documented that individuals systematically underestimate
the likelihood of major disasters. Consumers also tend to underestimate losses
they will incur in the event of a disaster, in part because of inaccurate expectations
about the extent of Federal disaster assistance. State insurance regulators must
balance consumer demand for low rates against requests by companies for rates
they believe are needed to maintain solvency and profitability and thus a willingness to write coverage.
Other evidence suggests that real estate markets also do not reflect expected
disaster damage adequately in priCing and land use decisions. One such indication
is that development continues to be rapid in high hazard areas of the country. By
one estimate, insured coastal property values in the United States have increased
69 percent since 1988. This development is reflected in the rising cost of actual
and potential major disasters.
The current structure of non-emergency federal assistance also has characteristics
that interfere with the degree to which real estate and insurance markets reflect
the costs of natural disasters. The expectation of Federal assistance, while
reassuring to potential disaster victims, can also be a factor in consumers' decisions about purchasing insurance, locating prudently, and building protectively.
State and local governments have similar disincentives, since a large share of
federal recovery assistance takes the form of grants with limited matching requirements. In addition, the Federal government spends relatively little to encourage
states, local governments, and the private sector to avoid damage through loss
mitigation. Federal mitigation assistance is largely available only after a disaster.
In the 103rd Congress, both the House and Senate formed bi-partisan task forces
to report on ways to deal with this issue; the House task force issued its report on
December 14, 1994. In addition, the House Public Works Committee favorably
reported H.R.2873, the Natural Disaster Protection Partnership Act of 1994, which
aims to reduc~ federal disaster expenses through a program of loss mitigation,
private primary insurance and a federal backstop for natural disaster reinsurance.
On February 3, 1995, proposed legislation was introduced in the 104th Congress
that would make major changes in the manner in which the federal government
assists states after a disaster.
The combination of economic dislocation from recent disasters, high federal and
private costs, and difficulties in the markets for private insurance against catastrophes creates an important opportunity for the federal government to shape a
-4-
program to change the way individuals and communities evaluate and protect
themselves against the risk of natural disaster. By dealing with the entire
interconnected system - loss-mitigation, primary insurance, reinsurance and nonemergency post-disaster assistance - we can both reduce societal and federal
1
costs and increase the physical and financial security of all Americans.
Objectives and Principles
Any federal initiative to deal comprehensively with natural disaster losses should:
•
Reduce total societal costs of catastrophic natural events;
•
Reduce total long-term federal costs of dealing with such events;
•
Increase personal financial security in the aftermath of a disaster; and
•
Increase the extent to which costs of risk of a disaster are maintained within
the private sector, thereby creating incentives to moderate losses from
disasters.
Any initiative should also aim to:
•
Increase cost-effective mitigation actions to reduce losses;
•
Increase the effectiveness of private insurance and reinsurance markets for
catastrophic coverage; and
•
Use post-disaster relief programs to encourage pre-disaster loss prevention.
At the same time, current budgetary constraints, a preference for dealing with
state and local problems primarily through government institutions at those levels,
and experience with federal insurance programs, particularly those insuring financial institutions that are regulated at the state level, suggest several other principles:
These initiatives deal with natural hazards other than flood. The federal flood
insurance program has recently been substantially revised and improved following
many years of discussion. The Administration recommends that no further
changes be made in that program now. However, the proposed evaluation of these
initiatives after five years should include an evaluation of the extent to which
planning and response including insurance programs for all natural
hazards should be integrated and, potentially, conformed.
1
-5•
Any initiative establishing a program increasing the liability or responsibility
of the federal government should explicitly define and bound that liability;
•
An initiative that can be implemented in the private sector and without a
large federal bureaucracy is preferred - large, new federal programs should
be avoided;
•
Any insurance program should not result in either a guarantee of solvency by
a government without regulatory authority or the separation of rate-setting
from solvency regulatory authority; and
•
Any initiative should maintain the flexibility of the federal government to
spend funds where most appropriate under the particular circumstances of a
truly catastrophic event that traditional disaster response mechanisms,
including the private insurance system, are not designed to handle.
Proposal Summary
Based on these objectives and principles, the Administration recommends an
·initiative consisting of eleven elements, in five major areas -loss prevention,
compensation for losses, supplementary federal protection for catastrophic losses,
federal assistance after a disaster and program evaluation. The recommended
elements are:
Loss prevention.:
•
Starting two years after enactment, condition direct federal assistance to a
community or its citizens for building acquisition or construction or real
property acquisition for building construction on adoption and enforcement
by the community of consensus-based building codes that include life-safety
standards for wind and seismic risk for new construction and for substantial
improvements to buildings.
•
Establish a voluntary program, funded by unexpended disaster relief funds,
for cost-effective rehabilitation of public buildings used for critical functions
in high risk areas.
•
In consultation with relevant parties outside the federal government, develop
recommended performance guidelines for maintenance of operation of
essential public facilities following a natural disaster.
- 6•
Ensure dissemination of all disaster research and develo~ment results in a
form and manner useful to the insurance community, including companies,
regulators, and others, as well as to other state and local government
bodies; enhance federal research into wind risk.
Compensation for losses:
•
Beginning one year after enactment, require that all mortgages issued or
owned by federally-related entities on newly constructed one-to-four family
dwellings carry insurance that covers all natural hazards (except flood),
including in particular earthquake shake and wind damage. Extend this
requirement to all new purchase-money mortgages four years after enactment, and to all new mortgages (including refinances) seven years after
enactment.
•
Work with the National Association of Insurance Commissioners, the states
and other interested parties to encourage private insurers to extend additional living expense coverage to situations in which homes are uninhabitable
due to natural disasters for which property damage is not covered by the
policy.
Supplementary federal protection for catastrophic losses:
•
Establish a program in which the Treasury would auction to insurers,
reinsurers, and state, regional and national pools excess-of-Ioss contracts
that would payout based on total industry losses of between $25 and $50
billion from a single natural disaster.
Federal assistance after a disaster:
•
Make FEMA individual and family grants available only to households with
pre-disaster annual income of less than $100,000 and limit temporary
housing assistance to 12 months.
•
Establish statutory maximum federal cost shares for FEMA public assistance,
with the share dependent on (i) the size of the disaster loss and (ii) whether
the state and community have implemented appropriate mitigation procedures. Require $5 per capita insurance or self-insurance coverage by states
of public facilities.
•
Set the interest rate on all SBA disaster loans at the Treasury rate plus 200
basis points, eliminating the subsidy to the loan program.
-7Evaluation:
•
Require an evaluation, five years after enactment, of the efficacy of these
initiatives in reducing both societal and federal costs of natural disasters and
meeting the other stated goals.
Loss prevention or mitigation·
Loss prevention or mitigation refers to actions taken to reduce probable losses from
a natural disaster, including land use planning, construction practices, building
codes (which affect new or substantially rebuilt structures), and rehabilitation of
existing structures to improve their ability to withstand natural hazards. There are
many cost-effective mitigation measures, particularly for new buildings. Today's
model building codes contain seismic life-safety standards 2 substantially equivalent
to those developed by the National Earthquake Hazard Reduction Program (NEHRP).
The codes also contain significant wind-hazard safety requirements.
The substantial increase in property losses from natural disasters over the past ten
years has resulted in part from a larger number of major disasters. However, it is
also. the result of increased development in high-risk areas, often in a manner not
designed to withstand risks likely to arise in the area during the useful life of the
building. In the long run, improving the location and design of new buildings and,
where cost-effective, rehabilitating critical public structures, will moderate the
increase in disaster losses.
Loss prevention
1. Condition federal building assistance on adoption and enforcement of
consensus-based building codes. Direct federal financial assistance3 for any type
of building acquisition or construction or real property acquisition for building
Seismic life-safety standards are building standards that, with a 90
percent probability, prevent loss of life in an event likely to take place in 50 years
(i.e., a .002 chance of loss in any year). Wind life-safety standards in current
codes protect against a .02 chance of loss in any year. Thus, less protection is
required in a low-risk area than in a high-risk one. Such standards also protect
against property damage, particularly in less severe events. Building codes
containing seismic and wind life safety standards also include standards for fire
safety.
2
Under a similar condition in the Federal Flood Insurance Program, federal
financial assistance is defined to include FHA and VA mortgage guarantees, but not
the services of federally-regulated lenders or secondary market agencies.
3
- 8construction would be conditioned, starting two years after enactment, on a
community's adoption and enforcement of building codes and standards that
provide for life safety in all new or substantially reconstructed buildings. 4 Communities that did not adopt and enforce these standards would also be subject to a
less favorable cost-share on post-disaster assistance for repairs to public buildings
and infrastructure. A limited amount of funding for training would be provided
through certain proceeds of auctions of excess-of-Ioss contracts (see below).
Discussion: Adoption of this requirement would encourage states, communities and individuals to take actions to reduce probable losses from disasters, and
reduce federal disaster expenditures over time. Both federal building assistance
and federal disaster assistance are payments from the federal government to states
and localities. This requirement will help ensure that federal funds are directed to
locations where such funds will be effectively used over the long-term. Conditioning availability of federal funds for building and real property acquisition and
construction on adoption and enforcement of consensus-developed building codes
that contain life-safety standards would be a logical extension of the provisions of
Executive Order 12699, which requires that buildings constructed or acquired with
federal funds meet seismic life-safety standards, and of the flood insurance
program. Many communities in high risk areas, particularly in California, already
have adopted and enforce model building codes that meet seismic life-safety
guidelines. While adoption and enforcement of effective building codes is most
effective to quickly increase disaster resistance and reduce costs in new communities, construction and major building improvements - and thus opportunities for
substantial loss prevention - continue in all parts of the country.
Ensuring that federal funding is provided to communities that take actions to
reduce local and federal disaster expenditures can take several forms. To minimize
the need for a federal bureaucracy and to reduce federal interference in what has
traditionally been a state function, FEMA would generally be willing to accept state
certification of the adoption and enforcement of codes with the appropriate
standards. Eventually, as the insurance industry completes its project to add
community ratings of building code adoption and enforcement to its existing fire
ratings, both states and the federal government could increase reliance on the
private sector.
4 FEMA would be responsible for issuing recommended minimum performance
guidelines for buildings for wind and seismic risk based on a consensus process
similar to that currently administered under auspices of NEHRP. Jurisdictions could
adopt and enforce any building code that meets or exceeds these guidelines.
FEMA would identify those model codes or standards that contain proviSions
substantially equivalent to the guidelines.
-92. Establish fund for rehabilitation of critical public buildings, before a
disaster, to retain functionality during and after a disaster. Stafford Act section
404 post-disaster mitigation funds that are not expended 18 months after appropriation would be used to establish a fund to offer state and local jurisdictions
incentives for and support of pre-disaster identification, prioritization and seismic or
wind rehabilitation of public buildings that are used for critical functions and are
vulnerable to major seismic or wind hazards. Funds would be available on a 75
percent federal and 25 percent state/local cost share basis.
Discussion: Rehabilitation of selected critical public facilities (such as
hospitals, police and fire stations and schools) in high risk zones to maintain their
utility during and after a disaster can generate savings in lives and property damage
as well as in federal disaster assistance. However, such rehabilitation can be
expensive. A voluntary program that encourages communities to identify critical
facilities in high risk areas and evaluate cost-effective retrofit can enable communities to better understand what is feasible, and take action accordingly. This
program would also begin to enable communities to take actions to reduce the
consequences of a natural disaster before such a disaster occurs. It would be
funded by making unexpended post-disaster mitigation funds available, on a
prioritized basis, nationwide.
3. Develop recommended performance guidelines for critical facilities. In
consultation with relevant parties outside the federal government, develop performance guidelines for maintenance of functions and operations of essential public
facilities following a natural disaster.
Discussion: While adoption and enforcement of building codes with life-'
safety standards is critical to reducing both loss of life and property damage from
natural disasters, such standards do not ensure that critical facilities such as hospitals and fire stations will continue to operate during and after a disaster. Guidelines for designing and retrofitting for continued functionality after a natural
disaster are fairly well-developed for some types of structures, such as bridges.
Further development of such guidelines for buildings, and their implementation,
could significantly reduce community disruption and post-disaster expenses. It is
likely such guidelines could be developed by the year 2000. At that time, granting
of federal building assistance could be further conditioned on their adoption and
enforcement.
4. Expansion of information dissemination and evaluation of wind hazard
research expansion. Expand the dissemination of research and development results
for all hazard types in useful forms and manners to state and local governments,
including insurance regulatory officials, and the private sector, including the
- 10-
insurance industry. As part of the Administration's ongoing evaluation of the multiagency NEHRP, give serious consideration to increased wind hazard research,
particularly that related to potential building construction guidelines.
Discussion: This part of the program recommendation would make available
both wind and seismic research useful to the insurance industry - including both
the companies and the regulators - for rate setting and mitigation discount assessments. Moreover, integration of federal wind research and building construction
and rehabilitation guidelines development has seriously lagged efforts in the seismic
area, notwithstanding the potentially devastating consequences of strong winds.
Integrating these efforts into the ongoing Administration evaluation and refocusing
of NEHRP would reduce costs and increase integration of efforts.
Major issues and concerns about catastrophic insurance
As discussed above, private insurers can playa major role in providing financial
protection in the wake of a natural disaster. Homeowners insurance covers
damage from a wide range of perils including, for example, damage from fire
following an earthquake. However, shake damage from earthquakes is generally
excluded, as is wind damage in some high-risk areas such as the Florida and Texas
coasts, although these coverages are generally available as riders at additional
cost.
Any proposal for an increased federal role in providing or guaranteeing catastrophic
loss coverage, either through primary insurance or a reinsurance mechanism, must
be considered in the context of the current structure and regulation of the insurance and reinsurance industries. In particular:
•
Insurance rates and solvency requirements are regulated by the states, not
by the federal government. Because policyholders and state taxpayers
ultimately bear the burden of insolvency, state insurance regulators have an
incentive to balance the desire for low rates with the need for insurance
companies to remain in the state and stay healthy.
•
Federal insurance programs, including some disaster insurance programs
such as crop insurance, have been historically underpriced. The government
has frequently made payments to people who have suffered losses but who
had not purchased the insurance.
•
Actuarial pricing of catastrophe insurance on individual properties is difficult.
The "rule of large numbers" on which most standard-priced insurance is
based does not apply, events and probable losses are hard to predict,
accurate pricing requires use of non-traditional models and techniques, and
consumers and regulators have a tendency to under-assess risk.
- 11 •
Pricing of company-specific reinsurance is evel. more difficult. Traditional
company-specific reinsurance pricing requires, in addition to an assessment
of risk of loss, an evaluation of the quality of an insurer's underwriting and
its particular book of business. Reinsurance is a largely unregulated, global
industry, in which capital is invested and disinvested relatively rapidly.
When reinsurance is unavailable or extremely costly, as is often the case
after a major disaster, insurers have less capacity to write primary insurance
because theV must rely solely on their own surplus ·or capital.
•
In part because the major high risk states - California, Florida and
Texas - are also extremely large, it is difficult to reduce rates in these
states through cross-subsidization of premiums by policyholders in other
states (as might be expected of a federal program) without noticeable
increases in premiums charged in lower-risk states.
Compensation for losses
1. Require all-hazards insurance for most homeowners. Require on a
phased-in basis that one-to-four family residential dwellings (including mobile
homes and low-rise condominiums and cooperative apartments) with mortgages
issued or owned by federally-related lenders and secondary market entities carry a
standard homeowners insurance policy that includes coverage against all natural
perils (except flood).5 Such policies would be required to include coverage for
earthquake shake damage and secondary effects (e.g., liquefaction) and wind
damage from hurricanes, tornadic storms and other high winds. States would
regulate the terms and pricing of the required policy. Coverage of mortgages on
new construction would be required one year after enactment; of all new purchase
money mortgages four years after enactment; and of all new mortgages, including
refinances, seven years after enactment. The Administration would study the
expansion of this requirement to multifamily rental housing, high-rise condominiums
and cooperatives, and commercial buildings.
Discussion: Adoption of a requirement that homeowners with mortgages
issued or owned by federally-related lenders and secondary market entities carry
all-hazards insurance would cause homeowners' decisions to reflect more of the
5 This would conform to the National Flood Insurance Program, but will result
in coverage not being required for some homes without mortgages and for homes
that have mortgages in excess of the Fannie Mae/Freddie Mac loan limits (currently
$203,150). To be most effective in assisting homeowners to recover from a
disaster, such insurance should cover the replacement cost of the structure, not
only the amount of any lien.
- 12 cost of developing, building and living in high-risk areas and would enable homeowners to rebuild quickly after a disaster without waiting for federal assistance. In
addition, such a program would likely reduce federal disaster expenditures, which
have averaged about $700 million annually for home repair grants and loan
subsidies.
Questions have been raised about the capacity of the insurance industry to
make such insurance broadly available. The proposed phase-in and the supplementary catastrophic loss protection proposal (discussed below) are designed to
respond to this concern. The initial requirement will fall on a relatively small group
of homes, which are built to the most current standards. Builders and developers,
aware of the requirement, will have an incentive to adopt loss prevention strategies, which should reduce the cost of insuring the properties. This initial phase-in
will also enable companies, regulators and consumers to develop an understanding
of the appropriate pricing of such insurance. By the time the requirement is
extended to new purchase money mortgages (property transfers) and then to all
new mortgages, the insurance industry will have had a further opportunity to build
capital and to make use of the supplementary federal protection for catastrophic
losses, thereby strengthening its underwriting capacity. In addition, state regulators will have had time to become more familiar with evolving risk-assessment
models and more comfortable with actuarial pricing, which should encourage more
insurers to write aU-hazards coverage.
This proposal would use the same enforcement mechanism as that recently
strengthened as part of the National Flood Insurance Program, including forced
placement if necessary. By relying on state regulation of the terms of and rates for
the insurance, the initiative would not involve federal interference iii state insurance regulation. We propose working with the National Association of Insurance
Commissioners (NAIC) to maximize the opportunities for uniformity of policy terms
across states, although each state would, of course, regulate premiums based on
its own regulatory system and the risks in the state.
2. Encourage expanded additional living expense coverage. Work with the
NAIC, the insurance industry and other interested parties to encourage adoption of
standard homeowners policies that include additional living expense (ALE) coverage
for a home that is uninhabitable because of damage resulting from any natural peril
(including flood), even if property damage from such peril is excluded from coverage. States would set the terms of such coverage, which generally runs for the
lesser of the period of uninhabitability or six months and covers living expenses
necessitated by lack of access to the home. The Council of Economic Advisors
estimates that coverage for six months' living expenses would add $20 to $30 per
year to the cost of hazard insurance.
- 13 Discussion: Requiring that disaster-related coverage be included in policies
helps internalize the cost of living in disaster-prone areas. Because of the relatively
small disbursements involved in ALE coverage, insurance industry capacity should
not be a problem, and inclusion of such coverage would enable federal funds and
administrative resources to be concentrated on those more in need. 6
Supplementary protection for catastrophic losses
1. Auction federal excess-of-Ioss contracts. To expand the supply of
catastrophe reinsurance in the private market and thereby increase the capacity of
the industry to write primary catastrophe insurance, the federal government would
annually auction federal excess-of-Ioss contracts to cover a portion of the $25 to
$50 billion layer of insured commercial and individual losses arising from a single
natural disaster. 7 The contracts would be priced based on, and offer a payout
triggered by, total industry-wide insured losses, not losses incurred by a single
company or policyholder. S Insurers, reinsurers, state insurance and reinsurance
pools, regional insurance and reinsurance pools, and a privately-established and
capitalized national pool would be eligible buyers. The program would be fully
funded by setting an auction reserve price consisting of a risk-based price plus a
cost-of-capital adjustment. There would be no federal subsidy and no adverse
budget scoring impact. The risk-based part of the reserve price would be placed in
a reserve fund to cover payouts on the contracts. The cost-ot-capital portion
would be placed in a pre-disaster mitigation fund to be used to provide assistance,
including training, to communities concerning building code adoption and enforcement. Half the proceeds of sale in excess of the reserve price would also be
transferred to the mitigation fund, and the remaining half would be retained in the
loss reserve fund to cover contract payouts.
Between 1989 and 1993, FEMA paid out over $300 million to more than
150,000 homeowners to cover rent payments, and an additional $820 million in
individual and family grants, some of which covered additional living expenses of
homeowners.
6
We anticipate there would be administrative discretion to alter the trigger
($25 billion) and cap ($50 billion) levels based on primary insurance exposure and
the developing state of the reinsurance market including, in particular, increased
availability of reinsurance at the lower end of the payout range.
7
For example, if each contract paid $1 million for every $1 billion of total
insurance industry losses in excess of $25 billion (and below $50 billion), a
contract holder would be paid up to $5 million (but not in excess of the holder's
losses) in the event of a disaster generating $30 billion of total insurance industry
losses. We anticipate that between 250 and 750 such contracts would be offered
and sold each year, depending on demand.
S
- 14-
The contracts would cover losses from earthquakes and volcanos, hurricanes
or all three types of events. They would be fully transferrable and divisible (before
and after an event), which would enable smaller companies and those who
suffered losses but had not purchased contracts to benefit. The contracts would
be automatically renewable for a pro rata premium for the remainder of the contract
year if a disaster requiring a payout occurred. The maximum recovery on any
contract would be the amount of loss incurred by the claimant, up to the contract
amount. The program would phase out over a five-year period beginning in year
15. Treasury would conduct an examination of the program and a reassessment of
the phase-out in year 13.
Discussion: One of the reasons for the falloff in availability of primary
insurance coverage appears to be the unavailability of reinsurance to cover
individual. company losses at levels where total industry losses from a single
disaster exceed $25 billion. The private reinsurance market is reluctant to provide
this coverage in part because of the uncertainty in setting reinsurance premiums for
events of this magnitude and in part because of the amount of capital and liquidity
needed to credibly support such coverage. As a result, private reinsurers offer
coverage, if at all, only at premiums set high enough to compensate for the risk of
insolvency associated with especially large disasters, making private reinsurance
for such events effectively unavailable.
The proposed federal excess-of-Ioss coverage would use the major advantages the federal government has in comparison to private parties - virtually
unlimited liquidity and the ability to spread large losses over time (no insolvency
risk) - to help relieve this problem. 8 In effect, the proDosed excess-of-Ioss
program can offer unsubsidized catastrophic coverage at rates that are currently
below the private reinsurance rates that would be charged for this layer of coverage, expanding private reinsurance capacity. The trigger, cost-of-capital adjustment, and scheduled sunset would, however, ensure that the program did not
crowd out the private reinsurance markets.
The proposed federal excess-of-Ioss program is flexible and would improve
the distribution of loss protection across industry participants. By using an auction
format in the sale of the contracts, the government would obtain current price
information on the market value of the contracts and ensure that firms for which
In this respect, the proposal directly addresses the major weakness in the
catastrophe call spread options market administered by the Chicago Board of Trade
.
(CBOT): the lack of a natural counterparty with an interest in spreading large
claims over time, and an ability to do so.
9
- 15 the contracts have the highest value are able to purchase protection. 10 By limiting
the total government payout on contracts to the actual losses of the firm and by
making the contracts transferable and divisible, payouts will be more efficiently
distributed to firms with losses. The proposal would enhance this connection
between firm or state pool losses and contract payouts by offering separate
hurricane and earthquake/volcano contracts, thereby enabling insurers and property
owners in states like Florida and California to more directly benefit from the
program.
By collecting up-front premiums and building a reserve, the federal government can increase the likelihood that actual payouts in the event of a triggering
disaster will be fully pre-funded. By limiting the number of contracts sold and
placing a trigger and cap on the payout of each contract, the government's liability
under the program will be explicitly and effectively limited. Because the federal
government would not provide company- or state-pool specific reinsurance, the
proposal avoids the need for the considerable federal regulatory oversight of the
reinsured entities. As a result, risk-based rates could be charged based solely on
the likelihood of a triggering event, with no economic or budgetary cost to the
federal government, regardless of the private sector demand for the contracts.
The proposal would recognize, and not intrude upon, the continuing role of
the states in making regulatory decisions governing primary insurance rates and
insurer capital and the availability and affordability of insurance. The proposal
would expand primary insurance capacity while recognizing the limitations of an
unsubsidized federal role in expanding insurance availability in a system where
rates are regulated by the states. However, the proposal would encourage
flexibility in private-public partnerships and pooling arrangements between states
and private firms, and could be used as a reinsurance backstop to a privately
established and capitalized national pool.
Federal assistance after a disaster
1. Target FEMA grants to low- and moderate-income households. Make
FEMA individual and family grants (lFG) available only to families with pre-disaster
annual household income of less than $100,000. (Those with household incomes
of $100,000 or more would continue to be eligible for disaster loan programs
administered by the SBA.) Shorten the maximum length of FEMA temporary
housing assistance from 18 months to 12 months.
The use of an auction will reduce the opportunity of large insurers to
purchase the bulk of the contracts and seek additional returns by subsequently
marketing the contracts in the secondary markets.
10
- 16 Discussion: Limiting eligibility for FEMA grants in this manner would focus
emergency assistance under the individual and family grant program, both in dollar
terms and in administrative expense, on those most in need. Because of advances
in access to income tax files, verifying incomes at this level is neither a difficult nor
a lengthy process, and is being used quite effectively by the SBA in disaster
situations. Shortening the maximum eligibility period for temporary housing
assistance to one year would increase incentives for communities and individuals to
move toward normal conditions in housing markets.
2. Establish statutory ceilings and deductibles for post-disaster public
assistance. Establish statutory ceilings for federal cost-shares for post-disaster
assistance to public entities at: (i) 90 percent where a declaration of disaster
includes an estimate of assistance needs in excess of $75 per capita; (ii) 80
percent where a declaration of disaster includes an estimate of assistance needs of
less than or equal to $75 per capita but where the state and affected jurisdictions
have adopted and are enforcing mitigation measures according to minimum criteria
established by the Director of FEMA; and (iii) 75 percent where the per capita
amount is less than or equal to $75 and the state or local jurisdiction has not
adopted or is not enforCing mitigation measures. In addition, all states would be
required to have procured insurance or to self-insure their state and municipal
buildings and facilities in an amount equal to $5 per capita, which amount would
be applied as a "deductible" to the disaster amount.
Discussion: A statutory maximum cost share of this nature should reduce
federal disaster outlays by approximately $1 to $1.5 billion annually, based on the
experience of the last five years. It would increase community incentives to take
operational and financial actions - before disaster strikes - that will reduce life
and property loss from natural disasters. Finally, by eliminating administrative
authority to grant a 100 percent federal share of public assistance payments, the
program will maintain state and local incentives to rebuild in a cost-effective and
responsible manner. Of course, the President will retain the authority to fully fund
response and life saving operations in the period following disaster events.
3. Unify SBA disaster loan rates. Establish the interest rate on all SBA
disaster loans (property and economic injury loans) at the equivalent-maturity
Treasury rate plus 200 basis points, eliminating the subsidy to the loan program.
Discussion: With only a single unsubsidized interest rate, the credit-elsewhere test would be eliminated, speeding and simplifying the processing of SBA
loans. Increasing the interest rate on SBA disaster loans to approximately the
market rate would significantly reduce the federal subsidy on these loans. Over 90
percent of loans are currently being made at the subsidized rate, which is as low as
3-5/8 percent. While this action would change the profile of program participants.
~
17 -
by increasing interest rates and reducing the number of qualified borrowers, the
availability of deeply subsidized disaster loans is not only costly, but reduces
incentives to take pre-disaster actions to reduce losses.
Evaluation
Legislatively require an evaluation of the entire initiative five years after
enactment to: (i) assess the extent to which the objectives of societal and federal
C\lst reduction, risk internalization, and greater availability of disaster insurance
have been accomplished; Hi) identify additions, deletions or changes to the initiative
that would better achieve the objectives; (iii) evaluate and consider any changes
needed to make federal policy toward the flood hazard and other natural disaster
hazards harmonious; and (iv) recommend any further evaluation.
Discussion: Because the effectiveness of these initiatives is in part dependent on complex and largely unpredictable market and regulatory forces, systematic evaluation will allow refinement and may avoid costly mistakes. In addition,
developments in both earthquake and wind initiatives and the flood program
suggest that an evaluation of the relationship between them and their interaction
would be appropriate. Five years from enactment should provide enough time for
the initiatives to become operational before they are evaluated.
Conclusion
The integrated set of initiatives presented above recognizes that it is impossible to
completely eliminate property losses from natural disasters. Transferring the risk of
both disaster losses and insurance company solvency to the federal government is,
moreover, neither productive nor appropriate given the private interests
involved, issues of moral hazard, and the current federal budgetary situation.
However, the initiatives have a coherent theme of reducing societal costs of
disaster, reducing federal costs and making insurance more consistently available
without open-ended federal liability. They have the possibility of generating major
benefits to society while using federal power and the federal fisc prudently and
responsibly in a manner in which the federal government is uniquely capable of
contributing to a solution.
DEPARTMENT
OF
THE
TREASURY
NEWS
lREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960
STATEMENT OF JOSHUA GOTBAUM
NOMINEE FOR ASSISTANT SECRETARY OF THE TREASURY
FOR ECONOMIC POLICY
-BEFORE THE SENATE FINANCE COMMITTEE
December 5, 1995
Mr. Chairman, Senator Moynihan and members of the Committee,
I am honored to appear before you as the President's nominee to become
Assistant Secretary of Treasury for Economic Policy. I am grateful to the President and
the Secretary of the Treasury for their trust and confidence.
The Secretary himself has laid down the tasks we face in developing an economic
policy for our times: to maintain fiscal discipline, balance our budget and help prepare
our Nation for the 21 st century, to encourage savings and investment, to recognize and
expand the potential of global markets, and to ensure government regulation is sensible.
The fact that we are currently enjoying a period of relatively steady growth, low
inflation, low unemployment and declining deficits does not by any means imply that the
job is done.
I have worked on economic policy matters, on and off, for almost twenty years.
began out of graduate school doing economic and other analyses of energy policy
matters, and then worked for President Carter's Advisor on Inflation. I continued to work
on economic policy matters as Associate Director of the White House Domestic Policy
Staff for economics, and after the Administration, as Legislative Assistant to Senator Gary
Hart for Economics and Budget matters.
One of my primary concerns then was that not enough government officials
concerned with economic policymaking had themselves worked in business. After
leaving Washington, I began work at Lazard Freres & Co., offering financial advice and
assistance to private corporations and others in mergers and acquisitions, corporate
finance, and restructuring. In my thirteen years there, I worked for dozens of companies
in many different industries.
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Since 1994, I have been privileged to serve Secretary Perry as Assistant Secretary
of Defense for Economic Security. This position is newly created. It was intended to
provide an economic and commercial perspective to the Department as it adjusts its
policies and programs in the post-Cold War era. While serving in the position, I have
been responsible for advice in a range of activities, from responding to industry
consolidation and determining necessary industrial capabilities to reforming the base
reuse process and determining candidates for privatization and outsourcing.
The Assistant Secretary for Economic Policy assists Secretary Rubin in his role as
the leading economic spokesman for the Administration. The Secretary has suggested
that he would continue to look to this office for advice on its traditional judgments
concerning the economy as a whole, as well as particular advice on microeconomic
business policy issues and the economic aspects of Social Security and other social
welfare programs. I hope this combination of commercial and economic policy
experience forms an appropriate base from which to do so.
Mr. Chairman, I know these are trying times, and appreciate the Committee's
cooperation in hearing me. I hope to earn your endorsement, and if confirmed, look
forward to working with you. I would be happy to respond to any questions that you
may have.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960
Embargoed for release at 12:30 p.m.
Text as prepared for delivery
December 5, 1995
CONTACT: Michelle Smith
(202) 622-2960
REMARKS BY DEPUTY SECRETARY LAWRENCE H. SUl\11\.fERS
U.S. DEPARTMENT OF THE TREASURY
MIAMI CONFERENCE ON THE CARffiBEAN AND LATIN AMERICA
MIAMI, FLORIDA
DECEMBER 5, 1995
Introduction
It has been an eventful year for our hemisphere since the last Miami Conference on
the Caribbean and Latin America -- the kind of year from which we should distill some
important lessons. This afternoon I'd like to make two points about what the region
experienced in 1995.
•
•
The first involves just how resilient reform in Latin America and the Caribbean has
proven to be. That is one major lesson of 1995, and the lesson that I am convinced
will mark this decade as a turning point in our region's history.
The second, is about the continued need for engagement by all countries, and for
United States leadership, in hemispheric economic and social reform.
The Resilience of Reform
Let me start with the first point -- the resilience of reform. A year ago, the mood at
this conference was one of satisfaction. We were meeting on the eve of the Summit of the
Americas. That unprecedented gathering had been called to celebrate Latin America and the
Caribbean's achievement, the transformation of so many nations' economic and social
prospects over the span of just a few years. The lesson that growth must be based on fiscal
and monetary rigor, liberalization, and market-based economics seemed finally to have swept
most of our hemisphere.
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2
For all of last year's celebration, there was one question on some observers' minds.
We had seen promises of transformation in Latin America and the Caribbean before. The
question was just how resilient this decade's changes truly would be.
•
•
•
•
To be sure, the list of countries that had slashed government spending -- from Mexico
to Bolivia -- or wrestled hyperinflation under control -- as had Argentina or Peru -was a long one.
From Mexico to Chile, the message of privatization and liberalization seemed to be
sweeping the hemisphere.
Ten new democracies had been added to the list since the last hemispheric summit in
the 1960s.
With these reforms came some of the highest growth rates in the world -- 35 percent
for Argentina over the first four years of the decade, 23 percent for Chile, and over
15 percent in Colombia.
What I think was less certain one year ago was the issue of just how deeply these
changes really ran. It was hard to be sure whether privatization and democratization were
being pushed from the ground up, by Latin America's citizens, or were being driven from
the top down. It was hard to know whether a vision supported by Washington and Wall
Street had taken hold at the roots of reforming societies.
A Testing Year
To be sure, the past year has been a difficult one. A changing financial environment,
political shocks, policies that in retrospect were mistaken, and a sudden drop in market
confidence last December all brought Mexico to the brink of serious difficulty, and
threatened to spillover into the rest of Latin America.
There is no denying that the Mexican economy is now in recession, and that other
countries, such as Argentina, have suffered from the drop in investor confidence. But if you
take a long-run view, the significance of this past year is not in what happened over 1995,
but rather in what did not.
•
What hasn't happened is the kind of retreat from economic reforms -- the kind of
disintegration into popular upheaval and authoritarianism -- that took place following
Latin America's last bout with financial crisis in 1982.
•
What hasn't happened is the withdrawal into protectionism, nationalization, and state
control of the economy that shattered Latin American economic efforts 15 years ago.
•
What hasn't happened is a debt crisis that spiralled out of control, and threatened the
United States' own banking system.
•
Who in this room 12 months ago could have been certain that faced with the kind of
shock that Mexico experienced, or that Argentina experienced, those countries and
others in the region would not only stay the course of economic reform, but push
even further?
•
Who would have imagined that nearly one year after Mexico's difficulties, Brazil -- a
3
•
nation as large as the rest of South America combined -- would be sitting on nearly
$50 billion in reserves, and experiencing the lowest rate of inflation in 30 years?
And who would have imagined that market confidence would return so quickly -- that
Mexico would succeed in placing some $5.5 billion in paper after 7 months, that Peru
would have $4.2 billion in commitments for future investments, on top of nearly $4.3
billion in privatization proceeds over the past four years -- $1.1 billion this year alone
through June?
The significance of last year lies with these simple facts. 1995 was not like 1982.
1995 provided harder proof than anyone could have imagined that economic and social
reform in Latin America and the Caribbean are not something being sold by Washington or
Wall Street, or forced on unwilling populations by Harvard-educated leaders. Rather, the
events of these past months have proven that reform is a Latin American and Caribbean
movement, flowing from the grass roots up.
Argentina
The tenacity with which the Argentine government and people have persevered with
reform in the face of a financial tightening speaks volumes about how much has changed
there.
•
Faced with spillover from Mexico, Argentina raised taxes in March only weeks
before Presidential elections -- an election that President Menem won by a resounding
margm.
•
Spending has also been trimmed, and Argentina has met strict IMP targets for the
first 9 months of the year.
Argentina's financial state has begun to tum over the past few weeks.
•
A tax amnesty program that was expected to bring in only $1 billion, is now on target
to bring in over $3 billion.
•
Foreign reserves are still below last December's level but well above the level needed
to back the money supply.
•
The banking system, though still facing the effects of a monetary squeeze, has seen
deposits return to within 97 percent of where they were just before Mexico's
difficulties began.
Brazil
•
•
Brazil too is taking some important steps to advance economic change.
Inflation has been tamed, from a monthly rate of over 50 percent in June of last year
-- just before the Real was introduced -- to 1.5 percent in October.
On the fiscal side, the government is working to make some progress through a new
federal value added tax, and adjustments to the corporate tax system.
4
Structural reform is also underway.
•
Telecommunications and natural gas distribution could soon be opened to more
private activity; foreign firms may soon be able to participate more fully in mining,
electricity, and shipping.
•
The planned privatization of CVRD, the mining conglomerate, and several large
electricity companies could lead to some of the largest privatizations ever.
These measures will begin to open the Brazilian economy up to meets its full potential.
United States Engagement
The resilience of liberalization and change in our hemisphere are the first lesson of
1995. The second, is that change is not a one-country affair, but requires the participation
and support of all hemispheric neighbors. As 1995 has shown, change also requires
continued United States involvement and leadership.
That was the spirit in which the United States hosted the Summit of the Americas one
year ago. We realized, as we still do, the profound economic, political, and historic ties that
bind us to the nations in this hemisphere. That is what informs United States policy going
forward.
I'd like to say a few words about four areas in which the United States intends to
remain engaged -- finance, trade, bolstering institutional change and the rule of law, and
eliminating poverty and inequality.
United States Financial Leadership
I'll start with financial leadership. One of the most hopeful developments for Latin
America and the Caribbean, and indeed for many developing countries, has been the
enormous development and acceleration of financial markets that has occurred over the past
several years. It is why today, when Latin American and Caribbean countries embark on
reforms, the capital is there to back them.
•
•
•
Consider this.
Average net capital flows to the region soared from a net outflow of some $17 billion
from 1983 to 1989 to an average annual net inflow of $40 billion from 1990 through
last year.
The dollar value of market capitalization soared more than 3,000 percent in
Colombia, Chile, and Mexico from 1985 to 1994, to cite the most spectacular
examples.
Latin America's aggregate stock market capitalization has grown some eight fold,
from $54 billion in 1985 to a level approaching $1/2 trillion at the end of July of this
year.
For countries in our region to make full use of potential capital, the infrastructure of
5
finance must be there. That means making sure that countries have appropriate bank
supervision and regulation, to maximize use of domestic savings while channelling all capital
effectively. It means ensuring that capital markets are transparent and efficient, so that they
can best mobilize investment into long-term projects. Harmonizing regional financial
markets upward is an important way of furthering these objectives.
We pledged to focus on these tasks at the Summit of the Americas. The effort is now
underway.
•
The recently formed Committee on Hemispheric Financial Issues is working on ways
to develop and integrate financial markets in the region.
•
Today, accounting standards are a barrier to financial integration. A Colombian
bank's books, for example, cannot be compared with those of a bank in Venezuela,
for example.
•
Disclosure standards are another priority that will put investors in securities on a level
playing field, opening up diversified,long-term financing.
The World Bank and the Inter-American Development Bank have stepped up their
work with governments to strengthen market supervision.
•
The lOB is backing many capital market infrastructure projects, such as Peru's effort
to modernize and merge its two largest exchanges.
All of these initiatives will ensure that our region has the kinds of capital it needs to grow
well into the next century.
Responding to Crises
As we saw this past year in Mexico, and as both industrialized and developing
countries have experienced in recent years, capital markets can be imperfect. There are
shocks along the way. Just as when a run on a bank occurs here at home and liquidity must
be provided, it is vitally important to ensure that the capacity exists to mobilize financial
support quickly on highly condition terms when crises erupt that threaten parts of the
international financial system.
President Clinton understood the enormous United States interests -- the hundreds of
thousands of American jobs, the security of our borders, and the broader transformation of
emerging market economies -- that were at stake when Mexico's financial difficulties began a
year ago. He knew that turbulence in Mexico could have spilled over to other Latin
American economies, as it did in 1982, as well as to other parts of the globe. That is why
he moved swiftly to lead an international support effort.
Future difficulties may arise. The United States can and must continue to lead the
hemispheric and international response. Nonetheless, to ensure that the resources are there,
and that the United States does not become the lender of last resort, there is a need for
enhanced international capacity to mobilize financial assistance, when necessary. That
6
capacity must lie with the international financial institutions.
In Mexico's wake, we have stepped up efforts to create an emergency financing
mechanism through the International Monetary Fund. Such a fund would rest on enhanced
surveillance and transparency, as the bases of efforts to prevent crises before they occur.
Trade and Integration
Let me turn to a second sphere in which United States leadership and collective
engagement are essential -- opening markets to trade.
•
•
•
•
Consider the United States stake in trade with the countries to our south.
Mexico has been one of our fastest growing major trading partners.
Chile, with 14 million people, buys more than India with 920 million.
We sell more to the countries that make up MERCOSUR than we do to China.
We sell about as much to Costa Rica, with three million people, as we do to all of
Eastern Europe, with about 100 million.
All told Latin America and the Caribbean purchased some $92 billion of American
goods last year, almost as much as did the European Union. These exports support hundreds
of thousands of American jobs. They will grow enormously as the process of reform
continues, and as prosperity continues to spread in our hemisphere.
That is one reason why ensuring that markets remain open must be a top priority for
the United States. The other involves the ways in which free trade locks in economic and
social reform.
Inter-regional trade quadrupled from 1984 to 1994. If you ask yourself why 1995 did
not resemble 1982 -- why this time, countries responded to difficulties by pushing ahead with
liberalization and reform, not by pulling back -- then integration has to be part of the answer.
Integration cements change. Integration provides confidence and stability, where
confidence and stability are needed. It ensures that our regions' citizens come to see their
prosperity as intertwined, and dependent on their countries' mutual economic progress.
Creating a prosperous, integrated region stretching from Canada to Chile is the best way to
make sure that our region continues to move forward, and does not lapse back into the
socialism and authoritarianism of the past.
NAFTA
I think that NAFT A provides perhaps the best example of the ways in which
integration locks in reform. As you know, some observers blame NAFTA for Mexico's
difficulties. Such arguments are precisely backward.
•
Even with the slump brought on by Mexico's recession, U.S. exports today are higher
7
•
than they were before NAFT A entered into force.
Though our exports of consumer goods to Mexico did fall by about 18 percent over
the first half of 1995, compared with the same period in last year, Mexico's imports
of goods from other countries fell by over twice that amount over the same period.
But NAFTA accomplished something more profound that just protecting American
exports over the short-term. NAFTA locked in Mexico's removal of tariff and other trade
barriers on our exports. NAFTA ensured that Mexico would not be tempted to pull back
into protectionism, as it did in the early 1980s. Most important, NAFTA provided what
Mexico needed most earlier this year -- confidence. And if Mexico is now staying the
course of reform, and sees hopes for economic growth as early as next year, NAFTA must
take some of the credit.
Free Trade in the Americas
The Summit of the America's agreement to create a Free Trade Area of the Americas
by the year 2005 is rightly seen as the meeting's crowning achievement. We have taken
significant first steps toward turning that vision into a reality.
•
In June, hemispheric trade ministers met in Denver to set up seven working groups on
key issues, including market access, customs, product standards, technical barriers,
and trade remedies.
•
The next meeting has been scheduled for Cartagena in March, where our countries
will take stock of progress, and begin to chart concrete, market-opening measures.
Chilean Accession to NAFTA
Of course, the best way to lock in integration and economic reform is to make it clear
that the club of free-traders is open to all, as soon as they are qualified to join. That is why
President Clinton has stressed how critically important it is for the Administration to receive
fast-track authority in order to rapidly negotiate and conclude Chile's accession to NAFTA.
Let me emphasize -- there is no question that Chile is ready to take on the full range
of responsibilities implied by NAFTA accession. No other major Latin American country
has as good a record of sustained economic performance. With or without the United States,
Chile will continue to move ahead with economic reform and liberalization, as a member of
the World Trade Organization, of the Asia Pacific Economic Cooperation forum, and
through enhanced ties with Mercosur and even perhaps with the European Community.
Bringing Chile into NAFTA is the best way to ensure that the United States reaps the
benefits of Chile's economic prospects, while providing an example of the kinds of policies
we hope the rest of Latin America will follow.
Making Government Work Better
There is a third area for U.S. leadership -- supporting institutional change. Reform in
8
Latin America means more than just slashing budget deficits, or privatizing bloated state
industries, or tearing down trade barriers. It means making sure that leaner governments do
the things they are supposed to do, better than before. It means replacing corruption with
legal-certainty, and back-room dealings with transparency. It means making sure that
countries have an effective court-system, a trained civil service, and laws that are reliably
enforced.
The Summit of the Americas pledged all of our countries to focus on anchoring
democracy and the rule of law. The United States is working with Latin governments and
organizations to make that happen.
•
The OAS is building up its Unit for the Promotion of Democracy, to support electoral
commissions, legislative training, and other programs to make sure governments have
the capacity to do what governments must do.
•
The Organization of Supreme Courts of the Americas is drawing up a charter to
bolster the independence of judiciaries.
We plan to negotiate a draft hemispheric Convention on Corruption, and establishment links
between the OAS and the OECD Working Group on Bribery in International Business.
Money Laundering
This weekend, Secretary Rubin travelled to Argentina where he chaired a particularly
important effort -- a conference to combat money laundering in our hemisphere.
There are estimates that $100 billion in drug money alone moves through the U. s.
economy, and that the Cali cartel has profits of $2 billion a year, more than many major
U.S. corporations. Think about the ways in which that scale of financial criminal activity
can destabilize a nation's efforts to reform its economy, transform its political system, and
move toward free-markets and democracy. Think about how that illicit cash can buy
politicians, or destroy economic competition as criminals launder their proceeds through
legitimate enterprises.
This year's meeting in Argentina led to adoption of a set of principles that commits all
hemispheric participants to criminalize money laundering, modify their laws and enforcement
systems to bolster enforcement efforts, and expand the tools at their enforcement officials'
disposal.
•
We will follow up over the years ahead, to ensure that each of our countries meets
these commitments.
Combatting Poverty and Inequality
Finally, I'd like to touch on a fourth priority that requires United States leadership,
and the participation of all the countries in this hemisphere -- support for the multilateral
development banks, in their efforts to fight poverty and inequality.
9
Latin America's and the Caribbean's future must rest on market-led growth. But
there are things that markets cannot accomplish alone. Markets alone cannot invest in
primary school education, or provide clean water in shantytowns, or support the kinds of
maternal health programs that make enormous differences in children's prospects.
Experiences in Asia and elsewhere have shown the strong correlations that exists
between investments in basic human resources -- education, primary health, and basic
services -- and economic growth. The lesson is simple. In order to be sustainable,
prosperity must also be shared.
The Summit of the Americas set out an agenda to fight poverty and discrimination,
even as economic reform brings about general prosperity in our region.
•
The Inter-American Development Bank is a focal point of that effort. It will lend
some $10 billion over the next three years -- 43 percent of total lending -- for social
sector investments, a far greater proportion than in the past.
•
The Bank has also contributed $400 million in loans specifically for microenterprise
and small businesses -- efforts that set a capitalist society in motion at the grass roots,
so that all have a stake in the market.
Conclusion
I've spoken today about America's policy in the Americas. Hopefully, many of the
challenges that region faced a few years ago have been settled. There is a commitment to
liberalization, to privatization, and to social reform.
In some ways, the challenges faced by U.S. foreign policy are more complex. With
the end of the Cold War, we must no longer decide what we are against, but what we are
for.
Many call for the United States to withdraw from the world. They believe we should
pull back from multilateral organizations, that the President should not be granted fast-track
authority to negotiate trade agreements, and that all alliances are unnecessary entanglements.
We have heard echoes of those voices in Bosnia, and as we seek to maintain minimal
appropriations for our foreign affairs budget.
President Clinton has resisted these voices. He recognizes, as most Americans do,
that there is no more important region for our nation than the Americas. He understands that
if the history of our part of the world teaches us anything, it is the dangers of complacency.
United States support for Latin and Caribbean change, and for the vision of an integrated
hemisphere, will continue to be at the heart of America's international economic policy.
That is why I am confident that if the 20th was the American century, the 21st will be the
century of all the Americas.
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N .W.• WASHINGTON, D.C .• 20220 • (202) 622·2960
CONTACT:
FOR RELEASE AT 2 :30 P.M.
December 5, 1995
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $28,000 million, to be issued
December 14, 199~ This offering will result in a paydown for
the Treasury of about $9,000 million, as the maturing bills total
$36,~91 million (including the 13-day cash management bills
issued December 1, 1995, in the amount of $10,017 million). In
addition to the maturing 13-week, 26-week, and 13-day bills,
there are $17,078 million of maturing 52-week bills. The
disposition of this latter amount was announced last week.
Federal Reserve Banks hold $11,195 million of bills for
their own accounts in the maturing issues. These may be refunded
at the weighted average discount rate of accepted competitive
tenders.
Federal Reserve Banks hold $5,252 million of the maturing
issues as agents for foreign and international monetary
author~ties..
These may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders. Foreign and international monetary authorities are
considered to hold $4,927 million of the 13-week and 26-week
issues. Due to the public debt limit and Treasury's need to plan
for the debt level, additional amounts of Treasury bills will not
be issued to Federal Reserve Banks as agents for foreign and
international monetary authorities in these auctions.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
&-758
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HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 14, 1995
December 5, 1995
Offering Amount .
$14,000 million
$14,000 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 X6 6
December II, 1995
December 14, 1995
March 14, 1996
September 14, 1995
$13,560 million
$10,000
$ 1,000
182-day bill
912794 Z3 1
December II, 1995
December 14, 1995
June 13, 1996
December 14, 1995
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220. (202) 622·2960
ADV 9:45 AM. EST
Remarks as prepared for delivery
December 6, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
SCHUMER/BRADLEY INCOME DISPARITY FORUM
As I think everyone is aware, from the '50s to the early '70s all income groups in
the U.S. saw their incomes rise at roughly the same rate. Since then there has been a
very disturbing divergence. A good portion of the middle class, plus the least well-paid
in our society, are losing ground in terms of real income. The OECD in Paris now ranks
us at the top of a list of 18 industrialized nations in income disparity. Moreover, the
data that went into that study also tells us that poor children in the United States are
poorer than the children in most other Western industrialized nations. That's
particularly striking in light of the fact we have the second highest level of per capita
economic output after Luxembourg.
All this has very troubling and practical consequences for society and our
economy that affect all of us. The increase in income disparity can tear at our social
fabric and contribute to a sense of alienation and anger, and to a feeling that our
institutions do not work, and so to reduced respect for government and the other
institutions of our society. All of this can lead to social problems that are at a cost to all
members of society, and to a turning against the very kinds of forward-looking economic
policies necessary to produce jobs, growth and rising living standards. Moreover, people
who are struggling economically are less able to equip themselves and their children for
economic success, and that lost productivity means lost opportunity not just for them, but
for our entire economy.
I am firmly convinced that our economy will fall short of its full potential if we do
not reverse the income inequality trend, and give every American the chance to get
ahead. An important part of this is bringing the residents of our inner cities into the
economic mainstream.
My views as to reversing income inequality and dealing with the problem of the
inner cities are not social judgments or moral judgments. They are a hard-headed
business judgment about the future economic and social health of our nation.
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2
The policies that can contribute to reversing income disparity -- and thereby serve
the economic and social interests of all Americans -- are in large measure what the
budget debate is all about. I want to focus in on two policy areas that can contribute to
a reversal of income disparity -- investing in human capital and access to financial
capital.
The President is deeply committed to investing in human capital. Many of these
investments are at the heart of our budget debate -- education and training, for example.
When you invest in the Earned Income Tax Credit, you encourage Americans to
chose work over welfare and help them better prepare their children for the future.
When you invest in Head Start, those youngsters are better prepared to learn. It's the
same with nutrition assistance. When you invest in immunization, you have healthier
children who are better able to learn, and you derive future economic savings through
foregone public health spending. These and so many other important programs are
being substantially reduced in the congressional majority's budget. I don't think that
approach makes economic or social sense for our nation. That is one side of the
equation for promoting productivity amongst the least well off and reducing income
disparity.
The other, as I mentioned, is on the investment capital side. Too often access to
capital amongst those least well off has been a barrier to growth.
In that regard, one very powerful tool is the Community Reinvestment Act, which
by some estimates generates between $4 billion and $6 billion a year in new credit into
communities across the nation. I've visited neighborhoods in South Bronx and Chicago
and seen first hand how the CRA has helped build housing, businesses and create hobs
with loans to creditworthy borrowers. It's worked in both inner cities and rural areas.
The CRA regulations have just been overhauled to make the act more effective
and less burdensome. But even as the new rules are about to take effect, there are
efforts to substantially weaken them. I believe it is imperative that we give the revised
regulations a chance to work, and I will fight any attempt to weaken the CRA
The second major element to improve capital access in our inner cities is the
Community Development Financial Institutions Fund. The Fund is a partnership with
the private sector. Government funds are highly leveraged with private sector resources.
Just a short time ago, we issued our first call for CDFIs around the country to apply to
the Fund for assistance. The response thus far has been tremendous. However, the
congressional majority, as with others of the programs I have mentioned today, has
refused to provide additional funding for the CDFI this fiscal year.
3
Another important element is microenterprise lending. That might involve
lending someone who wants to start a tailor's shop enough money for a sewing machine,
or lending a mechanic money for an electronic engine analyzer so he can take on more
complex repair jobs. The President has asked Treasury to launch a microenterprise
lending project -- to pull together the disparate programs in the federal government that
can help microenterprise lenders -- and to establish a new Presidential award to highlight
the best practices of microenterprise lenders in the United States.
Ukewise, the now-threatened Low Income Housing Tax Credit can empower
individuals and communities. It has been responsible for the vast majority of the new
low-income apartment construction in recent years. People in the South Bronx told me
that this tax credit is largely responsible for rebuilding neighborhoods there.
The capital access issue is clearly of critical importance to our cities. I've had
small businessmen from inner cities tell me how hard it has been for them to obtain the
capital and the credit they need. I've also seen the results when they get access to
capital and credit.
In closing, I want to make one observation. I was in Brazil over the weekend and
talked with determined leaders working to help others get ahead in an incredibly run
down are!! of Sao Paulo. The World Bank is providing support to community leaders
who are building a neighborhood out of what was alinost a shanty town lacking the basic
amenities -- sewers, clean water, good housing, all the rest.
The thing that is most striking is that every community has leaders and what's
necessary is opportunity. I've seen similar things here. In the Banana Kelly area of the
South Bronx, and in Chicago I met determined community leaders working to help their
neighbors get ahead. I know they're out there in other communities all over the country.
It is impressive to see their persistence and tenacity and vision. What they and all
Americans who are struggling to succeed need is access to the resources necessary to
that success.
As Congress and the Administration move forward to balance the budget, it is
critical that we not forget investments in human capital and access to financial capital so
critical to our nation's future and important in attacking income disparity.
Thank you.
-30-
PUBLIC DEBT NEWS
Department of the ~reasury • Bureau of the Public Debt • Washington, DC 20239
FOR RELEASE AT 3:00 PM .
December 6, 1995
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT ANNOUNCES ACTM'IY FOR
SECURITIES IN THE STRlPS PROGRAM FOR NOVEMBER 1995
Treasury's Bureau of the Public Debt announced activity figures for the month of November
1995, of securities within the Separate Trading of Registered Interest and Principal of
Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$864,913,537
.
Held in Unstripped Form
$642,849,302
Held in Stripped Form
$222,064,235
Reconstituted in November
$10,131,261
The accompanying table gives a breakdown of STRIPS activity by individual loan description.
The balances in this table are subject to audit and subseqent revision. These monthly figures
are included in Table VI of the Monthlv Statement of the Public Debt, entitled "Holdings of
Treasury Securities in Stripped Form."
Information about "Holdings of Treasury Securities in Stripped Form" is now available on the
Department of Commerce's Economic Bulletin Board (EBB). The EBB, which can be
accessed using personal computers, is an inexpensive service provided by the Department of
Commerce. For more information concerning this service call 202-482-1986.
000
PA-203
(RR-760)
TABLE VI - HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, NOVEMBER 30,1995
(In thousandS)
Loan Descnptlon
8-718'/, Note A-1996.
7-3/8% Note C-1996
7-1/4% Note 0-1996
8-1/2% Note A-1997
8-5/8% Note B-1997
8-7/8% Note C-1997.
8-1/8% Note A-1998
9% Note B-1998 ...
NoteC-1998
Note D-1998 .
Note A-1999 .... .
Note B-1999 .. .
8% Note C-1999 ....
7-7/8% Note D-1999
8-1/2% Note A-2000 ..
8-7/8'10 Note B-2000
8-3/4% Note C-2000
8-112% Note 0-2000.
7-3/4% Note A-2001 .
8% Note B-2001 .....
7-7/8% Note C-2001 .... .
7-112% Note D-2001 ... .
7-112% Note A-2002
6-3/8% Note B-2002 ..
6-1/4% Note A-2003
5-3/4% Note B-2003 ..
5-7/8% Note A-2004 ...
7-1/4% Note B-2004 ..
7-1/4% Note C-2004 .. .
7-7/8% Note 0-2004 ... .
7-112% Note A-2005.
6-112% Note B-2005 .... .
6-112% Note C-2005 ... .
5-7/8% Note 0-2005 ..... .
11 -5/8% Bond 2004 .. .
12% Bond 2005 ..... .
10-3/4% Bond 2005 ..
9-3/8'10 Bond 2006
11-3/4% Bond 2009-1
11-1/4% Bond 2015 ..
10-5/8% Bond 2015.
9-7/8% Bond 2015
9-114% Bond 2016
7-1/4% Bond 2016
7-112% Bond 2016 ... .
8-3/4% Bond 2017.. .
8-7/8% Bond 2017 .. .
9-1/8% Bond 2018.
9% Bond 2018 .....
8·7/8% Bond 2019
8·1/8% Bond 2019.
8-112% Bond 2020
8-3/4% Bond 2020
8-3/4% Bond 2020 ...
7.7/8% Bond 2021
8-1/8'10 Bond 2021 .
8·1/8'10 Bond 2021
8'10 Bond 2021 ..
7·1/4% Bond 2022.
7·5/8% Bond 2022
,.1/8% Bond 2023
6·1/4% Bond 2023
;"-112% 80nd 2024
7 ·5/8% Bond 2025
6· 7/8 ", Bond 2025
9-1/4%
8-7/8%
8-7/8'10
9-1/8'10
Total
MatUrity Date
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I'
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
----------------------------------PnnClpal Amount Outstanding
II
---------------,------------11
Reconstrtuted
Total
------- -------------------_._02/15/96
05/15/96
11/15/96
05/15/97
08/15/97
11/15/97
02/15/98
05/15/98 ..
08/15/98.
11115198
02115/99.
05/15/99.
08/15/99
11/15/99
02115100
05/15/00
08/15/00
11/15/00 ..
02115101
05/15/01.
08/15/01
11/15/01.
05/15/02.
08/15/02 ...
02115103
08115/03
02115/04
05/15/04
08/15/04 .....
11/15/04 ..
02115/05
05/15/05
08/15/05
11/15/05.
11/15/04
05/15/05
08/15/05
02115106
11/15/14
02115/15
08/15/15
11/15/15 .
02/15(16
05/15/16
11/15/16
05(15/17
08/15/17
05/15/18
11/15/18
02115119
08/15/19
02115120
05/15120
08/15120 ..
02115121
05/15121.
08/15121
11/15121
08/15122
11/15122
02115123
08/15123
11/15/24
02/15/25
08/15125
8,450,609
20,085,643
20,258.810
9.921.237
9,362.836
9.808.329
9,159.068
9,165,387
11,342,646
9,902,875
9,719,623
10,047,103
10,163644
10,773,960
10,673,033
10,496.230
11,080,646
11,519,682
11,312,802
12,398,083
12,339,185
24,226,102
11,714,397
23,859,015
23,562,691
28,011,028
12,955,077
14,440,372
13,346,467
14,373,760
13,834,754
14,739,504
15,002,580
15,209,835
8,301,806
4,260,758
9,269,713
4,755,916
6,005,584
12,667,799
7,1 49,916
6,899.859
7.266,854
18,823551
18,864,448
18,194.169
14016,858
8,708,639
9,032,870
19,250,798
20,213,832
10,228,868
10,158,883
21,418,606
11,113,373
11,958.888
12,163,482
32798,394
10,352,790
10.699,626
18,374361
22,909,044
11469.662
11.725170
12602.007
-------
864,913.537
======================================= ===========================
Portion Held Ifl
Unstnpped Form
I
I
I
I
I
I
I
I
I
I
I
I
I
6,354,609
16,247,243
17,291,610
8,714,037
7,263,636
7,008,329
7,862,748
6,823,987
8,449,046
6,891,675
8,108,423
6,589,503
7,890,794
7,284,360
8,061,833
5,872,230
6,937,926
7,818,882
8,593,602
9,481,633
9,814,385
22,065,302
10,448,877
22,699,015
23,138,659
27,542,228
12,955,077
14,440,372
13,315,267
14,373,760
13,834,354
14,739,504
15,002,580
15,209,835
4,463,406
2.519,408
7,670,513
4,753,'164
2,330,384
9,615,639
2,929,116
3,719,059
6,797,254
18,525,951
18.140,688
8.985,209
8,856,858
2,215,839
2,800,270
4,925,998
16,902,152
6,264,468
3,768,323
5,038,926
10,164,573
4,417,448
3,344,922
6,792,569
7.959,190
2,942,826
14,212,761
21.701,908
7,793,182
10,569,970
12.602,007
I
642,849,302
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
Portion Held in
Stnpped Form
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
en
In
t~,s
table are subject to audit and suo&equent adjustments
2,096,000 II
3,838,400 II
2,967,200 II
1,207,200 I
2,099,200 I
2,800,000 I
1,296,320 I
2,341,400 I
2,893,600 I
3,011,200 I
1,611,200 I
3,457,600 I
2,272,850 I
3,489,600
2,611,200
4,624,000
4,142,720
3,700,800
2,719,200
2,916,450
2,524,800
2,160,800
1,265,520
1,160,000
424,032 I
468,800 II
011
011
31,200 II
011
400 II
011
011
011
3,838,400 II
1,741,350 II
1,599,200 II
2,752 II
3,675,200 II
3,052,160 II
4,220,800 I I
3,180,BOO II
469,600 II
297,600 II
723,760 II
9,208,960 I
5,160,000 I
6,492,800 I
6,232,600 I
14,324,800 I
3,311,680 I
3,964,400 I
6,390,560 I
16,379,680 I
948,800 I
7,541,440 I
8,818,560 I
26,005,825 I
2,393,600 I
7,756,800 II
4,161,600 II
1,207,136 II
3,676,480 II
1,155,200 II
011
222,064,235
II
This Month
"1
19,200
142,400
139.200
183.200
3,200
49.600
9,600
38,800
13,600
60,800
132,800
238,400
98,900
64,000
14,000
59,200
36,160
135,600
108.800
40,650
62,400
183,120
24,000
9,600
194,912
140,800
o
o
o
o
o
o
o
o
166,400
78,600
107,200
o
188.800
770,400
184,000
331,200
182,400
o
2,000
253,600
320,000
84,800
199,600
627,200
471,680
334,800
314,240
1,037,920
131,200
272,320
172,800
501,175
244.800
126,400
20,800
414,624
389,360
o
o
10,131,261
====================================================== =:======~=====
1:1 E"eC:lve May 1, 1987, seCUrities held In s:n~ped form were eligible for reconstitution to the" unstnpped fomn
~Jote
:he 4th workday of eacn month Table VI Will be available after 3 00 p m
Eco~cmlC Bulletin Board (EBB) The te,ec~one number for more Information
II
II
eastern time on the Commerce Departmenrs
about EBB IS (202) 482-1986 The balances
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt - Washington, DC 20239
FOR IMMEDIATE RELEASE
December 7, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $18,781 million of 52-week bills to be issued
December 14, 1995 and to mature December 12, 1996 were
accepted today (CUSIP: 9127942B9).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.04%5.06%5.06%-
Investment
Rate
5.33%5.35%5.35%-
Price
94.904
94.884
94.884
Tenders at the high discount rate were allotted 96%-.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$49,983,957
Accepted
$18,780,500
$44,760,117
773,840
$45,533,957
$13,556,660
773,840
$14,330,500
4,450,000
4,450,000
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.05 -- 94.894
RR-761
o
o
$49,983,957
$18,780,500
PRESIDE~T'S
\tIDDLE-CLASS TAX CCT PROPOSALS
The Administration has proposed the following middle-class tax cuts designed not
only to provide t:a.x relief. but also to provide InCentlves to save and Invest in our future and
so boost Amencan productiVIty:
Proride tax credit for dependent children. - A 5500 non-refundable credit will be
allowed for each dependent child under the age of 13. The credit will ~ual S300 for 1996.
1997 and 1998. and wIll rise to $500 for 199~ and subs~uent yeMs. The credit wIll be
phased-out for taxpayers WIth adjusted gross income (AGI) between 560.000 and $75.000.
Both the credit amount and the phase-out range will be indexed for intlation.
Pro~'ide
tax incentive for education and training. - Effective January I, 1996. a
deduction wIll be permitted for up to S5.(X)() in expenditures on post-secondary school
educatlon and traln!ng for the taxpayer. the taxpayer's spouse and dependents. The
maximum allowable deductlon will increase to $10.000 effective January 1. 1999. The
maximum allowable deduction will be phased-out for taxpayers filing Joint returns with AGI
(before the proposed deduction) between $100,000 and $120,000. For taxpayers filing a
head-of-household or single return the maximum allowable deduction \I'ill be phased out for
those with AGI between $70,000 and 590,000.
Expand lndi"'iduai Retirement Accounts (/RAs) - Under present law, eligibility for
deductible IRAs IS phased-out for single taxpayers with AGI between S25.000 and $35,000
and for couples filing a joint return with AGI between $40,000 and 550,000. Effective
January I. 1996, the AGI thresholds and phase-out ranges wIll be doubled: therefore.
eligibility wtli be phased-out for single taxpayers with AGI between 550.000 and $70.000
and for couples filing a Joint return with AGI between S80.000 and S100.000. These
thresholds and the present law annual contnbution limit of S2.CX)Q will be tndexed for
tnf1atlOn. Penalty-free withdrawals from iRAs Will be allowed if the proceeds are used to
pay post-secondary education costs. to buy or budd a first home. to cover living costs If
unemployed for at least 12 consecutive weeks, or to pay catastrophIc medical expenses
(including nursing home or other costs associated With canng for an incapacitated parent or
grandparent) .
In addition, e.1ch indiVidual eligible for a deductible IRA will have the optIon of
contnbuting an amount up to the contnbutlon limit to a traditional deductible IRA or to a
new back-loaded Special IRA. Contnbutions to this Special IRA will not be tax deductible.
but I f the assets remam in the account for a least five years. all earT1lngs from the account
will be tax-free \l,.hen withdrawn.
Revenue Estlnla1es
Middle-Class Tax Cut
1) M.lI 95
f 15c,,1 Ye~,s
2001
2002
(S's In billions)
19')5
1996
1997
1998
1999
2000
Child Ta. Benefll
C,edll 10' chlld,en 12·yea,s and und", credll = $)00 fo, 1~96 1997 and
1998. $500 fa, 1999 and Ih",e~"e, phase oul AGI between
$60000 - S 75 000 "Hoc live 111'9(;
00
) 5
6 8
66
fl )
10 I
101
Education and Job Tralfllng Iflcenllve
Phased-In deducllOn fo, up to S 10 000 In po,l.seconda,y educallOn and 113""ng
ewponsos wllh phase oul AGI betNeen $ 70 000 - S90 000 single
S 100.000 - S 120000 JOInI phaso In= S5 000 fa' 1996 1997 and
1998 S 10 000 10' 1999 and Ihe,e~hc'
00
a7
4 7
SO
58
76
Savings Incenllve
E wpand eligibility fa, doduct,ble -front loaded- IRA, by increasing AGI
eligibility phase oul flom cUllenl S40 000 - S50 000 10 $80 000 - $ 100 000
fa, JOlnl ,,,Iurns (cullenl $25 000 S)5 000 phase-oullncreased 10 S50 000 S 70 000 lor Single ,,,Iu,ns). add new "back lo~ded IRA opllOn allow
conve'slon of e.,sllng IRAs 11110 "back loaded" IRAs and relaln cUllenllaN
non walking spouse IImll. allOW penalty f,oo wllhd,awals fa, educalron
f",1 home medICal a.penses long telm un~mploymonl and ca'e fa, eldelly
00
O~
0)
08
10
00
-) 8
-11 8
124
-151
!Mrddle-<lass 13< cui lolal
Departmenl 01 Ihe Treasury
Office 01 Tax AnalySIS
2003
2004
2005
99
-9 7
-94
-98
-354
-553
842
76
-79
-81
-8 )
-85
-237
-)91
-641
20
3 )
)6
39
-42
5
38
10 7
2))
-19 7
21 0
-21 4
21 7
-21 9
-22 9
-628
-lOS 2
~
1995·2000
- - --- - - 1995--20021995-2005
- 1 71 7 I
COKI'OKATE SUBSIDIES, LOOPHOLE CLOSERS ANO OTlIER MEASURES
Preliminary
----- --
12106/95
1020 PM
,proposal __, _,
1Y96
1997
199K
1999
~OOO
200 I
2002
Fiscal
200 I
($'s
YeJ"
2004
2()(15
1<)%
20\~)
I l/% 21 ~)2
1'1% 2005
10 11111\")11»
ih.,UU" RtlCouciliaUoo Acl of 1995 Pro,i.,ioru
Rdvnn d~pf~':lallOn und~f Ih~ In,','me fOf~,'a'l melhod
53
70
5K
-15
\7
29
22
2U
21
2,\
2()I
114
.17K
Pha,e oUI I'fckfenllal tax d,kfldl tvr ,ertaln large !ann corp'Hallvns
r<'lulled tv use accrual accounting
36
56
6.1
65
67
69
71
72
74
7/.,
2tS7
-127
649
25-1
.lIN
612
765
KKl
9%
liB
12tS"
141!!
1'1'14
1022
'11'11
'1-168
4
K
14
2U
27
.Ib
41>
.5K
)\
41
III)
2K7
6
1/
II)
20
26
31
31>
4'
-17
5()
III
2lK
.\
2
2
2
2
2
)I
15
19
\)"311..,, Inl~lnl ,kduCilO"
(idllll(\ngllltlllil
lUI
'''I
,'llIl'Or3Ie'owned life Insurance policy loans (Admin ver'>lon)
>..l",t.J1II (\tlillllJllhll) ,h\'Il.1t:wj~
Modify oas", adjustment ruks undo sectIOn 1033
R~glslrallon
of certain confldenllal (orporale tax shelters
Re'lulre thrifts Iv account for bad debls
10
the same maoner a, banks
Exlend oil ,pIli lIabllll)' lru>1 !1lnd lax
,- - ' - , - - ' , - -- -----LSub .... ral ~~oDciliaUoD Acl ProvisioD!l ,
[,-
~
K5
uo
246
301
290
277
265
251
11'1
47
II )52
15'1-1
20 II
o
107
107
54
lOtS
lOtS
102
7
o
()
n6
'HI>
591
JlUI_ g62
1426
IS34
1~!2!~ J753 _ !~!.
5114
1010
13643
~:!._865
Addilional t''roposalo.
Repeal per.:entage depkllon !or noo·!1ld minerals mine<! on Federal laods
)2
K9
<) I
94
97
100
103
106
10'1
1/3
-12.1
1'>21>
954
Deny Inlerest deduction on certain debt lostrumenls
Inl03.:tlon With 509. DRD proposal
34
88
154
226
W-I
IbN.)
165!)
15
26
566
38
75K
10
472
32
b66
6
302
20
384
2
45
51
5\
III
245
K
19
.'4
50
66
II)
101
120
1.tO
I()()
177
ltd
7KI
22\1
12
3tSlJ
.10K
2I
4.10
4'\.\
47b
'1U I
52K
I'}I)X
25
27
29
3-1
·5
·K
·9
·9
24
10
-10
.1/
II
J.\
'1'1
4I
2XX5
151
-1),)1
22
555
32
12
5X5
20
be
':HI
tS6
14tS
156
163
172
94
41
43
45
47
72'>
XN.)
'N'>
II
33
56
73
S4
96
10K
119
III
14,\
257
4(d
tS5-1
9
19
27
35
45
57
70
85
101
120
I \,
2b~
568
157
94
274
161
276
169
264
178
122
186
32
195
34
204
37
214
39
41
10<).1
~35
7KK
liS'!
1187
1276
~24
25
53
9()
122
1-1'1
164
172
17()
17()
-147
')5':1
Defer ollgll1al Is,ue discount deduction on convertible debt
LIIIIlI diVidend, received dedudlon (0 KO)
a
o
Reduce DRO 10 Yl'7c
Mod"y holding penod fOf ORO
I nlcractlOn
Tre<ll certain prderred 510<:1.: as "b0<>I"
Extend pro rala disallowance of tax·exempl IIIlerest expense to all cO'lloratlOns
Repeal seclion 1374 for large corporallons (S5 million fair market value)
Inventory Reforms
a.
Repeal lower of cosl vr mdrket melhod
b
Repeal components of cost method
Reporting ra) l\\e"I'>
10
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Increa,e renaille> for failure
10
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COUPOUATE SUHSJI)IES, LOOPHOLE CLOSEUS ANI) OHlER MEASURES
Prelimillary
loposal
12/00/95
10:20 PM
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1996
excise taxes on kerosene as diesel fud
Expand subpart F provIsions regarding ,",orne from notional prrnclpal contracts and stod,
lending traos8clrons
PrOVide rules regal ding tre.atrnent of captIve
Insurance
anBlIgemenls
Rdormulate Puerto RIco and po,sesslOns tax credit \Se~!\oll 930}
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47(1l-
-
December 7, 1995
CORPORATE SUBSIDIES, LOOPHOLE CLOSERS,
AND OTHER MEASURES
INDEX
Proposal
Paee#
•
Refonn depreciation under the income forecast method
1-2
•
Phase out preferential tax deferral for certain largt: fann corporations
required to use accrual accounting
3
•
Disallow interest deduction for corporate-owned life i1~urance policy loans
4-6
•
Require gain recognition for cenain extraordinary divid'!nds
7-8
•
Modify basis adjustment rules under section 1033
9
•
Require registration of cenain confidential corporate tax shelters
10
•
Require thrifts to account for bad debts in the same manner as banks
11-13
•
Extend oil spill liability trust fund excise tax
14
•
Repeal percentage depletion for non-fuel minerals mined on Federal lands
15
•
Deny interest deduction on cenain debt instruments
16-17
•
Defer original issue discount deduction on convertible debt
18
•
Limit dividends-received deduction
a. Reduce dividends-received deduction to 50%
19
b. Modify holding period for dividends-received deduction
20
•
Treat cenain preferred stock as "boot"
21-22
•
Extend pro-rata disallowance of tax-exempt interest expense to all corporations
23-24
•
Repeal section 1374 for large corporations
25
December 7. 1995
•
•
Inventory reforms
a. Repeal lower of cost or market inventory accounting method
26
b. Repeal components of cost inventory accounting method
27
Require reporting of payments to corporations rendering services
to federal agencies
28
•
Increase penalties for failure to file correct information returns
29
•
Further restrict like-kind exchanges involving personal property
30
•
Modify loss carry-back and carry-forward rules
31
•
Impose excise taxes on kerosene as diesel fuel
32-33
•
Expand subpart F provisions regarding income from notional principal
contracts and stock lending transactions
34
•
Provide rules regarding treatment of "captive" insurance arrangements
35-36
•
Reformulate Puerto Rico and possessions tax credit (section 936)
37
ii
December 7, 1995
Reform Depreciation Under the Income Forecast Method
Current Law
Pursuant to several administrative pronouncements, the IRS has ruled that the cost of
motion picture films, video tapes, sound recordings, and other similar propeny may be
depreciated under the "income forecast" method, pursuant to which depreciation for any taxable
year is detennined by dividing the income realized for that year by the total estimrted income
from the propeny. The IRS has also ruled that the estimated income to be included in the
denominator does not include income from television exhibition in the case of motion pictures
released for theatrical exhibition. or income from syndication in the case of a television series
or movie. In addition, estimated income does not include revenue from the exploitation of film
characters. Such propeny is not eligible for depreciation under the modified acc~lerated cost
recovery system.
Reason for Change
While the income forecast method may be an appropriate method for matching income
and expenses in certain cases, the exclusion of income from certain sources results in an
inappropriate acceleration of depreciation deductions. In addition. the use of estimates in the
income forecast method necessarily results in a mismatch between income and depreciation
deductions when the estimate of future income is either too high or too low. A look-back
method. i.e .. a procedure to compensate for errors in estimates in prior taxable years, would
eliminate any benefit that taxpayers may ohtain from understating the estimated income from
properry. thereby overstating their depreciation deductions.
Proposal
Several changes to the income forecast method of detennining depreciation deductions
would be made. All estimated income from the use of the propeny or the sale of merchandise
would be taken into account in the denominator. other than income expected to be generated
more than ten taxable years after the year in which the propeny was placed in service. For
purposes of this rule. income realized hy the taxpayer from related pany transactions would be
ignored. but income realized hy the related parry from the ultimate transaction with unrelated
third panies would be taken into account. The basis for depreciation for any taxable year may
only include amounts that satisfy the economic perfonnance requirements of section 461 (h) as
of the end of the year (including the recurring item exception). The adjusted basis remaining
at the beginning of the tenth taxable year after the year in which the propeny is placed in service
may be recovered in full in that year. Finally, a look-back method would be imposed and
applied in a manner similar to the long-tenn contract provisions of section 460 (together with
de minimis exceptions). A special rule is provided for an episode in a television series, pursuant
to which income from syndication is not required to be taken into account, for purposes of either
the income forecast method or the look-back computation, before the earlier of the fourth taxable
December 7. 1995
year after the year in which the fITst episode is placed in service or the earliest taxable year in
which the taxpayer has an arrangement relating to the future syndication of the series. The
changes would apply to property placed in service after September 13, 1995. unless subject to
a binding contract as of that date.
This ;>roposal is substantially similar to a provIsIon contained
Reconciliation Act of 1995 as passed by Congress.
-2-
In
the Revenue
December 7. 1995
Phase Out Preferential Tax Deferral for Certain Large
Farm Corporations Required to Use Accrual Accounting
Current Law
,
The Revenue Act of 1987 required certain closely held fann corporations (and
partnerships with corporate partners) to change to the accrual method of accounting if their gross
receipts exceed $25 million in any taxable year beginning after 1985. However, in lieu of
making a section 481(a) adjustment for the year of change, such taxpayers were pennitted by
section 447(i) to establish a "suspense account" for the lesser of the section 481(a) adjustment
for the year of change or the adjustment that would have been applicable for the preceding
taxable year. This suspense account is not required to be taken into account unless the
corporation ceases to meet the closely held test or except to the extent that the gross receipts of
the entity are reduced in any taxable year below the amount applicable to the last year prior to
the year of change. As a result, the suspense account provision represents a potentially indefinite
deferral of the section 481(a) adjustment.
Reason for Change
Section 447(i) is a substantial and inappropriate departure from the policy underlying
section 481 (a) and the administrative practices of the Service, in which the cumulative
adjustments resulting from accounting method changes are taken into account generally over
periods not exceeding six years.
Proposal
The proposal would provide that ~o suspense accounts may be established under section
447(i). Any taxpayer required to change to the accrual method after the effective date would
be required to take its section 481(a) adjustment into account generally over a ten-year period.
Any existing suspense accounts must be restored to income ratably over a 20-year period (or
sooner to.the extent provided by existing law). This provision would be effective for taxable
years ending after September 13. 1995.
This proposal is substantially similar to a proVISion contained
Reconciliarion Acr of 1995 as passed by Congress.
-3-
In
the Revenue
December 7, 199'5
Disallow Interest De:!uction for Corporate-Owned
Life Insurance (COLI) Policy Loans
Current Law
No federal income tax generally is imposed on a policyholder with respect to the
undistributed earnings under a life insurance contract (inside buildup), provided the life insurance
contract meets certain requjrements (section 7702). Further, an exclusion from Federal income
tax is provided for death benefits received under a life insurance contract (section 101(a». The
policyholder may generally borrow with respect to a life insurance contract (other than a
modified endowment contract) without affecting these exclusions.
The present law limits the allowance of a deduction for interest paid or accrued on any
borrowings with respect to ~ life insurance, endowment or annuity contract. These limitations
include specific disallowance provisions of section 264 and other statutory and judicial rules
which may apply to preclude on interest deduction.
One of the section 264 rules disallows any deduction for interest paid or accrued on
indebtedness with respect to one or more life insurance contracts covering the life of any
individual who is (1) an officer or employee of, or (2) financially interested in, flny trade or
business carried on by the taxpayer to the extent that the aggregate amount of the indebtedness
with respect to contracts covering the individual exceeds $50,000. This $50,000 fimitation was
added by the Tax Reform Act of 1986 and applies to contracts purchased after June 20, 1986.
Reason for Change
A company that sets up a COLI program typically purchases life insurance contracts on
the lives of its employees, in many cases thousands or tens of thousands of employees, including
former employees. The company, not the employee' s family, receives all or most of the
proceeds on the employee's death. The company typically borrows against the cash value of the
life insurance contracts at an interest rate just above the rate at which inside buildup is credited
under the contract. The interest that the company pays on policy loans is credited under the
contract and increases the tax-free inside buildup. If the interest on the policy loans is in fact
deductible under present law, the after-tax interest expense is less than the interest income being
credited under the policy (the inside build-up). In addition, tax-free death benefits that the
company receives on the death of insured employees subsidize the payment of premiums in
future years.
Large COLI programs may be viewed as the economic equivalent of a tax-free savings
account owned by the company into which it pays itself interest. The taxpayer is indirectly
paying interest to itself through an increase in the value of the life insurance contract of which
-4-
December 7. 1995
the taxpayer is the beneficiary. A general principle of accurate income measurement provides
that expenses such as interest are not deductible if they are costs of accretions of wealth that are
not included in income. For example. interest incurred to purchase or carry tax-exempt bonds
is not deductible under section 265 of the Code.
COLI programs represent an attempt to inappropriately use the tax rules to achieve a
result that was never contemplated by Congress. When the $50.000 limit was enacted in 1986.
it was not anticipated that it would lead to the purchase of life insurance products covering
hundreds and thousands of employees of a business organization in an attempt to maximize the
tax arbitrage of deducting interest that is credited, tax-free, to the organizations that own the
insurance contract.
A 1990 Treasury Report to Congress found that the increases in COLI programs since
1986 demonstrate that the Congressional intent was not accomplished and further that
"borrowing against corporate owned life insurance does not provide family protection. subverts
other Congressional limitations on tax-preferred retirement and health plans, and loses revenue ...
Department of Treasury, Report to The Congress on The Taxation of Life Insurance Company
Products. 3 (March 1990).
Proposal
Section 264 would be amended to provide that no deduction is allowed for jnterest paid
or accrued on any indebtedness with respect to one or more life insurance, endowment or
annuity contracts covering any individual who is (1) an officer or employee or.-or (2) financially
interested in. any trade or business carried on by the taxpayer. regardless of the aggregate
amount of debt with respect to policies or contracts covering the individual.
The proposal is not intended to affect the tax treatment of any interest paid or accrued
under present law (including whether interest paid or accrued during the phase-in is otherwise
deductible). and the IRS would not be precluded from challenging COLI plans under current
law.
The provision would be effective generally with respect to interest paid or accrued after
December 31, 1995. However. subject to the limitations described below, the provision would
he phased in by allowing the taxpayer to deduct 50% of the otherwise deductible interest
incurred during 1996 on debt incurred before September 18. 1995. with respect to a life
insurance contract that was in effect on that date and that covers only the individual who was
insured under the contract on that date. Only interest that would have been deductible but for
this proposal is allowed under this phase-in. In addition. no deduction is allowed under this
phase-in with respect to interest on borrowings by a taxpayer with respect to contracts on the
lives of more than 20,000 insured individuals (for this purpose, all persons treated as a single
employer are treated as one taxpayer>. Finally, no deduction is allowed to the extent the rate
-5-
December 7. 1995
of interest exceeds the lesser of (1) the borrowing rate specified in the contract as of September
18, 1995. or (2) the Moody's Corporate Bond Yield Average - Monthly Average Corporates for
each month the interest is paid or accrued.
Any amount included in income during 1996 or 1997 that is received under a contract
described in the proposal on the complete surrender. redemption. 0- maturity of the contract or
in full discharge of the obligation under the contract that is in the nature of a refund of the
consideration paid for the contract is includible ratably over the first four taxable years beginning
with the taxable year theamount would otherwise hav~ been includible.
This proposal is substantially similar to a provision contained
Reconciliation Act of 1995 as passed by Congress.
-6-
in
the Revenue
December 7. 1995
Reql1ire Gain Recognition for Certain Extraordinary Dividends
Current Law
A corporate shareholder is generally allowed to deduct a certain percentage of dividends
received from another domestic corporation. A corporate shareholder who receives an
"extraordinary" dividend is required to reduce the basis of the stock with respect to which the
dividend was received by the non-taxed portion of the dividend (section 1059). Whether a
dividend is "extraordinary" is determined by reference to, among other things, the size of the
dividend in relation to the adjusted basis of the shareholder's stock. Also, a dividend resulting
from a non pro rata redemption or partial liquidation is an extraordinary dividend. If the
reduction in basis of stock exceeds the basis in the stock with respect to which an extraordinary
dividend is received, the excess is taxed as gain at the time of a sale or disposition of such stock.
In general, a distribution in redemption of stock is treated as a dividend. rather than as
a sale of the stock, if it is essentially equivalent to a dividend. A redemption of the stock of a
shareholder generally is essentially equivalent to a dividend if it does not result in a meaningful
reduction in the shareholder's proportionate interest in the distributing corporation. The
determination whether a redemption is essentially equivalent to a dividend includes reference to
the constructive ownership rules of section 318. including the option attribution rules of section
318(a)(4). The rules relating to treatment of other property received in a reorganization contain
a similar reference (section 356(a)(2»).
Reason for Change
Some corporate taxpayers are aueJYlpting to dispose of stock of other corporations in
transactions structured as redemptions, where the redeemed corporate shareholder apparently
expects to take the position that the transaction qualifies for the dividends-received deduction.
Thus. the redeemed corporate shareholder attempts to exclude from income a substantial portion
of the amount received. In some cases, it appears that the taxpayer's interpretations of the
option attribution rules of section 31S( a)( 4) are important to the taxpayers' contentions that their
interests in the distributing corporation are not meaningfully reduced.
Also, the present rules may be permitting inappropriate deferral of gain recognition when
the portion of the distribution that is excluded due to the dividends-received deduction exceeds
the basis of the stock with respect to which the extraordinary dividend is received.
Proposal
The extraordinary dividend rules of section 1059 would be amended to provide that a
corporate shareholder will recognize gain immediately with respect to any redemption treated
-7-
December 7. 1995
as a dividend (in whole or in part) when the nontaxed portion of the dividend exceeds the basis
of the shares surrendered, if the redemption is treated as a divjdend due to options being counted
as stock ownership. In addition, immediate gain recognition is required whenever the basis of
stock with respect to which any extraordinary dividend was received is reduced below zero.
Reorganizations or other exchanges involving amounts that are treated as dividends under section
356(a)(2) of the Code are treated as redemptions for purposes of applying the rules relating to
redemptions under section l059(e). The provision is effective generally for distributions after
May 3, 1995.
This proposal is substantially similar to a provISIOn contained
Reconciliation Act of 1995 as passed by Congress.
-8-
In
the Revenue
December 7. 1995
Modify Basis Adjustmeut Rules Under Section 1033
Current Law
Section 1033 provides generally th?J gain realized from cenain involuntary conversions
is deferred to the extent the taxpayer purchases property similar or related in service or use to
the converted property within a specified period of time. The replacement property may be
acquired directly or, alternatively, indirectly by acquiring control of a corporation that owns
replacement property. The taxpayer's basis in the replacement property generally is the same
as the taxpayer's basis in the converted property, decreased by the amount of money received
or loss recognized on the conversion, and increased by the amount of any gain recognized on
the conversion. The IRS has taken the position that, if the replacement property is stock in a
corporation, the basis adjustment rules do not affect depreciation deductions claimed by the
corporation with respect to the assets it owns.
Reason for Change
Where the replal:ement property in an involuntary conversion is stock in a corporation,
it is necessary to adjust the basis in the assets of the corporation in order to properly reflect the
purpose of the involuntary conversion rollover rules to allow deferral of gain recognition (but
not avoidance of that gain).
Proposal
Under the proposal. where a taxpayer acquires a controlling interest in the stock of a
corporation as replacement property aft~r an involuntary conversion, the corporation will
generally be required to reduce its adjusted bases in its assets by the same amount as the
taxpayer is required to reduce its basis in the acquired stock. The corporation's adjusted bases
in its assets would not be reduced. in the aggregate, below the taxpayer's basis in its stock. In
addition. the basis of any individual asset would not be reduced below zero. The basis reduction
would be appJ ied first to property that is similar or related in service or use to the converted
property. then to other depreciable property, and finally to any other property. This proposal
would be effective for involuntary conversions occurring after September 13. 1995.
This proposal is substantially similar to a provision contained in the Revenue
Reconciliation Act of 1995 as passed by Congress.
-9-
December 7. 1995
Require Registration of Certain Confidential Corporate Tax Shelters
Current Law
A tax-shelter organizer must register the shelter with the IRS if the tax shelter meets the
following two requirements. First. any investment in the tax shelter must be (1) pursuant to an
offering that is required to be registered under a Federal or state law regulating securities. (2)
pursuant to an offering that is exempt from registration under such laws but with respect to
which a notice must be filed with a Federal or state agency regulating the offering or sale of
securities, or (3) a substantial investment. Second, any person must be able reasonably to infer
from the representations made or to be made in connection with the offering for sale of interests
in the investment that the ratio of deductions and 350 % of credits to the investment for any
investor (the "tax shelter ratio ") may be greater than two to one as of the close of any of the
first five years ending after the date on which the investment is offered for sale.
Reason for Change
Many corporate tax shelters are not registered with the IRS. Requiring registration of
corporate tax shelters would result in the IRS receiving useful information at an early date
regarding various forms of tax shelter transactions engaged in by corporate participants. This
will allow the IRS to make better infonned judgments regarding the audit of corporate tax
returns and to monitor whether legislation or administrative action is necessary regarding the
type of transactions being registered.
Proposal
The proposal would require r~stration with the IRS of any investment. plan,
arrangement or transaction (1) a significant purpose of the structure of which is tax avoidance
or evasion by a corporate participant. (2) that is offered to any potential participant under
conditions of confidentiality (for example confidentiality agreements entered with or for the
benefit of the promoter). and (3) for which the tax shelter promoter (or promoters) may receive
total fees in excess of $100.(XXL Registration materials will be protected taxpayer infonnation,
and there will be substantial penalties for non-compliance. The provision is effective for any
tax shelter offered to potential participants after the date the Secretary of the Treasury prescribes
guidance regarding the filing requirements.
This proposal is substantially similar to a provision contained
Reconciliation Act of 1995 as passed by Congress.
-10-
In
the Revenue
December 7. 1995
Require Thrifts to Account for Bad Debts
in the Same Manner as Banks
Current Law
A thrift institution that holds at least 60 percent of its portfolio in home mortgages (and
certain similar loans). cash. and government obligations is permitted to maintain a reserve for
bad debts under section 593 of the Internal Revenue 'Code. Under section 593, a thrift
institution generally may calculate the annual addition to its bad debt reserve under either the
"percentage of taxable income" method or the "experience" method. Under the percentage of
taxable income method. a thrift may deduct 8 percent of its taxable income (determined without
regard to the deduction and with certain other adjustments) as an addition to its bad debt reserve.
Under the experience method, a thrift may deduct the greater of (1) the percentage of its loans
outstanding equal to its average bad debt experience (i.e., bad debt losses as a percentage of
loans outstanding) in the current and five preceding years, or (2) the amount necessary to restore
its reserve to its balance at the close of the last taxable year beginning before 1988 (adjusted
downward [0 reflect any post -1987 decline in loans outstanding).
The reserve methods of section 593 are more generous than the rules applicable to
commercial banks. Under section 585 of the Code. small banks are permitted- to use the
experience method, but not the percentage of taxable income method. If the adjusted basis of
a bank's assets exceeds $500 million, section 585 does not apply and only the specific charge-off
method can be used to compute the bad debt d e d u c t i o n . '
'Under current law, a thrift that loses its eligibility to compute reserves under section 593
hecause it changes its charter [0 become a;bank or because it fails the 60-percent test described
above must account for bad debts as if it were a bank. In addition. it must recapture. through
a section 481(a) adjustment. the amount by which the reserve computed under section 593
exceeds the reserve (if any) computed under section 585. In general, the amount recaptured is
included in income ratably over a 6-year period. A thrift that becomes a large bank. however.
may use the rules that apply when a small bank becomes a large bank to recapture an amount
equal to its reserve computed under the experience method.
Reason for Change
As a result of the increasing convergence of the banking and thrift industries. the special
rules applicable to thrifts. such as the subsidy provided through the reduction in effective
marginal tax rates for thrifts using the percentage-of-taxable-income method, are no longer
warranted. Some relief from recapture is appropriate, however. because deferred tax liabilities
have not been recorded with respect to pre-198B additions to thrift bad debt reserves. To require
recapture with respect to these amounts. even on a deferred basis. would have a significant effect
-11-
December 7. 1995
on the capital of some thrifts. In addition, it is appropriate to provide some incentive for thrifts
to continue in the mongage lending business for a transitional period.
Proposal
Section 593 would be repealed. (In addition, other provisions that apply only to thrift
institutions to which section 593 applies (e.g., sections 595 and 596) would also be repealed.)
Small thrifts (those with no more than $500 million of adjusted bases in their assets) would be
permitted to use either the experience method of section 585 or the specific charge-off method.
Large thrifts would be required to use the specific Charge-off method. The percentage-oftaxable-income method of computing bad debt reserves would no longer be available.
Any change in the method a thrift uses to compute reserves for bad debts would be
treated as a change in method of accounting, and the section 481(a) adjustment with respect to
the change generally would be taken into account ratably (recaptured) over a 6-year period
beginning with the year of change. However, the balance of the bad debt reserve as of the close
of the last taxable year beginning before 1988 would not be recaptured. In the case of a thrift
that becomes a small bank. the opening balance of its bad debt reserve for its first taxable year
beginning after December 31, 1995. would be the greater of its pre-1988 balance or its reserve
computed under the experience method at the close of its last taxable year beginning before
January 1. 1996. The pre-1988 balance included in the thrift's bad debt reserve under this rule
would not be recaptured (or taken into account in applying the cut-off method) if t!te thrift later
hecomes a large bank.
Section 593(e) of current law (requiring recapture in the case of certain excess
dlstrihutions to shareholders) would continue to apply to the pre-1988 balance. and the pre-1988
halance would be treated as a tax attribute to which section 381 applies. In addition. the pre1988 balance would be recaptured if the .taxpayer ceases to be a bank (for this purpose, the
taxpayer ceases to be a bank if it becomes a credit union).
Recapture of reserves in excess of the pre-1988 balance would be suspended for taxable
years heginning in 1996 and 1997 if the taxpayer meets a residential loan requirement. The
residential loan requirement is met for a taxable year if the principal amount of residential loans
made hy the taxpayer during the year is not less than the average of the principal amount of such
loans during the six most recent taxable years beginning before 1996. At the election of the
taxpayer. the average may he computed by disregarding the high and low years in the six-year
period. A residential loan is any loan described in section 7701 (a)(l9)(C)(v) (generally, loans
secured by residential real propeny. real propeny used by churches, and mobile homes), but
only to the extent the loan IS made to acquire. construct. or improve the property. The test
would he applied on a controlled group basis.
-12-
December 7. 1995
Any reserve balance that would qualify for recapture suspension if the taxpayer satisfies
the residential loan requirement would be treated as a tax attribute to which section 381 applies.
In addition, regulations would provide rules for the application of the residential loan
requirement in the case of acquisitions, mergers, spin-offs, and other reorganizations.
The proposal would be effective for taxable years beginning after December 31. 1995
This proposal is substantially similar to a provision contained in the Revenue
Reconciliation Act of 1995 as passed by Congress.
-13-
December 7. 1995
Extend Oil Spill Liability Trust Fund Excise Tax
Current Law
Befor~
January 1. 1995. a five-cents-per-barrel excise tax was imposed on domestic crude
oil and imponed petroleum products. The tax was dedicated to the Oil Spill Liability Trust
Fund to finance the cleanup of oil spills and was not imposed for a calendar quarter if the
~nobligated balance in the Trust Fund exceeded $1 billion at the close of the preceding quarter.
Reason for Change
Reimposition of the Oil Spill Liability Trust Fund will ensure that funds will continue to
bt,; available for the cleanup of oil spills.
The proposal would reinstate the Oil Spill Liability Trust Fund excise tax for the period
beginning on January 1, 1996, and ending on September 30,2002. As under current law, the
tax would be suspended if the S 1 billion limit on unobligated Trust Fund balances is exceeded.
""
This proposal is substantially similar to a provision contained in the Revenue
Reconciliation Act of 1995 as passed by Congress.
-14-
December 7, 1995
Repeal Percentage Depletion for
Non-Fuel Minerals Mined on Federal Lands
Current Law
Taxpayers are allowed to deduct a reasonable allowance for depletion relating to the
acquisition and certain related costs of mines or other hard mineral deposits. The depletion
deduction for any taxable year is calculated under either the cost depletion method or the
percentage depletion method. whichever results in the greater allowance for depletion for the year.
Under the cost depletion method. the taxpayer deducts that portion of the adjusted basis
of the property which is equal to the ratio of the units sold from that property during the taxable
year. to the estimated total units remaining at the beginning of that year.
Under the percentage depletion method. a deduction is allowed in each taxable year for
a statutory percentage of the taxpayer' s gross income from the property. The percentage
depletion deduction for these minerals may not exceed 50 percent of the net income from the
property for the taxable year (computed without allowance for depletion). Percentage depletion
is not limited to the taxpayer's basis in the property; thus. the aggregate amount of percentage
depletion deductions claimed may exceed the amount expended by the taxpayer to acquire and
develop the property.
An 1872 mining act has allowed investors to acquire mining rights on Federal lands at the
cost of $5.00 per acre or less.
Reason for Change
The percentage depletion provlslons under present law generally are viewed as an
incentive for mineral production rather than as a normative rule for recovering the taxpayer" s
investment in the property_ This incentive. however. is excessive with respect to minerals mined
on Federal lands under the 1872 mining act. in light of the minimal costs of acquiring these
mining rights. In addition. the measurement of income in the affected industries will be
improved by the repeal of these percentage depletion provisions.
Proposal
The proposal would repeal percentage depletion provisions under present law for non-fuel
minerals mined on Federal lands where the mining rights were originally acquired through the
patent process in the 1871 law. The proposal would be effective for taxable years beginning after
December 31. 1995.
-15-
December 7~ 1995
Deny Interest Deduction on Certain Debt Instruments
Current Law
Whether ar. instrument qualifies fo~ tax purposes as debt or equity is determined under
all the facts and circumstances based on principles developed in case law. If an instrument
qualifies as equity, the issuer generally does not receive a deduction for dividends paid. If an
instrument qualifies as debt, the issuer may receive a deduction for accrued interest and the
holder generally includes imerest in income, subject to certain limitations.
Original issue discount ("DID") on a debt instrument is the excess of the stated
redemption price at maturity over the issue price of the instrument. An issuer of a debt
instrument with 010 generally accrues and deducts the discount as interest over the life of the
instrument even though interest may not be paid until the instrument matures. The holder of
such a debt instrument also g~nerally includes the 010 in income on an accrual basis.
Section 385(c) provides rules for when an issuer's characteriazation of an interest in a
corporation shall be binding on the issuer and the holders.
Reason for Change
The line between debt and equity is uncertain, and it has proven difficult to formulate
general rules to classify an instrument as debt or equity for all purposes or to bifurcate an
instrument into its debt and equity components. While the IRS has taken the position that some
purportedly debt instruments with substantial equity features should be treated as equity, other
instruments have not been specifically addr~ssed. Taxpayers have exploited this lack of guidance
by, among other things, issuing instrumentsJhat have substantial equity features (including many
non-tax benefits of equity), but as to which they claim interest deductions. In many cases, these
instruments have been issued in exchange for outstanding preferred stock.
Proposal
Under the proposal no deduction would be allowed for interest or OlD on an instrument
(other than a demand loan) issued by a corporation (or issued by a partnership to the extent of
its corporate partners) that (i) has a maximum term of more than 40 years, or (ii) is payable
in stock of the issuer or a related party (within the meaning of sections 267(b) and 707(b»,
including an instrument that is mandatorily convertible or convertible at the issuer's option. In
addition, an instrument would be treated as payable in stock of the issuer or a related party if
it is part of an arrangement designed to result in the payment of debt with such stock, such as
certain issuances of a forward contract in connection with the issuance of debt, nonrecourse debt
that is secured principally by such stock, or certain debt instruments that are convertible at the
-16-
December 7, 1995
holder's option when it is substantially certain that the right will be exercised. Thus, the
proposal would not affect typical convertible debt.
The proposal would also clarify that for purposes of section 385(c), an issuer will be
treated as having characterized an instrument as equity if the instrument (other than a demand
loan) (i) has a maximum term of more than 20 years, and (ii) is not shown as indebtedness on
the separate balance sheet of the issuer. For this purpose, in the case of an instrument issued
to a related party (other than a corporation) that is eliminated in the consolidated balance sheet
that includes the issuer and holder, the issuer will be treated as having characterized the
instrument as equity if the holder issues a related instrument that is not shown as indebtedness
on the consolidated balance sheet. For this purpose, an instrument would not be treated as
shown as indebtedness on a balance sheet because it is described as such in footnotes or other
narrative disclosures. The proposal would apply only to corporations that file annual financial
statements with the Securities and Exchange Commission (SEC), and the relevant balance sheet
is the balance sheet filed with the SEC.
The proposal is not intended to affect the tax characterization of instruments described
in this proposal as debt or equity under current law.
The proposal would be effective for instruments issued on or after the. date of
announcement.
-17-
December 7. 1995
Defer Original Issue Discount Deduction on Convertible Debt
Current Law
If a financial instrument qualifies as debt, the issuer of tl:e instrument may receive a
deduction for accrued interest and the holder generally includes interest in income. Original
issue discount ("OlD") is the excess of the stated redemption price at maturity over the issue
price of a debt instrument. An issuer of a debt inst.11ment with OlD generally accrues and
deducts the discount as interest over the life of the instrument even though interest may not be
paid until the instrument matures. The holder of such a debt instrument also generally includes
the OlD in income on an accrual basis.
If a debt obligation is convertible into stock ard provides no payment of, or adjustment
for. accrued interest on conversion. no deduction is allowed for accrued but unpaid stated
interest.
In contrast to the rules that apply to convertible debt instruments with stated interest,
accrued but unpaid discount on a convertible debt instrument with OlD generally is deductible,
even if the instrument is converted before the issuer pays any OlD.
Reason for Change
In many cases. the issuance of convertible debt with OlD
participants as a de facto purchase of equity.
IS
v"iewed by market
Proposal
The proposal would defer the deduction for OlD on convertible debt until payment.
Conversion would not be treated as a payment of accrued DID. Payment in equity of the issuer
or a related person (within the meaning of sections 267(b) and 707(b» would also be disregarded
for this purpose. For purposes of this proposal. convertible debt would include debt (i)
exchangeable for the stock of a party related to the issuer. (ii) with cash-settl~ment conversion
features. or (iii) issued with warrants (or similar instruments) as part of an investment unit in
which the deht instrument may be used to satisfy the exercise price for the warrant. The
proposal would not affect the treatment of holders. The proposal would be effective for
convertihle debt issued on or after the date of announcement.
-18-
December 7. 1995
Reduce Dividends-Received Deduction to 50 Percent
Current Law
If an i~trument issued by aU. S. corporation is classified for tax purposes as equity, a
corporate holder of that instrument generally is entitled to a deduction for dividends received on
that instrument. This deduction is 70 percent of dividends received if the recipient owns less
than 20 percent (by vote and value) of the stock of the payor. If the recipient owns more than
20 percent of the stock the deduction is increased to 80 percent. If the recipient owns more than
80 percent of the payor's stock. the deduction is further increased to 100 percent for qualifying
dividends.
Reason for Change
The 70-percent dividends-received deduction is too generous for corporations that cannot
be considered an alter ego of the distributing corporation because they do not have a sufficient
owner5-hip interest in that corporation.
Proposal
Under the proposal. the dividends-received deduction available to corpor~tions owning
less than 20 percent (by vote and value) of the stock of aU. S. corporation would be reduced to
50 percent of the dividends received. The proposal would be effective for dividends paid after
January 31. 1996.
-19-
December 7. 1995
Modify Holding Period for Dividends-Received Deduction
Current Law
If an instrument issued by a U.S. cQrporation is classified for tax purposes as equity a
corporate holder of that instrument generally is entitled to a deduction for dividends received on
that instrument. This deduction is 70 percent of dividends received if the recipient owns less
than 20 percent (by vote and value) of the stock of the payor. If the recipient O"Nns more than
20 percent of the stock the deduction is increased to 80 percent. If the recipient owns more than
80 percent of the payor's stock, the deduction is further increased to 100 percent for qualifying
dividends.
The dividends-received deduction is allowed to a corporate sharehokier only if the
shareholder satisfies a 46-day holding period for the dividend-paying stock (or a ::ll-day period
for certain dividends on preferred stock). The 46- or 91-day holding period generully does not
include any time in which the shareholder is protected from the risk of loss otherw~3e inherent
in the ownership of an equity interest.
Reason for Change
No deduction for a distribution on stock should be allowed when the owner of stock does
not bear the risk of loss otherwise inherent in the ownership of an equity interest at a time
proximate to the time the distribution is made.
~
Proposal
The proposal would provide that_ a taxpayer is not entitled to a dividends-received
deduction if the taxpayer's holding period for the dividend-paying stock is not satisfied over a
period immediately before or immediately after the taxpayer becomes entitled to receive the
dividend. The proposal would be effective for dividends paid after January 31. 1996.
-20-
December 7. 1995
Treat Certain Prderred Stock as "Boot"
Current Law
In reorganization transactions within the meaning of section 368, no gain or loss is
recognized except to the extent "other property" is received, that is, property other than certain
stock. including preferred stock. Thus. preferred stock can be received tax-free in a
reorganization, notwithstanding that many preferred stocks are functionally equivalent to debt
securities. Upon the receipt of other property, gain but not loss can be recognized. A special
rule pennits debt securities to be received tax-free, but only to the extent debt securities of no
lesser principal amount are surrendered in the exchange. Other than this debt-for-debt rule,
similar rules generally apply to transactions described in section 351.
Reason for Change
Tax -free treatment in a reorganization or section 351 transaction is inappropriate for
preferred stock that has an enhanced likelihood of recovery of principal or of maintaining a
dividend or both. or that otherwise has certain non-stock characteristics.
Proposal
The proposal would amend both sections 351 and 356 (which applies in the case of
reorganizations under section 368) to treat certain preferred stock as "other property" (boot),
subject to certain exceptions. Thus. when a taxpayer exchanges property for this preferred stock
in a transaction that qualifies under either section 351 or section 368, gain but not loss would
he recognized.
The proposal would apply to preferred stock (i.e .. stock that is limited and preferred as
to dividends and does not participate in corporate growth to any significant extent, including
through a conversion privilege). where (i) the holder has the right to put the stock to the issuer
or a related party (within the meaning of sections 267(b) and 707(b». (ii) the stock is subject
to mandatory redemption by the issuer or a related party. (iii) the issuer (or a related party) has
the right to call the stock and. as of the issue date. it is more likely than not that the right will
be exercised. or (iv) the dividend rate varies in whole or in part directly or indirectly with
reference to interest rates. commodity prices. or other similar indices. regardless of whether
such varying rate is provided as an express tenn of the stock (for example. in the case of an
adjustable rate stock) or as a practical result of other aspects of the stock (for example, in the
case of auction rate stock). For this purpose, clauses (i), (ii) and (iii) are not satisfied if the put
or call cannot be exercised. or the redemption cannot occur, within 20 years of the date the
instrument is issued.
-21-
December 7. 1995
The following exchanges would be excluded from this gain recognition: (1) an exchange
of preferred stock for comparable preferred stock of the same or lesser value; (2) an exchan;e
of preferred stock for common stock; (3) an exchange of debt securities for preferred stock ~f
the same or lesser value as the adjusted issue price of the debt; and (4) exchanges of stock in
certain recapitalizations of family-owned corporations. For this purpose. a family-owned
corporation would be defmed as any corporation if at least 50 percent of the total voting power
and value of the stock of such corporation is owned by members of the same family for five
years preceding the recapitalization. In addition, a recapitalization does not qualify for the
exception if the same family does not own 50 percent of the total voting power and value of the
stock throughout the three-year period following the recapitalization. Members of the same
family would be defined by reference to the defInition in section 447(e). Thus, a family would
include children, parents. brothers. sisters, and spouses, with limited attribution for directly and
indirectly owned stock of the corporation. Shares held by a family member would be treated
as not held by a family member to the extent a non-family member had a right, option or
agreement to acquire the shares (directly or indirectly, for example, through redemptions by the
issuer). or with respect to shares as to which a family member has reduced its risk of loss with
respect to the share. for example. through an equity swap. Even though the provision excepts
certain family recapitalizations. the special valuation rules of section 2701 for estate and gift tax
consequences still apply.
The Treasury Secretary would have regulatory authority to (i) apply installment-sale type
rules to preferred stock that is subject to this proposal in appropriate cases, and . Jii) prescribe
treatment of preferred stock subject to this provision under other provisions of the Code (e.g.,
sections 304. 306 and 318).
The proposal would be effective for transactions on or after the date of announcement.
-22-
December 7. 1995
Extend Pro Rata Disallowance of Tax-Exempt
Interest Expense to All Corporations
Current Law
No income tax deduction is allowed for interest on debt used directly or indirectly to
acquire or hold investments the income on which is tax-exempt. The detennination of whether
debt is used to acquire or hold tax-exempt investtnents differs depending on the holder of the
instrument. For financial institutions and dealers in tax-exempt investments, debt generally is
treated as financing all of the taxpayer's assets proportionately. For corporations, other than
financial institutions and dealers, and for individuals. however, a tracing rule is employed.
Under this approach, deductions are disallowed only when indebtedness is incurred or continued
for the purpose of purchasing or carrying tax-exempt investments. One court has applied the
tracing rule across members of the same consolidated group, but no general related-party rule
applies.
Reason for Change
The current rules applicable to corporations other than financial institutions and dealers
in tax-exempt investments pennit those corporations to reduce their tax liabilities inappropriately
through double Federal tax benefits of interest expense deductions and tax-exempt interest
income. The treatment of financial institutions and dealers therefore should be applicable to all
corporations, without regard to the type of business activity the corporation-conducts. This
approach recognizes that money is fungible. and that. therefore. borrowing for one purpose frees
the taxpayer's remaining assets for other purposes.
Proposal
Under the proposal. all corporations would be treated the same as financial institutions
are treated under current law (without regard to the small issuer exception of section 265(b)(3».
Thus. corporations investing in tax-exempt obligations would be disallowed deductions for a
portion of their interest expense equal to the portion of their total assets that is comprised of taxexempt investments. The rule would not apply to certain nonsalable tax-exempt bonds acquired
by a corporation in the ordinary course of business in payment for goods or services sold to a
State or local government.
In addition, the proposal would apply section 265 to all related parties within the meaning
of section 267(0. For members of the same consolidated group, the pro rata rule would apply
as if the group were a single entity. For related parties that are not members of the same
consolidated group, the current tracing rules would apply, treating all the related parties as a
-23-
December 7. 1995·
single entity for purposes of this tracing rule. The proposal
application of section 265 to related panies under current law.
IS
not intended to affect the
The proposal would be effective for taxable years beginning after December 31. 1995
for obligations acquired after the date of announcement.
-24-
December 7. 1995'
Repeal Section 1374 for Large Corporations
Current Law
C corporations are generally subject to a two-tier tax. A corporation can avoid this twotier tax by electing to be treated as an S corporation or by converting to a partnership.
Convening to a pannership is a taxable event that generally requires the corporation to recognize
any built-in gain on its assets. The conversion of a C corporation to an S corporatirm, however.
is generally tax-free, except that the S corporation must recognize the built-in gain on assets held
at the time of conversion if the assets are sold within 10 years under section 1374.
Reason for Change
The tax treatment of the conversion of a C corporation to an S corporation generally
should be consistent with the treatment of its conversion to a partnership. In particular, any
appreciation in corporate assets that occurred during the time the corporation is a C corporation
should be subject to the corporate-level tax.
Proposal
The proposal would repeal section 1374 for corporations with a value of more than $5
million at the time of conversion and require the convening corporation
recognize
immediately the built-in gain in corporate assets at the time of conversion. For this purpose,
the value of the corporation is the fair market value of all of the stock of the corporation on the
date of the conversion to an S corporation. The effect of the proposal would be to recognize
the built-in gain of converting corporations, with a value of more than $5 million. The proposal
would be effective for conversions on or alter the date of announcement.
to
-25-
December 7. 1995
Repeal Lower of Cost or Market Inventory Accounting Method
Current Law
Taxo:lyers required to maintain inventories are permitted to use a variety of methods to
determine the cost of their ending inventories, including the last-in, first-out ("UFO") method.
the first-in, first-out ("FIFO") method, and the retail method. Taxpayers not using a LIFO
Inethod may determine the carrying values of their inventories by applying the lower of cost or
market ("LCM") method and by writing down the cost of goods that are unsalable at normal
prices or unusable in the normal way because of damage. imperfection or other causes (the
"subnormal goods" method).
~eason
for Change
The allowance of write-downs under the LCM and subnormal goods methods is an
inap.Jropriate exception from the realization principle and is essentially a one-way mark-tomar!:et method that understates taxable income.
Proposal
The proposal would repeal the LCM and subnormal goods methods. effecti~e for taxable
years beginning after December 31. 1995. Appropriate wash-sale rules will also be included in
the proposal. The proposal would be treated as a change in the method of accounting for
inventories. and any resulting section 481(a) adjustment would be included in income ratably
over a four-year period beginning with the year of change. These changes would not apply to
taxpayers with average annual gross receipts over a three-year period of $5 million or less, with .
appropriate aggregation rules.
-26-
December 7. 1995
Repeal Components of Cost Inventory Accounting Method
Current Law
Taxpayers required to maintain inv~ntories are permitted to use a variety of methods to
determine the cost of their ending inventories, including the last-in, first-out ("LIFO") method,
the first-in, first-out ("FIFO") method, and the retail method. Under the regulations, a variety
of dollar-value UFO methods may be used, including double extension, link-chain and other
index methods, in order to determine whether an increment has occurred and the cost of that
increment. Certain taxpayers are permitted to use simplified LIFO methods based on externally
developed price indexes. Some LIFO taxpayers that use a dollar-value, double-extension method
make their computations with respect to the three components of cost (materials, labor and
overhead) of their finished goods and work-in-process inventories (the "COC" method) rather
than the aggregate cost of these goods (the "total product cost" method).
Reason for Change
The COC method, in many cases, does not adequately account for technological
efficiencies in which skilled labor is substituted for less-skilled labor or where overhead costs
(such as factory automation) replace direct labor costs. The costs of inventories determined by
using the total product cost method generally are not affected by such factors,
Proposal
The proposal would repeal the COC method, effective for taxable years beginning after
December 31. 1995. The repeal of the ~OC method would be applied on a prospective, or cutoff. basis. Thus. no section 481(a) adjuS!ments would be necessary.
The proposal is not intended to affect the determination of whether the COC method is
an appropriate method and the IRS would not be precluded from challenging its use.
-27-
December 7, 1995
Require Reportin~ of Payments to Corporations
Rendering Services to Federal Agencies
Current Law
All persons engaged in a trade or business and making payments of $600 or more to
another person in remuneration for services generally must report those payments to the IRS and
to the recipient. No reporting is required if the recipient is a corporation.
Reason for Change
The lack of reponing of payments made to corporations permits significant amounts of
income to escape the tax system. We should ensure that corporations that do business with the
Federal Government aprropriately report as income their payments from the Federal
Government.
Proposal
The proposal would generally require reporting of payments of $600 or more made to
corporations for services rendered to Federal executive agencies. However, ttte Treasury
Secretary would be authorized to prescribe regulations to except reporting in :appropriate
circumstances. The proposal would be effective for returns the due date for which (without
regard to extensions) is more than 90 days after the date of enactment of the proposal.
-28-
December 7. 1995
Increase Penalties for Failure to File Correct Information Returns
Current Law
Any person required to report payments of $600 or more for services that fails to report
those amounts timely or reports amounts incorrectly is subject to penalties. The amount of the
penalty is generally $50 per for each return with respect to which a penalty is incurred. not to
exceed $250,000 during any calendar year. If any failure or error is corrected within 30 days
after the required filing date, the penalty imposed is $15 per return, not to exceed $75,000.
Failures corrected more than 30 days after the required filing date but before August 1 are
subject to a $30 per return penalty, not to exceed $150,000 in any calendar year.
Reason for Change
For taxpayers filing large volumes of information returns or reporting significant
payments. the general penalty provisions may not be sufficient to encourage timely and accurate
reporting. By basing the penalty amount on either the number or amounts. the proposal
encourages taxpayers to assure both the accuracy and timeliness of information on each return
and in the aggregate.
Proposal
The proposal would increase the general penalty amount for any failure to the greater of
$50 per return or 5 percent of the total amount required to be reported. The increased penalty
would -not apply if the total amount actually reponed was at least 97 percent of the amount
required to be reponed. The proposal would be effective for returns the due date for which
(without regard to extensions) is more thaR 90 days after the date of enactment of the proposal.
-29-
December 7. 1995
Further Restrict Like-Kind Excbanges Involving Pe&'sonal Property
Current Law
An exchange of propeny, like a sale, is generally a taxabJ~ transaction. However, under
section 1031 of the Internal Revenue Code, no gain or loss is recognized if propeny held for
productive use in a trade or business or for investment is exchanged for property of a "like kind"
which is to be held for productive use in a trade or husiness or for investment. In general, any
kind of real estate is treated as of a like kind with other real property. By contrast, different
kinds of personal propeny are not treated as of a like kind. Regulations under section 1031
provide that propeny that is of a "like class" is treated as being of a like kind. Certain types
of personal propeny, such as inventory, stocks and bonds, and partnership interests, are not
eligible for nonrecognition treatment under sectinn 1031. In addition, in 1989 Congress
amended section 1031 to provide that real propeny lo~ated in the United States and real property
located outside the United States are not of a like kind.
In order to preserve the gain not recognized in a like-kind exchange. the basis of the
propeny acquired is equal to the basis of the propeny transferred, decreased in the amount of
any money received by the taxpayer and increased in the amount of gain (or decreased in the
amount of loss) recognized by the taxpayer on the eXChange.
Reason for Change
The limitations on exchanges of personal propeny should conform to the limitations on
exchanges of real propeny.
Proposal
Under the proposal. personal propeny located in the United States and personal property
Jo~ated outside the United States would not be treated as like kind. For purposes of this rule.
the location of the propeny surrendered and the propeny received is determined at the time of
the exchange. In addition. the propeny surrendered in the exchange must have been used during
the 24 months immediately prior to the exchange in predominantly the same ~se (i.e., domestic
or foreign) as at the time of the exchange. Funhermore. section 1031 would not apply if the
acquired propeny does not continue In that use at any time during the 24 months immediately
followin£! the exchanQe.
-
-
The proposal would he effective for exchanges on or after the date of announcement.
-30-
December 7.
199~
Impose Excise Taxes on Kerosene as Diesel Fuel
Current Law
A 24.4-cents-per-gallon excise tax is imposed on diesel fuel upon removal from a
registered terminal facility unless the fuel is indelibly dyed and is destined for a nontaxable use.
Treasury regulations provide that kerosene is not treated as diesel fuel for this purpose. Thus.
undyed kerosene is not subject to the diesel fuel excise tax when it is removed fnm a terminal.
Kerosene is a petroleum distillate that is frequently blended with diesel fuel during cold
weather in order to prevent formation of wax crystals in fuel lines. In some parts of the
country. diesel fuel/kerosene blends containing 30-percent kerosene are common. When
kerosene is blended with previously taxed diesel fuel for highway use, the unt,,:\xed portion of
the mixture is taxable when the mixture is removed or sold by the blender. If kercsene is mixed
with dyed diesel fuel for a nontaxable use, the dye concentration of the mixture mus!. be adjusted
to ensure that it meets regulatory requirements for untaXed. dyed diesel fuel.
Kerosene is also used as jet fuel in aircraft engines. Noncommercial aviation fuel is
taxed at a rate of 21.9 cents per gallon and commercial aviation fuel is taxed at a rate of 4.4
cents per gallon. Aviation fuel is taxed when it is sold or used by a producer, whicl1 is defined
to include registered refiners. compounders, blenders. wholesale distributors. and dealers selling
aviation fuel solely to other producers. However, sales between these persons are not taxed~
Thus. tax is generally imposed when the fuel is sold to a retail dealer or used by a commercial
airline that is registered as a producer.
Clear. low-sulfur kerosene (l-K) may also be used in space heaters, and is often available
for this purpose at service station pumps~ Kerosene used in space heaters is not subject to a
Federal excise tax.
Reason for Change
Some wholesale distributors of diesel fuel have suggested that their competitors have not
heen paying the tax on kerosene that they blend with diesel fuel for highway use. As a result,
the government is losing tax revenues and complying taxpayers are at a competitive
disadvantage. Although the current treatment of kerosene perpetuates the problems the dyeing
requirement was intended to correct, any change to the current system should accommodate uses
for which clear kerosene is necessary to comply with Federal or State rules or product safety
certifications, and should not impose increased burdens on those who use kerosene in space
heaters.
-32-
December 7, 1995
Proposal
Under the proposal, a removal of kerosene from a tenninal would be treated as a removal
of diesel fuel unless the kerosene qualifies as aviation fuel. Kerosene would qualify as aviation
fuel only if the person removing the kerosene establishes, in accordance with Treasury
regulations, that the kerosene will be us'!d, as aviation fuel. Thus, kerosene other than aviation
fuel will be taxed when it is removed from a registered tenninal unless it is indelibly dyed and
is destined for a nontaxable use. Current law rules would continue to apply to kerosene that
qualifies as aviation fuel. In addition, to accommodate State safety regulations that require the
use of clear (l-K) kerosene in certain space heaters, a new refund procedure would be provided
under which registered ultimate vendors could claim refunds of the tax paid on kerosene sold
for that use.
The changes would be effective on April 1, 1996, with appropriate floor stocks taxes
imposed on kerosene held on that date.
-33-
December 7. 1995
Expand Subpart F Provisions Regarding Income from Notional Principal
Contracts and Stock Lending Transactions
Current Law
Subpart F income includes, in various subcategories, income from notional principal
contracts referenced to foreign currency, commodities. or interest rates, or to indices based
thereon. It also includes inCome with respect to the lending of debt securities. Subpart F
income does not include income from equity swaps or other types of notional principal contracts
or income from transfers of equities subject to section 1058. Subpart F provides piecemeal
exceptions for dealers in foreign currency, commodities, inventory, or certain other property.
However, it does not provide an exception for dealers in financial instruments referenced to
commodities.
Reason for Change
Subpart F income should include income from all types of notional principal contracts
and from stock-lending transactions, subject to a limited dealer exception. Such income is
indistinguishable on policy grounds from other types of highly mobile income already targeted
by subpart F.
Proposal
The proposal would amend section 954 to create a new category of subpart F income-income from notional principal contracts--and to include in subpart F income the income with
respect to the transfer of equities subject to section 1058. This would have the effect of
including in subpart F income the net income from equity swaps and certain categories of
notional principal contracts that are not reached by current law. as well as income from stock
lending transactions.
Any income, gain. deduction, or loss from a notional principal contract entered into to
hedge an item of income in a category of foreign personal holding company income would be
included in that category.
In addition. section 954 would be amended to provide an ordinary-course-of-business
exception for regular dealers in forwards. options, notional principal contracts, and similar
financial instruments (including instruments referenced to commodities).
The proposal would be effective for taxable years beginning after December 31, 1995.
-34-
December 7. 1995
Provide Rules Regarding Treatment of
Captive "Insurance" Arrangements
Current Law
The Code does not define the term "insurance." Case law has long defined the tenn to
require "risk shifting" and "risk distribution." In the case of a controlled foreign corporation
("CFC") that provides insurance to its U.S. sharehoiders, known as a "captive" insurance
company, recent court decisions have held that the risk-shifting and risk-distribution
requirements are satisfied even if the captive's unrelated business accounts for just over 30
percent of its total business and that brother-sister subsidiaries are unrelated for this purpose.
However, standards applied by the courts have varied considerably from case to case.
Section 953(c) contains special provisions regarding the inclusion of "related person
insurance income" in subpart F income. If the CFC is at least 20 percent owned by persons that
it insures or persons related to those insureds, all U.S. persons owning any stock of the CFC
are treated as United States shareholders of the CFC. In addition, for captives deriving more
than 75 percent of their gross premium income from related-person business, the aggregate
United States shareholder ownership threshold for CFC status is lowered from 50 to 25 percent.
Reason for Change
The lack of clarity under current law as to when transactions involving a captive are
considered to be .. insurance" has encouraged aggressive planning and excessive controversy.
In addftion. there is reason to believe that some taxpayers are taking inconsistent positions on
these transactions. by using the favorable insurance accounting provisions of subchapter L
without paying the federal excise tax on inrurance premiums paid to certain foreign insurers and
reinsurers.
Proposal
The proposal would provide that an "insurance" arrangement between a captive insurer
and any other person (related or unrelated) will be respected as a valid insurance arrangement
for tax purposes if less than 50 percent of the captive's net written premiums are attributable to
the insurance or reinsurance of risks of related persons. A captive that satisfies this 50-percent
threshold would account for its income in accordance with subchapter L. modified in the case
of certain foreign captives by the provisions of subpart F. Amounts paid to the captive for the
insurance or reinsurance of risks would be treated as insurance premiums by all parties.
The tax treatment of a captive that does not satisfy the 50-percent threshold would be
governed by the general provisions of the Code (including subpart F, where applicable) rather
-35-
December 7. 1995
than by subchapter L, and its transactions with related persons would not be treated as insurance
transactions. Amounts paid by related persons for the insurance or reinsurance of risks would
be characterized as payments for risk management services, the deductibility of which would be
governed by general Code provisions. Amounts paid by unrelated persons for the insurance or
reinsurance of risks would be characterized as insurance premiums. The captive would be
allowed to deduct as ordinary and necessary business expenses amounts paid to compensate
contractually covered losses of either related or unrelated persons. Subpart F would be amended
as necessary to ensure that amounts received by a foreign captive that does not satisfy the 50percent threshold are included in subpart F income, and that rules similar to cenain provisions
of section 953(c) apply to income from transactions with related persons.
Amounts paid by unrelated persons to a foreign captive that fails to satisfy the 50-percent
threshold would continue to be subject to the federal insurance premium excise tax. Amounts
paid by related persons to such a captive would not be subject to the excise tax. A captive that
fails to satisfy the 50-percent threshold would not be eligible for tax exemption under Code
section 501(c)(15).
For this purpose, related persons would include any 10-percent shareholder of the captive
and any person that would be a related person with respect to the captive under rules similar to
those of section 953(d)(3). For purposes of the 50-percent threshold, net written premiums
would be determined on a three-year rolling average; however, the computation would exclude
premiums written in any taxable year beginning before 1996.
The proposal would be effective for taxable years beginning after December 31. 1995.
-36-
December 7. 1995
Reformulate Puerto Rico and Possessions Tax Credit (Section 936)
Current Law
Domestic corporations with business operations in U.S. possessicns (including, for this
purpose, Puerto Rico and the U.S. Virgin Islands) may elect under Code section 936 generally
to eliminate the U.S. tax on cenain income which is related to their possession-based operations.
The section 936 credit may offset the U.S. tax on the following types of income: (1) foreign
source income arising from the active conduct of a trade or business within a U.S. possession
or from the sale or exchange of substantially all of the assets used by the taxpayer in the active
conduct of such trade or business. or (2) income from certain investments in the possessions or
in cenain Caribbean Basin countries (" qualified possession source investment income", or
"QPSII"). The credit spares the electing corporation U.S. tax whether or not it pays income tax
to the possession.
Limitations on the active-business element of the credit were enacted in 1993. Section
936 companies may elect either a reduced percentage of the profits-based credit as allowed under
prior law (60% in 1994, phasing down to 40% beginning in 1998), or a limitation based on the
company's economic activity in the possessions (measured by wages and other compensation,
depreciatIon, and cenain taxes paid).
Reason for Change
The .!l..dministration proposed to reformulate the credit in 1993 to make it a more efficient
incentive for job creation and economic activity in Puerto Rico; the amendments enacted in 1993
moved part way toward the Administration's proposals. The Administration continues to believe
that any credit should provide an incentiv~ for increased economic activity in the possessions
rather than merely an incentive to attribute profits there.
Proposal
To provide a more efficient tax incentive for the economic development of Puerto Rico
and other U.S. possessions. and to continue the effort toward this goal that was begun in the
1993 Act. the proposal would modify current law to (1) phase-out the profits-based branch of
the active-business portion of the credit over five years, beginning in 1997. and (2) allow excess
amounts of economic-activity limitation to be carried forward for up to 5 years. The proposal
would retain the economic-activity limitation on the active-business portion of the credit and the
passive-income portion of the credit for taxes otherwise payable on QPSIl, as under present law.
The proposal would be effective for taxable years beginning after December 31, 1995.
-37-
Monthly Report
by the
Secretary of the Treasury
Pursuant to the
Mexican Debt Disclosure Act
01 1995
Novem.ber 1995
Treasury Secretary's Report to Congress
November 1995
Contents
I.
Overview
II.
Current Condition of Mexico's Economy
a.
b.
c.
d.
e.
f.
g.
h.
Monetary Policy
Fiscal Policy
Structural Reform and Privatization
Information Disclosure
Economic Adjustment
Banking Sector Developments
Financial Market Trends
International Reserves
ill.
Disbursements, Swaps, Guarantees and Compensation
to the U.S. Treasury
29
IV.
Mexico's Financial Transactions
34
v.
Status of the Oil Facility
35
page
Graphs
Tab: Key Trends in Mexico's Economy and Financial Markets
a.
b.
c.
d.
e.
f.
g.
h.
1.
Monetary Policy
Fiscal Policy
Tesobono Repayment and Debt Profile
Inflation and Interest Rates
Bond Markets
Currency and Stock Markets
International Reserves
Trade Balance
GDP, Industrial Production and Construction Output
1
3
Treasury Secretary's Report to Congress
November 1995
I.
Overview
In providing assistance to Mexico under the February 21 Agreements, the U.S.
government acted to protect vital U.S. interests -- American exports and jobs,
the security of our common border, and the stability of other emerging market
economies.
During 1995, Mexico has pursued rigorous adjustment policies to address the
fmancial crisis that threatened its economic stability and prospects for
sustained growth. In presenting its 1996 budget on November 15, 1995, the
government emphasized continuity of these policies, stating that its guiding
principle was to construct a plan that was fiscally sound, based on realistic
assumptions, and sustainable through future uncertainties.
In the 1996 budget, the government has projected a primary surplus and an
overall budget balance, continuing the sound fiscal policies that resulted in a
budgetary surplus for the fITst three quarters of 1995 of 1.5% of GDP.
The recession that has accompanied the fmancial crisis has been deep, with
GDP down 9.6 % in the third quarter compared to a year earlier, and about
6.9% in the fITst nine months of the year compared to the same period in
1994. On a seasonally-adjusted basis, however, according to the government
of Mexico, GDP rose by 2.7% in the third quarter compared to the second
quarter. While it is difficult to dra~ frrm conclusions based on monthly
indicators, other recent data on industrial production, manufacturing,
construction, and unemployment also suggest that economic activity may have
begun to expand once again.
The Mexican authorities have succeeded in bringing about a rapid external
adjustment, averting a sovereign default, and regaining access to private capital
flows -- having raised approximately $4 billion in the private capital markets
thus far in 1995 (not including approximately $1.9 billion in issuances
announced but not settled during the last week of November). The
government's fIrm stabilization policies, the good export performance, the
increased efficiency following seven years of reforms and the liquidity
provided under the U.S.-led support program are hastening Mexico's eventual
recovery. In an October survey by Consensus Economics, private analysts
forecast that GDP would rise 2.7% in 1996.
Default concerns associated with the government's tesobono obligations have
been eliminated, with $28.5 billion of the $29.2 billion in tesobonos
outstanding at the end of 1994 retired. Meanwhile, international reserves have
risen $7.6 billion from the end of 1994, to $13.7 billion as of November 24.
Though inflation for the fIrst half of November was about 1.4 %, an uptick
from previous months, inflation has decreased significantly from a high of 8 %
per month in April to roughly 2 % a month from July through October.
1
Treasury Secretary's Report to Congress
November 1995
Mexico experienced significant market volatility during the first half of
November as the peso reached new lows. In response to the peso's weakness
during the first half of November, the central bank tightened credit policy and
intervened twice (11/9 and 11114), spending about $300 million to buy pesos.
After the interventions, the Bank of Mexico stated that these interventions do
not imply the abandonment of a floating exchange rate policy ... " and that it
will not use intervention to interfere with the market's fundamental valuation
of the peso.
It
The peso closed at a low of NP8.14 on November 9. Since then, the peso has
strengthened to NP7.55 as of November 30, a 7.8% appreciation. Despite
recent financial market turbulence, Mexico's stock market is about 15.5%
above its pre-crisis levels in peso terms and about 86 % above its low in late
February after having rallied by 16.6% in November, although it remains well
below previous dollar highs.
The interest rate on 28-day cetes, the benchmark Mexican government
security, rose during the peak of recent volatility to as high as 60% on an
annualized basis in the November 14 primary auction, up from about 43 % at
the end of October. With a more stable peso, rates fell to 53 % in the
November 28 auction. This rate remains significantly lower than the· 83 %
annual rate in March.
Mexico's banking sector remains strained, facing a reported nonperforming
loan level as of September 30 of 13 %. The growth rate of nonperforming
loans has declined in recent months, although the recent rise in interest rates
may add renewed pressure. The government's measures to mitigate the
immediate impact of the problem, to improve regulation and supervision, and
to encourage capital inflows have lent important support. For example, eight
banks, holding 37% of banking system assets, have been recapitalized, and
Mexican authorities estimate that under the small debtor's relief program
(AD E) , 62 % of the eligible accounts have had their loans restructured.
Outstanding U.S. disbursements under the February 21 agreements total $11.8
billion, all of which are backed by the full faith and credit of the Mexican
government. As of November 30, the United States has received more than
$490 million in interest payments from Mexico. In addition, all of Mexico's
obligations to the United States are backed by proceeds from Mexico's crude
oil, oil products, and petrochemical product exports. Payments for these
exports flow through a special account at the Federal Reserve Bank of New
York. As of November 17, about $6 billion had passed through this account
since March 8, 1995.
2
Treasury Secretary's Report to Congress
November 1995
ll.
Current Condition of Mexico's Economy
a.
Monetary Policy
Mexico has maintained its tight monetary policy
Throughout 1995, the Bank of Mexico (BOM) has conducted monetary policy
to contain inflation, stabilize the peso, and encourage capital inflows. The
Bank's chief policy instrument is its control over the growth rate of the
monetary base. It achieves this control through limits on the growth of net
domestic credit (defmed as the monetary base less international reserves).
Control of domestic credit is key
By defmition, any increase in net domestic credit by the Bank of Mexico must
be associated with either an increase in the money supply or a decrease in net
foreign assets (international reserves) of the Bank. A limit (ceiling) on
increases in net domestic credit therefore implies a ceiling on the growth of the
money supply that can occur without a corresponding rise in international
reserves.
•
Net domestic credit has fallen by NPSO billion from the beginning of the
year through November 24. More recently, in the four weeks ending
November 24, net domestic credit fell by NPI0.8 billion, the monetary
base grew by NP2.S billion, while net reserves increased by about
NP13.6 billion to NPI05.9 billion (most of the peso-denominated
increase in reserves during the period was due to the exchange rate
depreciation) .
The Bank of Mexico maintains strict control over the money supply
•
The monetary base (bills and coins in circulation, plus commercial bank
deposits in the central bank) as of November 24 was about 11 % below
its level at the end of 1994, even though the price level was about 46 %
higher than at the end of 1994. More recently, in the four weeks
ending November 24, the monetary base grew by 5.S%, roughly
consistent with the BOM' s estimates of seasonal money demand.
3
Treasury Secretary's Report to Congress
November 1995
•
M1 (the monetary base plus checking deposits) fell about 9% in
nominal terms from December 1994 through the end of October.
Monetary and credit aggregates can be hard to interpret
Restricting the growth rate of the money supply through control of net
domestic credit is central to controlling inflation and meeting other objectives
of monetary policy. Nonetheless, changes in the money supply must be
interpreted carefully in terms of their implication for the stance of monetary
policy because of seasonal changes in money demand.
For example, the Mexican public sharply increases its demand for cash
balances during the Christmas season; such an increase already appears to be
happening. Reasonable accommodation to this seasonal demand can be
consistent with a decline in inflation provided it is reversed when seasonal
demand subsides.
Market indicators suggest that monetary policy remains tight
Given the inherent difficulties in interpreting monetary aggregates, it is useful
to look at market indicators for the stance of monetary policy.
Real interest rates remain high, suggesting tight monetary policy. The real
interest rate (the nominal rate adjusted for inflation) on 28-day cetes in midNovember was about 20%, up from about 10% in mid-October.
•
In response to peso volatility, the government tightened credit, as the
interest rate on 28-day cetes, the benchmark Mexican government
security, rose during the peak of recent volatility to as high as 60 % on
an annualized basis in the November 14 primary auction, up from about
43 % at the end of October. With a more stable peso, rates fell to 53 %
in the November 28 auction. This rate remains significantly lower than
the 83 % annual rate in March.
•
Secondary market rates have moved with the primary auction rates.
The average 28-day cetes rate for the first half of November increased
to 57 %, from 40 % and 34 % for the first halves of October and
September, respectively. Secondary rates in the third week of
November came down from their mid-November peak, which spiked up
4
Treasury Secretary's Repon to Congress
November 1995
as credit was tightened as part of the BOM's attempt to slow the peso's
slide.
Tight policy has limited inflation, though there has been an uptick in
November.
•
Monthly inflation is down significantly from its 8% peak in April,
remaining roughly constant since July at about 2 % per month,
including approximately 2.1 % in October. For the first half of
November, inflation was 1.38 %. Higher tradeable goods prices due to
the depreciated peso, and some adjustment in state-administered prices
(as programmed in the "Pacto" -- described in last month's report),
may boost inflation temporarily.
After appreciating about 26 % from its March low to May, the real exchange
rate remained roughly unchanged through mid-October. With the peso's
recent decline, the real exchange rate has fallen about 15 %, although it still
remains about 10% above its March low.
ll.
h.
Fiscal Policy
Mexico's budget remained in surplus through the first nine months of 1995
Despite the economic slowdown, Mexico's primary and overall budgets are in
surplus, these surpluses have risen compared to their 1994 levels due to a
combination of strong oil revenues and cuts in programmed spending.
•
The overall non-financial public sector surplus was NP17.4 billion for
the first nine months of 1995 (roughly 1.5% of GDP), even greater than
the NP2 billion surplus (roughly 0.2 % of GDP) for the same period in
1994.
•
Mexico's primary surplus, which excludes interest payments, was
NP70.3 billion (roughly 6.3 % of GDP) for the first nine months,
compared to a NP32.2 billion surplus (roughly 3.5% of GDP) for this
period in 1994.
5
Treasury Secretary's Repon to Congress
November 1995
Revenues were supported by the oil sector and the increase in the
VAT
rate
Declines in total public sector revenues, adjusted for inflation, continued
during the third quarter owing to the recession, but the sustained increase in
oil revenues helped to limit the decline in total revenues.
•
PEMEX revenues and Federal taxes paid by PEMEX, which accounted for
over one-third of public sector revenues so far this year, rose by about
24 % in real terms during the third quarter compared to the same period
last year. From January to September, these revenues rose by nearly
30% in real terms, compared to their levels for the same period in
1994 (see Table 1 below).
The April 1 increase in the value-added tax (VAT) helped offset losses in
revenues that have resulted from the decline in domestic consumption.
•
VAT
In real terms, VAT revenues increased by 1.8% in the third quarter
compared to a year earlier. Despite the recession, total V AT revenues
for the first nine months of 1995 were down less than 1 % in real terms
from the same period in 1994.
As the economy remained weak during the third quarter, most other revenue
sources continued to decline
Despite the revenue gains from the oil sector and the V AT rate, the Federal
Government's total revenues declined by 7.1 % in real terms during the first
nine months of 1995, compared to the same period last year.
•
After declining roughly 16% in real terms between the first halves of
1994 and 1995, revenues from income taxes declined by almost 29 % in
the third quarter compared to the same period in 1994. For the first
nine months of 1995, income-tax revenues declined almost 21 % in real
terms, compared to the same period last year.
•
Due to declining domestic sales, corporate income and excise taxes
during the third quarter were off 33% compared to a year ago, a slight
improvement from the second quarter's year-over-year decline of 51 %.
The real decline for the first nine months of 1995 was 35 % compared
to the previous year.
6
Treasury Secretary's Repon to Congress
November 1995
•
Tariff revenues were down over 42 % in real tenns compared to a year
earlier; the year-over-year real decline for the first nine months of 1995
was 35%.
Interest payments remained high
•
Real public sector interest payments on external and internal debt
increased by 40 % in the third quarter, and 49 % for the first nine
months of the year, on a year-over-year basis.
•
Real external interest payments for the first three quarters rose by 41 %,
compared to the same period last year, largely due to the depreciation
of the peso.
•
For the year through the third quarter, real interest payments on
internal debt increased by about 34 %, compared to the same period last
year. Several factors were responsible for the increase:
(1)
Higher interest rates. While interest rates on internal debt
peaked in March and April, the average yield on internal debt
instruments has continued to remain substantially higher than in
1994.
(2)
Changing composition of internal debt. Continuing the pattern
of the first two quarters, the Mexican government reduced the
outstanding stock of tesobonos and increased the stock of cetes
and bondes during the third quarter. The latter two instruments
generally have much higher yields because their principal is not
protected against exchange-rate changes, as is the case with
tesobonos.
Discretionary spending cut further in response to fiscal constraints
With total interest expenses up and total revenues lower, the Mexican
government continued to cut real non-interest spending.
•
Real public sector spending, excluding interest payments, contracted by
21 % during the third quarter, compared to the previous year, after
falling by 12 % and 16% during the first and second quarters,
respectively.
7
Treasury Secretary's Report to Congress
November 1995
Quarterly surpluses eased as expected during the third quarter
The third quarter budget surpluses were smaller than those realized during the
first and second quarters.
•
The overall non-financial public sector surplus was NP2.1 billion for the
third quarter (roughly 0.5% of GDP) compared to a surplus of NP3.6
billion for the second quarter (roughly 1.7% of GDP), and NP9.0 billion
for the first quarter (roughly 2.6% of GDP).
•
Mexico's primary surplus was NP19 billion (roughly 4.8% of GDP) for
the third quarter, compared to NP25.5 billion (roughly 6.7% of GDP) for
the second quarter, and NP25.7 billion (roughly 7.4% of GDP) for the
first quarter.
Mexico remains on track to meet its 1995 fiscal targets
In its March 9 economic program, Mexico targeted an annual public sector
non-financial surplus of 0.5% of GDP and a primary surplus of 4.4% of GDP
for the year.
•
Over the first three quarters of 1995, the overall and primary surpluses
exceeded these targets by one and two percentage points of GDP,
respectively.
•
Even with the decline in the surplus in the third quarter, the Mexican
government has forecast an overall budget surplus for 1995 equal to
about 1% of GDP -- well above the March 9 target.
Government submits 1996 Budget to Congress
In presenting its 1996 budget on November 15, 1995, the government stated
that its guiding principle was to construct a plan that was fiscally sound, based
on realistic assumptions, and sustainable through future uncertainties.
•
The government has projected a primary surplus and an overall budget
balance.
8
Treasury Secretary's Report to Congress
November 1995
Projected expenditures are intended to be disciplined.
•
Programmed expenditures (discretionary spending) are projected to
grow by just 0.4% in real terms, while total expenditures (programmed
expenditures plus other non-discretionary spending such as interest
payments) are projected to grow by roughly 1.9% in real terms for
1996.
Revenue forecasts in the budget are considered to be cautious.
•
The 1996 budget plan assumes that total revenues will decline 1.8% in
real terms during 1996, despite economic growth projections of 3 %.
•
In order to project total oil revenues, an assumption of $13.25 per
barrel was used as an average price for 1996, below the average oil
price thus far in 1995 of $14.95 per barrel.
•
The 1996 budget is also projected to balance without the inclusion of
anticipated privatization revenues.
The Mexican authorities have emphasized that this budget is sustainable
because it can accommodate deviations in the exchange and interest rates
throughout 1996.
•
Changes in external debt service payments that might result from
changes in the exchange rate would be offset by changes in dollardenominated oil revenues.
•
The budget could sustain the higher domestic debt service costs that
would result from an unexpected rise in domestic interest rates in 1996,
because the stock of net domestic debt is less than 7 % of GDP.
•
The banking sector programs implemented in 1995 that are directly
sensitive to interest rates, particularly the consumer debtor relief
program (ADE), should not represent a significant fiscal burden. This is
due to the limited size of these programs and the fact that their costs
will be spread over 30 years.
9
Treasury Secretary's Report to Congress
November 1995
Mexican authorities have also stressed that they can adjust spending and
revenue measures to adapt to unforeseen developments in the economic
environment in order to obtain their fiscal goals in 1996.
•
The government pointed to 1995 -- it has been coping with a deeper
than expected recession, yet has projected to reach a year-end budget
surplus of over NP15 billion -- as a demonstration of its capacity and
willingness to do so.
10
~~
C) ~
~ ~
~~
""'t
.......
CI:I
~
'0("'\
~~
i:)
.......
.......
Part A: Federal Government Budget
NP Millions (Nominal)
Revenues
% of GOP (3)
Taxes
Income Tax
Value Added Tax
Excise Taxes (Oil, Alcohol, Tobacco, etc)
Import Duties
other (Auto Registration, Tax Penalties, Export)
Non-Tax Income
Fees
Oil
other
other (Central Bank Profits, Privatization)
Expenditures
% of GOP (3)
Discretionary
% of GOP (3)
Operating Expenses
Salaries
other
Public Investment
Transfers
Education
other
Non-Discretionary
% of GOP (3)
Outlays From Past Year's Obligations
Revenue Sharing
Interest Payments
Internal
Ex1ernal
Transfers To State Enterprises, Errors & Omissions
1995
1994
1994
1995
% Real Change From Previous Year (1)
: 1st gtr
'3rd g!r
j1st 9 mos. ~fSt 9 mos:'951st gtr 95 2nd gtr :96'3rd gfi :'951st 9 m
3rd Qtr
1st gtr
2nd gtr
2nd gtr
-15.8% •
192,282.
-8.4%
-7.1%
52,895
51,093
54,872
55,714
71,138
65,430;
4.3%1
158,860
16.6%1
17.9%
17.8%
16.1%
18.7%
16.0% .
17.2% 1
17.1%j
1
I
I
18,251
10,055
6,703
2,819
2,722
19,151
9,065
7,048
3,233
2,183
17,877:
9,436i
6,878!
3,105~
1,663 1
18,581
9,955
6,208
2,742
2,999
20,432
13,347
4,574
2,460
1,621,
18,045 1
13,615)
6,541)
2,532)
1,5611
!
6,513
1,449
4,383
50,794
17.2%
28,522
9.6%
8,883
6,508
2,375
2,523
17,116
6,742
10,374
22,272
7.5%
3,963
9,918
8,391
4,528
3,863
3,017
6,779
710
2,924
53,530
16.8%
34,545
10.8%
10,500
7,127
3,373
4,591
19,454
6,611
12,844
18,985
5.9%
571
12,019
6,395
3,894
2,501
(1,875)
8,689:
1,040.'
6,184:
55,008
17.8%:
37,269.
12.1% .
10,092
6,490
3,602
4,658
22,519
6,061
16.458
17.739
5.7%
437
10,079
7,223
3,171
4,052
1,300
10,403
1,222
3,604
52,177
15.0%
27,066
7.8%
9,041
6,891
2,150
813
17,212
7,491
9,721
25,111
7.2%
2,602
11,137
11,372
3,448
7,924
851
22,210
1,355
5,140
66,825
17.5%
38,046
10.0% ;
10,508
7,531 '
2,977 .
2,954 ;
24,584,
8,419
16,165
28,779.
7.5%1
838,
14,324.
13,617
7,170·
6,448
(73)
i
i
16,683'
1,353;
5,101'
68,677:
17.4%;
41,627'
10.5%.
11,658
8,273'
3,385
4,279
25,690
7,723
17,967:
27,050
6.8%
169
12,556
14,325
9,591
4,734
2,242
~
55,279
28,556 :
20,6291
9, 157 1
6,568 :
r
I
21,981
3,1991
13,491
159,332 :
17.3% !
100,336 ~'
10.90/. ;
29,475 :
20,125
9,350
11,772
59,089
19,414
39,675
58,996
6.4%
4,971
32,016
22,009
11,593
10,416
2,442
!
!
57,0581
36,917j
17,323j
7,734:
6,181 i
-11.4%
-13,9%
-19.4%
-15.4%
-4.2%
-20.10/0
10.3%
-51,4%
-43.0%
-44.4%
1
,
145.40/0 f
-28.7%'1
:1.8%]
-32.9%\
-42.4%1
;.J3.8% ]
\
-20.8%
-0.8%
-35,50/.
-35.2%
-27.8%
35 5'1'0'}
. .1
,-8.2%1
-41.80/;:
-11.9% I
72.1%
-5.7%
-21.2%
-9.6%
-17.5%
-17.5% ,
-21.2%.
-18.3%
-11.5%
-7.9%
-21.3%
-72.0%
-12.5%
-3.3%
-18.5%
-1.9%
-25.0%'
-20.9% :
-33.9%
-51.8%
-5.3%
-4.6%
-5.7%
13.50/0
-18.5%.
-10.0%'
-33.7%'
-35.2%,
-19.5%
-10.1%
-22.9%;
7.6%.
-18.7%
-13.4%
-30,1%
-47.5%
-12.3%
-6.6%
-15.2%
5.3%
-42.9%
-2.3%
17.9%
-33.8%
78,4%
-75.5%
9.9%
-10.7%
59.5%
37.9%
93.1%
-97.1%
-72.7%.
-12.1% '
400%·
113.5%
-17.5%
21.8%
-44.3%
-8.9%
37.1%
33.8%
40.8%
38.9%
-26.6%
-28.5%
-10.6%
(1) Based on a year-over-year increase in the CPI of 15% for the firsl quarter, 34% second quarter, 42% for the third quarter, and 30% for the first 9 months of 1995.
(2) Beginning in 1995, Mexico City budget no longer included.
(3) Third quarter nominal GOP estimated by adjusting the 9.6% decline in real GOP between the third quarters of 1994 and 1995 by the 42% increase In consumer prices
during this period. This will, of course, differ from estimates using the GOP denator, which has not yet been reported.
42.9% (
31.7%
-6.5% ,
l
I
-5.10/0
~
tw
'a'
t-,-
( t)
~
C)
::!.
~
~
(t)
~.
r')
Q,.
til
t
49,295'
3,930'
13,84(
187,679:
16.7%
106,739
9.5%'
31,207
22,696
8,512
8,046
67,486
23,633.
43,853
80,940
'7.2%;
3,609'
38.017
39,314
20,209
19,106,
3,019;
1-3
ec
=
Q...
(JQ
(t)
~
....
C)
g
~
OQ
""'t
~
t-,
~~
~
a
..,
VI
.....
"-
~
$::
~~
'On
~~
~
~
Part B: Public Sector Balances
NP Millions (Nominal)
Federal Government Budget Balance
0/0 or GOP (3)
Federal Government Primary Balance
% orGDP (3)
Public Sector Non-Financial Balance
'Yo of GOP (3)
Public Sector Primary Balance
% of GOP (3)
Part C: Public Sector Aggregates
NP Millions (Nominal)
Non-Interest Spending
% of GOP
Interest Payments
% of GOP
Pemex Revenues + Pemex Taxes Paid to GOM
% of GOP
Non-Petroleum Revenues
% of GOP
Non-Petroleum Revenues. Excluding Value-Added Tax
%ofGOP
1994
1st qtr
2nd qtr
3rd
(916)
(562)
-0.3%
-0.20/01
7,475
5,833:"
2.5%
1.8%1
4.345
(1.287):,
1.5%
-0.4% i
11,386
12.152;,
3.9%
3.8%;
1994
1st qtr
2nd qtr
3rd
62.870
69.467
21.3%
21.8%:
9,600
7.648:
3.2%
2.4%.
19,506
22.118
6.6%
6.90/. ,
55.823
56.093
18.9%
17.6%
45.768
47,028
15.5%
14.7%
-
~
1995
1994
1996
qtr . '1 st qtr
2nd qtr
'3rd qtr
,1st 9 mos. ~1st 9
1.
(1,436)
2,686
4,386!
(5,488)
(2,914)
'1.5841
-0.5%;
0.8%
1.2%\
-1.4%i
-0.3%'
0.1%l
5,787!
14,058
18.003I
I
8.637i
19,095
40.8981,
'
19%1
4.1%
4.7%1
2.2%i
2.1%
3·6%1
(1.087)
8.990
6,302
2.108)
1,971
17 ,401 j
"()4%~
2.6%
1.7% I
0.5%1
0.2%1.5%,
8,696~
25,769
25,462
19.0821
32,233
70,3131
2.8%~
7.4%
6.7%:
4.8%1
3.5% f
6.3%,
7:::J"
mos:
( !)
~
'"
S
as·
i
1995
1994
2nd qtr
':lrd 9tr
i 151 9 mos.
74.440'
63,385
77.749 f
63.813j 206,777
24.1%;
18.3%
O~
21.2%:
22.4%
8.520,15.932
17.111;
16.974'
25,768
2.8%
4.60/.
0 : ' 4.3% i
2.80/.
22.270:
30,227
38,543:
~.097,'
63,894
7,2%
8.70/.
0;
9.9%
6.9%
60.565
58,759
61.578t
62.708: 172,480
19.6%
16.9%
0
15.9%'
18.7% '
51.127
48,804
48,231 I
49.094; 143,923!
16.6%
14.1%
0:
12.4%,
15.6%;
qtl~' 151 qtr
I
1995
~
c:::;!..
% Real Change From Previous Year (1)
St 9 mos:~ 95 1st qtr
224,947'
20.0%;
50,0171
4.5%;
107,8671
9.6%:
163,0451
16.3%'
146,129:
13.0%)
96 2nd 9tr 'g6'3rd qir 'J 96 1st 9 m
-16.2%
-20.5%;
-16.5%
1
44.4%
67.6%'
40.6%:
49.0%
-12.3%
i
34.8%
l
30.5% t
29.6%
!;
-8.4%
-7.2%
(1) Based on a year-over-year increase in the CPI of 15% for the first quarter, 34% second quarter. 420/. for the third quarter, and 30% for the first 9 months of 1995.
(2) Beginning in 1995, Mexico City budget no longer included.
(3) Third quarter nominal GOP estimated by adjusting the 9.6% decline in real GOP between the third quarters of 1994 and 1995 by the 42% increase In consumer prices
during this period. This will, of course, differ from estimates using the GOP deflator, which has not yet been reported.
j
23.9%]
-17.8%;,
)
-23.2% ;
-269%,
-18.5%
1
-32.2%"
-22.1 %
~
",'
~
~
<:l
4
....<:l
g;:s
<Xl
a'"
Treasury Secretary's Repon to Congress
November 1995
II.
c.
Structural Reform and Privatization
Market-oriented reforms have progressed throughout the year
Mexico's adjustment program continues and expands the privatization effort
that has already seen the sale of over 900 of Mexico's 1150 state-owned
enterprises between 1982 and 1994. This year, the government expanded the
program to privatization and liberalization of traditionally regulated sectors
such as transportation, telecommunications, and energy. These efforts are
intended to increase productivity, attract foreign investment, raise government
revenue, and kindle private sector initiative.
•
The Mexican Congress amended the country's constitution this year to
allow private and foreign investment in railroads and satellite
communications. It also passed legislation to open telecommunications
services and natural gas distribution and storage to private investment
and foreign competition.
•
In September and October, the fIrst concessions for the operation of
long-distance services were awarded to joint ventures that include both
domestic and foreign participants.
•
In August, the World Bank. approved a $30 million loan to support
technical assistance in developing regulations and preparing firms for
privatization in sectors including telecommunications, energy, and
transportation.
•
The government also announced a new infrastructure investment fund
which is initially capitalized at NPI. 7 billion (approximately $255
million), to provide financing intended to catalyze small and mediumsized infrastructure projects.
Bidding for additional port facility announced
On November 7, the Communications and Transportation Ministry announced
that it was accepting bids for a 20-year concession to operate the multi-use
terminal at the port of Altamira. This announcement follows the privatization
of fIve port facilities in July and August.
13
Treasury Secretary's Report to Congress
November 1995
Bidding rules announced for railroads
•
On November 13, the Communications and Transportation Ministry
announced bidding rules for the sale of rail assets for four lines of the
state-owned rail company, Ferrocarriles Nacionales de Mexico, and for
concessions to build and operate new lines.
•
The Ministry plans to allow foreign companies to participate as
minority joint-venture partners, or as majority owners with permission
from the National Commission on Foreign Investment.
Legislation introduced to open airports to private investment
On November 16, Present Zedillo sent legislation to Congress to allow private
investment in Mexico's airports. Concessions will be offered to operate
existing air terminals and to build and operate new airports. The concessions
are targeted to last 50 years, with the possibility of renewal.
Bidding rules set for sale of petrochemical facilities
On November 14, PEMEX, the state-owned oil company, announced bidding
rules for the sale of facilities within the Cosoleacaque petrochemical complex.
Cosoleacaque will be the fIrst and largest of four petrochemical complexes to
be sold. Within these complexes, there are 61 facilities to be sold.
•
PEMEX will sell 80% of its ownership of Cosoleacaque's assets to
foreign and domestic investors, maintaining 20% for no more than a
five-year transition period.
Plans for concessions for natural gas distribution announced
On November 8, the Energy Regulatory Commission (eRE) announced the first
round of bidding for 30-year concessions to distribute natural gas in northern
Mexico.
•
Under Mexico's recently passed Natural Gas Law, PEMEX would
relinquish control of pipelines within privately-operated concession
14
Treasury Secretary's Repon to Congress
November 1995
areas. PEMEX may compete for these concessions and will maintain
exclusive rights to natural gas exploration and development.
•
All concessions are renewable for IS-year terms.
President Zedillo announces plans for pension reform
The Zedillo Administration's sent legislation to the Mexican Congress on
November 9 that would restructure Mexico's pension system. According to
the announcement:
•
The government-run Institute of Social Security (IMSS) would turn over
retirement funds to Mexican workers, who would then be able to
choose from a variety of retirement fund administrators (AFORES) that
would be formed by private firms, social organizations, and IMSS itself.
The government would also increase its contributions to the pension
system.
•
By allowing more workers to utilize professional money managers, it is
hoped that better investment returns would attract greater worker
participation and increase the nation's pool of domestic savings.
•
The IMSS would still collect worker and employer contributions and
would provide a minimum inflation and devaluation-adjusted pension
for salaried and non-salaried workers.
ll.
d.
Information Disclosure
Mexico has significantly increased the breadth and frequency of its reporting
Public disclosure of financial data by the Mexican government and the Bank of
Mexico has increased substantially this year.
•
Mexico has improved the coverage and timing of its reporting on both real
and financial indicators, including data on output, inflation, international
reserves, balance of payments, fiscal and monetary aggregates, and public
debt.
15
Treasury Secretary's Report to Congress
November 1995
•
II
The Mexican government and the Bank of Mexico now provide a wide set
of historical and current data on the Internet.
e.
Economic Adjustment
Mexico's economic adjustment program has so far succeeded in its objectives
of limiting the inflationary impact of the financial crisis and improving the
country's external position. The economy has experienced a deep recession,
however, with high unemployment and losses in real income. While
uncertainties remain large, there have been some encouraging signs that the
recession may have hit bottom.
Inflation remains contained
After a burst of inflation in the frrst four months of the year that peaked at 8 %
in April, inflation fell rapidly, and has remained roughly constant since July at
about 2 % per month.
•
Consumer prices rose about 2.1 % in October, roughly the same as the
September rate and in line with market expectations. For the first half of
November, inflation was 1.38 %. Higher tradeable goods prices due to the
depreciated peso, and some adjustment in state-administered prices (as
programmed in the "Pacto" -- described in last month's report), may boost
inflation temporarily.
Mexico's trade balance remains strong
Mexico registered a merchandise trade surplus of $830 million in October
(preliminary data), down from $904 million in August, and an increase of
more than $2.4 billion from the $1.6 billion deficit of October 1994. For the
first ten months of 1995, Mexico's merchandise trade surplus was about $6.1
billion, compared to a $15.3 billion deficit during the same period in 1994.
This merchandise trade surplus has substantially reduced Mexico's external
financing needs, and strong export growth has partially offset weakness in
internal demand.
•
While total imports remain lower than levels of a year ago, as a result of
the increase in peso costs and the fall in domestic economic activity, the
16
Treasury Secretary's Repon to Congress
November 1995
level has recently edged up due to rises in intermediate and consumer
goods. Total imports increased 9% in October compared to September
(seasonally adjusted) after a seasonally-adjusted decrease of 5 % in
September compared to August.
•
Exports remain strong, particularly in the manufacturing sector; total
exports jumped 36 % in October compared to the same period last year.
They remained at roughly the same level in October as in September, on a
seasonally-adjusted basis.
From January through September, manufactured exports from the
general economy grew by 50% compared to the same period in 1994,
and the maquiladora sector grew by 18 %.
•
The effect of the October hurricanes temporarily depressed petroleum
exports in October, which declined by about 12 % from September's level.
Mexico's economy shows signs of turning up
The economic adjustment necessitated by the large drop in capital inflows has
been an important factor leading to a deep recession, notwithstanding the
tempering effects of the U.S.-led multilateral support package. After
declining substantially in the first half of the year, Mexico's GDP in the third
quarter was 9.6 % below the same period in 1994. According to the
government of Mexico, however, output rose by 2.7 % between the second and
third quarters on a seasonally-adjusted basis.
17
Treasury Secretary's Repon to Congress
November 1995
Table 2. Mexico's Real GDP
(percent change from year-earlier period)
by Supply
Q494
Q195
Q295
Q395
Goods
+3.0
-1.5
-12.5
-10.4
Service
+4.8
-0.2
-9.5
-10.2
Tradeables 1
+3.0
-0.3
-10.8
-7.0
Nontradeablei
+4.5
-1.0
-10.4
-10.9
Total
+4.0
-0.8
-10.5
-9.6
GDP
. .
Tradeables: rmmng, manufacturmg, and agnculture sectors.
2Nontradeables: construction, utilities, retail, transport, communications, and
fmancial and other services.
,.
•
The surge of manufactured exports, particularly in the non-maquiladora
sector, has partially offset the fall-off in domestic demand for industrial
goods.
•
Output in the mining and agriculture sectors has also done relatively well
because of the strong expansion of exports. On a year-over-year basis,
mining sector output increased in the second and third quarters by 0.1 %
and 0.6 %, respectively. Agriculture increased by 0.6 % in the thirp.
quarter compared to the same period last year, after a decline of 14.7 % in
the second quarter.
•
Sectors dependent on domestic demand, such as construction and retailing,
have perfonned more poorly because of the steep fall in domestic
consumption and cuts in government spending. Construction fell 30% in
the third quarter after falling 24% in the second quarter on a year-overyear basis. Retailing fell 19 % in the third quarter after a 23 % decline in
the second quarter, compared to the same periods last year.
Monthly indicators also point to a turnaround, although it is too soon to
draw firm conclusions about an upward trend
•
The industrial sector has strengthened since July. On a seasonally-adjusted
basis, monthly industrial sector output was up 4.7% in August after an
18
Treasury Secretary's Report to Congress
November 1995
increase of 0.7% in July. The August data represent the largest monthly
increase this year.
•
On a seasonally-adjusted basis, manufacturing production output rose 7.7 %
in August after declining 0.8% in July.
•
Output in the hard-hit construction sector rose 4.7% in August (seasonally
adjusted), the highest monthly increase this year after rising 0.4 % in July.
•
Consumer imports, after sharply declining earlier in the year, appear to be
edging up. They rose 13 % in October compared to September.
Soft labor markets have recently shown signs of improvement
•
The open unemployment rate, a narrow measure of joblessness in the
formal sector, declined from 7.3 % in September to 6.8 % in October
(preliminary data), after peaking at 7.6% in August.
•
The segment of the labor force working less than 15 hours a week, an
indicator of underemployment, declined from 4.9% in August and
September to 4.4 % in October.
•
Employment in the formal sector has recently been increasing as the
number of workers registered in the social security system (IMSS) rose by
almost 79,000 from August through October, -after falling sharply earlier in
the year.
While uncertainties remain, most analysts have projected an economic
recovery in 1996
•
In its 1996 budget presentation, the Mexican Government projected that
GDP would grow by 3% in 1996.
•
In an October survey by Consensus Economics, private analysts forecast
that GDP would rise 2.7% in 1996.
•
Five private sector economists polled by Bloomberg Business News on
November 18 also predicted Mexico would return to positive growth in
19
Treasury Secretary's Repon to Congress
November 1995
1996. The average growth rate prediction of the economists was about
2.9%.
ll.
f.
Banking Sector Developments
Banking system remains under strain
The goverrunent reported nonperforming loans as of September 30 at 13 %,
based on 84% of the banking systems assets. The levels reported at the ends
of June, July and August were 11.2%, 12.4% and 13%, respectively. The
reported nonperforming loans do not include those of eight institutions that are
intervened or in negotiations to be sold.
•
Including these institutions would increase the nonperforming loan level as
of September 30 to approximately 17 %.
Overall, the rate of increase in nonperforming loans (exclusive of the eight
institutions listed above) has continued to decline.
•
Nonperfonning loans grew 9% in July and 6% in August, and declined by
0.4 % in September.
•
The recent rise in interest rates may add renewed pressure on the banking
system and set back this improvement.
The reduction in nonperforming levels is mainly the result of the various
government programs to encourage loan restructuring.
Loan restructuring efforts continue
The goverrunent created the Investment Unit Program (UOI) to help banks
restructure portions of their loan portfolios. The current deadline for
restructuring loans under this program is January 31, 1996. At that time, the
program will be evaluated and a decision made on its status.
•
As of November 10, loans totaling NP64 billion had been restructured
under the various UOI programs. This represents 53.8% of the amount
allocated to the program.
20
Treasury Secretary's Repon to Congress
November 1995
The UOI program targets several types of loans. Allocated funds used
thus far include: 61.8% of the mortgage program's loans, 74% of the
state and municipal government program's loans, and 35% of the
business program's loans.
The debt relief program (ADE) targeted at consumer, credit card, small
business, and mortgage borrowers became operational on September 11.
Under this program, borrowers enter into written agreements with the banks to
restructure and service their debt. In return, the nominal interest rate on the
loan is fixed for one year. The government makes up the difference between
this fIXed rate and a spread over interbank rates.
The program, which covers about 25 % of outstanding loans, is intended to
encourage additional loan restructuring, avoid the development of a nonpayment culture, and provide a transitional period for borrowers to restructure
into VDIs.
•
The program covers credit card balances of NP5,000 or less, business loans
of NP200,OOO or less, and consumer loans of NP30,OOO or less.
•
The authorities estimated that 2,110,000 accounts would be eligible to be
restructured under ADE. As of November 15, a total of 1,266,594
accounts, approximately 61 % of eligible accounts, had been restructured.
To minimize the impact of the recent financial market volatility, the authorities
have taken the following additional actions:
•
The government will assume the recent increase in interest-rate costs for
borrowers restructuring their loans into government-sponsored VDI
programs. Until December 31, 1995, borrowers will pay the September 1,
1995 interest rate, approximately 37% in nominal terms and 13% in real
terms. The subsidy will benefit business borrowers restructuring balances
in excess of the ADE program maximum because they will not have to
refinance at the higher market rates.
•
A portion of the current VOl programs will be reallocated to facilitate
restructuring of dollar-denominated loans. The program ceiling is $2
billion.
•
To alleviate the pressure on the banks' liquidity, the subsidy on the small
debtors' (ADE). program (currently estimated at NP13.4 billion) will be paid
21
Treasury Secretary's Report to Congress
November 1995
in cash to the banks out of the 1995 budget surplus rather than in the form
of nontradeable government securities.
To improve transparency, the UDI trusts will be accounted for on the banks'
balance sheets. Currently, the trusts are treated as off-balance-sheet accounts.
Government supports bank recapitalization efforts
To help restore solvency to the banking system, the Mexican government has
initiated a program through FOBAPROA, the central bank's insurance fund, that
provides incentives for shareholders to inject additional capital. Through
FOBAPROA, the government has purchased loans from banks in proportion to
new capital injected by shareholders. FOBAPROA pays for the acquired loans
with non-amortizing, long-term government bonds.
•
Through October, the Serfin, Probursa, Promex, Intemacional, Atlantico,
Bancrecer, Banoro and Banorte banks have been recapitalized under the
program in 1995.
•
As a result of the capital injections and the sale of loans to FOBAPROA, these
banks have reduced their nonperforming levels from about 11.5% to below
10%, and raised their capital levels from about 8.75 % to close to 11 %.
These banks hold 37% of banking system assets.
•
The authorities reported at the end of November that they are negotiating
with other institutions to extend the recapitalization program.
Estimated Fiscal Costs
The net present value of the overall cost of the banking sector programs is
estimated by Mexico's National Banking and Securities Commission (CNBV) at
NP83.9 billion, or 5.1 % of estimated 1995 GDP.
22
Treasury Secretary's Report to Congress
November 1995
The net present value of costs are broken down as follows:
UDI
ADE
NP17.0
13.4
32.0
7.4
14.1
NP83.9 billion
FOBAPROA
Bank Recapitalization Program
Toll Roads Refinancing
According to CNBV, the ADE cost will be covered by the NP15 billion expected
fiscal surplus for 1995, and NP14.3 billion of the FOBAPROA costs for the
intervened banks will be fmanced by the $1. 75 billion World BanklIDB loan.
The remaining NP56.2 billion will be financed over 30 years.
ll.
g.
Financial Market Trends
Mexico experienced significant market volatility and the peso declined during the first
half of November. During the second half, the peso appreciated and the stock market
rallied.
During the first half of November, the central bank tightened credit policy and
intervened twice (11/9 and 11114) in response to peso weakness, spending
about $300 million to buy pesos. After the interventions, the Bank of Mexico
stated that these interventions "do not imply the abandonment of a floating
exchange rate policy ... " and that it will not use intervention to interfere with
the market's fundamental valuation of the peso.
•
The peso closed at a low of NP8.14 on November 9. Since then, the peso
has strengthened to NP7.55 as of November 30, a 7.8% appreciation.
•
Buying and selling spreads on the peso, a measure of volatility, increased
in October and in November, rising as high as 1.3 % (about 10 centavos)
and averaging about 0.8% for the month of November. By the end of the
month, however, spreads had diminished to 0.4%. At the height of the
crisis, in January, spreads were 4-5 %.
•
As of November 30, Mexico's stock market was about 15.5% above precrisis levels in nominal terms and about 86 % above its low in late
February in peso terms, having rallied by 16.6% in November.
23
Treasury Secretary's Report to Congress
November 1995
•
In dollar tenns, as of November 30, the stock market is down about 47%
from its mid-December 1994 level but up about 47% from its February
lows, and 13% in November.
Interest rates rose sharply during the first half of the month, particularly with
peso volatility and the tightening of credit by the central bank. Interest rates
have since receded and remain substantially below those reached at the height
of the crisis.
•
In response to peso volatility, the government tightened credit, as the
interest rate on 28-day cetes, the benchmark Mexican government security,
rose during the peak of recent volatility to as high as 60% on an
annualized basis in the November 14 primary auction, up from about 43 %
at the end of October. With a more stable peso, rates fell to 53 % in the
November 28 auction. Peak rates in November remained significantly
lower than the 83 % annual rate in March.
•
In the secondary market, the overnight cetes rate jumped from about 34 %
at the end of September closing as high as 74.5 % on November 14, but
dropped back to 52 % on November 29.
The recent weakening of the peso also affected Mexican Brady bonds. As the
peso has stabilized, however, Mexico's Brady bonds, as well as those of other
Latin countries, have again strengthened.
•
Mexican Brady Bond interest rate spreads over U.S. Treasuries, adjusted
to remove the effect of partial collateralization, rose from 10.28% in midOctober to as high as 12.38% on November 14. Since then, rates have
declined to 10.81 on November 30, 856 basis points below the 19.37%
rate in mid-March.
•
Yields of the stripped portion of Brady bonds in Argentina and Brazil have
also declined from increases earlier this year that had been sparked by the
Mexican crisis. Spreads have fallen 11.71 and 7.23 percentage points
from their highs earlier this year through November 30 for comparable
bonds from Argentina and Brazil, respectively.
24
Treasury Secretary's Report to Congress
November 1995
Mexico has solidified its standing in the international capital markets since
earlier in the year.
Mexican government agencies, PEMEX, and Mexico's privately-owned
corporations and financial institutions have successfully attracted new capital in
international markets.
•
The Mexican government and its agencies have raised approximately $4
billion in the private capital markets thus far in 1995 (not including the
issues announced but not settled during the last week of November). This
exceeds public-sector bond issuances in 1993 (see Table 3 below).
On November 29, Mexico's Finance Ministry announced the offering of $1.5
billion in one-year notes in the Euromarkets, Mexico's largest debt offering
this year, which will settle on December 5, 1995.
•
The issue, originally set for $500 million, was increased to $1.5 billion in
response to strong investor demand. At maturity, investors will receive
the higher of:
-- the 12-month LIBOR rate (approximately 5.625%); or
-- the compounded monthly average 28-day Cetes rate (currently about
53%), less six percent (6%), with the principal adjusted to reflect the
appreciation ( +) or depreciation (-) of the peso-dollar exchange rate
from the time of issuance.
•
Investors will have the opportunity to gain from an appreciation of the
peso, while Mexico will receive funds at LIB OR if economic conditions
should deteriorate.
.
On November 30, two Japanese Yen-denominated bond issues were
simultaneously launched on Mexico's behalf.
•
A ¥30 billion (approximately $293.6 million) issue with a 2.85% coupon,
to be settled on December 12, will mature in March 1997.
•
A two-year issue, originally set at ¥10 billion, was increased to "i13 billion
(approximately $127.2 million) with a 3 % coupon, to be settled on
December 12.
25
Treasury Secretary's Repon to Congress
November 1995
TABLE 3. Mexican public-sector bond issuances
Type
Issuer
Bancomext
Euro FRN 1
Amount
(US$ M)
Date
May 23
$30.0
Tenor
1 year
Interest
rate
LIBOR
+5.80%
Euro FRN
May 31
$75.0
1 year
LIB OR +
5.44%
Nafmsa
Euro FRN
144A
June 23
Eurobond
October 2
120 billion
($200.0)
2 years
Euro FRN
May 4
$110.3
1 year
$300.0
2 years
L1BOR +
5.51%
3% coupon
L1BOR +
3.50%
Euro FRN
May 4
$73.7
7 months
L1BOR +
2.25%
Euro FRN
May 9
$50.0
1 year
LIB OR +
6.00%
Euro FRN
May 15
$28.0
1 year
L1BOR +
8.00%
Euro FRN
$10.0
May 24
1 year
L1BOR +
5.60%
United
Mexican
States
Eurobond
August 17
DM250
($170.0)
3 years
10% coupon
Eurobond
September 29
SwPr 150
($122.0)
3 years
7.50%
coupon
Euro FRN
144A
July 20
$1,000.0
2 years
LlBOR +
5.375%
Euro MTN2
August 17
1100 billion
($1,100.0)
3 years
5% coupon
Eurobond
November 2
OMI billion
($700)
5 years
9.375%
coupon
Euro MTN
November 30
(to settle Dec. 5)
$1,500
1 year
Cetes - 6%
or LIBOR
Eurobond
November 30
(to settle Dec. 12)
130 billion
($293.6)
15 months
2.85%
coupon
Eurobond
November 30
(to settle Dec. 12)
113 billion
($127.2)
2 years
3% coupon
1. F10atmg rate note.
2. Medium-term note.
26
Treasury Secretary's Report to Congress
November 1995
On November 27, PEMEX announced that it had received from a syndicate of
commercial banks a $65 million increase of its U.S. dollar commercial paper
facility, to $365 million.
II.
h.
International Reserves
International reserves have declined by $989 million over the OctoberNovember period, after hovering near $15 billion in August and September.
On November 24, international reserves in the BOM account amounted to $13.7
billion.
A number of factors have influenced changes in reserve levels in October and
November.
•
The November 2 settlement of a roughly $700 million sovereign mediumtenn note issue largely counterbalanced Mexico's October repayment to the
U. S. of $700 million and its companion payment to Canada of $83 million.
•
Inflows to reserves from PEMEX exports (over $750 million) were
somewhat lower than usual because of the effects of the October hurricanes
that temporarily interrupted production and shipments.
•
Tesobono redemptions in dollars, though dramatically reduced from the
drain in earlier months of this year, still amounted to about $861 million
(through November 24). With only $700 million tesobonos still
outstanding at the end of November -- down from $29.2 billion at the
beginning of the year -- this claim on reserves will soon eI1d.
•
The central bank intervened in the foreign exchange market on November
9 and 14, spending $175 million and $125 million, respectively (see
Financial Market Trends section above).
•
Other government debt service and general business transactions resulted in
net decreases of about $570 million over these two months. These
transactions included nonnal debt service payments of principal and
interest on public sector external debt. They also included payments of
interest, and principal repayments on pre-1995 loans, to the IMF of about
$285 million.
27
Treasury Secretary's Report to Congress
November 1995
Aggregate reserve levels have increased from $6.1 billion at the end of 1994
to about $13.7 billion
•
Reserves are now equal to more than three months of non-maquiladora
imports, compared to only 1.3 months at the end of last year.
•
At the end of November, reserves exceeded short-tenn (less than one year)
public sector external debt (including tesobonos) significantly, having
edged above this level in July for the first time in 1995.
TABLE 4. Mexico's international reserves (US$ billions)
1990 December
10.2
1991 December
17.5
1992 December
18.6
1993 December
24.5
1994 December
6.1
1995 January
3.5
February
9.0
March
6.9
April
8.7
May
10.4
June
10.1
July
13.9
August
15.1
September
14.7
October
13.5
November 24
13.7
28
Treasury Secretary's Report to Congress
November 1995
III.
Disbursements, Swaps, Guarantees and Compensation to the U.S.
Treasury
As of November 30, 1995, $13.5 billion in U.S. funds have been disbursed to
Mexico under the support program. Of this amount, a total of $11.8 billion
remain outstanding -- $1.3 billion in short-term swaps and $10.5 billion in
medium-term swaps. The outstanding total reflects the repayment by Mexico
of $700 million in short-term swaps on October 11, 1995. To date, the United
States has not extended any securities guarantees to Mexico under the support
program.
•
Under the swap agreements, Mexico purchases dollars and credits a
corresponding amount of pesos to U.S. accounts at the Bank of Mexico.
On the maturity date, Mexico repurchases the pesos by paying back the
dollars.
•
Both the short-term and medium-term swap facilities require Mexico to
maintain the dollar value of peso credits to the United States, adjusting the
amount of pesos on a quarterly basis, in accordance with changes in the
dollar-peso exchange rate.
•
As provided in the Agreements, Mexico must pay interest to the U.S.
government on the swap balances outstanding. The interest charges
applied to short-term swaps are designed to cover the cost of funds to the
Treasury and thus are set at the inception of the swap based on the
Treasury Bill rate. Interest rates are reset at the time of any roll-overs of
existing short-term swaps.
•
Interest charges applied to the medium-term swaps are designed to cover
the cost of funds to the Treasury plus a premium for the credit risk
associated with the extension of such funds, as assessed at the time of each
disbursement. Paragraph 6 (d) of the Medium-Term Exchange
Stabilization Agreement (the Medium-Term Agreement) provides that
interest rates on swaps with Mexico are "intended to be at least sufficient
to cover the current U.S. Government credit risk cost for Mexico."
29
Treasury Secretary's Report to Congress
November 1995
•
For each disbursement under the Medium-Term Agreement, the premium
is the greater of (1) a rate determined by the U. S. Government's interagency country risk assessment system (ICRAS) as adequate compensation
for sovereign risk of countries such as Mexico, or (2) a rate based on the
amount of U.S. funds outstanding to Mexico from short-term swaps,
medium-term swaps, and loan guarantees at the time of disbursement.
•
Mexico has not missed any interest payments or required principal
repayments under any of the swaps. As of November 30, the Exchange
Stabilization Fund (ESF) has received $447.4 million in interest payments
from Mexico for short- and medium-term swaps. As of November 30, the
Federal Reserve has received $46 million in interest on its short-term
swaps with Mexico.
The schedule of swaps under both ESF and Federal Reserve swap lines is as
follows:
ESF
swaps
As of November 30, 1995, $12.0 billion has been disbursed to Mexico through
the ESF, of which $11.15 billion remains outstanding.
ESF
short-term swaps
•
On January 11 and January 13, 1995, Mexico made two
drawings of $250 million each under short-term swaps through
the ESF. Mexico repaid these drawings on March 14, 1995.
•
On February 2, 1995, the U.S. disbursed $1 billion under a
short-term swap through the ESF; this swap was rolled over for
an additional 90-day period on May 3, 1995, and on August 1,
1995. On October 11, Mexico repaid $350 million of this
swap. The $650 million balance of this swap was rolled over
on October 30, 1995, for an additional 90-day period for a new
maturity date of January 29, 1996. The current quarterly
interest rate expressed annually is 5.25 %.
30
Treasury Secretary's Report to Congress
November 1995
ESF
medium-term swaps
•
Mexico drew $3 billion under a medium-tenn swap on March
14, 1995. The current quarterly interest rate expressed annually
is 7.55%.
Repayment is to be made in seven installments as follows: six
equal installments of $375 million each, payable on June 30,
1998 and each successive calendar quarter date to and including
September 30, 1999; and one installment of $750 million,
payable on December 31, 1999.
•
On April 19, 1995, Mexico made a second $3 billion drawing
through a medium-tenn swap. The current quarterly interest
rate expressed annually is 10.16%.
Repayment is to be made in twelve installments as follows:
eleven equal installments of $245 million each, payable on June
30, 1997, and on the last day of each successive calendar
quarter, to and including December 31, 1999; and one
installment of $305 million, payable on March 31, 2000.
•
On May 19, 1995, Mexico drew $2 billion under a mediumtenn swap. The current quarterly interest rate expressed
annually is 10.16%.
Repayment is to be made in twelve installments as follows:
eleven equal installments of $170 million each, payable on June
30, 1997, and on the last day of each successive calendar
quarter, to and including December 31, 1999; and one
installment of $130 million, payable on March 31, 2000.
31
Treasury Secretary's Report to Congress
November 1995
•
Most recently, on July 5, 1995, Mexico drew $2.5 billion under
a medium-term swap. The current quarterly interest rate
expressed annually is 9.20%.
Repayment is to be made in twelve installments as follows:
eleven equal installments of $205 million each, payable on
September 30, 1997, and on the last day of each successive
calendar quarter, to and including March 31, 2000; and one
installment of $245 million, payable on June 30, 2000.
Federal Reserve swaps
Disbursements to Mexico through the Federal Reserve System total $1.5
billion, with $650 million outstanding. All Federal Reserve disbursements are
in the form of short-term swaps.
•
On January 11 and January 13, 1995, Mexico made two
drawings of $250 million each under short-term swaps. Mexico
repaid these drawings on March 14, 1995.
•
A short-term swap of $1 billion was extended on February 2,
1995; this swap was rolled over for an additional 90-day period
on May 3, and on August 1, 1995. On October 11, Mexico
repaid $350 million of this swap. The $650 million balance of
this swap was rolled over on October 30, 1995, for an
additional 90-day period for a new maturity date of January 29,
1996. The current quarterly interest rate expressed annually is
5.25%.
Table 5 gives the amortization schedule of outstanding swaps.
32
Treasury Secretary's Report to Congress
November 1995
Table 5. Amortization Schedule of Outstanding Swaps wath Mexico
Quarter
Amount Due 'US$ million)
Quarterly
Annually*
Ending
11 800
11 800
Outstanding Amount
Dec-95
Mar-96
1,300
Jun-96
0
Sep-96
0
Dec-96
1,300
0
Mar-97
0
Jun-97
415
Sep-97
620
Dec-97
620
1,655
Mar-98
620
Jun-98
995
Sep-98
995
Dec-98
995
3,605
Mar-99
995
Jun-99
995
Sep-99
995
Dec-99
4,355
1,370
Mar-2000
640
Jun-2000
245
Sep-2000
0
885
Dec-2000
0
Repayment Schedule of Disbursements to Date (US$ million)
02/02/95**
03/14/95
04/19/95
05/19/95
07/05/95
1,300
3000
3000
2000
2500
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
245
170
0
0
245
170
205
0
245
170
205
0
245
170
205
170
375
245
205
245
170
205
375
I
375
245
170
205
j
I
375
245
170
205
---I
245
375
1701 - - - - - -205
-245
375
170
205
--750
245
170
205
1
-0
305
130
205
I
0
0
245
0
0
0
0
0
I
0
0
0
0
I
I-
* This column represents the sum of quarterly payments in a given year; it does not represent an additional payment
**$2 billion in short term swaps disbursed on February 2, 1995, were rolled over for an additional 90-day period on
May 3, 1995, and August 1, 1995. On October 11, Mexico repaid $700 million of these obligatons.
The outstanding $1.3 billion was rolled over for an additional 90-day period on October 30,
for a new maturity date of January 29, 1996.
33
Treasury Secretary's Report to Congress
November 1995
IV.
Mexico's Financial Transactions
Effective upon the signing of the agreements on February 21, 1995, and prior
to each disbursement, Mexico must provide Treasury with infonnation on the
intended use of U.S. funds, and Treasury must verify that such uses are
consistent with Mexico's Financial Plan.
•
To date, Mexico has requested and Treasury has authorized the use of
funds to redeem tesobonos and other short-tenn, dollar-denominated debt
of the Mexican government and its agencies.
•
U.S. funds have been used to redeem tesobonos.
In part with U. S. and other official support, Mexico has reduced the amount
of outstanding tesobonos, or short-term, dollar-linked government debt by over
$28 billion since the beginning of the year.
•
Since the beginning of 1995, the amount of tesobonos outstanding has
declined from $29.2 billion to $0.7 billion at the end of November.
34
Treasury Secretary's Report to Congress
November 1995
V. Status of the Oil Facility
Payments through the Federal Reserve Bank of New York account
The payment mechanism, established under the Oil Proceeds Facility
Agreement, continues to function smoothly.
An independent review in August has confirmed that the Mexican oil proceeds
financial mechanism is working well. Petroleos Mexicanos' independent
public auditors, Coopers & Lybrand, analyzed the information utilized for the
last two quarterly eXP9rt reports prepared by PEMEX and provided a report to
the U.S. Treasury pursuant to the Oil Proceeds Facility Agreement. Their
review revealed that the reports "fairly present" information related to both
PEMEX'S oil exports and the collection of proceeds from such exports. Similar
reviews will be performed every six months.
As of November 17, 1995, about $6.0 billion had flowed through Mexico's
special funds account at the Federal Reserve Bank of New York since the
agreement went into effect in early March. An average of $25 million flows
through the account each day. To date, there have been no set-offs against the
proceeds from Mexico's crude oil, petrochemical, and refmed product exports.
35
GRAPHS
Mexico has pursued tight monetary policy_
• Money supply growth has been controlled.
Nominal M1
30%
20%
10%
-10%
Jan 94 Mar 94 May 94 Jul 94 Sep 94 Nov 94 Jan 95 Mar 95 May 95 Jul 95 Sep 95
~94~94~94~94~94~94~~~~~~~~~~
-
Change from previous year Change from previous month
• Net domestic credit has been reduced.
120000
110:000
100,000
90,000
80000
70:000
en
60,000
_o_c 50,000
40,000
~ 30,000
0..
20,000
z 10,000
o
10,000
20,000
30,000
40,000
50000
60:000
Monetary Gross International Net Domestic
Base
Reserves
Credit
I:-:-:-:-j
..
-.
Despite the effects of recession on revenues,
Mexico has maintained a fiscal surplus .
• Gains from the oil sector
and a VAT increase
helped offset sharp
declines in other public
sector revenues during
the 1st three quarters of
1995.
(l;
40%
~
~ 30%
~..
29.6%
20%
-E
~ 10%
s
1
0%
-0.8%
8 -10%
&
~-20%
1
«
• Cuts in real non-interest
public sector spending,
particularly investment,
more than offset higher
real interest payments.
~
-30%
60%
~
40%
e
20%
.E
0%
1!!
c
-=
~
~
8
I
DOH Revenues tlVAT D Other Revenues
I
80%
'0
2
-22.1%
1-_..1...--.1._ _
-20%
~
~-40%
~ -60%
L-_ _ _ _ _ _ _
~
_ _ _....::::I:.L...i.lt.;.(Q...._ _
Interest IINon-lnterest DFed. Wages _Federal
Spending
and Benefits m Investment
O Payments
• As a result, the public
sector non-financial
balance increased
compared to the first nine
months of 1994.
8
7
6
~5
~4
o
(#.3
2
1
o
0
L..J::::====
I
First 30 1994
First 30 1995
ClOverall Balance_Primary Balance
I
Third quarter nominal GDP estimated using reported increase in
Mexican CPl. Primary balance equals overall balance Jess
interest payments.
Mexico has effectively restructured its short-term
dollar debt...
• The outstanding balance of tesobonos has been reduced by about 98% this
year.
Weekly Amortizations in US$M
Outstanding Balance in US$B
1600
1500
1400
1300
1200
1100
1000
30
25
20
900
800
15
700
600
500
400
300
10
5
200
100
O~~~~~~=w~=a~~w=====~~~~==~=-~~~==~==~~O
Jan-95
Feb-95
Mar-95
Apr-95
May-95 Jun-95
Jul-95
Aug-95
Sep-95
Oct-95
Nov 95
Outstanding Balance Amortizations in Pesos Redeemed directly into US$
-
&8882
_
... and has reconfigured its debt profile.
• Maturities of external debt· have been
extended.
• Domestic debt" is now mostly
peso-denominated: tesobonos
are dollar-linked instruments .
. - - - - - - , 100%
140
o Bondes
o Short-term
iBTesobooos
(]Cetes
-Aiustabonos
Ol9s0b0oos
• Long-term
120
ClIMF
80%
100
til
60%
c:
80
~
:c
~
en 60
::>
40%
40
20%
$
20
o~----~~~--~~-
End 1994
End Q3 1995
,. All external public sector debt plus tesobOnos,
awed by GOM, plus IMF and U.S. liabilities of the
Bank of Mexico.
0%
L-..I._........_-L-.....I....._""----L_
End 1994
End Sep. 1995
** Debt held by public.
Mexico's stabilization policies have produced
strong results.
• Inflation has moderated.
Lm Mexican Consumer Price Index
D (not seasonally adjusted)
..c 10%
c:o
E 8%
Ul
5
"5
!!!
6%
Q.
~
-
4%
Q)
g>
2%
o
O%~WW~~~~~~~~~~~~~~~~~~~~~~~aw~~~
.!
Nov 94
Dec 94 Jan 95
Feb 95
Mar 95
Apr 95
May 95 Jun 95
Jul 95
Aug 95 Sep 95
Oct 95
• Nominal interest rates have fallen since their March peak.
90%
28-day Cetes
auction rate
80%
-
70%
60%
50%
40%
30%
20%
10%
O%U-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
3/1
3/15 3/29 4/12 4/26 5/9 5/23 6/6 6/20 7/4
7118 8/1
8/15 8/29 9/12 9/26 10/910/24111711/21
• High real interest rates reflect tight monetary policy.
.--
30%
~~--~
20%
10%
/.
k
j'
O%~--~~----------------------------------------------------
-10%
Real 28-day interest rates
-20%
-30%3115
3131
4115
4/30
5/15
5/30
6/15
6/30
7/15
7/31
8115
8131
9/15
9/30
10/15 10/31 11/15
Bond markets have reacted favorably to
Mexico's stabilization program, suggesting
improved investor confidence .
• Stripped spreads on Mexican Brady Bonds have tightened
sign ificantly.
20%
15%
5%
-
Stripped Spread
O%~~~~~~~~~~~~~~~~~~~~~~~
01/05 02102 03/02 03/31 04/28 05126 06/26 07124 08/21 09120 10/18 11/17
12122 01119 02116 03/16 04114 05/12 06/12 07/10 08/07 09/06 10/04 11/01
• Yields on United Mexican States Yankee bonds have declined
since March.
24%
22%
20%
18%
16%
14%
12%
10%
8%~~~~~~~~~~~~~~~~~~~~~~~~
1211
212
3/15
4/25
6n
8/1
9/20
10103 10/11
10/19 10/31
11/28
12128
2122
4/4
5/17
7/4
8/30
09/28 10106 10/16 10/24
11/8
-
Secondary market yields
Despite a recent rise in volatility, Mexico's
financial markets have improved markedly since
the height of the crisis .
• Volatility in peso trading rose in the first half of November.
Spreads in Peso Spot Mai<et
4%
4%
3%
3%
-
Bid-Ask/Ask Price
2%
2%
1%
1%
• Despite falls in October and November, the real exchange rate is
still some 10% above its March low.
110
-
Monthly Average
100
0
0
90
..-
"
0
C)
C)
..- 80
70
60
Dec-94
Jan-95
Feb-95
Mar-95
Apr-95
May-95
Jun-95
Jul-95
Aug-95
• Mexico's stock market is above its pre-crisis levels.
g
.....
v"
~
('.I
( '.I
.....
~
'0
.E
120
110
100
90
80
70
60
50
40
30
20
Sep-95
Oct-95
Nov-95
Mexico has rebuilt international reserves this
year from $6.1 billion to $13.7 billion .
• USA 0 IMF 0 Reserves. Tesobonos 0 Other sources or uses, net *
14,000
12,000
I/)
c
,2
E 10,000
~
(/)
:::>
1/)-
~
;;::
8,000
Q)
OJ
c
m
6,000
J::
(.)
X
Q)
c
OJ
'Qj
4,000
....
0
u.
2,000
o
Q1 95
Sources
(official
and other)
Uses
Q2 95
Sources
(official
and other)
Uses
Q395
Sources
(official
and other)
Uses
Q4** 95 Uses
Sources
(official
and other)
.. Current account balance, public sector external debt issuances and amortizations, and private capital
flows.
- I=nurth quarter through November 24.
,
~
:,;
~
,
"
,~
-'"0-
~
..
¥.'
~.-'
L~'_~,,- - "
'
CD
(')
:3
Q)
OJ
~
CD
::;I
~
•
8
(f)
g'
~,
CJ)
C
~
~
0
-"
0
0"""
....0
I\.)
0
0"""
....0
0'
....0
W
0
.j:::o.
0
0"""
....0
Q)
a
~
-
0':3
....0
01 0
o::r
Jul~95
Jun-95
May-95
Apr-95
Mar-95
Feb-95
Jan-95
Oec-94
Nov-94
Oct-94
Sep-94
Aug-94
JUI-94
Jun-94
May-94
Apr-94
Feb-94
CD'
....
::l.
Q)
....
Mar-94
0......
0
....0
CD
0......
....0
3
~
Q)
o
'"
o
'::R.
Jan-94
Oct~95
-
,- /'1--;-
'. ~~
"
8
'0
~
01
Oct-9
'" ~
"
,:-"",,~
1
o
01
o
o
-"
Sep-95
}
~
"
-
, ,~'_>o:
,"
~~ '~k ~_
-,
i::'
01
Sep-9
;:.~ ;:~"-'.
_.
~.~_ ~-:..-
~,;
- '-
"
: .
~',
::-.~
c-
-
.'"
~ ~~ '}~ ~
"
o
o
-"
'0
Aug-95
"
-"
Aug-9
JUI-9
Jun-9
May-9
Apr-9
Mar-9
Feb-9
Jan-95
Oec-94
Nov-94
Oct-94
Sep-94
Aug-94
JUI-94
Jun-94
May-94
Apr-94
Mar-94
Feb-94
Jan-94
'0
I \.)
- - - 8 §
- - - -8
(f)
(f)
I~
m
Ii
•
-enc:
-e
c:
..,
en
CD
Co
CD
:=.
:::l
OJ ..,
..... 0
Q)--t\
ccur
::l ..,
5-c
-·0
o"'0.
_.
0.3
:TCD
en 0.
CD
..
-eCD
::l ><
,....0
< Q)
CD <
3 CD
o CD
C':=r
our
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en 0
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Signs of an upturn from Mexico's recession.
• Industrial production.
15%
-15%
SA indicates seasonally adjusted.
• Construction output.
20%
10%
O%~------~~~*
-10%
-20%
Year over year change Change from previous month (SA)
-30%
f£§I
-
• GOP.
10%
5%
0%
-5%
-10%
IIliI % Change from a year earlier I
-15%
"'-
0
&
'IREASURY
\,..'\.t
L
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA
AVENUE,
N.W
.• WASHINGTON, D.C .• 20220. (202) 622-2960
,
,
,
FOR IMMEDIATE RELEASE
December 11, 1995
Contact: Calvin Mitchell
(202) 622-2960
TREASURY ANNOUNCES TRANSITIONAL RELIEF FOR RECENT TAX PROPOSALS
On December 7, 1995, the Administration announced proposals regarding Corporate
Subsidies, Loophole Closers and Other Measures. Several items were proposed to be
effective for financial instruments (including preferred stock) issued on or after December 7.
Specifically, these proposals would deny or defer interest and original issue discount
deductions on certain instruments and treat certain preferred stock as "boot."
Treasury clarified today that instruments (including preferred stock) issued pursuant to
a commitment that was binding before December 7 will not be subject to these proposals.
For this purpose, a binding commitment includes an underwriting, purchase, distribution,
over-allotment option or merger agreement. In addition, an instrument that was priced before
December 7, or issued pursuant to an exchange offer that was outstanding before December 7,
will not be subject to these proposals.
Treasury also stated that it plans to work with Congress to determine the extent to
which additional transitional relief is appropriate for these and other proposals. Interested
parties are encouraged to provide input.
-30-
RR-762
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
UBLIC DEBT NEWS
Department of the Treasury •
Bureau ot"t.?B ~u9JiF p~bt :.:;\o/jl~J1jngton, DC 20239
FOR IMMEDIATE RELEASE
December 11, 1995
\r"1
.. 1.;\
:- '-,J
oq.f!)AF1f': 80ff ice
I..
v
~
TREASURY'S.rAUCTIO~
RESULTS OF
.....
-
j
••
of Financing
2 02 - 219 - 3 3 5 0
OF'lJ-WEEK BILLS
.1"_
Tenders for $14,051 million of 13-week bills to be issued
December 14, 1995 and to mature March 14, 1996 were
accepted today (CUSIP: 912794X66).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.29%
5.30%
5.30%
Investment
Rate
5.45%
5.46%
5.46%
Price
98.663
98.660
98.660
Tenders at the high discount rate were allotted 76%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
RR-763
Received
$66,852,474
AcceQted
$14,051,108
$61,321,717
1,448,677
$62,770,394
$8,520,351
1,448,677
$9,969,028
3,394,780
3,394,780
687,300
$66,852,474
687,300
$14,051,108
UBLIC
D£BT NEWS
Department of the Treasury • Bureau of the Publ;c ~~~t'
Jfln
FOR IMMEDIATE RELEASE
December 11, 1995
L,.
L ~~:
,r.c,
;.\JJat~hington, DC 20239
UJ 8 I
(I J
CONTACT: Office of Financing
202-219-3350
-:-:i:l--:.'·.~I)::'(
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $14,093 million of 26-week bills to be issued
December 14, 1995 and to mature June 13, 1996 were
accepted today (CUSIP: 912794Z31).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Rate
Low
High
Average
5.19~
5.20~
5.20%
Investment
Rate
5.42~
5.43%
5.43%
Price
97.376
97.371
97.371
Tenders at the high discount rate were allotted 79%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
RR-764
AND
ACCEPTED (in thousands)
Received
$46,459,222
AcceQted
$14,092,587
$40,269,,100
1 1 226 1 522
$41,495,622
$7,902,465
1,226 1 522
$9,128,987
3,350,000
3,350,000
1 1 613 1 600
$46,459,222
1 1 613,600
$14,092,587
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622·2960
FOR RELEASE AT 2:30 P.M.
December 12, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $28,000 million, to be issued December 21,
1995. This offering will result in a paydown for the Treasury of
about $29,875 million, as the maturing bills total $57,885
million (including the 36-day cash management bills issued
November 15, 1995, in the amount of $26,052 million, and the
48-day cash management bills issued November 3, 1995, in the
amount of $6,008 million).
Federal Reserve Banks hold $6,829 million of bills for their
own accounts in the maturing. issues. These may be refunded at the
weighted average discount rate· of accepted competitive tenders.
Federal Reserve Banks hold $7,394 million of the maturing
issues as agents for foreign and international monetary
authorities.
These may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders.
Due to the public debt limit and Treasury's need to
plan for the debt level, additional amounts of Treasury bills
will not be issued to Federal Reserve Banks as agents for foreign
and international monetary authorities in these auctions.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-765
-
For-press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 21, 1995
December 12, 1995
Offering Amount .
$14,000 million
$14,000 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 X7 4
December lS, 1995
December 21, 1995
March 21, 1996
September 21, 1995
$11,436 million
$10,000
$ 1,000
lS2-day bill
912794 Z4 9
December lS, 1995
December 21, 1995
June 20, 1996
December 21, 1995
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
ws
omCE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
December 12, 1995
Contact: Rebecca Lowenthal
(202) 622-2960
TREASURY ANNOUNCES CUSTOMER SERVICE STANDARDS
"Common sense goverrunent is about restoring Americans' confidence in their
goverrunent. If we want the American people to believe that we can compete
in world markets, make our streets safe and educate the next generation, we
must be able to answer the phone and give quick, effective and courteous
service. Customer services standards are an important step in that process.
- Vice President Gore, December 5, 1995
The U. S. Treasury Department has implemented a number of initiatives -- from filing
tax returns by phone to cutting coin order fulfillment time by half -- that will make it easier
for customers to do business with Treasury's eleven bureaus. President Clinton and Vice
President Gore announced last week that 214 federal departments and agencies have pledged
to provide better service to the American people and measure improvement on a regular
basis.
Treasury's customer service commitments are outlined in the National Performance
Review's book, PUTTING CUSTOMERS FIRST '95: Standards for Serving the American
People. The report was the result of an executive order issued by President Clinton two
years ago directing departments to consult with their customers about their needs, publish
standards and empower front-line employees to make decisions. The report highlights 131
Treasury customer service standards for 22 major programs.
In presenting the Vice President's "Hammer Award" on October 30, 1995 to fifteen
teams of Treasury employees, Treasury Secretary Robert E. Rubin said,
"Reinventing goverrunent has, in my mind, two aims. First, to make
govermnent operate more efficiently and effectively. Americans want a smaller
government. They want a government that works, and they want a goverrunent
that doesn't cost too much. The second aim of reinventing government is to
restore the confidence of the American people in the institution of goverrunent
and those who work on their behalf. A government that delivers for its
citizenry and considers the citizens as the customer, is a government that will
win their trust.
RR-766
-
Farpress releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
"I see reflected in what you have achieved not just more efficient ways of
doing business, but a fundamental change in the relationship between
government and the governed. There is now a focus on helping Americans
comply with the law, rather than punishing them for failing to comply. I see a
willingness to involve the private sector in the work of government. And I see
a willingness not just to consult with those we serve, but to change what we do
based on their needs and ideas."
Highlights of the Treasury initiatives implemented in the past two years are described
below:
The Internal Revenue Service (IRS) continues its program to simplify tax forms and
instructions and make it easier for taxpayers to meet their tax obligations. It now provides
several ways for customers to file: regular filing by mail, electronic filing, joint federal/state
filing, touch-tone phone and electronic payment programs. Prerecorded tax information is
available 24 hours a day.
Last week, the IRS announced that in 1996, 23 million taxpayers who now use the
1040EZ form will be able to file "paperless" returns using a touch-tone telephone. TeleFile
will save customers time and trouble; because such returns are easier to process and contain
fewer errors, taxpayers will get their refunds more quickly. TeleFile has been tested in
selected areas since 1992, with 700,000 taxpayers in ten states filing by phone in 1995 alone.
The service will be available 24 hours a day in English or Spanish.
Contact: Frank Keith (202) 622-4010
The Financial Management Service has reduced from 54 to 14 days the average time
it takes to process check claims.
Contact: James Hagedorn (202) 874-6750
The Bureau of Alcohol, Tobacco and Firearms (ATF) has established new standards
for the processing of label certificate applications by the alcoholic beverage industry. ATF
will approve or reject formal label applications within nine calendar days, comment on
proposed (informal) labels within 15 days and respond to correspondence within 21 days,
notifying the applicant if the response will take additional time.
ATF also operates the National Tracing Center, which helps federal, state, local and
international law enforcement agencies identify criminal suspects by tracking firearms from
manufacturer to purchaser, pledges to complete "urgent" traces within 24 hours and routine
traces within four weeks, working in cooperation with licensed firearms dealers and others to
fulfill requests.
Contact: Susan McCarron (202) 927-8500
The Federal Law Enforcement Training Center, which provides training for
federal, local, state and international law enforcement organizations, measures service
through its Student Feedback System and provides 100 percent of the participating
3
organizations' requests for basic training.
Contact: Peggy Dixon (912) 267-2447
The U.S. Secret Service's Office of Investigations conducts investigations to help
U.S. Attorneys prosecute crimes involving counterfeiting, forgery and other kinds of fraud.
The Secret Service establishes specific service standard agreements to reflect the needs of the
u. S. Attorney in each district and interviews at least 25 percent of all U. S. Attorneys or
their designees each year to ensure that their needs are being met.
Contact: Terrance Samway (202) 435-5708
The Office of the Comptroller of the Currency (OCC),which supervises and
examines federally charted national banks, has established a transparent bank examination
process in which the examiner outlines the scope, objectives and process for bank
management, reviews as a team all pertinent information and meets regularly with
appropriate senior management before and during the examination itself. In fmalizing its
examination report, the team will discuss areas presenting the most risk to the bank, seek a
commitment to correct weaknesses noted during the examination, allow bank management to
review portions of the report for accuracy, and offer examples of acceptable solutions.
Contact: Lee Cross (202) 874-4970
The Office of Thrift Supervision (OTS) supports thrift industry efforts to meet
housing and other community credit and financial service needs. Like OCC, OTS examiners
will inform a fmancial institution of the scope of its inquiry in advance, estimate the staffmg
levels and time required to conduct the examination and meet at least weekly with institution
personnel to convey issues, concerns and examination fmdings to date.
Contact: William Fulwider (2020906-6913
The U.S. Customs Service, which enforces more than 500 laws regarding
importation of merchandise, has established standards for responding to customer requests.
For example, Customs will respond to a request for a binding ruling within 30 days unless
the issue must be referred to a Customs attorney, will make all rulings available on diskette
and provide at least two weeks' advance legal notice of all changes to its regulatory
procedures. Further, Customs will process transactions quickly, whether they are transmitted
by mail, electronically or through the Automated Commercial System.
Customs has established standards for providing expeditious, professional and
courteous treatment to travellers. Customs clears the majority of international travelers
within five minutes of luggage claim, and a supervisor in the Customs area is available to
answer questions. As part of its customer service program, Customs will respond to a
customer's written inquiry within three working days. At border crossings, Customs is
striving to minimize the wait for inspection and provides a supervisor to address questions on
the spot; it will also respond to importers' and brokers' written inquiries by phone within
five days or in writing within 10 days. Customs works in partnership with the Immigration
and Naturalization Service to reduce inspection time for travellers at land border crossings.
4
This type of partnership reflects the emphasis the Vice President's office has placed on
"seemless" service.
Contact: William Anthony (202) 927-1770
The Bureau of Engraving and Printing (BEP) works with the public to redeem
partially destroyed or badly damaged currency. BEP will normally provide customers with
information on the status of their claim within one hour of their call, and expect notification
of status of payment within 14 days of receipt of the mutilated currency.
BEP also offers an award-winning public tour that attracts 700,000 people each year.
Earlier this year, BEP received the Guild of Professional Tour Guides of Washington, D.C. 's
Fourth Annual Award, citing BEP's new exhibits in the tour waiting area, reduced
congestion in the visitors area, superior tour staff and extended hours. In 1994, BEP
introduced evening tours to meet higher summer demand, allowing 100,000 more people to
learn about currency production. BEP has reinforced its commitment to the Americans with
Disabilities Act by making several changes to accommodate the hearing, sight and physically
challenged on the public tour.
BEP has also established standards for providing paper money to the Federal Reserve
Banks and stamps to the U.S. Postal Service. For example, BEP conducts an annual audit of
Federal Reserve currency destruction activities, assists the Federal Reserve in calibrating its
currency verification systems equipment monthly, and responds immediately to complaints
regarding discrepancies in shipments or defects in product quality. The Postal Service can
expect that BEP will measure order compliance daily and deliver a product that matches the
expectations agreed upon in terms of artwork, equipment and materials specifications.
Contact: Larry Felix (202) 874-2517
The Bureau of Public Debt also met its 1995 customer service goals, providing
prompt and accurate service to millions of investors in marketable bills, notes and bonds. In
a nine-month period ending June 1995, the bureau mailed some 15.1 million savings bonds to
investors within its goal of 15 days. The bureau also established approximately 320,000 new
TREASURY DIRECT accounts for investors and processed some 5.2 million transactions
with 99.9 percent accuracy.
Contact: Peter Hollenbach (202) 219-3302
The U.S. Mint manufactures and sells coin sets, commemorative coins, and medals to
two million coin collectors and distributors through mail orders and five sales centers. The
Mint will ship orders within four weeks of receipt, reduced from eight weeks, and provide
"one-stop" customer service. The Mint also sells gold and silver bullion to investors
worldwide through a network of wholesale authorized purchasers. It allows orders to be
placed by fax, and will fax a confrrmation the same day the order is placed. It will also
release the bullion to purchasers immediately upon receipt of payment.
Contact: Don Nichols (202) 874-6450
-30-
uNEWS
IREASURY
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA~~ N.W. ,WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR iMMEDIATE RELSASE
December 12, 1995
The Treasury Department is not involved in any investigation of Carlos Salinas.
However, Tre1.sury Department law enforcement bureaus are cooperating with Mexican
and Swiss authorities in the investigation of Raul Salinas and his wife.
-30-
RR-767
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-204-0
12/12/95
20:07
~202
647 5939
For Immediate Release
Taken Question (December 12.
PA FRONT OFFICE
',-" n,
u J
lSl95~ J'j
i
[4]00'
(December 12 I
UI 9 4
1995)
(MEXIa): INVESTIGATICN OF CARLOS $ALmAS)
Is the U.S. Governrcent investigat.ing allegations that fOPrer Mexican
President carlos Salinas j.s ll1Volved in narcotics-related activities? Is
Carlos Salinas on a TreasurY DepartIrent "watch" list for alleged involverrent
in narcotics-related activities?
Q;
A:
AS EM AI.R.EADY BEEN STl\.TED PUBLICLY, 'mERE IS NO U.S.
JNi7ESTIGATION OF CARLOS SALINAS.
MR. SAL1NAB IS ON A OJSTCMS SERVICE
LIST OF PEOPLE WHOSE mTRY Z\ND DEPARTURE
rncr.USION
~
~
~ 'l~
U. S. IS NarED.
'IlliS LIST IS FOR INFORMATICW\L PURPOSES AND OOES Nor
st.U3EST 'IRE INDIVIDUAL IS StJE.JEn' TO DErENTICN OR INVESTIGATICN OF
!>NY KIND.
EWS
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960
ADV 1 P.M. EDT
Text as prepared for delivery
December 13, 1995
STATEMENT OF TREASURY SECRETARY ROBERT E. RUBIN
BEFORE THE HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES
Introduction
Good afternoon, Chairman Leach, Ranking Member Gonzalez, and distinguished
Members of the Banking Committee. The debt limit is a serious and complex issue, and I
appreciate being able to discuss it with you.
In my judgment, the nation's long-term economic interests will be best served by
Congress adopting a clean increase in the debt limit. That would end the disruptions to orderly
government finance that have already occurred; it would prevent additional, unnecessary costs
being charged to the taxpayers; and it would end the uncertainty over the manner in which our
financial affairs are now being conducted and the practical consequences of that uncertainty.
We meet at a time of unusually favorable economic conditions. For the past three years,
annual economic growth has exceeded 3 percent, more than double what it was in the prior four
years. Inflation since 1993 has averaged 2.7 percent a year. Over the same period, more than
7.7 million jobs have been created, and unemployment nationally is down to 5.6 percent from
7.1 percent in January 1993. Since 1993, the deficit has been more than cut in half as a
percentage of the Gross Domestic Product--from 4.9 percent to 2.3 percent--and it has been cut
nearly in half in absolute dollars.
Following that progress, the President and the Congress, Republicans and Democrats,
are committed to completing our task of balancing the budget. A balanced budget will increase
economic growth, create jobs, and raise the living standards of working Americans. It will free
up more capital for use by private enterprise, lower real interest rates, and further improve the
confidence of the international community in the United States.
RR-768
(more)
lor press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
As a member of the tAministration's budget negotiating team, I want the Committee to
know that we are committed to this objective. 1 believe a spirit of good faith prevails in the
room, but all of us recognize that there are difficult issues to deal with. While we agree that
fiscal discipline and a balanced budget are important, we have differences in approach and
priorities. These differences must be debated fully and fairly in the public arena, but the debate
itself should not threaten America's financial integrity and reputation.
Increasing the debt limit and balancing the budget should be separated. We should all
agree with Alan Greenspan, the Chairman of the Federal Reserve Board who wrote that, "I do
not think the iss~~e of default should be on the table. "1
Purpose
At the outset, I want to make three points about the debt limit: It has nothing to do with
reducing the deficit. Failing to raise the debt ceiling has caused me to take extraordinary
measures that have costs. And use of the debt limit as leverage in the budget debate is bad
public policy.
First, failure to raise the debt limit does not reduce the deficit by one penny. The debt
limit is about meeting obligations already incurred, while future deficits can only be reduced
through actions taken in the budget process itself.
Let me quote the Congressional Budget Office on this point: "Limiting the Treasury's
borrowing authority is not a productive method of achieving deficit reduction. Significant deficit
reduction can best be accomplished by legislative decisions that reduce outlays or increase
revenues." CBO also says the debt limit has turned into an "anachronism".2
Paul Volcker, the former Chairman of the Federa1 Reserve Board, observed that
"Treasury borrowing is a result of spending and taxing programs already enacted. . . . The only
really effective way to achieve a budget balance or surplus is to change things at the front end-the spending and taxing decisions. Leaving the Government without means to fmance only
compounds the problem. ,,3
lLetter from Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve
System, to Senator D' Amato (November 8, 1995).
2 Congressional Budget Office, The Economic and Budget Outlook: An Update, 48, 54
(August 1995).
Letter from Paul A. Volcker, former Chairman of the Board of Governors of the Federal
Reserve System, to President Clinton (October 16, 1995).
3
I would note that Congress hru, already voted to increase the debt limit in the
reconciliation bill to $5.5 trillion--an amount that would accommodate the spending commitments
in either the President's or the Republicans' budget proposals until the end of fiscal year 1997.
Second, this debt limit impasse, and the fact that I was forced to take extraordinary
measures to avoid default, has prompted outside observers to say this episode has hurt the
country's integrity and long-term reputation in global capital markets.
For example, Standard & Poor's, a major credit rating agency, wrote that, "Even
assuming a debt ceiling agreement is enacted in time to forestall default, the global capital
market's unquestioned faith in the United States government's willingness to honor its financial
obligations has, to some degree, been diminished by the failure of government to act in a timely
fashion. As a result, the reduced level of market certainty may require some time to overcome,
well after the immediate fiscal dispute is resolved. ,,4
Third, while some in Congress believe that the debt limit is an appropriate tool for
creating leverage in the budget negotiations, the logical conclusion of my first two points is that
the debt limit should not be used that way. I am joined in this viewpoint by many others.
Six of my predecessors, Republicans and Democrats, said "While we may have differing
view on the merits of the various issues being raised in the budget debate, we share the strong
view that the debt limit should not be embroiled in that debate. ,,5
Chairman Greenspan said "there are many avenues to an agreement, and the full faith
and credit of the United States need not be part of the process. . . . There are much better ways
to bring our budget credibly into balance. ,,6
Consequently, I believe the Congress should raise the debt limit and enable us to focus
all of our energy on completing the budget negotiations.
4
Standard & Poor's CreditWire (November 10, 1995).
Letter from Lloyd M. Bentsen, W. Michael Blumenthal, Henry H. Fowler, G. William
Miller, George P. Shultz and William E. Simon to Speaker Gingrich (November 9, 1995).
5
6
Letter from Greenspan to Senator D' Amato.
3
Actions to Date
I have been urging Congress to act since July.
In our communications to Congress--Ietters, testimony and meetings--our message has
been clear and consistent: the debt limit needs to be increased to allow the United States to
honor obligations already incurred pursuant to Congrp.~sional authorization.
I have consistently said that I did not believe the United States would default, because
I believed Congress would, in the final an~lysis, fulfill its responsibility and increase the debt
limit. I have also said that, without an increase, I would do everything within my power subject
to law and practicality to avoid default.
In July, I informed Congress that Treasury expected to reach the debt limit in October,
and I urged Congress to increase the debt limit before then. As we got closer, we refmed our
estimates: first, to the end of October and then to October 31. I continued to alert Congress
of our estimates and to urge action on the debt limit.
Based on projections in mid-October th(!t showed us exceeding the debt limit on October
31, we were forced to take steps on October 17 to ensure that we would not exceed that limit,
including reducing the size of a bill auction.
During the week of November 6, we postponed three auctions of securities because we
had no assurance that we would have sufficient debt limit room to issue the securities on
November 15. That was also a week when we had to manage on very thin cash balances and
debt limit room.
Let me explain the difference between hitting the debt limit and defaulting because I
believe there is some understandable confusion on this point. When we are at the debt limit,
we cannot issue any more debt, although we may have sufficient cash to finance the
government's operations. Default, on the other hand, would entail being out of both debt limit
room and cash, with obligations still to pay.
As an example, I have attached a chart to my testimony that shows our forecasts from
four different days in October of what cash and debt levels would be on November 7. As you
can see, our earlier projections showed us being out of both debt limit room and cash, although,
as we got closer, the revised projections showed we would have almost no debt limit room and
some cash, though less than our prudent minimum margin for error.
4
My second chart shows remammg cash and debt limit r~l)m during the week of
November 6th. As you can see, the margins were low and, in each case, cash was below our
prudent minimum margin. My final chart shows actual cash and debt levels at the end of
October and on November 15. We have been right at the debt limit ever since November 15,
though with adequate cash balances.
Finally, on November 13, we announced a series of auction~ to avoid running out of cash
on November 15. Otherwise, this nation would have been in default for the first time in our
country's more than 200-year history.
Let me now tum to the authority I have used to prevent default.
A decade ago, Congress gave the Secretary of the Treasury the authority to manage the
investments of the so-called G-Fund (the Federal Employees Retirement System's Government
Securities Investment Fund) and the Civil Service Retirement and Disability Fund (hereinafter
referred to as the "Civil Service Fund") during a debt limit impasse. In 1986, a Democratic
House and a Republican Senate gave President Reagan, Secretary Baker and their successors the
authority to use the Civil Service Fund for these purposes. In 1987, a Democratic House and
Senate gave the authority to use the G-Fund for these purposes to President Reagan and
Secretary Baker.
This legislation followed the debt limit impasse in 1985, when Secretary Baker made
what was at that time a controversial decision to disinvest the Social Security trust funds. After
that episode, Congress gave Treasury tools to use during a debt limit impasse.
These laws specifically permit Treasury not to reinvest securities in the G-Fund and to
redeem a portion of the securities held by the Civil Service Fund, when necessary to avoid
exceeding the debt limit. These actions involve the replacement of interest-paying government
securities with cash credits. There is no reduction in assets--not one nickel--and, when the debt
limit impasse is over, the law requires that the funds' investments be restored in full, with
interest.
On November 15, I invoked this authority. This was a serious decision that involved
extensive discussions with counsel at Treasury and at the Office of Legal Counsel at the
Department of Justice. Counsel advised this could only be done in the context of facts that
existed on the eve of default. Then, as now, we were also concerned that these tools could be
taken away by Congress prior to the decision and, in fact, such an effort was made.
5
I had to find ways to pay more than $100 billion of principal and interest due)n that day
and November 16. The actions we took created room under the debt limit of approximately $61
billion, which enabled us to meet our obligations on November 15 and 16 and also to fmance
our next major cash needs: the Social Security and other benefit payments due at the beginning
of December. The actions I took on November 15 should be sufficient to finance government
operations until late December.
It needs to be stressed as strongly as possible that Treasury's actions did not and will not
affect in any way the safety of the assets or the earnings of either the G-Fund or the Civil
Service Fund. The law requires complete restoration to the funds of an:' interest not earned by
the two funds. Thus, there will be no harm to any fund beneficiaries.
Let me clear up what might be a misconception. I do not have authority to disinvest any
of the other 189 government trust funds for debt management purpo4)es, only the G-Fund and
the Civil Service Fund.
Also, let me be clear: Social Security is not involved. President Clinton and I have
repeatedly said that the Social Security trust funds will not--Iet me repeat will not--be used for
any other purpose than to assure the payment of benefits to Social Security recipients.
Let me respond to one other common misconception. While I determined a debt limit
suspension period of 12 months, the debt limit room gained thereby will not last us for 12
months. The 12 months' suspension period entitled us to redeem securities in an amount up to
12 months' benefit payments from the Civil Service Fund. That determination is not enough to
allow us to fmance government operations for 12 months, but enables redemption of $39.8
billion of securities. Any additional disinvestment can only occur by meeting the same
standards, which very substantially limit how much more we can do.
Current Status
Today, Treasury is announcing auctions of securities that will be issued on January 2,
1996. We will not have sufficient room under the debt limit to issue those securities unless the
debt ceiling is increased or Treasury takes additional extraordinary actions to create room.
Absent a new debt ceiling, we have identified an extraordinary action that will enable us to issue
those securities.
6
On December 29, the Civil Service Fund will receive interest payments of $14.5 billion.
Without a new debt limit, we will be unable to issue securities on that day to the Civil Service
Fund to invest those payments. The Civil Service Fund would instead have a credit balance that
could not earn interest until the debt limit impasse is over. The Secretary of the Treasury has
full legal authority to take this action. Once again, the law provides for complete restoration
of interest not earned by the Civil Service Fund, so the beneficiaries will be fully protected. We
estimate this action should allow us to finance government operations until the end of January
and possibly into the first week of February.
The steps we have taken up to now were designed to be used during r debt limit
impasse. We don't know what steps we might take if this impasse drags into February. As
before, I will do everything in my power to avoid default, and I believe we will find ways to
take this further. However, our capacity to continue to finance the operations of the government
through extraordinary measures is limited.
When we approach the next critical date, which is in early February, we will provide
Congress and the public with information on whether we can get beyond that date and, if so,
how. I believe we will find a way. But we should not have to take any further extraordinary
steps; Congress should increase the debt limit.
Being forced to resort to extraordinary actions is costly and is not helpful to the country's
long-tenn reputation in the credit markets. As former Chairman Volcker has said:
the Secretary of the Treasury will scramble to find means to delay default ...
But there is no way that can be done for any length of time without departing
from long established and sound budget procedures and financing practices . . .
All of that would raise serious questions in markets and around the world about
the capacity of the United States to manage its financial and budgetary affairs in
a responsible way. That is ... hardly consistent with the requirements of a great
power with international responsibilities. 7
Nevertheless, any such actions would be immeasurably preferable to default. Default
should be off the table.
7
Letter from Volcker to President Clinton.
7
Nobody knows what the short term impact of default would be. But I have no doubt that
the question mark about our integrity with respect to meeting our commitments would raise the
long-term cost of borrowing money for all American debt, private sector as well as public
sector. Costs of home mortgages and corporate bonds, for example, would also rise since they
are priced at spreads to Treasury securities.
Moreover, if the country suffers through another difficult situation, such as the savings
and loan crisis, our reputation in financial markets would be of greatly heightened importance.
Default could affect us in ways we are unable to predict.
Further, having the largest economy in the world default as a matter of political choice
would set a bad example for other less fortunate nations that face the excruciating decision about
whether to default or take the tough measures necessary to avoid default. It could affect
creditworthiness and financial stability throughout the global economy.
Our creditworthiness is an enormously important national asset, and it should never be
tarnished. Every American who has bought a home or borrowed money knows the importance
of keeping a good credit rating. Americans want their government to operate in precisely the
same way.
Any question about the seriousness of default should have been laid to rest by statements
made recently by the current and former Chairmen of the Federal Reserve, the major domestic
and international credit rating agencies and six of my predecessors.
Chairman Greenspan wrote, "A failure to make timely payment of interest and principal
on our obligations for the first time would put a cloud over our securities that would not
dissipate for many years.,,8
The credit rating agency, Standard & Poor's, said: Even a short-lived default on the U.S.
government's direct debt obligations would profoundly impact a broad range of securities and
financial market participants .. 9
8 Letter from Greenspan to Senator D' Amato.
9
Standard & Poor's CreditWire (November 10, 1995).
8
The major European credit rating agency, IBCA, warned "that foreign investors would
be likely to view any such default with grave concern even if it proved to be a merely temporary
occurrence.... A default would lead to a downgrading of the US credit rating, and this could
be expected to endure even if normal debt service were subsequently resumed since it would
raise a question mark about the United States' future reliability. "10
Six former Secretaries of the Treasury have written, "We know from our own experience
that confidence is undermined and costs are increased when the Secretary of the Treasury is
forced to take out-of-the-ordinary measures to assure that cash will be available to pay our
obligations and to avoid exceeding the statutory debt limit. "II
Conclusion
I believe it is extraordinarily important to put in place a sensible balanced budget. But
we must not default. The first Secretary of the Treasury, Alexander Hamilton, set down the
guiding principle that "To be able to borrow upon good terms, it is essential that the credit of
a nation should be well established." A nation can default for the first time only once, and its
integrity with respect to meeting its commitments will be questioned far into the future. Default
is a line that must not be crossed.
In closing, let me repeat that I am prepared, as I have been prepared, to do everything
within my power to avoid default. But this is no way for a great nation to manage its financial
affairs.
The only sound course of action for the economy and our nation is for Congress to enact
a clean increase in the debt limit. Let us return to the regular order. Then, let all of us work
together on a goal the Clinton Administration shares with the Congress--balancing the Federal
budget as a critical part of preparing our economy for the 21st century.
-30-
10
Press Release by mCA, Inc. (November 13, 1995) (emphasis added).
11
Letter from Bentsen et aZ. to Speaker Gingrich.
9
Cash and Debt Forecasts* Are Subject to Change
Example: November 7, 1995
Debt Subject to Limit ($Bil.)
6,000
Cash ($Bil.)
.10
I
4,899.8
5,000
4,898.1
4,898.9
< < < <
t
<
t
8
(
4,000
6
3,000
4
2,000
2
1,000 I
°'
I? ) ) ) )
t»» J
October 13, 1995
- ...so
R»»]
October 17, 1995
'»»>1
October 23, 1995
~ Debt Subject to Limit
l)))))I
October 26, 1995
II Cash
*AII estimates include $14 billion of cash management bills for issue November 3,1995.
! (2)
Treasury Worked Within Narrow Cash
and Borrowing Room Margins in Early November
$8il.
25~i--------------------------------~
Iill
Cash
IS:3 Borrowing Room
I
5
o
Nov 06
Office of Market Finance
December 12, 1995
NovO?
Novoa
Nov 09
Treasury Had to Act to Avoid
Exceeding the Debt Limit
$Bil.
40,
$Bil.
,40
Before Action
30
I_ Cash
28.2
.1S3 Borrowing Roo;-I
30
Actual
20
20
Actual
10
10
Before Action
0.'-
'"
10
-3.6
(10)
(10)
(20)
(20)
-20.1
(30) I
1(30)
Od31
Nov 15
Office of Market Finance
December 12, 1995
* $25 Million
•
<-
N ,E,WS
, Ir ;
....' ,
!
vI
•
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.- WASHINGTON,D,C. - 20220 _ (202) 622-2960
.
CONTACT:
FOR RELEASE AT 2:30 P.M.
December 13, 1995
Office of Financing
202/219-3350
TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $30,250 MILLION
The Treasury will auction $18,250 million of 2-year notes
and $12,000 million of 5-year notes to refund $17,625 million ~f
publicly-held securities maturing December 31, 1995, and to ra~se
about $12,625 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $1,680 million of the maturing securities for their own
accounts, which may be refunded by issuing additional amounts
of the new securities.
The maturing securities held by the public include $894
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Due to the Treasury's
need to avoid exceeding the debt limit. no additional notes will
be issued to Federal Reserve Banks as agents for foreign and
international monetary authorities. Maturing notes held by
Federal Reserve Banks as agents for such accounts may be rolled
over on a noncompetitive basis within the public offering
amounts.
Both the 2-year and 5-year note auctions will be conducted
in the single-price auction format.
All competitive and
noncompetitive awards will be at the highest yield of accepted
competitive tenders.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D. C.
This offering of Treasury securities is governed by the terms
and conditions set forth in the Uniform Offering Circular (31 CFR
Part 356) for the sale and issue by the Treasury to the public of
marketable Treasury bills, notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-769
-For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED JANUARY 2, 1996
December 13, 1995
Offering Amount .
Description of Offering:
Term and type of security
Series
CUSIP number
Auction date
Issue date
Dated date
Maturity date
Interest rate
Yield .
Interest payment dates.
Minimum bid amount
Multiples .
Accrued interest
payable by investor
Premium or discount .
$18,250 million
2 -year no'tes
AM-1997
912827 W3 2
December 20, 1995
January 2, 1996
January 2, 1996
December 31, 1997
Determined based on the
highest accepted bid
Determined at auction
.June 30 and December 31
$12,000 million
5-year notes
T-2000
912827 W4 0
December 21, 1995
January 2, 1996
January 2, 1996
December 31, 2000
Determined based on the
highest accepted bid
Determined at auction
June 30 and December 31
$5,000
$1,000
$1,000
$1,000
None
Determined at auction
None
Determined at auction
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Accepted in full up to $5,000,000 at the highest accepted yield
(1) Must be expressed as a yield with three decimals, e.g., 7.123%
Competitive bids
(2) Net long position for each bidder must be reported when the
sum of the total bid amount, at all yields, and the net long
position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prlor
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid
35% of public offering
at a Single Yield
35% of public offering
Maximum Award .
Receipt of Tenders:
Prior to 12:00 noon Eastern Standard time on auction day
Noncompetitive tenders
Prior to 1:00 p.m. Eastern Standard time on auction day
Competitive tenders
Full payment with tender or by charge to a funds account at a
Payment Terms .
Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE,'N:W.• WASHINGTON, D.C .• 20220. (202) 622-2960
ADV 6:30 P.M. EST
Remarks as prepared for delivery
December 13, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
15TH ANNIVERSARY OF THE WASHINGTON WORLD AFFAIRS COUNCIL
I am delighted to be with you on your 15th anniversary. My topic is U.S.
international economic leadership, and why that leadership is critical to our prosperity
and security in the years ahead. Speaking of leadership, I want to compliment the
council on the work you've done over the years encouraging teachers and students to
think globally. And my congratulations to Randy Scott for the Educator of the Year
honors.
We live in an era in which all nations' well-being is increasingly intertwined.
Whole regions have joined the global economy by embracing open markets. Through
agreements such as GAIT and NAFTA, and through the globalization of finance,
nations have a greater stake in one another's prosperity. Nations have a common
interest in dealing with financial crises and promoting growth and reform in the
developing world.
There is no turning back from the new global economy. Economic nationalism
and efforts to shut out the world will not work. The last time protectionism and the kind
of populist voices we hear today were in fashion, in the 1920s, the results were
devastating. On the contrary, the embrace of open markets, the globalization of finance,
and the emphasis on development offer the United States an enormous opportunity -- to
exercise leadership, to bolster international stability, and to provide higher living
standards for the rest of the world -- and thereby for our own nation. We must not
squander this opportunity.
There are four areas on which we must focus to accomplish these aims. First, we
must support the increasing consensus on market-based reform in developing countries,
so that these countries continue to make economic and social progress. Second, the
United States must continue to champion free trade -- to expand economic opportunities
and lock in reform.
RR-770
(more)
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
Third, we must safeguard financial stability -- so that both industrialized and
developing countries avoid the pitfalls of global financial markets. Finally, global crime
has become a serious economic problem which we must combat.
Engagement in Latin America
Rather than discuss these issues in a vacuum, I'd like to exemplify by focussing on
Latin America, a region I recently visited. It has seen enormous economic and social
change over the past decade. Supporting that change has been an administration
priority, from NAFfA to the Summit of the Americas, to President Clinton's leadersrJp
in helping Mexico.
Supporting Economic Reform
Market-based reform is at the heart of the transformation. Latin America has the
best base for economic growth that it has had in nearly five decades. For years Latin
American policies were statist, inward looking, and protectionist. The silver lining of the
1980s debt crisis is that it forced a fundamental re-examination of those policies.
Countries concluded that the role of the state should be limited. Privatization and
liberalization have replaced import substitution and state-enterprise. Latin America is
forming a new consensus that is in both their interest and ours. But it cannot be taken
for granted. We need to support it.
I visited two of the countries that are working hard to put misguided policies
behind them -- Argentina and Brazil. In Argentina, both government and business are
committed to stabilization. People have shown a willingness to endure difficult
measures, while taking a long-term view of the benefits of stability, openness, and
private-sector orientation.
In Brazil, President Cardoso's break with a past of 20 percent monthly inflation to
a present of 20 percent yearly inflation shows that there too, the consensus about
stabilization and economic reform has taken hold.
I met with both countries' leadership. We discussed the value of continued
economic reform and liberalization. I emphasized the U.S. commitment to supporting
such reform.
A Renewed Focus on Development
One of the most interesting stops was Sao Paulo. There I saw two sides of
economic change. The first was Sao Paulo the boomtown -- construction, commerce, and
excitement brought about by the opportunities created by reform. The second was a far
less pretty side of metropolitan Sao Paulo -- an area of laborers' residences and "favelas"
or shanty towns.
3
More than half the 600,000 people who live in this area have no sewers. One quarter
have no regular trash pickup. Housing in many cases consists of corrugated metal
shacks. Such conditions encourage instability, and threaten the sustainability of the
economic reforms in the other, more prosperous Sao Paulo.
The way to make reform sustainable is to see that everyone has a stake in reform.
That means investing more in human resources -- through women's health, or sanitation.
These are the kinds of investments that create shared prosperity. As we've seen in Asia,
investments in people offer real economic returns, and show a strong correlation with
growth. I saw that at the World Bank-supported project that I visited in Sao Paulo. The
bank is financing about a third of some $300 million in sanitation and other work. The
return for the people of Sao Paulo will be far greater than the project's cost.
For 50 years the multilateral development banks, including the World Bank and
its concessional-Ioan window, IDA, have been a focal point of U.S. efforts to support
development. The Banks have helped Korea, Chile, Poland and many other nations leap
to developing status, by tying lending to market-based reform, and by financing social
investments that pay enormous returns, but which private finance cannot support.
Some say that 50 years of U.S. leadership of these institutions is enough. That's
just wrong. The banks must change some of their focus -- and they are. But with the
consensus on economic reform, opportunities have never been greater. We must retain
our strong voice in these institutions.
Bolstering Economic Integration
OUf second priority is to further free trade. We remain committed to the vision
put forward last year at the Summit of the Americas, of a Free Trade Area of the
Americas.
Why is opening markets so important? One reason is the enormous potential
economic and job opportunities that trade offers Americans. U.S. exports to emerging
markets support nearly 4 million U.S. jobs. Exports will grow enormously as reform
continues and prosperity spreads.
Speaking of trade, Chile is clearly ready to take on the responsibilities
represented by NAFTA. The president has stressed the importance of the
administration receiving fast-track authority to rapidly conclude Chile's accession.
4
There is another reason that free trade is so important. It locks in economic and
social reform. Latin American inter-regional trade more than doubled from 1986 to
1992. Countries that pulled back in the '80s now are pushing ahead with liberalization.
Why? Because integration through trade cements change. It provides confidence. It
encourages nations to see their prosperity as intertwined. Integrating our region from
Canada to Chile is the best way to make sure that it continues to progress, and does not
relapse into statism and authoritarianism.
Protecting Financial Stability
Our leadership must focus on a third issue: safeguarding financial stability. The
development of financial markets has opened new prospects for all nations. But as we
saw in Mexico, with these prospects come new problems. Financial instability in one
part of the world increasingly threatens others' prosperity.
This year's G-7 Summit agreed on steps to re-engineer the global financial
architecture to meet new challenges.
The first is a heightened emphasis on financial transparency and surveillance.
Disclosure, which is at the core of the U.S. regulatory syste~ is a powerful preventative.
The IMF is working on a list of financial data and accounting standards with which
nations should comply. Bolstered IMF economic surveillance should match the early
warning effect of disclosure.
Second, even with the best of preventatives, crises may occur. When they do, it is
critical to have the capacity to mobilize financial support quickly on highly conditional
terms.
President Clinton understood the enormous United States interests -- the
hundreds of thousands of U.S. jobs, the border security, and the broader transformation
of emerging market economies -- that were at stake in Mexico's difficulties. That is why
he moved swiftly to lead an international support effort.
Future difficulties may arise. Because the United States cannot be the lender of
last resort, the capacity to mobilize financial resources must lie with the international
financial institutions. We have stepped up efforts to create an emergency financing
mechanism through the IMF.
Combatting Crime
Let me tum to another issue that, though social, has an increasingly economic
dimension -- crime. Treasury has enormous responsibilities in the area of enforcement,
particularly regarding financial and global criminal activities.
5
Organized crime buys and sells drugs, weapons, and politicians. A weak point is
that it requires money laundering to legitimate large amounts of cash. Money laundering
can undermine financial, economic, and even political systems. From Russia, where 16
bankers have been murdered, to Colombia, where dozens of journalists, judges, and
politicians have been assassinated, organized crime can threaten reform.
At the Summit of the Americas, President Clinton and his counterparts agreed to
combat the scourge of narcotics trafficking and money laundering. The President
reiterated the U.S. commitment in a recent directive and U.N. speech.
In a global economy, a global effort is required to counter the threat posed by
money laundering and crime. This month I chaired a money laundering conference in
Buenos Aires. Nations agreed to enact the laws needed to bolster their financial systems
against money laundering. We will work to create the necessary enforcement tools -from intelligence centers such as Treasury's, to greater information sharing. Criminals
must not be allowed to threaten the new global economy.
Conclusion
Supporting growth and economic reform, advancing free trade, protecting financial
stability, and fighting crime are among the urgent international tasks we face as we move
toward a new century. Our success depends on America remaining engaged, and
providing leadership in the world.
Some Americans have not shared in our economic recovery. They look at this
new world with fear, not wonder. Often, though not always with the best of intentions,
some American leaders have told them that protectionism and disengagement are viable
ways to make America wealthier. That is just not the case. If we withdraw from the
world, American prosperity will suffer, income inequality will grow, financial instability
will increase, and our economic partners will be less prosperous. Countries will be less
able to resist criminals and terrorists who make our cities less secure. Our most
vulnerable citizens will be deprived of opportunities, and their lives will be made worse.
To ensure domestic support for global engagement, we must offer Americans
something more tangible than history lessons about the 1920s. The global economy and
information age place an increasing premium on skills and knowledge. A social safety
net can help mend a torn social fabric. To build a constituency for global engagement,
we must give Americans the tools to take advantage of a changing world.
Internationalists must also be pro-investment -- in education, in training, in basic social
support here at home -- as we move America's budget into balance. That is the surest
way to prepare all Americans for the next century, and ensure that it is an era not of
retreat, but of continued United States leadership.
-30-
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Document Type: Transcript
Number of Pages Removed: 7
Author(s):
Title:
Background Briefing with Senior Treasury Department Officials
Date:
1995-12-07
Journal:
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Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
DEPARTMENT
OF
THE
TREASURY
1REASURY
omCE OF PUBUC AFFAIRS - 1500 PENNSYLVANIA AVENUE, N.w: -WAsHINGTON, D.t.• 20220. (202) 622-2960
EMBARGOED FOR 2 P.M.
December 15, 1995
Contact: Michelle Smith
(202) 622-2960
TREASURY RELEASES ANNUAL FOREIGN EXCHANGE REPORT
The Treasury Department today released the 8th Annual Report to Congress on
International Economic and Exchange Rate Policy, which reviews developments in the major
industrial economies and exchange markets, and assesses the foreign exchange systems of a
number of our major trading partners.
This Annual Report, which is provided under the Omnibus Trade and Competitiveness
Act of 1988, covers developments between January 1, 1995, and September 30, 1995.
The report notes that the major currencies stabilized in May and began an orderly
reversal of their movements earlier in the year, prompted by a series of policy actions in the
major industrial countries, several concerted intervention operations in the exchange markets,
and changing expectations of economic perforqtance in the United States, Japan and Europe.
In October 1995; G-7 Finance Ministers and Central Bank Ministers welcomed the
orderly reversal in the movements of the major currencies that began following the April
meeting, and stated that they would welcome a continuation of these trends consistent with
underlying economic fundamentals. They also reaffirmed their commitment to reduce
imbalances and cooperate closely in exchange markets.
The foreign exchange report examines whether countries have manipulated the
exchange rate between their currency and the U.S. dollar in order to prevent effective
balance of payments adjustment or to gain an unfair advantage in international trade. The
present report reviews a number of criteria for making such an assessment and applies those
criteria to our major trading partners. The report concludes that countries are not
manipulating their exchange rate for the purpose of preventing effective balance of payments
adjustment or gaining unfair competitive advantage in trade.
The U.S. Treasury continues to monitor exchange rate policies and capital account
regimes of the major U.S. emerging market trading partners, and will continue to encourage
countries to avoid recourse to capital controls or exchange rate manipulation to prevent
balance of payments adjustment or to gain an unfair competitive advantage.
RR-771
-30-
_ Forpress releases, speeches, public schedules alid official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT OF THE TREASURY
EIGHTH ANNUAL
REPORT TO THE CONGRESS
ON
INTERNATIONAL ECONOMIC AND EXCHANGE RATE POLICY
DECEMBER 1995
Embargoed for release until
2:00 p.m., December 15, 1995
Table of Contents
I.
Summary and Conclusions
1
II.
Developments in World Currency Markets
2
III.
Exchange Rate Policy and Operations
6
IV.
The Dollar and the U.S. Economy
7
v.
Policy Developments in Major Industrial Countries
9
VI.
Issues in Key Trading Partners' Exchange Regimes and
External Balances
11
Charts and Tables
1.
2.
3.
4.
5.
6.
7.
8
9.
10.
11.
Yen per Dollar Exchange Rate
Deutsche mark per Dollar Exchange Rate
Real Broad Trade Weighted Exchange Rate Indices, 1985-95
Real Broad Trade Weighted Exchange Rate Indices, 1995
Selected Emerging Market Exchange Rates
U.S and Japanese Current Accounts
G:7: Real GDP Growth
G-7: Consumer Price Inflation
G-7: Output Gaps
G-7: Current Account Balances
U.S. Current Account
Appendix
1.
Text of Sections 3004-3006 of the Omnibus Trade and Competitiveness Act
of 1988.
I. Summary and Conclusions
This Report is required under Section 3005 of the Omnibus Trade and
Competitiveness Act of 1988 (Trade Act). It addresses developments in the exchange
markets during the period from January - September 1995. Developments in Mexico are
not discussed in detail because they are treated extensively in other reports.
The dollar declined against other major currencies sharply in the first few months
of the year, while the yen and the mark appreciated. Market participants attributed
these moves to a variety of factors, including concern about the U.S. current account
deficit, deflation and financial distress in Japan, and political uncertainty and budget
concerns in Europe. Nonetheless, the extent of the moves in the major currencies was
difficult to explain fully on the basis of fundamental economic developments.
The major currencies stabilized in May and began an orderly reversal of their
earlier movements, prompted by a series of policy actions in the major industrial
countries, several concerted intervention operations in the exchange markets, and
changing expectations of economic performance in the United States, Japan and Europe.
In October 1995, G-7 Finance Ministers and Central Bank Ministers welcomed
the orderly reversal in the movements of the major currencies that began following the
April meeting, and stated that they would welcome a continuation of these trends
consistent with underlying economic fundamentals. They also reaffirmed their
commitment to reduce imbalances and cooperate closely in exchange markets.
This Report examines whether countries have manipulated the exchange rate
between their currency and the U.S. dollar in order to prevent effective balance of
payments adjustment or to gain an unfair advantage in international trade. The present
Report reviews a number of criteria for making such an assessment and applies those
criteria to our major trading partners. The Report concludes that countries are not
manipulating their exchange rate for the purpqse of preventing effective balance of
payments adjustment or gaining unfair competitive advantage in trade.
The U.S. Treasury continues to monitor exchange rate policies and capital
account regimes of the major U.S. emerging market trading partners, and will continue
to encourage countries to avoid recourse to capital controls or exchange rate
manipulation to prevent balance of payments adjustment or to gain an unfair competitive
advantage.
II. Developments in World Currency Markets
This year has seen significant movements in foreign exchange rates, with large
moves in the dollar, yen, mark and other European currencies. Exchange market
developments this year can be divided into three periods: a period from January to
April when the dollar depreciated and the yen and the mark rose strongly; a recovery in
the dollar from April through August; and the recent period during which the dollar has
been relatively stable against the other key currencies and market attention has shifted
toward currency tensions among European exchange rates and questions of the
conditions and timing of European Monetary Union (EMU).
In early 1995, the dollar depreciated against the yen and the DM
From January through April, the dollar depreciated sharply in what were at times
volatile trading conditions. During these four months the dollar declined by 15 percent
against the yen and 11 percent against the mark (Exhibits 1-2). On a trade-weighted and
inflation-adjusted basis, the decline was more moderate. The dollar experienced
relatively mild depreciation against the currencies of Asian countries and the Canadian
. dollar, and appreciated substantially against the Mexican peso. Consequently, on a real
trade-weighted basis l the dollar fell only 6 percent between December and April, which
took it to the lower end of the broad range within which it has traded since 1987
(Exhibits 3-4). During this same period, the real trade-weighted yen rose 12 percent.
The real trade-weighted mark rose 6 percent.
Market participants attributed these movements to a variety of factors:
o
In the United States, the Mexican crisis appeared to depress the dollar in part
because of pessimism about the prospects for a reduction in the current account
deficit. Further, as indications of a slowing economy materialized, earlier
expectations that the Fed would tighten further dissipated, and narrowing interest
rate differentials between the United States and Germany weakened the dollar.
o
In Japan, evidence of price deflation emerged, raising real interest rates in Japan.
Data indicating the economy had declined sharply in late 1994 coupled with a
weakening of consumer and producer confidence served to worsen the outlook for
domestic demand expansion and current account adjustment, contributing to
upward pressure on the yen. The problems of the financial system raised fears of
capital repatriation by Japanese institutional investors. In April, the Japanese
Government announced plans to stimulate domestic demand, reduce the current
In this Report, we use JP Morgan's real trade-weighted indices based on trade
among 45 major currencies. The indices are deflated by wholesale price indices for
finished manufactured goods.
1
2
account surplus, and revitalize the fmancial and securities markets. However,
markets increasingly came to view yen appreciation as reflecting structural
problems in the Japanese economy. The yen appreciated not only against the
dollar but also against other currencies; in addition to reaching record highs
against the dollar, the yen also appreciated 8 percent against the mark, reaching
y 10M 59.3 on April 19.
o
In Europe, political and fiscal uncertainties in a number of countries in the first
months of the year caused the mark to appreciate strongly against other European
currencies. After the problems in Mexico, there was flight out of the currencies
of European countries with high government debt ratios and deficits (especially
Italy, Spain and Sweden) to the OM. In addition to continual downward pressure
on the Italian lira, Spanish peseta and Swedish krona, the French franc and
sterling also experienced strains attributed to political uncertainties.
Orderly reversal of movements in the G-3 currencies began in May
After the sharp movements of the first four months of the year, the dollar
stabilized at the end of April and the beginning of May. On April 25, the G-7 Finance
Ministers and Central Bank Governors released a statement which called for an orderly
reversal of recent movements in exchange rates. Between end-April and end-August, the
dollar appreciated by 16 percent against the yen and 6 percent against the OM. As
before, on a trade-weighted basis the move in the dollar was less -- on the order of
3 percent. The reversal of the yen's appreciation from high levels was more striking.
Between April and August, the trade-weighted yen fell 12 percent, reversing its early
1995 run-up. The trade-weighted mark fell 3 percent.
Market commentary attributed the turnaround to changing expectations about
policy and the near-term outlook for the key economies.
o
Monetary policy actions and coordinated exchange market intervention by the
United States and other major industrial countries were seen by markets as
indicative of a collective commitment to strengthen the dollar and weaken the yen
and the mark.
o
In Japan, monetary policy was eased on July 7, in the wake of the Federal
Reserve's 25 basis point easing, when the Bank of Japan significantly reduced call
money rates. In Augus4 the Ministry of Finance announced a financial
deregulation package which included measures to encourage overseas investment
by Japanese institutions. Continued weak economic data sparked hopes for
further monetary easing, and expectations of a substantial supplemental fiscal
package grew. Also, the declining trend in Japan's trade surplus with the United
States supported the dollar and other currencies against the yen.
3
o
In Germany, with growth appearing to slow, the appreciation of the mark became
a source of concern to the authorities. In May, Bundesbank President Tietmeyer
stated, "We are not interested in a permanently overvalued currency:' Concern
about the mark's appreciation gave rise to speculation about possible monetary
policy easing, but higher-than-expected inflation data in June kept the dollar and
mark trading in narrow ranges during July. In August, economic data pointed
toward a slowing economy, leading to expectations of a Bundesbank cut. In late
August, the Bundesbank eased policy via a 50 basis point reduction in both the
Lombard and the discount rates, and subsequently allowed market rates to fall
toward 4 percent.
o
In the United States, market participants cited optimism about the prospects for
fiscal consolidation and the associated bond market rally as factors behind the
turnaround in the dollar. Signs of growth reappeared, leading to belief that the
economic weakness in the spring was merely an inventory correction. Price
performance remained strong, and inflationary fears abated. In this improving
environment, the reduction in German and Japanese short-term rates resulted in a
widening of interest rate differentials in the dollar's favor.
A period of consolidation began in September
These trends continued into the early part of September. The 50 basis point cut
in Japan's official discount rate on September 7 surprised the market. By midSeptember, the dollar had reached 104.45 against the yen and 1.49 against the DM.
In late September, however, the dollar lost some ground. In Europe, comments
from German officials raised questions about the timetable for EMU and prompted a
liquidation of positions in higher-yielding European currencies, which raised the mark
against both those currencies and the dollar. In Japan, the widely discounted
announcement of the Government's substantial fiscal stimulus package left the policy
horizon free of any further additional measures, and thus seemed to contribute to some
consolidation of the dollar against the yen.
The dollar closed at the end of September at levels close to where it began the
year against the yen, but still 8 percent below the January level against the mark. In
trade-weighted terms, the dollar was down 2 percent, the yen was down 7 percent, and
the mark was up 3 percent, compared to December 1994.
Trends in Currencies of Emerging Market Trading Partners
Outside of the G-7, the significant movements in the Mexican peso were an
exception to a general pattern of overall stability (Exhibit 5). Following a sharp
downward adjustment of the rate in December 1994, the peso slipped further in early
1995, reflecting a mixture of inflation expectations and apprehension surrounding delays
4
in Mexico's external support program. Overall, the peso dropped by about 34 percent in
real effective terms between December 1994 and March 1995. The Mexican economic
program, supported by subsequent flrst disbursements under the U.S. financial support
program and continued disbursements from Mexico's IMF stand-by arrangement, helped
calm the markets and generate a partial recovery in the peso's value. The peso
appreciated 20 percent in real effective terms between March and the end of July and
remained relatively unchanged in real effective terms during the third quarter.
The performance of other Latin American currencies, based on real tradeweighted indices, was mixed. In several cases, an appreciation was associated with
continued inflation above expected levels.
o
During the period January - September 1995, the currencies of Argentina
and Chile experienced moderate real appreciation of 6 percent and 3
percent, respectively. Argentina's currency is pegged to the dollar, while
Chile's peso is adjusted according to a basket of major currencies.
o
Brazil's currency depreciated by 7 percent in real terms over the period,
due in large part to a nominal depreciation in March.
o
Venezuela's bolivar (which is pegged to the dollar) appreciated 23 percent
in real terms.
o
Colombia's managed float resulted in a real depreciation of the peso of
approximately 5 percent.
The exchange rates of the United States' key emerging-market trading partners in
Asia remained relatively stable on a real, trade-weighted basis during the period. Most
of these countries peg to a basket of currencies, with substantial weights for the dollar
and the yen. Since movements in those two currencies were largely offsetting over the
entire period, these economies' trade-weighted indices remained relatively stable. (On a
bilateral basis, most of these countries have experienced real and nominal appreciations
against the dollar.)
o
The currencies of Korea and Malaysia appreciated in real, trade-weighted
terms during January-September by 4 percent and 2 percent, respectively.
o
Indonesia and Thailand registered more modest real effective appreciations
of 1 percent over the period.
o
The Philippine peso dropped 6 percent in real effective terms and the
Indian rupee fell 5 percent.
5
o
Other currencies in the region depreciated to a lesser degree. The Hong
Kong dollar and New Taiwan dollar each depreciated by approximately 1
percent in real terms, while the Singapore dollar declined 2 percent.
a
Reliable data on the real effective exchange rate for China are not
available. On a bilateral basis, the e?,change rate against the dollar
appreciated 21 percent in real terms from the beginning of 1994 to March
1995.
III. Exchange Rate Policy and Operations
Recent exchange Tate market operations
u.s. monetary authorities operated in the exchange markets on a number of occasions
between January and the end of September 1995.
o
U.S. monetary authorities intervened on March 2-3, 1995, joined by 13 foreign
central banks. On the second day of intervention, Treasury Secretary Rubin
stated, "A strong dollar is in our national interest. That is why we have acted in
the markets in concert with others. The Administration is continuing its work on
strengthening economic fundamentals including bringing down the budget deficit
further."
o
During the first week in April, the U.S. monetary authorities intervened early in
the Asian session on April 3rd, later in the New York trading session the same
day with the Bank of Japan, and on April 5th with the Bundesbank and the Bank
of Japan. On April 3rd, Secretary Rubin noted that, "We acted in the exchange
markets overnight out of concern with recent movements in exchange rates."
Following the last round of intervention, he added that the United States, Japan
and Germany "expressed their view that a strong dollar is in the most general
interest of the economies of the world.. .In effect, you have a shared commitment
to a stronger dollar."
o
The U.S. monetary authorities intervened to support the dollar on May 31st with
other major industrial countries. These purchases of dollars against the yen and
mark were accompanied by Treasury Secretary Rubin's comment that, "We acted
in the exchange markets this morning consistent with the exchange rate objectives
expressed in the April 25 G-7 Communique. We are prepared to continue to
cooperate in exchange markets as appropriate."
o
On July 7, U.S. monetary authorities intervened in conjunction with Japanese
authorities. These actions coincided with a significant reduction in Japanese call
money rates.
6
o
U.S. monetary authorities intervened in conjunction with Japanese authorities on
August 2. Referring to the announcement by the Bank of Japan of measures to
liberalize restrictions on capital outflows, Secretary Rubin ''welcomed the actions
taken by the Japanese monetary authorities to remove impediments to capital
movements." He added, "These actions are consistent with the G-7
Communique."
o
On August 15, U.S. monetary authorities intervened in conjunction with German
and Japanese authorities.
At their meeting in early October, G-7 Finance Ministers and Central Bank
Governors welcomed the orderly reversal in the movement of major currencies that
began following their April meeting. The Ministers and Governors said that they would
welcome a continuation of these trends consistent with underlying economic
fundamentals, and they reaffirmed their commitment to reduce imbalances and
cooperate closely in exchange markets.
IV. The Dollar and the U.S. Economy
Implications of Exchange Rate Developments
Movements in the value of the dollar can be important for U.S. economic
performance and living standards. Changes in the exchange rate affect inflation by
changing the relative price of imports and import-competing goods, and affect output by
shifting demand for U.S. goods. The exchange rate can also affect other asset prices in
the United States and the demand for the dollar worldwide. And movements in the
exchange rate often reflect changing views about the expected future path of the
domestic economy and the stance of monetary and fiscal policy.
The Administration supports a strong dollar for a number of reasons.
o
A strong dollar raises real wages and living standards of Americans, by increasing
the purchasing power of dollars earned from sales of goods and services made in
the United States in international markets.
o
A strong dollar improves confidence in U.S. assets and reduces capital costs of
American business, expanding investment at home.
o
A strong dollar contributes to real economic expansion by holding down inflation
and interest rates.
o
A strong dollar -- and the commitment of the Administration to the maintenance
of a strong dollar -- is fundamental to the dollar's continued role as the world's
principal reserve currency.
7
The concern with a currency that is too strong is that a country's goods and
services could become uncompetitive in world markets, but that is not true of the dollar.
U.S. firms are very competitive with the dollar in its post-1987 (trade-weighted) range.
Exports -- which in volume terms have grown at an annual rate of over 10 percent since
1987, far faster in percentage terms than exports of the other G-7 countries -- remain
strong, and many exporters are operating near capacity at current exchange rates.
Measures of competitiveness generally show the United States in the lead; for example,
some estimates of unit labor costs suggest advantages for the United States on the order
of 45-50 percent against both Japan and Germany.
Outlook for Trade and the Current Account
The U.S. current account deficit has increased over the last several years, and it is
expected to widen somewhat further in 1995 -- perhaps to the range of 2 1/2 percent of
GDP (Exhibit 6). This compares with the peak current account deficit of 3.7 percent of
GDP, reached in 1987. In 1996, we expect the current account deficit to. decline
modestly but remain above 2 percent of GDP. (A consensus of private economic
forecasters is that the deficit will decline to about $164 billion in 1996, 2.2 percent of
GDP.) Factors contributing to the improved outlook include a modest recovery in Japan
and Mexico, continued growth in Europe and most of Asia, and the lagged effects of past
exchange rate changes. These factors, and the strong competitive position of U.S.
producers of goods and services, should contribute to further reductions in the current
account deficit to below 2 percent of GDP in the years ahead.
The deterioration in the U.S. current account over the last few years reflects a
U.S. investment-led recovery that was earlier and stronger than in most other industrial
countries. At the same time, growth in investment was not matched by a pick-up in
domestic savings. As a consequence, U.S. import growth has outstripped U.S. export
growth for several years.
This picture appears to be changing. Reflecting both partial recovery abroad and
continued strong U.S. price and cost competitiveness, export growth has been strong (16
percent in value terms in 1995) and has caught up with the growth of imports. However,
because the level of imports is greater than that of exports, the absolute deficit in trade
continued to widen in 1995. Adjustment in Mexico also forestalled a reversal of the
growing U.S. current account deficit. This negative factor should at least be partially
reversed as the Mexican economy recovers and as NAFfA implementation increasingly
facilitates U.S. exports to Mexico.
Despite the increase in U.S. international indebtedness resulting from continued
large external deficits for over a decade, the balance on investment income moved into
deficit only in 1994, and has shown little change during the first half of 1995 compared
with 1994. The large surplus on services transactions has stabilized or widened a bit, and
transfers generally show little change from one year to the next.
8
Over the next few years, with budget deficit reduction continuing to improve the
U.S. national savings rate and the reasonable expectation that export markets should
continue to be robust in light of our strong competitive position and a cyclical recovery
in Europe and Japan, the current account deficit should decline. The consensus of
private forecasters is that the United States and Japan will continue to make progress at
reducing their current account imbalances, with the U.S. current account deficit falling
below $100 billion by the year 2000.
The Administration recognizes the importance of reducing the U.S. trade and
current account deficits. Ultimately, this is best done through policies aimed at raising
national savings and productivity, encouraging strong growth abroad, and expanding trade
through reducing trade barriers and opening markets. In this regard, further progress in
reducing the deficit, building on the significant achievements of the first years of the
Administration, will contribute to improved exchange rate fundamentals.
v.
Policy Developments in Major Industrial Countries
Policy developments
With the exception of Japan, the G-7 countries have been experiencing a period
of continued solid growth, with near price stability in many counties (Exhibits 7-10).
Some signs of softness appeared over the course of this year. Nonetheless, as a result of
a number of policy actions over the past several months, there is a strong basis for
optimism regarding the outlook for moderate, but sustained non-inflationary growth in
most of the major industrial countries.
Japan has taken a number of significant policy actions to spur a domestic-demand
led recovery. The Bank of Japan cut the official discount rate in a number of steps, the
latest to 0.5 percent on September 8. Market rates also came down and the important
overnight call rate was reduced to below the discount rate. Two fiscal stimulus packages
were also introduced, a small package in June and a significantly larger package in
September. These actions have reduced the downside risks and increased the prospects
for a moderate recovery. However, the Japanese authorities need to be prepared to take
action to reinforce the recovery as necessary.
In Germany, concerns early in the year that the Bundesbank would tighten
monetary policy in response to higher than expected wage payments and an overheating
economy receded in late spring as signs of a softening of growth materialized and
inflation continued to fall. The Bundesbank cut official rates on March 31 and August
25 and subsequently allowed market rates to follow these rates down. These cuts also
moderated pressure on other European currencies. Fiscal policy has remained tight in
1995, as the government instituted tax increases to reduce the deficit below the 3 percent
target required for monetary union. Fiscal policy is expected to be neutral next year, as
court-ordered tax cuts offset tight control on expenditure.
9
In France, slower growth motivated some monetary easing in 1995 through
September, reducing the large premia on short-term interest rates over those in
Germany. However, tensions within European currencies and budgetary worries forced
France to raise short-term rates in October to defend the franc. The recent French
budget would provide for a reduction of the deficit from approximately 5 percent of
GOP in 1995 to 4 percent of GOP in 1996, but markets are concerned as to how the
government will reconcile its fiscal consolidation goals with its priority on reducing
unemployment.
. In Italy, pension reform and progress in reducing the deficit contributed to an
improved outlook in 1995 and a strengthening of the lira over the summer, which gave
way in September to concerns about the future of EMU, the domestic political
environment and future budget prospects. In response to significant inflationary
pressures, monetary policy has been tight in 1995.
In Canada, growth has slowed considerably. The receding inflation threat and the
recent appreciation of the Canadian dollar allowed the Bank of Canada to lower interest
rates until September, when exchange rate pressures forced a 35 basis point rise.
Canada's federal budget deficit is projected to decline to 4.2 percent in FY 1995-6, from
5.1 percent of GDP in FY 1994-95.
In the United Kingdom, monetary and fiscal policies have remained tight to
contain inflation and reduce the public sector borrowing requirement. Short term
interest rates were raised a total of 150 basis points on three occasions between
September 1994 and February 1995; however, slowing growth has since called into
question whether there will be further tightening. The public sector borrowing
requirement, which peaked in 1993-94 at 8 percent of GDP, has declined substantially
but may exceed government targets for 1995-96.
In the United States, growth has picked up after a sluggish winter, and earlier
concerns about a long "pause" have receded. Inflation continues to be subdued well into
the expansion, job creation has been impressive -- over 7 1/2 million in 2 1/2 years -and the rate of unemployment remains well below 6 percent. With regard to fiscal
policy, the U.S. government sector budget deficit to GDP ratio in 1995 will be less than
half its level in 1992. Much of this improvement has been structural. The U.S. general
government budget deficit remains the lowest in the G-7. And, unique among the G-7,
the Administration has announced a plan to eliminate the budget deficit within a specific
time frame.
Results of the IMF's 1995 U.S. Article W Consultation
The IMPs Article IV Consultation discussions with the U.S. Government were
conducted during the spring and summer, and the Consultation was concluded by the
IMP Board on August 4, 1995. In the discussions, the IMF staff was positive on most
10
aspects of the U.S. economy and offered advice on further improvements. The IMF
noted that the performance of the U.S. economy, with low unemployment and inflation
and strengthened capital formation, compared favorably with that of other major
industrial countries. The IMP was encouraged by the intention of the Administration
and the Congress to balance the federal budget, although it was concerned about the
difficulty of adhering to long-term deficit reduction targets and supported front-loading
of deficit reduction in the early years. It also cautioned against tax cuts in advance of
actual deficit reduction. The IMP staff also commented favorably on the Federal
Reserve's handling of monetary policy.
VI. Issues in Key Trading Partners' Exchange Regimes and External Balances
Section 3004 of the Omnibus Trade and Competitiveness Act of 1988 requires
the Treasury to analyze on an annual basis the exchange rate policies of foreign
countries, in consultation with the IMP, and to consider whether countries manipulate
the rate of exchange between their currency and the U.S. dollar for purposes of
preventing effective balance of payments adjustments or gaining unfair competitive
advantage in international trade. The Secretary of the Treasury is required to undertake
negotiations with those manipulating economies that have material global current
account surpluses and significant bilateral surpluses with the United States, unless there
would be a serious detrimental impact on our vital national economic and security
interests.
For this purpose, Treasury undertook a broad review of developments in our
principal trading partners with respect to exchange rates, external balances, foreign
exchange reserve accumulation, macroeconomic trends, and exchange restrictions.
Based on this review, Treasury has determined that no country has manipulated
its exchange rate under the terms of Section 3004 during the period examined. In
making that judgment, particular attention was paid to the following five criteria.
1. External positions. Persistent overall current account surpluses might indicate
an attempt to prevent effective external adjustment through exchange rate policy.
However, relatively few of our principal trading partners have large overall current
account surpluses and large bilateral surpluses with the United States (Exhibit 11).
About half of the countries with bilateral surpluses are industrial economies with open
exchange rate regimes; most of the remainder are in Latin America and Asia.
Collectively, major emerging markets account for a large, but somewhat smaller portion
of our deficit than in 1987, when large surpluses in a few markets were an important
source of concern.
Of those emerging economies with significant global current account surpluses,
only China and Taiwan had bilateral surpluses with the United States which totalled
more than $5 billion in 1994. In the case of Taiwan, we have seen downward adjustment
11
in the bilateral surplus associated with real appreciation of 8 percent in the NT dollar
against the U.S. dollar from 1990 to mid-1995, rising Taiwanese wage rates, and
expanding Taiwanese direct investment in Asia. For China, the exchange rate against
the dollar appreciated 21 percent in real terms from the beginning of 1994 to March
1995, while the current account surplus was growing rapidly in the first half of the year
(1.7 percent of GDP). In China's case, as noted below, other factors are primarily
responsible for the growth in the overall and bilateral surpluses.
2. Exchange restrictions and capital controls. Restrictive exchange regimes and
capital controls can be a concern in situations where they are designed to maintain a
super-competitive exchange rate or otherwise delay reduction in an external surplus. On
balance, there has been no evidence of any significant intensification of exchange or
capital controls in any of our major trading partners during the period of this report. In
the two well-publicized cases where there had been an imposition of new controls in
1994 (Malaysia and Korea), these controls were subsequently removed later in the year.
Thailand also imposed reserve requirements on banks' foreign borrowing in 1995, largely
for prudential reasons. In fact, the overall trend has been generally toward continued
gradual liberalization and more flexibility in exchange rate policy.
3. Movements in exchange rates. Large depreciation in exchange rates could in
some circumstances suggest evidence of an attempt to gain competitive advantage in
trade. However, manipulation could be reflected in the absence of a significant
appreciation as well, when such a move is justified by underlying fundamentals.
Equilibrium real exchange rates may change over time, especially for a rapidly
developing economy.
On balance, the movements in the exchange rates of our developing country
trading partners over the past several years do not provide evidence of exchange rate
manipulation to gain unfair competitive advantage in trade. In Asia, in 1994 and 1995,
none of our major trading partners had a large depreciation of the real, trade-weighted
exchange rate. Further, the nominal exchange rates of most of the economies of the
region have appreciated against the U.S. dollar to varying degrees. A combination of
.factors are contributing to upward pressure on key currencies against the dollar: large
capital inflows and concerns about the feasibility of ongoing sterilization of inflows; the .
authorities' increased willingness to permit appreciation in response to sustained high
growth and strong fundamentals; and recognition of the benefits of nominal appreciation
in meeting inflation objectives.
4. Movements in Reserves. Significant and persistent accumulation of foreign
exchange reserves could be a source of concern if it reflects efforts to maintain an
excessively competitive exchange rate designed to promote trade and current account
surpluses. Developments in reserves will reflect the exchange regime chosen. Most of
the United States' emerging market trading partners maintain some form of fixed rate or
managed exchange rate regime. For these economies, reserves will fluctuate as the
12
authorities intervene to maintain the peg. Yet, in combination with a persistent, large
overall external surplus, substantial reserve accumulation could suggest manipulation.
While a number of U.S. emerging market trading partners have experienced
growing reserves, in many cases the pace of import growth as been nearly as large or
larger. Consequently, the number of months of import "cover" provided by reserves has
fallen or remained roughly stable. Further, in several cases, the pace of reserve
accumulation is slowing and the exchange regime appears aimed at domestic objectives
such as controlling inflation or integration with another economy. Consequently, we do
not see a clear pattern that would qualify as manipulation.
On this basis, the Report does not find evidence of countries manipulating their
exchange rate between their currency and the U.S. dollar for the purposes of preventing
effective balance of payments adjustments or gaining unfair competitive advantage in
international trade. However, we will continue to monitor these matters closely.
There are three issues in particular that deserve ongoing attention.
First, as in previous reports, we note that some emerging markets, notably China,
Korea and Taiwan, still maintain significant capital controls. The U.S. Treasury will
continue to encourage countries that maintain significant capital and exchange controls
to liberalize these controls.
Second, a number of high growth countries in the region continue to face the
challenge of controlling inflation. Many of these countries are concerned about the
macroeconomic effects of large capital inflows. Where appropriate, these countries
should be encouraged to provide for greater flexibility in the exchange rate regime as
part of the adjustment process.
Third, while we do not find that China is manipulating its currency as described in
the statute, China's special circumstances merit additional mention. In the absence of a
well-developed capital market with market-determined interest rates that provide a clear
signal of domestic credit conditions, it is even more difficult than in most countries to
make a determination of the appropriate real exchange rate. Consequently, China's
large and growing overall current account surplus and substantial bilateral surplus with
the United States (discussed in detail in the August 1995 Interim Report) deserve careful
monitoring.
According to official Chinese data2, China's total exports surged by 44 percent in
Historically, China's trade data differ considerably from those of its major trading
partners, and these numbers should be seen as indicators of broad movements only.
Consequently, in this Report, we only use Chinese data for aggregate trade where no
2
13
the first half of this year, while imports grew by 15 percent. The explosive growth of
exports may be due to several factors:
o
the effects of recent export-oriented foreign direct investment in China;
o
tight domestic credit, which is leading firms to increase export business to get
access to foreign exchange credit; and
o
a July reduction in the VAT rebate for exports which caused firms to boost
exports early in the year before the rebate was reduced. (On a cumulative, yearto-year basis, China's monthly export growth peaked in January after the
reduction was announced, and declined steadily thereafter.)
According to U.S. data, China's trade surplus with the United States stood at
$21.8 billion for the first 8 months of 1995. China's bilateral surplus with the United
States for all of 1995 is thus likely to expand once again from an already high level of
nearly $30 billion in 1994. Both the size and continued expansion of this surplus
therefore remain a source of serious concern.
At the same time, the pace of expansion in the surplus this year will likely slow.
This slowdown stems from a doubling in the growth of China's imports from the United
States, which increased 13 percent in the first 8 months of this year compared to 6
percent for all of last year. In addition, the growth rate of China's exports to the United
States has slowed. Exports to the United States during the first 8 months of 1995 grew
by 21 percent compared to the same period in 1994 -- slower than the 23 percent
increase seen in all of 1994, and far slower than growth in overall Chinese exports in the
first 8 months of 1995. Exports to Asian countries -- important sources of foreign direct
investment into China -- have boomed over this period.
Since 1992, China has taken important steps toward opening its markets, but
multiple and overlapping barriers to trade continue to frustrate market access for U.S.
goods and services. Continued real exchange rate appreciation and liberalization aimed
at measures and practices that protect domestic industry and restrict imports should
contribute significantly to external adjustment. Treasury will continue to consult with
representatives of the Peoples' Bank of China on exchange rate policy. Further, through
bilateral and multilateral channels, the Administration is pressing China to provide
meaningful market access for goods and services. Steps taken in this regard include the
1992 U.S.-China Memorandum of Understanding on Market Access, implementation of
the two agreements on intellectual property rights, and continuing negotiations regarding
China's accession to the WTO.
other statistics are available. U.S. data are used for bilateral trade statistics.
14
Exhibit 1
Yen per Dollar Exchange Rate
December 30, 1994 through September 29, 1995
105
105
100
100
95
95
90 I
85 I
80
I
11 \ _
\
"
tv-.. .. .-..
I 90
I
1\7
Ir---------------------------------------~--------------
30-0ec-94
23-Feb
19-Apr
~~
13-Jun
E=>~'- __~~.iCSll-r
-~~~t--,<Sl"--'~e=__
... L - _ _ _
r->~~~,....,.......,I--.~_..-:::::t.,--.
~,c-,,
07-Aug
~~t~
29-Sep
85
80
Exhibit 2
OM per Dollar Exchange Rate
December 30, 1994 through September 29, 1995
1.6
~f--------------------------------------------------~
1.55
1.6
1.55
1.5
1.5
1.45
1.45
1.4
1.4
.35 I·------------------~------------------~--------
1.35
30-0ec-94
23-Feb
19-Apr
13-Jun
07-:AuQ
29-Seo
Exhibit 3
Real Broad Trade Weighted Exchange Rate Indices
January 1985 - September 1995
150 r - - - - - - - - - - - - - - - - - - - - - - - - - - - . 150
;\.,
140 \------------o
o
'""' ~----;'
, "
~
II
(J)
~
110
i
,
:\
" ..
\
..
."so.
•
><
"'0
,
100
.....
\
..
.".
,
,..
\
,.J
'\
I
130
.,
I
'". ..
..
Q.)
C
:
..... ,
,
d> 120
>
co
o(J)
. '' \ -=-__~__.:_--
••
130
140
,
.•.
\
.,
120
110
100
..
....
# •• -
..
90
,-, ..'
80
I
.
I
90
..• .. •
1111111111111111111111111'111"1111'11111111 "
"""""""""""",""""""","","""""",,,,,"""""""""",
Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95
Dollar
Yen
.... _.. ....
OM
. ......... .
80
Exhibit 4
Real Broad Trade Weighted Exchange Rate Indices
January 1995 through September 1995
150
140
150
'" ..... .. ..
.
.----- _ .......... :-r...,.""" ...... - ... ..-- '1----------------~
o
~ 130
II
..... ....
---------------------------,,~'"--
_.. -.. - .. _.
,.
,. "
"
"
. ,
140
...
,
,
130
,
...
0)
>
co
o 120
...
120
....
0'>
0'>
.,..-
x
~
110
c:
.. .. •...•••..•..•..••.•.•................................•...•.•.•.......................
.
.
..
••............. .'
100
~
90 I I
Jan-95
-~May-95
Dollar
Yen
Jul-95
OM
..... -.. ... ...........
Source: JP Morqan; 1990 trade weiQhts of 22 OECD and 23 Develooina Countries.
100
I 90
Sep-95
I
Mar-95
110
Exhibit 5
Real Effective Exchange Rates
Selected Emerging Markets
1990 avg. = 100
MALAYSIA
KOREA
1~r-------------------------------~
130
120
120
110
110
100
100
90
90
-
80
70
70
~~------------------------------~
July
July Sept
JanSA
Apl
0cI
Jan 95
~r
60
Jan 94
Apt
July
MEXICO
0c1
Jan 95
Apr
July
Sept
SINGAPORE
,~~------------------------------~
1~r-------------------------------~
120
120
"0
110
100
100
90
80
80
70
70
ro~----~--~--~----~----------~
Jan 94
Apr
July
Oct
Jan 95
Apr
July Sept
6O~~------~--
Jan 94
Apr
July
__~____~~~__~
Oct
Jan 95
Apr
July SePt
Exhibit 5 (continued)
Real Effective Exchange Rates
Selected Emerging Markets
TAIWAN
THAILAND
130
'30~------------------------------~
120
120
1,0
110
100
- -
90
90
80
80
70
70
60
Jan 94
ADr
July
0:::1
Jan
95
Apr
July
Sept
60~----------------------------~~
Jan 94
Apr
JUly
OCt
Jan 95
Apr
July Sept
BRAZIL
CHILE
130
1~~------------------------------~
120 -
120
110
110
100
100
90
90
80
80-
70
70
w~--~~~~--~~~~~--~~~~
60
Jan 9<1
Apr
July
Oct
Jan 9S
Apr
July Sept
Jan 94
Apr
July
Oct
Jan 95
Apr
July Sept
Exhibit 6
U.S. and Japanese Current Accounts
1990 through 1996
4%
(///11 . . . . . . . _
3%
t-
2%
-
oa.. 1%
<!>
, ..
,
.,
.., .
.
,
.
.. , . ,. . '
.. '
........... -
••••••••
.'
~
."."-"
-" -'. -.. -.' •.. ." ..
---
....
-
-
\t-
o
~
00/0
rI
-10/0
r~
-20/0
~
t-
-3%
- --
1
I
1
1
1
1
1990
1991
1992
1993
1994
1995
U.S.
Japan
_.. -.. _.
Source: IMF data, Consensus forecasts, Treasury estimates
I
1996
Exhib;~
7
G-7: Real GDP Growth
(0/0 change year jyear)
1994
United States
Japan
Germany·
France
Italy
United Kingdom
Canada
2.9
2.9
2.2
3.8
4.6
1995F
IMF Consensus
2.9
3.0
O.S
0.5
2.4
2.6
2.9
2.9
3.0
3.1
2.7
2.8
2.2
2.2
Total G-7
3.1
2.4
4.1
O.S
2.4
1996F
IMF Consensus
2.0
2.6
2.2
1.9
2.9
2.5
2.7
2.6
2.8
2.6
2.9
2.7
2.7
2.4
2.3
2.5
• All Germany; F = Forecast
Sc:urces:
Ir.-1F, \Vorld Economic Outlook, October 1995; and Consensus
Economics, Consensus Forecasts, October 1995
Exhibit 8
G-7: Con~umer Price Inflation
(0/0 change year jyear)
1994
United States
Japan
Germany·
France
Italy
United Kingdom
Canada
3.9
2.5
0.2
IMF
3.0
-0.2
2.3
2.1
5.4
2.9
2.1
Total G-7
2.2
2.4
2.6
0.7
2.7
l.7"
1995F
Consensus
2.9
0.0
1.9
IMF
3.3
O.l
1.9
2.3
4.0
2.0
5.4
3.5
2.3
3.0
2.0
2.4
2.5
1996F
Consensus
3.0
0.2
2.2
2.4
4.5
3.1
2.3
2.5
•. western Germany for Consensus; F == Forecast
Sources:
IMF, World Economic Outlook, October 1995; and Consensus Economics,
Consensus Forecasts, October 1995
Exhibit 9
G-7: Outgut Gags
(% of potential G D P)
United States
Japan
Germany
France
Italy
United Kingdom
Canada
1994
1995
1996
0.3%
-4.1
-2.0
-3.1
-3.3
-"-. 9
-2.1
0.8%
-5.7
-2.2
-2.2
-2.5
-2.1
-2.2
0.4%
-5.8
-2.0
-1.7
-1.9
-1.2
-2.1
Total G-7
-1.6
-15
-1.5
Source:
IMF, World Economic Outlook, October 1995
Exhibit 10
G-7: Current Account Balances
($ billions; % of GDP in parentheses)
United States -151
Japan
129
Germany
-21
France
8
Italy
15
United Kingdom -3
Canada
-16
Total G-7
F::: Forecast
Sources:
(... 2.2)
(2.8)
(-1.0)
(0.6)
(1.5)
(-0)
(-3.0)
-38 (-0.2)
1995F
IMF Consensus
-176 (-2.5)
-171
116 (2.3)
110
-16 (-0.7)
-17
16 (1.0)
15
22 (2.1)
18
-7 (-0.7)
-7
-13 (-2.3)
-14
-59 (-0.3)
-65
1996F
I~F
Consensus
-173 (-2.3)
104 (2.0)
-27 (-1.1)
16 (1.0)
-164
27 (2.3)
-4 (-0.4)
-9 (- L5)
23
-6
-12
-67 (-0.3)
-76
89
-17
11
IMF, World Economic Outlook, October 1995~ and Consensus
Economics, Consensus Forecasts, October 1995
II
Exhibit I I
U.S. Current Account: Selected Dates
($ billion, b/p basis)
Exports
Ag.
Non-Ag.
Imports
Oil
Non-oil
Trade 8al
Services. net
Investment
Income. net
Transfers
Current Acct
(As S'C- of GDP)
1987
250
30
220
1991
417
40
377
1994
502
47
455
]995*
561
55
506
-410
-43
-367
-491
-52
-439
-669
-51
-617
-749
-55
-694
-160
7
-74
45
-166
60
-188
63
9
-23
15
7--
-9
-36
-10
-30
-166(3.7)
-7**
(0.1)
-151
(2.2)
-165
(2.4)
Gcographic Breakdown of Trade Balance
-28
15
-18
-21
-105
-84
-57
-45
- China
-9
-IS
-2
-6
-3
-2
-10
-1
-1
-13
-137
-67
...
-.)
2
-30
-130
-69
1
-9
-3
5
-30
Canada
-12
-7
-16
-22
Latin America
-12
-6
0
2
4
1
-15
-19
-3
2
-1
0
\\'cst Europe
Asia
- Japan
- Korea
- Taiwan
. - Singapore
- Hong Kong
- Mexico
Other (inc1. OPEC)
-First half at annual rate.
--Includes approx. $43 bn. eXlraordinary receipts in support of
Operation Desert Storm.
\Source: Survcv of Currenl Bu!\inc~s
-11
...
-.)
APPENDIX 1:
OMNIBUS TRADE AND coMPETITIVENESS ACI' OF 1988
(H.R.3)
SEC. 3004. INTERNATIONAL NEGOTIATIONS ON EXCHANGE RATE AND
ECONOMIC POUCIES.
(a) Multilateral Negotiations.-Tbe President shall seek to confer and negotiate with other
countries(1) to achieve-
(A)
better coordination of macroeconomic policies of the major
industrialimd nations; and
(B)
(2)
more appropriate and sustainable levels of trade and current ~unt
balances, and exchange rates of the dollar and other eutrencies
cons:isteat with such balances; and
to develop a progIam for improving existing mechanisms for coordination and
improving the functioning of the exchange rate system to provide for long-term
exchange rate stability consistent with more appropriate and sustainable current
account balances.
Bilateral Negotiations. -The Secretary of the TIeasury shall analyze on an annual basis
the exchange rate policies of foreign countries, in consultation with the International
Monetary Fund, and consider whether countries manipulate the rate of exchange between
their currency and the United States dollar for pmposes of preventing effective balance of
payments adjustments or gaining unfair competitive advantage in international trade. If the
Secretary considers that such manipulation is occurring with respect to. countries that (1) have
material global. current account surpluses; and (2) have significant bilateral trade sutpluses
with the United States, the Secretary of the Treasury shall take action to initiate negotiations
with such foreign countries on an expedited basis, in the International. Monetary Fund or
bi1.ateIa11y, for the purpose of ensuring that such countries regularly and promptly adjust the
rate of exchange between their currencies and the United States dollar to permit effective
balance of paymentS adjustments and to eliminate the unfair advantage. The Secretary shall
not be required to initiate negotiations in cases where such negotiations would have a serious
detrimental impact on vital national economic and security interests; in such cases, the
Secretary shall infonn the chairman and the ranking minority member of the Committee on
Banking, Housing, and Urban Affairs of the Senate and of the Committee on Banking,
Finance and Urban Affairs of Representatives of his determination.
(b)
SEC. 3005. REPORTING REQUIREMENTS.
(a)
Reports Required.-In furtherance of the purpose of this title, the Secretuy,
after consultation with the Chairman of the Board, shall submit to the Committee on
Banking, Finance and Urban Affairs of the House of Representatives and the Committee on
Banking, Housing, and Urban Affairs of the Senate, on or before October 15 of each year, a
written report on international economic policy, including exchange rate policy. The
Secretary shall provide a written update of developments six months after the initial report.
In addition, the Secretuy shall appear, if requested, before both committees to provide
.testimony on these reports.
(b) Contents of Report. - Each repon submitted under subsection (a) shall contain-
(1)
an analysis of currency market developments and the relationship
between the United States dollar and the currencies of our major trade
competitors;
(2)
an evaluation of the factors in the United States and other economies
that underlie conditions in the currency markets, including
developments in. bilateral trade and capital flows;
(3)
a description of cwxency jntervention or other actions undertaken to
adjust the actnal exchange rate of the dollar;
(4)
an assessment of the impact of the exchange rate of the United States
dollai" 00(A) ~e ability of the United Slates to maintain a more appropriate and
sustainable balance in its current account and merchandise trade
account;
(B) .production, employment, and .noninflationary growth in the United
States·
.,
(C) the international competitive performance of United States
industries and the extemal indebtedness of the United States;
any
(5)
recommendations for
changes necessary in United States economic
policy to attain a more appropriate and sustainable balance in the
current account;
(6)
the results of negotiations conducted pursuant to section 3004;
2
key issues in United States policies arising from the most n:ccnt
consultation requested· by the International Monetary Fund under article
IV of the Fund's Articles of Agreement; and
(8)
(c)
a report on the size and composition of international capital flows, and
the factors contributing to such flows, including, where possible, an
assessment of the impact of such flows on exchange rates and trade
flows.
Report by Board of Govemors.-Section 2A(l) of the Federal Reserve Act (12
U.S.C. 225a(l» is amended by inserting after -the Nation- the following:
including an analysis of the impact of the exchange rate of the dollar on those
trends-
SEC. 3006. DEFINITIONS.
As used in this subtitle:
(1) Secretary.-The term -Secretary- means the Secretary of the Treasury.
(2) Boani.-The term "Board- means the Board of Governors of the Federal
Reserve System.
3
EWS
Department of the Treasury • Bureau of
FOR IMMEDIATE RELEASE
December 15, 1995
Contact: Peter Hollenbach
(202) 219-3302
GPU CHAIRMAN JAMES R. LEVA HEADS
1996 U.S. SAVINGS BONDS VOLUNTEER COMMITfEE
James R. Leva, Chairman, President and Chief Executive Officer of General Public Utilities
Corporation (GPU), New Jersey, has been named chairperson of the 1996 U.S. Savings
Bonds Volunteer Committee. The appointment, by Secretary of the Treasury Robert Rubin,
took effect today at the Committee's annual Washington meeting. Mr. Leva succeeds 1995
national chairperson Joseph T. Gorman, Chairman and Chief Executive Officer of
Cleveland-based TRW Inc.
Mr. Leva will lead the 1996 savings bond campaign through a committee of top business and
government executives representing leading American industries and major metropolitan
areas. The committee leads the national volunteer effort in support of the U.S. Savings
Bond Program. More than 7 million individuals buy bonds through the payroll savings plan.
Mr. Leva became president and CEO of GPU in January 1992 and assumed the additionalposition of chairman in June the same year. He also is chairman of GPU Nuclear
Corporation, and chairman and CEO of all other major GPU subsidiaries. The GPU
System service territory encompasses about half the land area of Pennsylvania and New
Jersey. Mr. Leva had been president and chief operating officer of Jersey Central Power
& Light Company in Morristown, New Jersey, since 1986 and president of Pennsylvania
Electric Company in Johnstown, Pennsylvania, from 1982 to 1986. He joined Jersey Central
in 1952 as a utility worker and held various positions until he became president and chief
operating officer in 1986.
He is a veteran of the U.S. Marine Corps and a graduate of Fairleigh Dickinson University
and Seton Hall Law School. He completed post graduate and special utility courses at
Cornell University and the University of Michigan.
Mr. Leva has been active in local public affairs for many years. He was a member of the
Morris Township, N.J., Board of Education and the Morris Township Committee and was
a police commissioner and served two terms as mayor of Morris Township. He was the
1995 New Jersey Geographic Chairperson on the U.S. Savings Bonds Volunteer Committee.
A list of members of the 1996 U.S. Savings Bonds Volunteer Committee is attached.
000
. PA-204
(RR-772)
1996 U.S. SAVINGS BONDS VOLUNTEER COMMITTEE
National Chairperson
James R. Leva
Chairman and CEO
GPU Corporation
Parsippany, NJ
INDUSTRY CHAIRPERSONS
ADVERTISING/PUBLIC RELATIONS
COUNTY GOVERNMENT
Burt Manning
Chairman and CEO
J. Walter Thompson
New York, NY
The Hon. Gary Locke
King County Executive
Seattle, WA
ELECTRICAL EQUIPMENT
AEROSPACE
Dr. Edward C. Stone
Director
Jet propulsion Laboratory
Pasadena, CA
.
Robert J. O'Toole
Chairman, President and CEO
A.O. Smith Corporation
Milwaukee, WI
ENTERTAINMENT .
BANKING
Lawrence K. Fish
Chairman, President and CEO
Citizens Financial Group, Inc.
Providence, RI
Sherry Lansing
Chairman - Motion Pictures
Paramont Pictures Corporation
Hollywood, CA
FINANCIAL SERVICES
CITY GOVERmmNT
The Hon. Edward G. Rendell
Mayor
City of Philadelphia
Philadelphia, PA
Muriel Siebert
President and Chairwoman
Muriel Siebert & Co.
New York, NY
CHEMICALS
GLASS AND BUILDING
MANUFACTURING
S. Jay Stewart
Chairman and CEO
Morton International Inc.
Chicago, IL
Jerry E. Dempsey
Chainnan and CEO
PPG Industries Inc.
Pittsburgh, PA
-2-
HEALTH SERVICES
PUBLIC TRANSPORTATION
Lois J. Moore
President and CEO
Harris County Hospital
District
Houston, TX
Louis J. Gambaccini
General Manager
Southeastern Pennsylvania
Transportation Authority
Philadelphia, PA
HIGHER EDUCATION
RETAIL POODS
Dr. William H. Cunningham
Chancellor
The University of Texas System
Austin, TX
Ronald E. Johnson
President and CEO
Kash N'Karry Food Stores, Inc.
Tampa, FL
INDUSTRIAL MANUFACTURING
SCHOOLS
Duane D. Fitzgerald
President and CEO
Bath Iron Works Corporation
Bath, ME
David E. Sawyer
Superintendent
Brevard County Board
of Education
Melbourne, FL
INSURANCE
STEEL
Edward B. Rust, Jr.
President and CEO
State Farm Insurance Companies
Bloomington, IL
PACKAGING AND POREST PRODUCTS
Marvin A. Pomerantz
Chairman and CEO
Gaylord Container Corporation
Deerfield, IL
PROPESSIONAL SPORTS
Dr. Jerry Buss
Chairman and CEO
California Sports Inc.
(Los Angeles Lakers)
Inglewood, CA
James L. Wareham
President and CEO
Wheeling - Pittsburgh Steel
Wheeling, wv
TEXTILE AND APPARELS
John C. Adams
Chairman, President and CEO
Russell Corporation
Alexander City, AL
UTILITIES
John W. Rowe
President and CEO
New England Electric System
Westborough, MA
-3GEOGRAPaIC CHAIRPERSONS
ATLANTA
DETROIT
F. 'Duane Ackerman
Vice Chairman and COO
BellSouth Corporation
Atlanta, GA
Anthony F. Earley, Jr.
President and COO
Detroit Edison Company
Detroit, MI
BOSTON
HOUSTON
Donald B. Reed
President and Group Executive
Officer
Boston, MA
Raymond Galvin
President
Chevron U.S.A. Production
Compctny
Houston, TX
CHICAGO
LOS ANGELES
John F. Fiedler
President and CEO
Borg-Warner Automotive Inc.
Chicago, IL
Thomas W. Wathen
Chairman
Pinkerton Security &
Investigation Services
Encino, CA
NYNEX
CLEVELAND
MIAMI
Karen N. Horn
Chairman,
Bank One, Cleveland, NA
Cleveland, OH
CINCINNATI
Daniel J. Meyer
Chairman and CEO
Cincinnati Milacron Inc.
Cincinnati, OH
COLUMBUS
James H. Gilmour
Executive Vice President and
COO
National City Bank, Columbus
Columbus, OH
DENVER
James W. McAnally
President
Lockheed Martin Astronautics
Denver, CO
Dr. Richard H. Hinds
Deputy Superintendent
Financial Affairs
Dade County Public Schools
Miami, FL
MILWAUKEE
Richard A. Abdoo'
Chairman, President and CEO
Wisconsin Energy Corporation
Milwaukee, WI
MINNEAPOLIS-ST. PAUL
Andrew F. Czajkowski
President and CEO
Blue Cross/Blue Shield of
Minnesota
St. Paul, MN
-4-
NEW JERSEY
PITTSBURGH
Dennis Baldassari
President
Jersey Central Power & Light
Company
Morristown, NJ
Martin G. McGuinn
Vice Chairman
Mellon Bank, NA
Pittsburgh, PA
PHOENIX
NEW YORK
Frank A. Bennack, Jr.
President and CEO
The Hearst Corporation
New York, NY
Markos I. Tambakeras
President, Industrial
Automation and Control
Honeywell Inc.
Phoenix, AZ
PHILADELPHIA
ST. LOUIS
Gwendolyn S. King
Senior Vice President
Public Affairs
PECO Energy Company
Philadelphia, PA
Nicholas L. Reding
Vice Chairman
Monsanto Company
St. Louis, MO
ws
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960
Eighth Annual Institute on
Current Issues in International Taxation
December 15, 1995
Remarks of
Hon. Leslie B. Samuels
Assistant Secretary for Tax Policy
U.S. Department of Treasury
As we approach year end, I wou~d like to review briefly our international tax
accomplishments, in the areas of transfer pricing, regulations and tax treaties. And given the great
importance of the budget debate now underway, I would also like to conclude with some
comments on the international tax issues under consideration.
Transfer Pricing
Last year at this conference I discussed the importance of the draft OEeD transfer pricing
guidelines. This year I would like to report on some significant developments in the transfer
pricing area as well as to describe some of our plans for the future.
As many of you know, last July, the OEeD members unanimously -- and without
reservation -- approved the OEeD transfer pricing guidelines. These guidelines replace outdated
ones that were issued in 1979. The 1995 guidelines reflect a recognition by the United States
and its OEeD partners that the traditional transfer pricing methods described in 1979 were
inadequate.
In recognition of this reality, the 1995 guidelines describe new profit-oriented
methodologies that supplement the more traditional approaches. The method that will apply in
any given case will depend on the facts and circumstances.
These new profit-oriented methods are consistent with the U.S. rules. They also dovetail
with practices in many other countries. The new guidelines represent an international consensus
that the profit methods have a legitimate role to play.
I cannot overemphasize the importance of the OEeD consensus. It will help avoid the
double taxation that would result if inconsistent approaches we~e adopted by different countries.
Most importantly, it will help multinational companies to plan their related party transactions to
minimize tax disputes. And if there are disputes, it creates an agreed framework for resolution.
RR-773
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
We know that our work in this area is not over. The OECD report has been issued in a
loose-leaf format so that it can be updated. And work will continue on related issues. Moreover,
the Committee on Fiscal Affairs intends to monitor the results of the publication of this important
report and we will cooperate with this endeavor.
Here at home, we will also continue to devote resources to this area. On October 18,
Treasury announced its plans to undertake further study on the issues of the aggregate U.S. tax
gap that could be attributable to improper transfer pricing by foreign-controlled U.S. corporations
and issues that would arise in connection with the implementation of global formula
apportionment. At the completion of these studies, Treasury will sponsor a conference to discuss
these issues. In connection with this conference, Treasury is soliciting comments with respect
to the studies it plans to undertake. And we look forward to receiving comments as soon as
possible.
Our willingness to continue to examine these important international tax rules on an
ongoing basis is to make sure that we have the benefit of all points of view and up to date
information. It should not be interpreted, however, as indicating any lack of conviction as to the
appropriateness and suitability of the arm's length method and the means for its application.
Now, on the regulatory side, we are also continuing to update our transfer pricing rules.
Final regulations on cost sharing will be issued before the year is out. These new rules reflect
helpful taxpayer suggestions relating to industry practices and other issues. Multinationals will
be able to share the costs and risks of developing intellectual property and avoid cross border
royalty payments. We also are working at the OECD to ensure international acceptance of cost
sharing arrangements that are consistent with U.S. rules.
Our Advance Pricing Agreement program continues to grow. Like the cost sharing
regulations, the APA program offers taxpayers a vehicle to comply with the arm's length standard
in difficult cases without incurring undue administrative burdens.
We also are about to publish final rules under section 6662(e). These rules will
implement an important policy in this area -- to encourage taxpayers to make reasonable efforts
to ensure that arm's length prices are reflected in their tax returns. If taxpayers try to comply
with the arm's length standard in advance, compliance will improve -- and disputes between the
government and taxpayers will be minimized. The final transfer pricing penalty regulations will
reflect useful comments by taxpayers and their representatives, as well as our trading partners.
We are satisfied that we have reached a solution that ensures complIance in a manner that will
not impose inappropriate burdens on taxpayers.
Our work on transfer pricing continues. But I think it is fair to say that the developments
in 1994 and 1995 represent a major step forward in this area. We have given the IRS -- and
taxpayers -- a comprehensive set of tools with which to grapple with the most difficult transfer
pricing issues .. We have laid the gro~dwork for improved compliance with the arm's length
standard by tellIng taxpayers that -- lIke any other provision of the tax law -- they must make
-2-
reasonable efforts to comply with these rules. And last but certainly not least, we have obtained
international acceptance of these developments -- which is essential to the operation of any
transfer pricing system.
Other Regulatory Guidance
Other than transfer pricing, we have also made substantial progress on international tax
guidance. We have completed much of the TreasurylIRS priorities guidance list in the
international area. I won't go through a laundry list. Instead, I would like to highlight those
projects that I believe exemplify the progress we have made toward our twin goals of improving
compliance without discouraging international business and investment activity.
In 1993 Congress gave us authority to deal with multiple-party financing transactions that
are used to avoid tax. Earlier this year we issued final withholding tax regulations pursuant to
that authority. I believe that these regulations will prevent taxpayers from structuring conduit
financing transactions that inappropriately strip earnings out of the United States at little or no
tax cost. At the same time, the final regulations were responsive to taxpayer comments that some
aspects of the proposed regulations might impede legitimate lending activity. We also took a
close look at the recordkeeping and reporting burdens of the proposed regulations. By
eliminating the reporting requirements, we believe we have both lightened the burden on
taxpayers without affecting the IRS' ability to audit these transactions.
As you are aware, we have also recently proposed regulations under section 863. With
the tightening of the foreign tax credit rules in 1986, we have had much more focus, including
litigation, on these source rules. Unfortunately, the current section 863 regulations have not
withstood the test of time. These regulations are more than 70 years old and have not been
amended to reflect the evolution of business practices. Thus, we have reexamined these rules and
proposed changes, all within the basic framework of the existing regulations.
The proposed regulations would liberalize the existing rules by making the independent
factory pricing method elective. This change should reduce disputes. Now any taxpayer will be
permitted to use the so-called 50/50 method if they so desire. At the same time, we have
rationalized the SO/SO·method so that it more closely represents a true 50/50 production/marketing
split. The proposed regulation does not change the current title passage rule. We look forward
to taxpayers comments on these proposals and plan to finalize them expeditiously.
Treasury and the IRS have committed significant resources to modernizing our
withholding tax regulations. Most of our current system assumes that a U.S. withholding agent
is dealing directly with the beneficial owner of the income and that withholding and information
reporting can be properly applied at the border. This assumption is certainly not true now. And
given the increasing cross-border flows of investment, it is important to have a withholding
system that accommodates the interests of investors, U.S. withholding agents, foreign nominees,
and the U.S. fisc. This is a difficult task. We are getting close to proposing regulations that will,
in our view, appropriately balance these different interests. The regulations will provide
taxpayers and withholding agents with options. We are very interested in working with the
-3-
financial community on these regulations because we recognize that no withholding system can
work unless it takes into account the practical difficulties associated with information flow in
capital market transactions.
Tax Treaties
Another aspect of our international tax effort is ensuring that our tax treaty network
functions as it should. That is, we need up-to-date treaties with our major trading partners to
ensure that multi-national businesses are not subject to double taxation. We also need to monitor
our existing treaties to ensure that taxpayers do not use them in ways that are inconsistent with
our current treaty policies. We have made progress on both of these fronts in the past year.
We have completed a new treaty with Canada that substantially lowers withholding tax
rates and therefore reduces the incidence of double taxation. We have also updated our treaties
with France and Sweden, and completed a new treaty with Portugal. These are significant steps
in maintaining and expanding our treaty network with important trading partners. And we very
much appreciate the interest that Congress has shown in our tax treaty program.
We are sensitive to the needs of u.S. taxpayers to gain access to emerging economies on
the same terms as their foreign competitors. We, therefore, seek to expand our treaty network
to include these countries. For example, as an important part to any NAFTA enlargement, we
would need tax treaties with our major Latin American trading partners. There are, however,
difficult issues concerning the meshing of very different tax systems that need to be resolved
before agreement can be reached; but we are· pursuing· discussions in this area. We would also
like to expand our treaty network to the emerging economies of Southeast Asia.
Another aspect of our tax treaty program is ensuring that existing treaties are consistent
with our current treaty policies. In this regard, we constantly evaluate the compatibility of our
treaty provisions and the tax laws of our treaty partners. Sometimes, this evaluation leads us to
end even long-standing treaty relationships. We, therefore, recently terminated our treaties with
Malta and Aruba. We have also signed a protocol with the Netherlands Antilles that will
effectively limit the benefit of the treaty to interest paid on old Eurobond debt.
We are currently working toward modernizing other treaties that have outmoded limitation
on benefits provisions and inadequate exchange of information. We have recently initialed new
treaties with Austria and Luxembourg, and are continuing negotiations with Ireland and
Switzerland. We cannot and will not tolerate the continuation of treaties that no longer
implement these important U.S. tax treaty policies and whose continued existence creates a hole
in the fabric of that policy.
Tax Reform
Now let me turn to a completely different subject for a few moments -- one that might
lead us to a major overhaul of our tax treaty network. I refer to fundamental tax reform.
-4 -
Although fundamental reform of the tax system has been a topic of discussion this year,
the impact of such reform on cross-border transactions and investment has been largely ignored.
In evaluating any proposal for fundamental tax reform, we must determine whether it is fair; is
revenue neutral; generates economic growth and jobs; and is simple. These standards should also
apply in determining whether fundamental reform makes sense in the international tax area. Let
me raise just a few questions that need to be addressed in evaluating fundamental tax reform
using a consumption based tax system.
What would the effect of a consumption based system be on foreign investment in the
United States? Would such a system increase or decrease net investment?
How would a consumption tax deal with imports and exports? Would the tax be border
adjustable? Reflecting back on the proposed BTU tax, one of the most difficult issues was the
question of whether it was border adjustable.
Next, how would our taX system be integrated with our trading partners? We have a welldeveloped treaty network intended to deal with issues of double taxation. Presumably we would
need to start from scratch as the concepts required to integrate a non-income based system with
an income tax system would be fundamentally different. These are but a few questions. In the
coming year as we study the matter, we welcome your comments and advice on how to address
these difficult issues.
Legislation
Finally, we have been deeply involved in the budget process. There are important
international taxes issues under consideration. These issues include taxation of foreign trusts,
taxation of expatriates, corporate loophole closers, and simplification. We were pleased to see
that the conference bill adopted the Moynihan-Gibbons proposals on taxation of foreign trusts.
As you know, however, last week the President vetoed the Congressional conference bill. If you
have seen the President's veto message, you know that the conference bill was objectionable, in
part, because of the provisions concerning expatriation and the repeal of section 956A.
We believe that the conference bill on expatriation is an inadequate response to the
problem of tax avoidance by a few wealthy Americans who renounce their citizenship. The
Administration stands firm in the belief that Americans who avoid their tax responsibilities by
expatriating should not be rewarded. Instead, they should be asked to pay the same tax on
income they accrued while subject to U.S. tax laws as those who remain. This is a simple matter
of fairness.
The conference bill is an ineffective response to tax avoidance by wealthy expatriates who
have substantial unrealized gains. The conference bill generally requires expatriates to pay U.S.
tax only on their U.S. source income for 10 years after expatriation.
The Administration opposes the conference bill because:
-5-
(1)
It rewards patient expatriates. The conference bill allows expatriates who wait 10
years before recognizing gains to avoid completely U.S. tax.
(2)
Moreover, the conference bill allows expatriates to escape U.S. tax on foreign
source income. Consequently, it rewards expatriates who invest in foreign assets
and it creates on incentive to recharacterize domestic income as foreign income.
(3)
The conference language also unnecessarily causes the United States to violate
international law since it overrides of most U.S. tax treaties.
Our approach -- which has been passed twice by the Senate -- treats an expatriate as having sold
his or her assets at fair market value immediately prior to expatriation. Under this proposal, only
expatriates with substantial unrealized gain will be subject to tax.
The conference proposal to eliminate section 956A is unacceptable. We believe that this
provision represents a measured response to the problem of run-away-plants. Section 956A
eliminates the benefit of deferral when taxpayers are simply parking passive assets in offshore
tax havens. We looked carefully at this issue in 1993. The 25% threshold is generous. Outside
. of tax havens, the average level of investment in passive assets is approximately 7% to 10%. The
average level of investment in passive assets in tax havens is between 30% and 40%. We believe
that section 956A narrowly targets taxpayers who are in fact attempting to shelter earnings in tax
haven jurisdictions. If the approach adopted by section 956A were to be abandoned, then other
measures to deal with the problem of tax haven earnings would have to be considered.
The conference bill also contains simplification proposals some of which the
Administration supports. However, our support for the elimination of the overlap of the
controlled foreign corporation and passive foreign investment company rules was contingent on
the continuation of section 956A. We believe the ability to permanently reinvest earnings
generated by an active business in passive assets without restriction creates an important incentive
to move active businesses offshore and therefore must be combatted with an effective antideferral regime.
The Administration has come forward in the last week with two new international
proposals. The first would treat income from notional principal contracts as a new category of
subpart F income. This would have the effect of including in subpart F income the net income
from equity swaps and certain categories of notional principal contracts that are not reached by
current law, except in the case of regular dealers in these financial instruments.
The second proposal would provide that an "insurance" arrangement between a captive
ins~er and a related person will be respected as a valid insurance arrangement for tax purposes
if less than 50 percent of the captive's net written premiums are attributable to the insurance or
reinsurance of risks of related persons. We believe this proposal would set forth reasonable,
bright line rules ~n an area plagued by controversy for almost 20 years.
- 6 -
In closing, let me reaffirm the President's commitment to achieving a balanced budget in
7 years that preserves, among other priorities, Medicaid and Medicare, our commitment to
education and tax fairness. The negotiations are ongoing and intense. We need the good faith
and cooperation oiall involved .. I am sure that this effort can be successful.
Thank you very much.
-30-
-7-
DEPARTMENT OF THE TREASURY
WA~~I;~,Wpr'li'{?~r;.~).J J. (J
UNDER SECRETARY
The Honorable Robert E. Rubin
Secretary of the Treasury
r-r.LI
1500 Pennsylvania Avenue, N.W.
Washington, DC 20220
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Dear Secretary Rubin:
As you know, I have decided to return to the faculty of the New
York University School of Law in February next year to resume
teaching.
I deeply appreciate the counsel and support you
provided as this decision became more concrete over these last
several weeks.
While it will be hard to leave my responsibilities here, I can
honestly say that I am looking forward to returning to the
classroom and engaging the creativity and the energy of students
while teaching them the law.
For me, this has been an
times, a source of great
tremendous inspiration.
united states government
attack against crime and
regulatory, enforcement,
exciting and challenging experience; at
sadness, but more often a source of
Under the President's leadership, the
has launched an integrated and effective
criminals, combining the strength of the
and private sectors of our society.
Our Department played a vital part in the enactment of the Brady
Law and the assault weapons ban; in conducting the White House
Security Review, the Waco Review, and the Tax Refund Fraud study;
and in helping to prepare and implement the Summit of the
Americas anti-money laundering communique and the President's
Executive Order blocking the assets of international narcotics
traffickers.
More than ever before, those outside the Department have come to
realize the valuable contribution that Treasury makes to our
nation's law enforcement efforts. The skill and strength of our
law enforcement bureaus have been displayed time and again in
celebrated cases like the World Trade Center bombing, the
Unabomber, the threats to White House security, attacks against
family planning clinics, and the Oklahoma City bombing, but also
in thousands of less renowned but equally dangerous encounters
with violent criminals across our country.
It was an honor for me to be associated with Treasury in each of
these efforts.
At the same time, law enforcement is extremely dangerous work,
and the last three years have been no exception. since February
28, 1993, I have attended the funerals and memorial services of
16 Treasury agents and employees killed in the line of duty. I
will never forget the comfort and consideration I received from
their families, when I had intended for my presence at these
services to be a comfort to them.
Most of all, Mr. Secretary, it has been an honor for me to be
able to work for you.
In the collective memory of employees in
ATF, Customs, Secret Service, IRS, FinCEN, and FLETC, no prior
occupant of your office has so strongly supported our people and
familiarized himself with their work.
Your dedication was never
more evident than earlier this month when, at the anti-money
laundering conference in Argentina, you became the first
Secretary of the Treasury to chair an international, multijurisdictional law enforcement conference.
At a time when criticism and mistrust cif government is all too
high, especially for the Federal agents who carry badges and
guns, you have been unfailingly supportive of their work. Your
courageous decision to stand up and be counted on their behalf
made an important statement about their dignity and the
importance of their contributions to our country.
Speaking for myself, I cannot thank you enough for the advice,
support and friendship that you have provided me during your
tenure at the Department.
I have appreciated your interest in
law enforcement issues, as well as your grace and patience as you
helped us deal with the inevitable problems along the way.
You
have truly been a magnificent example and a great boss for whom
to work.
Between now and February, when I get back into the classroom, you
will have every measure of my energy and dedication as we engage
in the important law enforcement responsibilities of the
Department together.
I have notified the President of my
intention to resign effective February 5th, 1996 and, of course,
I pledge my support and cooperation in order to ensure a smooth
transition for my successor.
Sincerely,
~~A.~~
~tnald K. N6ble
Under Secretary
(Enforcement)
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
UNDER SECRETARY
December 15, 1995
William Jefferson Clinton
President of the United states
The White House
Washington, D.C. 20500
Dear Mr. President:
It has been a great honor to serve you and the American people at
the Treasury Department as Assistant Secretary and Under
Secretary for Enforcement during your first term. After much
soul searching and deliberation, I have decided to resign my
appointment as Under Secretary for Enforcement at the Department
of the Treasury, effective February 5, 1996, so that I may resume
teaching at the New York University Senool of Law.
When I return to the classroo~, I will tell my students that no
President has worked harder to fight crime or done more to
support the brave men and women who enforce our laws than you. I
will also tell them that the skill and dedication of Treasury law
enforcement officers equal that of any law enforcement agency in
the world.
During my tenure at the Department, I have witnessed
extraordinary deeds of devotion to duty and courage by Treasury
agents and employees as well.as unprecedented acts of violence by
criminals against them and innocent Americans. Over the last
three years, I have attended the funerals and memorial services
of 16 Treasury agents and employees killed in the line of duty.
The skill and strength of their colleagues in Treasury's law
enforcement bureaus have been displayed time and again in
celebrated cases like the World Trade Center bombing, the
Unabomber, the threats to White House security, attacks against
family planning clinics, and the Oklahoma City bombing, but also
in thousands of less renowned but equally dangerous encounters
with violent criminals across our country.
Our Department played a leadership role in enactment of the Brady
Law, the assault weapons ban, the Youth Handgun Safety Act, and
federal firearms licensing reform; in strengthening our borders
against smuggling; and in helping you prepare and implement the
Summit of the Americas anti-money laundering communique and your
Executive Order blocking the assets of international narcotics
traffickers. with your support, the Treasury Department has
played a significant role in addressing the most significant law
enforcement issues facing our country. Through the White House
Security Review, the Waco Review, the Tax Refund Fraud Study, and
the reorganization of Treasury law enforcement bureaus, we have
shown the American people that government can critically assess
and reinvent itself.
None of this would have been possible without the confidence that
you, Secretary Bentsen and Secretary Rubin placed in me, nor
could we have achieved so much without the service and support of
Treasury's dedicated employees. My experience has taught me
that, working together, these employees have made our country
safer and its financial institutions more secure. It has been an
honor for me to be a part of this effort.
Finally, by entrusting me with oversight responsibility for the
safety of you, your family, the Vice President and his family,
you have bestowed upon me the greatest honor of all.
I shall miss you and my colleagues.
Sincerely,
~~f~
'~nald K. Noble
Under Secretary of the Treasury
(Enforcement)
cc:
Secretary Rubin
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
December 15, 1995
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Under Secretary for Enforcement
Department of the Treasury
washington, D.C.
20220
SECRETARY Qf.hTHE n~EASURY
Dear Ron:
I accept with deep regret your decision to resign, but do so
with admiration for your public service and dedication to
teaching the law.
As Under Secretary for Enforcement you gave the Treasury
Department exactly what we needed: a persistent commitment to
law enforcement and fighting crime, and an unshakable belief in
the capacity of government for reform, so our performance would
more closely conform to the expectations of the people.
No one has worked harder to implement and improve the
Treasury Department's law enforcement responsibilities.
You have
made life more difficult for the people who use guns to commit
crimes, for those who profit from the pain inflicted by illegal
drugs or who try to cheat or defraud the government and the
private sector. The American people are the great beneficiaries
of your hard work.
At the same time, when we had to review and reform the
activities of law enforcement, you stood for the idea that
exhaustive self-examination should occur and proved it could
succeed. You led exacting, comprehensive and candid reviews of
Waco, White House security, and tax refund fraud and, in every
instance, the organizations you studied emerged stronger and
better for your efforts.
Finally, let me thank you for your personal contributions to
the Department. You've been a good friend to all of us.
When I got here, it didn't take me long to recognize that
you were in public service for all the right reasons -- because
you cared about law enforcement, and because you wanted to defend
average American families and basic American values. While your
colleagues and I will miss you deeply, we know how lucky the
students at the New York University School of Law really are.
Thank you for your friendship, advice and support.
Sincerely,
----4?
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Robert E. Rubin
UBLIC DEBTi5NEWS
Department of the Treasury • Bureau ofJMf P~5 e~tO.2vr&ington, DC 20239
FOR IMMEDIATE RELEASE
December 18, 1995
lE~)T. C:~ Ti@~q':r!'.·{Office
af Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $14,066 million of 13-week bills to be issued
December 21, 1995 and to mature March 21, 1996 were
accepted today (CUSIP: 912794X74).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.15%
5.17%
5.15%
Investment
Rate
5.31%
5.33%
5.31%
Price
98.698
98.693
98.698
Tenders at the high discount rate were allotted 11%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$52,233,640
Accepted
$14,065,853
$46,843,290
1. 441. 040
$48,284,330
$8,675,503
1,441,040
$10,116,543
3,279,310
3,279,310
670,000
$52,233,640
670,000
$14,065,853
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.16 - 98.696
RB.-774
t ~<0njJlt!0~' PG 20239
Department of the Treasury • Bureau of the Public 91l~t
FOR IMMEDIATE RELEASE
December 18, 1995
~ce~l\~H Eaf.fiee·~;6f
Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $14,054 million of 26-week bills to be issued
December 21, 1995 and to mature June 20, 1996 were
accepted today (CUSIP: 912794Z49).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.14%
5.15%
5.15%
Investment
Rate
5.37%
5.38%
5.38%
Price
97.401
97.396
97.396
Tenders at the high discount rate were allotted 95%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
RR-775
~
ACCEPTED (in thousands)
Acce~ted
Received
$43,852,022
$14,053,931
$37,444,920
1.153,202
$38,598,122
$7,646,829
1,153.202
$8,800,031
3,550,000
3,550,000
1.703,900
$43,852,022
1.703.900
$14,053,931
lREASURY
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C•• 20220. (202) 622-2960
Mexico and the United States:
Partnership in a Global Economy
Remarks by
Jeffrey Shafer
Assistant Secretary of the Treasury
North American Development Bank Annual Meeting
San Antonio, Texas
December 18, 1995
Introduction
It has become cliche of late to talk about how countries are becoming increa.singly
interdependent in the new global economy. Like many cliches, it happens to be true. The
vast expansion in international trade and investment that we have seen, the globalization ~f
fInance, and the burst of information technology means that nations' well-being depends more
and more on events that happen far across their border. All countries have a growing stake
in ensuring one another's prosperity, and bolstering one another's progress.
Interdependence is a relatively abstract idea in places like Washington, or Mexico
City. Here, near the U.S.-Mexican border, interdependence has been understood in concrete
ways for generations. For good, and sometimes for bad in this region's history, the events
that occur on one side of the Rio Grande have long had a very real impact on the lives of the
people on the other shore.
Today, there is no better example of the globalization of the economy, and the ways
in which that has challenged us to rethink borders, than from where we sit. U.S.-Mexico
trade has tripled over the past 10 years, part of Mexico's becoming the United States' thirdlargest, and fastest-growing major trading partner. Population growth in the border region
has been explosive -- some 10 million people today projected to double by 2015. Increased
economic opportunities are pulling residents in with the hopes of better lives.
Of course, all of that has put a strain on the area's infrastructure -- the cross-border
bridges and roads needed to match new opportunities, and the pollution and wastewater which
have far outstripped capacity, but whose affects threaten well-being both in the United States
and Mexico.
RR-776
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
A Challenge to Governments
One of the most foolish things that people say about the new global economy is that it
has weakened governments' abilities to impro~e peoples lives. That's wrong in ways both
large and small. On the macroeconomic side, precisely because of the ways in which
investment is now rapid and global, and trade such an important part of economic growth,
the difference between the rewards that come from the right government policies -- and the
pitfalls that flow from bad policies -- has never been greater.
But what about on the human level -- the quality of peoples' lives in places like
Brownsville and Matamoros, or EI Paso and Ciudad Juarez? What about all the many
twinned cities and towns which depend on one another for shoppers and business and sales,
or where groundwater contaminants from one region can seep across the border and pollute
an entire area?
The increasingly trans border nature of the challenges we face means that one
government alone cannot have an impact on many of the things that people depend on -whether good roads to link border regions, or water supplies that don't know international
boundaries. But with economic development and a growing recognition of interdependence
on both sides of the border, never before have governments been better equipped to work
together, and take the steps that improve citizens' lives ..
A Mexico-U.S. Partnership
For the past several years the U.S.-Mexico relationship has been premised on the
understanding that the increasing interdependence of our two countries means more, not less
opportunities for our peoples, and more, not less that our two governments can do in
partnership to improve peoples' lives.
That was the recognition behind adoption of the NAFTA. That was the recognition
behind President Clinton's courageous decision to lead an international support effort for
Mexico, to protect the hundreds of thousands of American jobs, the security of our borders,
and the broader transfonnation of emerging market countries on which we depend. And that
was the inspiration behind the innovative new institution we are here to support today, the
NADBANK.
NAFTA
Why was economic integration of the kind offered by NAFT A so important both for
the United States and Mexico? Mexico in the years before NAFTA's adoption had embarked
on a courageous economic transfonnation. Inflation that had been in the single digit per day
had come down to single digits per year. Spending that had pushed government accounts
deep into deficit had been slashed, moving the government budget to balance -- giving
Mexico the smallest budget deficit in the OECD. Many state enterprises were transferred to
the private sector. The Mexico of 1993 was a very different nation from the Mexico of
1987, or 1983.
Of course, these changes offered enonnous trading and investment opportunities for
the United States. That was one reason we entered into the NAFTA -- to make sure that
barriers would come down, and economic relations would blossom. But there is a second
reason that the kind of integration fostered by NAFT A is so important. As Mexico
experienced this year, the road from to liberalization and privatization is not a straight one
from darkness to light. There are problems along the way. Economic reform i~ difficult
even under the best of circumstances.
In 1995, Mexico experienced a shock almost as great as the one it experienced in
1982. Then, Mexico's capacity to respond to these economic difficulties was severely
encumbered by the reliance on state enterprises, protectionist barriers, and centrally planned
economic policies. That, coupled with further retreat into nationalization and protectionism,
spawned economic calamity, first in Mexico, then a few months later in Brazil. The end
result was what has been called a "lost decade" for much of Latin America.
This year has been different. This year Mexico responded to turbulence by forging
ahead with reform, not pulling back. Unlike the wage-price spiral which sent Mexican prices
soaring by 110 percent from 1982 into 1983, this year inflation has fallen down to about 2
percent monthly, thanks to Mexico's rigorous fiscal and monetary policies. Privatization of
telecommunications, transportation, and other sectors is continuing. This time, Mexico
regained access to international capital markets in just 7 months. In 1982, Mexico was shut
out of world financial markets for a full 7 years.
Why has 1995 been so different from 1982? Economic integration of the kind fostered
by NAFT A has to be a part of the answer.
Integration cements change. Integration provides confidence and stability, where
confidence and stability are needed. It ensures that our regions citizens come to see their
prosperity as intertwined, and dependent on their countries mutual economic progress.
Creating a prosperous, integrated region from the Yukon to the Yucatan is the best way to
lock-in the kinds of reforms Mexico is courageously pursuing, while ensuring benefits for all
residents of North America.
I
Some observers say that NAFTA harmed the United States. Not only is that wrong,
but it ignores the fact that NAFTA is protecting the United States from the effects of
Mexico's difficulties. At the depths of Mexico's difficulties over the first half of this year,
American exports to Mexico were still 2.5 percent higher than they were over the first half of
1993, before NAFTA was enacted, even accounting for inflation. The U.S. share of
Mexico's imports is higher than it was before NAFT A S adoption. NAFT A has protected
U.S. exporters from the 15 percent tariff hikes that Mexico has slapped on others in the wake
of the crisis. In fact, Mexico has continued to lower tariffs on our goods in accordance with
NAFTA's provisions.
I
Most important, if Mexico is now staying the course of reform, and sees hopes for
economic growth as early as next year, NAFTA must take some of the credit.
Prosperity Along the Border
Cementing economic reform, pulling down the barriers to trade, fostering economic
integration -- these are some of the big picture things that Mexico and the United States are
doing to take advantage of the global economy, ann further economic prosperity.
But what about on the grassroots level? How can our gover~ents ensure that people
on both sides of the border feel the benefits of Mexican reform and integration of our
economies, so that the constituencies for further integration remain strong?
Alot of that is happening on its own. There is no question that southern Texas has
seen business and job opportunities depressed due to the blow Mexico took earlier this year.
That situation should begin to tum around as Mexico's economy starts to strengthen, as early
as next year by most private estimates.
On the southern side of the border, however, the drive and expansion of a $26 billion
maquiladora industry that offers such long-term potential both for Mexicans and for the U.S.
border "region is continuing, unabated. You can see it in Nogales, where the population of a
once quiet tourist town has grown six-fold in just a decade, to service some 63 foreign owned
plants. You can see it Ciudad Juarez, or in Tijuana, which has become the world capital for
television manufacturing -- putting North America back into an industry that had come to be
seen as an Asian monopoly. All told, real output of the maquiladora sector rose some 15
percent over the frrst three quarters of 1995 compared to 1994. And wages in the sector
have been rising too, up 2 percent this year after adjusting for inflation.
Cross-border Challenges
That is good for Mexico, and over the medium to long term, it is good for Texas.
But with economic opportunities come problems that no international boundary can keep out.
Ciudad Juarez' population has mushroomed thanks to 310 industrial plants employing
150,000 people. But the town has no water treatment plant, meaning wastewater flows into
the Rio Grande, harming all communities that depend on the border water supply. Trucks
barrelling down Ciudad Juarez' unpaved roads kick up clouds of dust that pollute the air in
EI Paso almost as much as they do on the Mexican side of the boundary.
That story is being repeated up and down our nations' shared 2,000 mile border. At a
time when voices in our country call for the United States to pull back from international
engagement and leadership, these kinds of problems threaten the integration that is in both
Americans' and Mexicans' long-term interests. To bolster support for open trade and
economic integration, we must give our citizens more than lectures about economic theory.
We must show that economic integration can make a real improvement in people's lives.
A Pioneering Institution
That's why the NADBank, along with its sister institution, the Border Environment
Cooperation Commission, were created. They will coordinate on a local level two countries"
responses to problems that we share -- particularly in areas of wastewater treatment, drinking
water, and municipal waste. Tackling these problems on both sides of the border will cost as
much as an estimated $8 billion over the next decade. While the Bank will not be able to
provide all of that money, its financing will help catalyze the federal, state, local, private and
other multilateral development bank moneys needed to remove these problems from peoples
lives.
NADBank is a pathbreaking venture. It is a model for the kind of cooperation that
should characterize the Mexico-United States relationship across a broad range of issues that
we share. It is an example of the kinds of things that governments can do, even in an age of
global economic forces and transborder problems, to make a difference in peoples lives. By
making that difference, NADBank will cement support for integration, so that both Mexico
and the United States can follow the economic paths needed for us to prosper.
Conclusion
Let me end with a point that I touched on a moment ago. As in many nations around
the world, voices have arisen in the United States that urge us to retreat from cooperation
with other states, to seal our borders to trade and investment, and to pull back from
international organizations. This century has already given us one example of what happens
when the United States shirks from the task of international leadership. We did so after
World War I, pulling back from the world's institutions, and hiding behind barriers to
commerce. What followed were 25 of the darkest years in history.
After World War II, the United States stepped forward. We took the lead in
promoting global integration, and collective prosperity. That effort was a critical part of our
Cold War victory.
Now, both Mexicans and Americans are tested as we consider what approach to take
with a new century fast approaching. The right choice is clear.
DEPARTMENT
OF
THE
TREASURY
'''N' uWS
lREASURY
":', .fE
OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIA
.C. - 20220 - (202) 622-2960
December 19, 1995
Monthly Release of U.S. Reserve Assets
The Treasury Department today released U.S. reserve assets data for the month of
November 1995.
As indicated in this table, U.S. reserve assets amounted to $85,755 million at the end
of November 1995, down from $86,224 mill\on in October 1995.
End
of
Month
Total
Reserve
Assets
Special
Drawing
Rights 2/3/
Gold
Stock 1/
Foreign
Currencies
4/
Reserve
Position
in IMF 2/
1995
October
86,224
11,051
10,949
49,524
14,700
November
85,755
11,050
11,034
49,099
14,572
1/
1/
J/
1./
Valued at $42.2222 per fine troy ounce.
Beginning July 1974, the IMF adopted a technique for valuing the SDR based on a
weighted average of exchange rates for the currencies of selected member countries. The
U.S. SDR holdings and reserve position in the IMF also are valued on this basis
beginning July 1974.
Includes allocations of SDRs by the IMF plus transactions in SDRs.
Includes holdings of Treasury and Federal Reserve System; beginning November 1978,
these are valued at current market exchange rates or, where appropriate, at such other
rates as may be agreed upon by the parties to the transactions.
RR-777
_For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
*
DEPARTMENT
OF
THE
TREASURY
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.u(-.}WA.SmN'G.TOrf,.n~c:.f120220 - (202) 622-2960
FOR IMMEDIATE RELEASE
December 19, 1995
Contact: Michelle Smith
(202) 622-2960
STATEMENT BY THE TREASURY DEPARTMENT
The Japanese Ministry of Finance informed the Treasury Department today that the
Japanese Cabinet had approved a plan to resolve the problem loans of the housing loan
comparues.
We welcome this important step by the Japanese authorities, which demonstrates their
commitment to deal with the difficulties in the Japanese banking system with concrete action.
We look forward to additional measures that will further strengthen the Japanese
banking system.
-30-
RR-778
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
'.
FOR RELEASE AT 2:30 P.M.
December 19, 1995
f_
•
"CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $26,000 million, to be issued December 28,
1995. This offering will result in a paydown for the Treasury of
about $9,975 million, as the maturing bills total $35,984 million
(including the 27-day cash management bill "issued December 1,
1995, in the amount of $10,007 million).
Federal Reserve Banks hold $6,658 million of bills for their
own accounts in the maturing issues. These may be refunded at the
weighted average discount rate of accepted competitive tenders.
Federal Reserve Banks hold $5,645 million of the "maturing
issues as agents for foreign and international monetary
authorities.
These may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders.
Due to the public debt limit and Treasury's need to
plan for the debt level, additional amounts of Treasury bills
will not be issued to Federal Reserve Banks as agents for foreign
and international monetary authorities in- these auctions.
"Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-779
lor press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED DECEMBER 28, 1995
December 19, 1995
_~fering
Amount .
Description of Offering:
Term and type of security
CUSIP number
Auctj.on date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
$13,000 million
$13,000 million
91-day bill
912794 X8 2
December 26, 1995
December 28, 1995
March 28, 1996
September 28, 1995
$11,691 million
$10,000
$ 1,000
182-day bill
912794 Z5 6
December 26, 1995
December 28, 1995
June 27, 1996
June 29, 1995
$19,322 million
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment TermS .
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
MiTlt
MINT RECEIVES WORLD CLASS RATING IN CUSTOMER SATISFACTION
- Survey Findings Place Mint With The Best In American Business Washington. D.C. w_ The U.S. Mint has joined the top ranks of American businesses and
stands unmatched among govenunent agencies in the degree of satisfaction it provides
customers.
Those are conclusions ofa survey of Mint commemorative and numismatic coin
customers conducted by the National Quality Research Center (NQRC) at the University of
Michigan School of Business in October and November.
NQRC investigated Mint customers' perceptions of quality, value and service plus how
well products and services met expectations, then compared Mint-specific findings against
ratings published in the December 11 issue of Fortune Magazine by the American Society for
Quality Control and NQRC.
The Mint scored 85 on a 1OO-point American Customer Satisfaction Index, a rating the
NQRC described as "outstandingly high" and equal to giants in customer satisfaction like
PepsiCo, May tag, Federal Express, Proctor & Gamble and Mercedes-Benz. No other rated
governmental agency scored above 78.
Results show that the Mint's customers have '"extraordinarily high" expectations of
quality and service and that their expectations are being met: the Mint scored 90 of 100 possible
points in assessments of customer loyalty and received its highest marks -- 93 of 100 possible
points -- in quality of commemorative and munismatic products.
Mint Director Philip N. Diehl called the find~ngs "a very gratifying confirmation that our
emphasis on premier service is paying off and that our customers have acknowledged it."
He continued:
"President Clinton and Vice President Gore challenged government to become the most
efficient, service-intensive and customer-centered organization in the American economy. The
Mint took that challenge to he~. These customer satisfaction results, especially following the
second Hanuner A~ard we received for our customer service initiatives, prove that in a very
brief time the Mint has become a model for government reinvention."
RR-780
DEPARTMENT
OF
TREASURY ~.
THE
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TREASURY
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omCE OF PUBLIC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.· WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
December 19, 1995
STATEMENT BY 1REASURY SECRETARY ROBERT E. RUBIN AND
COUNCIL OF ECONOMIC ADVISORS CHAIRMAN JOSEPH E. STIGLITZ
The Administration respects the independence of the Federal Reserve to make
decisions about the nation's monetary policy. The Administration and the Fed share the goal
of strong economic growth with low inflation. The Administration's economic policies,
including its forceful actions reducing the deficit in 1993, have provided the backdrop for the
remarkable recovery of the economy over the past three years, with the creation of 7.7 million
new jobs and the lowest rates of inflation in a generation. We believe that the clUTent
expansion still has considerable room to run.
-30-
RR-781
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
~~J78~9~. . . . . . . . . . . . . . . . . . . . . ..
......................
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• W~~GrOJlp:l.<=. ~ ~~20. \202) 622-2960
TREASURY ANNOUNCES ADDITIONAL TRANSITIONAL RELIEF
On December 7. 1995 the Administration announced proposals regarding Corporate
Subsidies. Loophole Closers and Other Measures. On December 1 I. Treasurv clarified certain
effective dates and stated that it would work with Congress to "determine th; extent to which
additional transitional relief is appropriate." Interested parties were invited to provide input.
Treasury stated today that. based on the input it has recei\ed to date. it will
recommend to Congress the follmving additional transitional relief
Proposals Relating to the Denial or Deferral of Interest Deductions
The proposals to deny or defer interest deductions on certain instruments include the
following additional transitional relief:
Instruments will not he subject to these proposals if issued pursuant to a registration
statement tiled with the Securities and Exchange Commission on or before December 7: in the
case of a "shelf' registration statement tiled pursuant to Rule ..J.15. however. this rule will
apply only if the issuer had tiled a prospectus supplement (including a preliminary prospectus
supplement) to the registration statement on or before December 7. Instruments will be
eligible for transitional relief under this exception. however. only to the extent of the
aggregate amount of such instruments described in the registration statement (or prospectus
supplement) as of December 7 (or. to the extent a preliminary prospectus supplement as of
that date does not state a maximum amount to be issued. the amount expected to be offered
may be established by other contemporaneous. written evidence).
In addition. instruments will not be subject to these proposals if issued pursuant to a
private placement that contemplates resales of the instruments pursuant to Rule I..J...J.A. but
only if. on or before December 7. (i) the issuer had made a public announcement of its
intention to issue the instruments. and (ii) an offering circular or memorandum (including a
preliminary offering circular or memorandum) with respect to the instruments had been
distributed to prospective investors. As with publicly registered securities. the instruments
will be eligible for transitional relief under this exception only to the extent of the aggrcga.te
amount of such instruments described in the offering circular or memorandum as of
December 7.
(more)
RR-782
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Proposal Relating to the Treatment of Certain Preferred Stock as "Boot"
rhl' pwpnsal t(l trl'~lt l'crt:lin prckrrcd stnck as hoot includes additional transitional
rclief ti)t, I'rckrrcd st(lci- that is issucd pursuant t(l an agrcemcnt (for cxampk, a stock
purCh:1Se agrccmcnt l)r a I11l'rgcr ~lgrccmcnt) that. ~lS (lr lkccmbcr 7, supplied all material
terms but that \\as subjcct t(l customary conditions. Lln cxample. neccssary approvals.
satisfaction or customary covcnants. etc.
Trcasury also stated that it plans to continue to work with Congress in developing
these and other transitional rules. Interested parties are again encouraged to provide input
-30-
I.. /f J !' . ~')'/ ,
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,
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DEPARTMENT OF, THE TREASURY
I·'
I
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Office of the Under Secretary fo.t;'/Do~esti9 _Finance
"J U v U
L/ 8
17 CFR Parts 400 and 420
i
RIN: lS0S-AAS3
-'
Government Securities Act Regulations:
.
{
Large Position Rules
AGENCY: Office of the Under Secretary for Domestic Finance,
Treasury.
ACTION: Proposed Rule.
SUMMARY: The Department of the Treasury ("Department" or
"Treasury") is publishing for comment proposed rules that
would establish a new Part 420 providing recordkeeping and
reporting requirements pertaining to large positions in
certain Treasury securities.
The proposed regulations are
being issued pursuant to the Government Securities Act
Amendments of 1993, which authorized the Secretary of the
Treasury to prescribe rules requiring persons holding,
maintaining or controlling large positions in to-be-issued
or recently-issued Treasury securities to keep records and
fi~e
reports of such large positions.
The proposed recordkeeping rules require any person or
entity that controls a position equal to or greater than $2
billion in a Treasury security to maintain and preserve
certain records that enable the ,entity to record, compile,
aggregate and report large position information.
The
proposed reporting rules require entities to file a large
position report with the Federal Reserve Bank of New York if
their reportable position equals or exceeds the large
2
position threshold in a particular
Treas~ry
security as
specified by the Treasury in a notice requesting large
position
informatio~.
The Department's proposed large
position rules are intended to provide the Treasury and
other securities regulators with information on
concentrations of control that would enable them to better
understand the possible reasons for apparent significant
price distortions and the causes of market shortages in
certain Treasury securities.
DATES: Comments must be received on or before [insert date
60 days after Federal Register publication].
ADDRESSES: Comments should be sent to:
Government
SeGurities Regulations Staff, Bureau of the Public Debt,
Department of the Treasury, 999 E Street, N.W., Room 515,
Washington, D.C. 20239-0001.
Comments received will be
available for public inspection and copying at the Treasury
Department Library, Room 5030, Main Treasury Building, 1500
Pennsylvania Avenue, N.W., Washington, D.C. 20220.
FOR FURTHER INFORMATION CONTACT: Ken Papaj, Director, or Don
Hammond, Assistant Director, Government Securities
Regulations Staff, at 202-219-3632.
impaired is 202-219-3988.)
SUPPLEMENTARY INFORMATION:
I.
Background
statutory Authority
(TDD for the hearing
3
In response to certain events that occurred in the
government securities market in 1990-1991 -- short squeezes
i,n the two-year Treasury notes issued in April and May 1991
and bidding improprieties in several auctions of Treasury
securities in 1990-1991 1
--
Congress included in the
Government securities Act Amendments of 1993 (GSAA)2 a
provision granting the Department the authority to write
rules for large position reporting in certain Treasury
securities.
Specifically, Section 104 of the GSAA, which
amended section 15C of the Securities Exchange Act of 1934,3
authorizes the Treasury to adopt rules requiring specified
persons holding, maintaining or controlling large positions
in to-be-issued or recently-issued Treasury securities to
maintain records and file reports regarding such positions.
4
This provision is intended to improve the information
available to the Treasury and other regulators regarding
very large positions of recently-issued Treasury securities
held by market participants and to ensure that regulators
For a discussion of the events that gave rise to the
of large position reporting authority, see the
J01nt Report on the.G~vernment Securities Market, Department of
the Treasury, Secur1t1es and Exchange Commission and Board of
Governors of the Federal Reserve System, (1992); Salomon Brothers
Inc. Press Releases dated August 9 and 14, 1991; S. Rep. No. 103109 (July 27, 1993); H.R. Rep. No. 103-255 (September 23, 1993);
and 60 FR 4576 (January 24, 1995).
1
es~ablishment
2 Pub." L. No. 103-202, 107 Stat. 2344 ,(1993).
3
15 U.S.C. 780-5.
4 Pub. L. No. 103-202, Sec. 104; 107 Stat. 2344, 2346-2348;
15 U.S.C. 780-5(f).
4
hav~
the tools necessary to monitor the Treasury securities
market.
The GSAA gave the Department wide latitude and
discretion in determining several key features and
conditions that would form the underpinnings of the large
position recordkeeping and reporting rules.
significant of these features were:
Among the most
defining which persons
(individually or as a group) hold, maintain or control large
positions; determining the minimum size of positions to be
reported; determining what constitutes "control" for the
purposes of the rules; prescribing the manner in which
positions and accounts are to be aggregated; identifying the
types of positions to be reported; determining the
securities that would be subject to the rules; and
developing the form, manner and timing of reporting.
The
proposed rules address these points.
Participation in Rulemaking Process/Solicitation of
Comments
In formulating the process to be used to develop large
position rules, the Department, early on, made a decision to
obtain the views of the market participants who would be
directly affected by such regulations.
We also decided that
it would be useful to explain the Department's initial
thoughts on the structure and purposes of the rules, to
explore various conceptual approaches to designing a large
5
position recordkeeping and reporting system and to obtain
industry comment and feedback before actually drafting
proposed rules.
We believed that market participant
involvement in the rulemaking initiative from its outset
would facilitate greater understanding of, and support for,
the final rules when implemented.
Accordingly, in order to involve market participants
and other interested parties at the earliest phase of the
rul~making
process, the Department issued an Advance Notice
of Proposed Rulemaking (ANPR) on January 24, 1995. 5
The
ANPR addressed several key issues, concepts and approaches
to be considered in developing large position recordkeeping
and reporting rules, and solicited comments, suggestions and
recommendations regarding how the requirements should be
structured.
Rather than repeating that information here,
readers are encouraged to review the ANPR to familiarize
themselves with these issues.
The ANPR also contains a
detailed historical background that provides a fuller
understanding of the events and circumstances that resulted
in the establishment of this regulatory authority, the
purposes and objectives to be achieved from large position
rules, and the Congressional intent behind this legislation.
The 90-day comment period on the ANPR was extended, in
response to an industry request, for an additional 30 days
5
60 FR 4576 (January 24, 1995).
6
through May 24, 1995. 6
In response to the ANPR, the
Department received seven comment letters which are
summarized in the next section of the preamble.
In addition to considering the views expressed by the
commenters to the ANPR, Department staff has also consulted
with various regulatory agencies (i.e., staff of the
Securities and Exchange Commission (SEC), the Commodities
Futures Trading Commission, the Board of Governors of the
Federal Reserve System and the Federal Reserve Bank of New
York (FRBNY))
in developing this proposal.
We intend to
continue to involve interested market participants and the
regulatory agencies in the development of the large position
regulations thrbugh the completion of the rulemaking
process.
Accordingly, the Department welcomes and strongly
encourages market participants to submit comments on the
proposed rules and any suggestions for reducing burdens on
the industry while still achieving the objectives of the
rules.
Balancing of Regulatory and Market Needs
The Department has attempted to strike a balance
between achieving the purposes and objectives of the statute
and minimizing costs and burdens to those entities affected
by the regulations.
For the following reasons, we believe
that the rules being proposed successfully achieve this
6
60 FR 20065 (April 24, 1995).
7
balance.
First, the proposed rules envision reports to be
submitted only in response to a specific request by the
Treasury for large position information on a particular
Treasury security issue.
Under this approach, reporting
should be an infrequent event required primarily in response
to pricing anomalies in a specific Treasury security rather
than a regular, on-going process resulting from a certain
pre-determined large position threshold being exceeded in a
broader range of securities.
Second, the proposed rules
establish a minimum large position threshold of $2 billion
below which the Treasury would not request large position
reports.
As a result, we believe that very few entities
would be required to file large position reports.
Third,
the recordkeeping requirements would generally not apply to
any reporting entity (as defined in the rules) that did not
control a position that equalled or exceeded $2 billion in a
Treasury security.
Fourth, for those entities currently
subject to recordkeeping rules of the SEC, the Treasury or
the bank regulatory agencies, the proposed rules impose only
minor additional recordkeeping requirements and only if
certain conditions are present.
Finally, the proposed rules
adopt several concepts from the Treasury's auction rules
(e.g., positions to be included in a reportable large
position, definition of a reporting entity and method of
aggregating positions) which have been in effect since March
1993 and are understood by many of the major participants in
8
the Treasury securities market. 7
This should reduce the
time and costs that affected entities will need for training
their employees on the large position rules.
Scope of Large Position Rules
It is important for all market participant~ to
recognize that large position rules create a requirement to
maintain records and report information about such
positions.
However, these requirements only apply to
entities that hold or control (i.e., exercise investment
discretion) large positions, as determined by the
Department, in specific Treasury security issues.
Accordingly, there is no obligation on executing brokers and
dealers to report large trades nor is there an affirmative
duty to inform their customers of the large position
recordkeeping and reporting requirements being proposed as
part of this rulemaking.
The Department reiterates that large positions are not
inherently harmful and there is no presumption of
manipulative or illegal
int~nt
controlling entity merely
on the part of the
beca~se
a position is large enough
to be subject to the Treasury rules.
In addition, the
proposed rules do not establish trading or position limits
or require the identification of large traders or the
7 Uniform Offering Circular for the Sale and Issue of
Treasury Bills, Notes and Bonds, 31 CFR Chapter II, Subchapter B,
Part 356.
9
reporting of large trades.
Finally, the GSAA specifically
provides that the Department shall not be compelled to
disclose publicly any information required to be kept or
reported for large position reporting.
In particular, such
information is exempt from disclosure under the Freedom of
Information Act. 8
II.
Comments Received in Response to ANPR
Seven comment letters were received in response to the
ANPR.
The letters were submitted by two trade
organizations, one primary dealer, a Federal Reserve Bank, a
bank regulatory agency, a commercial bank and an insurance
company. 9
While all comments are summarized below, each
letter did not necessarily address all aspects of the ANPR.
Six commenters were largely supportive of a large
position reporting system provided that such a reporting
system would not be overly burdensome for market
participants.
However, one commenter opposed the concept of
large position reporting entirely.
This party believed that
"the current auction reporting rules have already addressed
adequately the prior problems with market manipulation," and
that an unintended consequence of large position rules could
8
5 U.S.C.
552(b) (3) (B).
9 Public securities Association, Investment Company
Institute, Chemical Securities Inc., the Federal Reserve Bank of
New York, the Board of Governors of the Federal Reserve System,
Chemical Bank, and CNA Insurance Companies, respectively.
10
be fewer participants in the government securities market,
which, in turn, would result in higher borrowing costs.
On-demand vs. Automatic Reporting
Five cornrnenters supported an on-demand reporting system
which
woul~
be triggered by specific requests from the
Treasury for large position information on a particular
Treasury security.
One respondent, however, favored an
automatic, regular reporting system triggered whenever a
reporting entity's holdings in a security reached a certain
threshold.
The primary reason expressed by those cornrnenters
favoring an on-demand reporting system was that this
approach would be significantly less burdensome and costly
than an automatic reporting system.
Many commenters noted
that an automatic reporting method would impose more complex
systems development requirements and greater operational
costs due to the
n~ed
for daily monitoring of positions
across multiple securities.
In addition, automatic
reporting could create a disincentive to buy and hold large
positions that exceed a fixed reporting threshold.
Finally,
on-demand reporting was viewed by several respondents as
being better able to address price distortions and provide
more useful information since the request for large position
information would be targetea to specific market situations
and security issues.
11
The respondent favoring an automatic reporting sy?tem
argued that on-demand reporting "would be difficult and
costly to communicate to all relevant parties."
The
commenter also felt that on-demand requests might trigger
unwanted market reactions, While a regular reporting system
"w6uld provide more consistent monitoring of the market and
would be less confusing to the market over time."
Definition of Reporting Entity
Six commenters were in agreement that the definition of
"reporting entity" should conform with the definition of
"bidder" as defined in the uniform offering circular .10
The
aggregation rule with regard to affiliates, for example, is
a concept with which many market participants are already
familiar and provides an appropriate model for a large
position reporting rule.
Similarly, the cornrnenters
supported a process, similar to the "separate bidder"
~rocess
provided for in the uniform offering circular, by
which separately managed entities within a corporate or
partnership structure can request that Treasury recognize
them as separate reporting entities.
Definition of "Control"
There was similar concurrence on the definition of
"control."
Nearly all parties that addressed this issue
w 31 CFR 356.2 and Appendix A.
12
expressed the view that control sho~ld be evidenced by
either proprietary ownership or investment discretion over a
Treasury security.
The commenters were in similar agreement
that the concept of "control" should not be extended to
merely beneficial ownership or custodians.
Specifically,
the cornmenters held that entities acting as custodians
should not be required to report positions in Treasury
securities over which they have no investment discretion.
Definition of "Large" Position
The commenters generally felt that the large position
threshold should be large enough to both detect
concentrations of control and
av~id
overly burdensome,
frequent reporting by market participants.
Opinions were
fairly evenly divided on whether a securities position
should be defined as "large" based on a percentage of the
total outstanding issue size or a specific dollar amount.
Those preferring a percentage standard commented that
this method is a better indicator of concentration of
control than a straight dollar standard, given the large
range of issue sizes among various maturities.
Suggested
percentages ranged from 10 percent to 25 percent of a
particular issue.
One commenter felt that, if an automatic
reporting system is implemented, the percentage should be
consistent with the Treasury's auction rules, . i.e., "large"
should be defined as 35 percent of the securities awarded in
13
an auction.
Those favoring a fixed-dollar threshold did so on the
basis of clarity, ease of administration, and, consequently,
improved compliance.
Suggested dollar thresholds ranged
from $2 billion, to correspond to the net long position
reporting threshold for auctions,11 to $4-5 billion.
Some
commenters also expressed the view that the threshold should
be larger under an automatic reporting system than under an
on-demand system to minimize the compliance burden
associated with automatic reporting.
One commenter said
that there is no need to define "large position" in advance
under an on-demand reporting system (the large position
threshold would be specified in the Treasury notice
requesting large position reports), and there may be no
"one-size-fits-all" threshold.
Definition of "Recently-Issued"
The scope of Treasury's large position reporting
authority is limited to recently-issued and to-be-issued
Treasury securities.
Discretion to define the term
"recently-issued" was given to the Treasury.
Although the
commenters differed somewhat on the specifics of the
preferred meaning of "recently-issued," all agreed that it
1131 CFR 356.13(a).
14
should include the lIo n -the-run Il12 (most-recently issued)
security of a particular type.
Opinions were fairly evenly
divided on whether IIrecently-issued " also should include
only the most recent lIoff-the-run" issue or the two most
recent "off-the-run" issues.
One commenter said that there
is no need to define "recently-issued" under an on-demand
reporting system.
Types of securities Covered
Based largely upon the presumption that
Trea~ury
note
and bond issues are more likely to be lion special" 13 (in
short supply) than bills, two commenters said that bills
should be excluded from large position reporting.
One such
commenter also cited the complexity, burdens and costs
"associated with implementing systems to track positions on
weekly-issued securities .... "
One commenter, however, said
that all types of Treasury securities (bills, notes and
bonds) should be eligible for reporting, "since any type of
12
A" Treasury security is considered to be "on-the-run" when
it is the newest security issue of its maturity (e.g., in October
the two-year note issued September 30 would be lIon-the-run" while
the two-year note issued August 31 would be "off-the-run ll ) . An
on-the-run security is normally the most liquid issue for that
maturity.
When securities are lion special, II market participants
desiring to borrow the particular security must accept an
interest rate significantly lower than the prevailing repo rate
for unspecified collateral. conversely, the owners of the
securities can finance their position at exceptionally low
interest rates.
13
15
Treasury security could be the subject of a concentration of
control."
Another commenter took a more neutral position,
saying that excluding bills may be appropriate, "but a good
case will need to be made that short interest is always
small relative to the net supply, or that supply conditions
and price movements preclude sustained and possibly
injurious squeezes."
Components of a Position
The four commenters addressing this issue agreed as a
starting point that net long settled cash positions should
be included in a IIlarge position."
Two commenters said that the definition of "large
position ll should be consistent with the definition of "net
long position"
in the uniform offering circular. w
Both
felt that financing transactions (repos, securities
borrcwed, etc.) should be excluded from the large position
calculation since it is too difficult to apply the concept
of control to securities used in such transactions.
Calculating a net financing position is particularly
difficult, according to one of the commenters.
Examples
provided included the problems of differentiating deliverout from hold-in-custody and tri-party repurchase
agreements, and of separating overnight repos from term
repos, particularly those with mandatory sUbstitution
W
31 CFR 356.13(b).
16
provisions.
Both of these commenters, however, could
support a requirement to report financing transactions on a
gross basis if Treasury believes financings need to be
included.
The other two commenters felt that financing
transactions should be included in the definition of a
reportable position to encompass a wider range of
transactions from which an entity can exert immediate
control over a Treasury security.
Both advocated reporting
such transactions on a gross basis.
One commenter noted
that a position that might look flat on a net basis may in
fact be exposed if fails become a problem.
Moreover, the
commenter contended, matched-book and tri-party repo
activity might result in a small net position, and yet be
used as a tool to achieve a short squeeze.
Recordkeeping Requirements
The issue of what records should be kept by reporting
entities was largely unaddressed except that the commenters
felt that these records, and their associated retention
periods, should closely correspond to records already
required to be maintained by reporting entities under
existing securities and banking laws.
Most respondents
stated that reporting entities should not be required to
keep records in electronic form, since such a requirement
could be burdensome for entities that do not have systems
17
for electronic recordkeeping.
III. section-by-section Analysis of Proposed Regulations
A.
Section 400.1.
Scope of Regulations
A new paragraph is proposed to be added to Part 400 to
describe the statutory basis for the large position rules.
The paragraph also states that the large position rules are
located in Part 420.
B.
Part 420.
1.
Large Position Reporting
Section 420.1 - Applicability.
This section
sets out the scope of the large position recordkeeping and
reporting rules by identifying the types of Treasury
securities covered and by defining the universe of entities
potentially affected.
section 420.1 reflects the
Department's initial determination that all marketable
Treasury securities -- bills, notes and bonds -- should be
included within the scope of the rules.
However, arguments·
have been made that features and characteristics of the bill
·market, such as the frequency of issues (i.e., weekly) and
reopenings, the size of bill auctions and the availability
of several instruments that are close SUbstitutes for bills
(e.g., various money market instruments), make it more
difficult to accumulate concentrations of ownership of
Treasury bills.
comments are specifically requested on
whether Treasury bills should be included in the large
position recordkeeping and reporting rules.
18
On its face, part 420 applies to any type of entity,
foreign or domestic, that might control a large position in
a specific Treasury security.
This broad construct of
potential application fs consistent with the statutory
purpose:
"Large position reporting also would be useful in
assuring that regulators can monitor the positions of major
market participants other than government securities brokers
or dealers under certain circumstances.
In particular, it
will provide assurance that the government can compel
disclosure of position information when necessary from all
large market participants, including a group of relatively
unregulated entities called 'hedge funds.'
,,15
As described
in the preamble discussion of sections 420.3 and 420.4, the
number of entities that may actually be affected by large
position rules is significantly narrowed when the minimum
size for a large position is applied.
We believe it is appropriate to exclude certain
entities from the application of the rules based on the
existing availability of position information on these
organizations and/or concerns about the confidentiality of
this information.
Accordingly, paragraphs (b) and (c) of
section 420.1 provide exemptions from part 420 to the
holdings of foreign central banks, foreign governments,
international monetary authorities and Federal Reserve Banks
(FRBs).
The exemptions f6r the foreign entities are limited
U.H.RJ Rep. 103-255, september 23, 1993, at pg. 25.
19
to their respective positions maintained at the FRBNY.
The
exemptions are also consistent with the position expressed
by the Senate and House during consideration of the
le9islation.~
One commenter, responding to the ANPR, expressed
concern about granting exemptions specifically to these
foreign entities.
However, the Department believes the
proposed approach is appropriate since the exemptions are
limited in their scope by applying only to the portion of
the organization's position that is maintained at
th~
FRBNY.
Any positions held by ,the exempt entities at locations other
than the FRBNY are not exempted and will be subject to the
large position recordkeeping and reporting rules.
proposed
exempt~on
The
for those Treasury securities that FRBs
hold and control for their own accounts is also based on the
Department's access to this information.
The Department recognizes that on rare occasions it may
be necessary to request large position information on
Treasury securities that are not within the parameters of
the proposed definition of recently-issued (paragraph
420.2(g»
but that are within the scope of the intent of the
139 congo Rec. H-10967 (daily ed. November 22, 1993)
Statement of Chairman Dingell on S. 422.
16
20
statute.
For example, in August 1991, Treasury might have
sought large position information on the April 1991 two-year
note, given that the security was still "on special" in the
repurchase agreement market and there was a significant
concentration of ownership.
While this security, at that
time, would have been outside the scope of the currently
proposed definition, the Department believes it is necessary
to reserve the right to collect large position information
in such circumstances.
Accordingly, we have included within
the rule a reservation to request information on additional
Treasury security issues consistent with the purposes of the
GSAA.
2.
pro~ides
Section 420.2 - Definitions.
This section
for the definitions of terms that are integral to
the large position rules.
Unless otherwise defined in this
section, terms used in part 420 have the same meanings
provided in section 400.3.
"Control" - The concept of control revolves around
three elements:
beneficial ownership, possession (custody)
and investment discretion.
The beneficial owner is the
party with the actual ownership interest in the Treasury
security.
The beneficial owner mayor may not always be
aware of its ownership position in a given security if it
does not manage its own investments and it may not have
possession of the Treasury securities even if it makes its
own investment decisions (especially likely with book-entry
21
Treasury securities).
Possession or custody is evidenced by
an organization's ability to service the securities directly
(e.g., transfer the securities, receive interest and
principal payments).
The beneficial owner may perform this
function for its own holdings, but the mechanics of bookentry Treasury securities require that a depositary
institution act in this capacity on behalf of others at some
level in the custody chain for all Treasury securities.
Additionally, book-entry Treasury securities may involve
more than one
c~stodian
security entitlement. n
in the holding of a specific
Investment discretion is the
authority to make and execute decisions about the purchase,
sale and retention of securities.
In the institutional
market for Treasury securities, which is of critical
importance in developing large position reporting rules, the
granting of investment discretion to an investment adviser
to manage all or some portion of an entity's portfolio is
common.
It is our view that, for the purposes of large position
reporting, the most important criterion in the definition of
17 The Federal Reserve Banks maintain book-entry security
accounts for depository institutions and other entities such as
government and international agencies and certain foreign central
banks. In their book-entry accounts at the Federal Reserve, the
depository institutions may maintain their own security holdings
and holdings for customers, which may include other depository
institutions, dealers, brokers, instit~tio~al ~nvestors and
individuals. In turn, the depository ~nst~tut~on's customers may
maintain accounts for their customers. This creates a tiered
chain of custodial relationships.
22
control is that of investment discretion.
While beneficial
owners receive the economic benefit of holding a Treasury
security, frequently, they do not make the decision to
purchase/sell/retain the Treasury security and, as
mentioned, may not, on a day to day basis, be aware of their
ownership interest.
Since a purpose of large position
reporting is to understand better any pricing anomalies for
a particular Treasury security issue in a timely fashion,
defining control based on beneficial ownership would not be
particularly useful because a reporting entity could have
difficulty assembling the information needed to file a large
position report and would be potentially unaware of the
reasOns why the security involved was purchased.
Likewise, custody (without investment discretion) does
not provide a good basis for determining control.
A
definition based on custody would most certainly involve
multiple reporting of the same security posiLion since each
tier in the custody chain would be required to report.
This
approach would diminish the value of any large position
reports received.
Also, because under these circumstances
the custodian would not be a party to the investment
decision, reporting on the positions held in safekeeping
would shed very little light on the objectives of the
investor.
Therefore, Treasury has decided to define control as
the authority to exercise investment discretion.
This
23
definition is supported in six of the seven comment letters.
Investment discretion can be exercised by the beneficial
owner, a custodian or an investment adviser.
The party
responsible for making investment decisions, regardless of
where it is in the tiered system, is the most relevant
reporting entity for large position reporting since the
actions and objectives of the decision maker are what we are
trying to determine.
A single party exercising investment
discretion for multiple beneficial owners could control a
potentially large amount of Treasury securities without any
single beneficial owner having a reportable position.
Additionally, such investment advisers could possibly
distribute custody of the securities in a manner that would
keep any individual custodian below the reporting threshold.
However, using the exercise of investment discretion as a
measure of control, an investment adviser's aggregate
posi~ions
would be reportable regardless of the number of
beneficial owners or custodians involved and would be
treated separately from any positions over which the
beneficial owners had retained investment discretion.
Finally, a definition of control based on investment
discretion is consistent with the treatment of investment
advisers under the uniform offering circular. 18
Following this definition, an investor would only be
18 Treasury intends to clarify this treatment in a proposed
rule in the near future.
24
responsible for reporting its proprietary holdings if it
retained investment discretion over the positions.
This
approach wouid avoid double reporting of these positions.
Additionally, a custodian would only have responsibility for
reporting on any large positions for which it had investment
discretion.
A cUstodian would not have any obligation to
report on positions for which it maintained securities
solely in a safekeeping capacity.
"Reporting Entity"
This term is defined to be
consistent with the definition of a bidder in the uniform
offering circular. 19
This concept provides for the
treatment of all affiliated entities as a single entity for
purposes of determining the quantity of Treasury securities
controlled.
Additionally, the definition permits specific
affiliates to be
trea~ed
separately or "carved-out" from the
reporting entity based on stated principles of separateness.
Applying this approach, a "reporting entity" will
aggregate each of the positions in a specific Treasury
security that is held by itself and all affiliates that
control positions, and will report a single position to the
FRBNY.
Any affiliate that exercises independent investment
discretion, and whose position information is not available
to other affiliates, will be permitted to report
s~parately
from the overall entity provided it has requested such a
"carve-out" and received written recognition from the
19
See supra note 10.
25
Treasury.
Merely establishing "Chinese walls" or similar
procedures is not sufficient.
If an entity has already
received such written recognition under the uniform offering
circular, it will not have to reapply for the purposes of
large position reporting.
Defining the term "reporting entity" based on the
bidder concept from the auction rules has the advantage of
relying on an existing body of regulations, thus minimizing
confusion and the need for market participants to learn new
rules.
The bidder definition is well known to most large
participants in the Treasury market (from their auction
participation) and has functioned effectively since March
1993 when the rules were implemented.
This approach was
also endorsed in four comment letters.
This definition also introduces a new term,
"aggregating entity," which is defined separately.
An
aggregating entity is a single legal entity (e.g., a parent
company or affiliate within a reporting entity) that may
control elements of a large position.
If an aggregating
entity has no affiliates, then it is also a reporting
entity.
Each component of a reporting entity is
individually an aggregating entity.
"Reportable Position"W - The scope of the definition
20 A reportable position for the purposes of the large
.
position rules differs from a reportable position for purposes of
the uniform offering circular. In the uniform offering circular,
a reportable net long position is a position that has met the
necessary criteria to be reported on a tender. In the context of
26
of reportable position directly affects the complexity of
calculating such a position and the amount of time needed to
file a large position report.
The definition of a
reportable position should be broad enough to encompass the
most significant ways that an investor may control a
Treasury security issue, balanced against the difficulty and
cost of compiling the information.
Additionally, because of
the complexity in defining this term, it is useful to base
the definition, to the maximum extent feasible, on concepts
familiar to market participants.
For participants in the Treasury securities market, a
familiar concept is that of "net long position" in the
uniform offering circular. 21
The uniform offering circular
definition includes the par amount of:
(1) immediate (cash)
positions; (2) when-issued positions for to-be-issued and
reopened issues; (3) forward settling positions; (4)
positions in futures contracts requiring delivery of the
specific security; and (5) STRIPS (Separate Trading of
Registered Interest and Principal of Securities) principal
components of the specific security.
This is an appropriate
place to begin development of a reportable position because
it is not only familiar to many market participants but also
includes the
~ost
common elements of control in the cash
the large position rules, a reportable position defines the
components of a potential large position.
21
See supra note 14.
27
market.
The combination of these five elements is defined
as the net trading position -- the first component of a
reportable position.
The Department is requesting that commenters
specifically address the treatment of forward positions.
While forward positions are a component of the net long
position defined in the uniform offering circular, there may
be reasons to exclude them from the definition of reportable
position because forward positions may be less effective in
controlling a security or may act to conceal settled
positions.
For example, the proposed large position rules
permit a reporting entity to reduce the size of its settled
position by the amount of a short forward settling position.
Should this treatment be permitted?
Treasury especially
welcomes the views of market participants on this subject.
options and certain futures contracts (i.e., cashsettled or those requiring delivery of securities other than
the specific security that is the focus of large position
reporting) continue to be excluded because they do not
provide the holder with either immediate control or an
effective way to manipulate the price of a specific
security.
For options, an entity would only gain control of
the security at the time the position is exercised, at which
time the security would become a component of a reportable
position.
Large positions in the excluded futures contracts
are already reported to the Commodity Futures Trading
28
Commission. n
Thus, this information will be available to
the Department and other regulatory agencies, if needed,
without imposing additional reporting requirements.
Financing transactions are proposed to be included in a
reportable position because of the important influence they
have on the available supply of a Treasury security.
The
legislative history behind the large position reporting
authority supports the inclusion of financings, especially
repurchase agreements. D
The approach for including
financing transactions is addressed below in the definition
of a gross financing position.
The gross financing position
is the second component of a reportable position.
Finally, the Department believes that a third component
"fails"
should be included in the definition of
reportable position.
An investor's net fails position
(fails to receive less fails to deliver) indicates ownership
rights to a security without the cost of financing.
All
fail positions should be included without differentiating
between types of counterparties (i.e., broker-dealers,
customers).
A large "fail-to-receive" position may
exacerbate, or benefit from, a squeeze by maintaining high
demand for a specific security.
In analyzing existing
market discontinuities, the knowledge of the existence of
any large net fail-to-receive positions could help determine
n 17 CFR Parts 15 to 18.
D
See supra note 15 at pg. 44.
29
the cause and potential resolution of a tight supply
condition.
commenters are also requested to address the treatment
of fails.
Specifically, the Department is interested in
receiving comments on whether the proposed treatment of
fails positions is more appropriate than excluding fails
from the determination of a large position and instead
requiring submitters of large position reports to disclose
information about fails as a memorandum entry.
Since a
position that remains unsettled after its scheduled
settlement date is not included in the computation of a net
trading position, including fails may act to artificially
increase the size of the reported position.
This result is
apparent if fails-to-deliver were to be a positive addition
to a reportable position since a past settlement date short
trade, unlike a short forward position, would not reduce the
size of an entity's reportable position.
Additionally,
commenters are asked to consider whether fails should be
treated differently from forwards given their similarities.
The sum of the net trading position, gross financing
position and the net fails position is a reporting entity's
total reportable position.
"Gross Financing position" - To achieve the statutory
intent, financing transactions should be included in a
reportable position.
include them.
The more difficult question is how to
Within the generic construct of financing
30
transactions, there are multiple types of transactions
including:
repurchase and reverse repurchase agreements,
securities borrowed and loaned, securities pledged and
received in pledge, and any other form of credit
collateralized by Treasury securities.
since the intent of large position reporting is to
obtain information about the control of Treasury security
positions, an effective approach for incorporating financing
transactions is to include them on a gross basis (no
netting) in the reportable position of the entity that has
received the securities.
Under this approach, the
seller/lender of the securities would not include the
financing transaction in its calculation of the gross
financing position since it would already have reflected the
positions that provided it with control of the securities
(i.e., cash positions, reverse repos) in the calculation.
Reporting in this manner would provide regulators with
information about the broader universe of market
participants that had possible control of the Treasury
security, regardless of how they might have subsequently
financed or transferred it.
No differentiation is made in the computation between
the types of financing transactions (e.g.,
repos~
securities
lending) since, despite different legal frameworks, they are
generally equally effective ways of obtaining control.
The
first part of the gross financing position computation also
31
does not differentiate between types of repos (e.g.,
overnight, term).
As an example, a security that has been
received through a reverse repo and contemporaneously repoed
out to a third party will be included at the gross par
amount of the reverse in the entity's long position.
Gross
reporting yields this result even though the security was no
longer in the possession of the reporting entity since it
had been contemporaneously repoed out.
The proposed
approach will result in the potential for multiple entities
including a position for the same specific Treasury security
in their respective computations and reportable positions.
However, the resultant double counting is not considered to
be a problem because it provides additional information
about entities that have various legal claims to the
security and that may potentially benefit from any possible
market disruptions.
An optional exclusion is proposed that will permit a
reporting entity to voluntarily exclude from the computation
of its gross financing position certain securities received
through financing transactions.
This exclusion would apply
to situations in which the securities received were subject
to a right of substitution on behalf of the delivering
counterparty, tri-party custodial relationships, or custody
of the securities being retained by the party granting the
legal interest in the securities (hold-in-custody).
These
Treasury securities would be eligible for exclusion based on
32
a presumption that the receiving organization did not have
effective control of the securities despite having
"received" them.
The exclusion is optional because its use,
while benefiting the entity taking advantage of it, does not
diminish the usefulness of the resultant large position
reports.
If it were made mandatory, many potential
reporting entities might find it too costly anq burdensome
to differentiate information on financings at this level of
detail.
If the amount excluded is large enough to cause the
reporting entity to fall below the reporting threshold, then
a report should not be filed.
The gross financing position is then combined with the
other two components of a reportable position to determine
the total reportable position held by a reporting entity.
For purposes of the calculation, all positions would be
valued at the par amount of the securities involved.
"Large position Threshold" - The large position
threshold is the dollar amount of a reportable position at
or above which the requirement to file a large position
report is triggered.
Since the large position rules take an
"on-demand" approach to reporting, the specific large
position threshold for any given Treasury security issue may
vary.
However, since the, threshold would not be known in
advance, we believe that it will be beneficial to provide
some certainty to market participants by setting a minimum
dollar amount ("floor") -- $2 billion
below which reports
33
would not be requested.
Establishing a floor should
minimize compliance costs.
For example, many entities,
based on this level of the floor, may decide that no
modifications would be needed to their computer systems or
trading strategies since the rule would not apply to them
(i.e., the firms would not expect their positions ever to
reach the floor amount).
Of the six commenters who
addressed this issue, three endorsed a variable threshold
method (one respondent actually supported a fixed percentage
method, which would lead to a variable dollar level since it
would be based on the amount issued of a specific security).
"Recently-Issued" - Despite the determination that any
large position reporting would be done on an on-demand
basis, the Department believes that it is useful to set out
a general description of which Treasury securities would be
within the scope of the rule.
For convenience, the
definition of recently-issued includes when-issued
securities from the time of announcement of the issue.
Thus, when-issued securities would be considered the most
recent issue of a security type.
In response to the
commenters and in consideration of the Treasury securities
that could be of most interest to regulators 1 we have
proposed that as a regular matter, recently-issued would be
limited to the three most recent issues of a Treasury
security (bill, note or bond) if issued quarterly or more
frequently and the two most recent issues if issued less
34
frequently.
Currently, this latter condition exists only
for the 30-year bond.
The definition of recently-issued for
this security, which is currently issued semi-annually, was
limited to the two most recent issues because a three-mostrecent definition would have, on a regular basis,
encompassed a time period of nearly a year and a half.
As
discussed earlier, the Department intends to reserve the
right to broaden the scope of this definition, on a limited
exception basis, consistent with the purposes of the GSAA.
3.
section 420.3 - Reporting.
The provisions of
this section require large position reports to be filed by
the designated filing entity of any reporting entity that
has a reportable position that equals or exceeds· the large
position threshold in a particular Treasury security issue
as specified by the Department.
This section also specifies
the method by which Treasury will provide notice to the
marketplace requesting large position reports, the specific
information that must be provided on the large position
reports, where they must be filed and the time frame for
their submission.
This section also permits either the
Treasury or the FRBNY, acting as the Treasury's agent, to
request additional information from a reporting entity if
either organization, after analyzing the large position
reports, requires further data to gain a more complete
understanding of the extent and nature of the concentration
of positions in a particular Treasury security.
A sample
35
reporting format for large position information is
illustrated in
~ppendix
B to the rule.
Analysis of Alternative Reporting Methods
The method of reporting large positions is a central
issue in the development of large position rules, since the
method selected will significantly affect the compliance
burdens of, and costs incurred by, the entities subject to
the large position regulations.
The Department evaluated two distinct approaches for
reporting large position information:
an "automatic" or
regular reporting method and an lion-demand" reporting
method.
Under an automatic, regular reporting process,
large position reports would be required to be filed
whenever a reporting entity equalled or exceeded the large
position threshold stated in the rules for any covered
Treasury security.
Depending upon the particular method
used in a regular reporting system, reports could either be
required on a one-time basis or they could continue to be
required each day the entity exceeded the large position
threshold and would cease only when its positions in the
Treasu~y
security fell below the threshold level.
In
contrast, in an on-demand reporting system, reports would be
triggered by a notice from the Treasury requesting large
position information on a specific issue of a Treasury
security from those reporting entities whose positions at
36
that time equalled or exceeded the large position threshold
specified in the notice.
In evaluating the method of reporting that should be
employed, the Department took into consideration the events
that gave rise to Congress' grant of authority to prescribe
large position reporting rUles as well as the purposes and
objectives of the statutory authority underlying such rules.
The main focus of our analysis involved selecting the
approach that best balanced the purposes of the ?tatute and
any new regulatory burdens that would be
cr~ated.
(Readers
are referred to the ANPR for a more detailed discussion of
these issues and other background information pertaining to
large position reporting.)M
The primary purpose of any large position reporting
system is to enable the Treasury and the other regulators to
understand better the possible reasons for apparent
significant price distortions and the causes of market
shortages in certain Treasury securities.
Large position
reports are also intended to provide regulators with
information on concentrations of control for market
surveillance purposes and for enforcement of the securities
laws, as well as to enable Treasury policy makers to make
better decisions concerning any possible government actions
that might be taken in response to apparent price anomalies.
A critical factor in evaluating the two alternative large
M See supra note 5.
37
position reporting methods was the extent to which· they
would meet the overriding legislative and policy objective
of strengthening the ability 0f the regulatory agencies to
deter possible manipulation of the Treasury securities
market.
On-Demand Reporting System
The requirements outlined in paragraph 420.3(a) reflect
the Department's decision to
~ropose
an on-demand reporting
system for large position information.
Reports would be
required in response to a specific request, issued by the
Treasury, for large position information.
An on-demand reporting approach will enable the
Department to target large position reporting to a specific
issue of a Treasury security in response to particular
circumstances or unusual market activity.
This would ensure
the availability of information for market surveillance and
enforcement purposes in those specific instances where it is
most needed, thus satisfying the primary objective of this
regulatory authority, while obviating the need to collect
information on securities that are not of interest.
In
contrast, under a regular reporting system, reports would be
required when the large position threshold had been
exceeded; therefore, reports would be filed even in
situations where there were no price distortions, anomalies
or evidence of possible market manipulation.
This would
38
result in unnecessary costs for, and burdens on, both market
participants and the government.
In addition, a regular
reporting method could increase the possibility that
investors would take deliberate actions to reduce their
holdings of Treasury securities to avoid exceeding the
"large" position reporting threshold.
This could result in
decreased market participation, reduced liquidity and
increased borrowing costs.
An on-?emand reporting ,system would avoid the' need to
set a uniform large position threshold that would apply to
some or all Treasury issues as would be required under an
automatic reporting approach.
The Treasury would have the
flexibility and latitude to establish a tailor-made large
position threshold each time it requests large position
reports.
This permits a large position threshold to be
based on the latest supply of, and market conditions for, a
specific Treasury security, which can vary considerably.
On-demand reporting should be less onerous and costly
for market participants.
Any modifications to existing
computer systems to compile, summarize, compare and report
the positions would be less complex than for the
require~
continual review of multiple securities positions under a
regular reporting method.
Under a regular reporting
approach, firms would need to modify existing computer
systems or develop entirely new systems to continuously
collect, monitor and report positions in when-issued and
39
recently-issued Treasury securities.
Since reports would
need to be filed whenever positions equalled or exceeded· the
large position threshold, the systems would have to be
designed to compute the overall positions in a large number
of separate Treasury security issues (approximately 23
separate CUSIPs~ based on the definition of recently-issued
in paragraph 420.2(g)) and then compare the amount of the
positions to the large position threshold on a daily basis
to determine if reports would have to be produced.
There
would be an even greater burden on those entities that would
manually compile this information.
Recognition of the costs that would be imposed on
market participants has been a critical consideration in our
attempt to develop large position rules that strike a
balance between regulatory oversight and market efficiency.
We believe that an on-demand reporting system significantly
minimizes the regulatory costs and burdens on market
participants compared to those that would be incurred if the
Treasury were to require regular reporting.
In analyzing the different reporting models, the
Treasury also took into consideration the fact that a large
segment of market participants who are likely to be subject
to Treasury's large position reporting rules -- the 37
primary dealers -- already submit regular position reports
~ The CUSIP number is the unique identifying number assigned
to each separate security issue and each separate STRIPS
component.
40
to the FRBNY on a voluntary basis for on-the-run Treasury
notes and bonds.
By adopting an on-demand reporting system,
we have attempted to minimize, as much as possible, any
duplicate reporting by these entities.
Triggering Event:
Treasury Request tor Information
The provisions of paragraph 420.3(a) propose that the
requirement to report large position information would be
triggered by a notice issued by the Treasury specifically
requesting such information.
The notice would identify the
specific Treasury security issue to be reported, the
applicable large position threshold (in no case less than $2
billion) for that issue and the date or dates 26 as of which
the large position information must be reported.
The notice requesting large position reports would be
communicated by issuing a press release and subsequently
publishing the notice in the Federal Register.
Given the
relatively short reporting deadline in the proposed rules,
this two-pronged notice approach satisfies the dual
objectives of operational efficiency and legal sufficiency.
A Treasury press release has the advantage of achieving
wide, timely distribution of the notice without a
significant time lag.
Although this approach relies on
U To understand the price and supply dynamics of the
security under scrutiny better, the Treasury reserves the right
to request that entities submit positions covering a multi-day,
historical time frame rather than just one day.
41
third-party services over which the Treasury has no control,
it is reasonable to expect that the major news and financial
publications and the various electronic financial wire
services (e.g., Telerate, Reuters, Bloomberg, Knight-Ridder)
would disseminate the Treasury notice as quickly as their
respective technological capabilities allow.
The electronic
financial wire services and news pUblications can also be
relied upon to accurately present the Treasury's request for
large position information.
We believe that any market
participant, including a foreign entity, that may control a
large position in a Treasury security is likely to
subscribe, or have access, to one or more of the electronic
financial wire services.
Thus, the likelihood that the
Treasury notice requesting large position reports would fail
to come to the attention of a potential reporting entity is
extremely remote.
The press release would include information about how
to obtain a sample large position report and the name and
telephone number of a Departmental contact person to answer
questions about the report.
Since the Federal Register is the designated federal
publication for providing official notice, publishing the
Treasury notice in that document is legally sufficient for
"constructive notice" of the request despite lagging the
issuance of the press release.
Designated Filing Entity
42
Under paragraph 420.3(b), the designated filing entity
is responsible for preparing and submitting the large
position reports on behalf of a reporting entity in response
to a Treasury notice requesting large position information.
The identity of the designated filing entity must be given
on any large position report submitted.
Each reporting entity, as defined in paragraph
420.2(i), whose reportable position equals or exceeds the
large position threshold, must have one, and only one,
designated filing entity.
A reporting entity that consists
of only one component is the designated filing entity.
For
those reporting entities that consist of multiple affiliates
or aggregating entities, one entity mus·t be selected to be
the designated filing entity.
That entity is responsible
for receiving and compiling the large position information
from each of the aggregating entities, computing the
reportable position and preparing and filing the large
position report.
An official authorized to file reports on behalf of the
designated filing entity shall sign the large position
report and certification attesting to the accuracy,
completeness and reliability of the information being
reported.
This official must be one of the following:
the
chief financial officer, the chief operating officer, the
chief executive officer, or the managing partner or
equivalent of the designated filing entity.
The contact
43
person named on the large position report should also be a
representative of the designated filing entity but need not
be the authorized official.
Further, any designated filing entity is required,
under the applicable provision in section 420.4, to make and
maintain additional records on behalf of the entire
reporting entity. 27
Information Required on Large Position Reports
Paragraph 420.3(c), together with Appendix B, sets
forth the specific information that must be provided in the
large position report.
For those reporting entities that
have a number of aggregating entities or affiliates, the
amount to be reported for each of the positions is the
total, combined net amount.
All positions are to be
reported as of the close of the business/transaction day Ior
the date specified.
In those instances where Treasury
requests positions covering multiple dates, separate
reportable position calculations must be submitted for each
date.
The rule does not require, nor does the Treasury
intend, for firms to calculate their positions as of some
specific point during the trading day.
However, in order to
meet the deadline for reporting, the designated filing
n Since designated filing entities are also aggregating
entities, they would also be required und 7r §§ 420.4(b) or (c) to
maintain records pertaining solely to the~r own securities
transactions.
44
entity may need to determine a cut-off time for foreign
entities.
The following administrative information must be
provided on the large position report:
(a) the name of the reporting entity;
(b) the address of the principal place of business of
the reporting entity;
(c) the name and address of the designated filing
entity;
(d) the description of the Treasury security being
reported, including the CUSIP number;
(e) the date or dates for which the information is
being reported (which should be the same date(s) as that
(those) stated in the Treasury notice requesting the large
position reports);
(f) the date the report was submitted;
(g) the name and telephone number of a contact person
of the designated filing entity to whom questions can be
directed regarding any information on the report;
(h) the name and title of the person authorized to
submit the report (as previously described);
(i) a certification statement attesting to the
accuracy, completeness and reliability of the information
being submitted; and
(j) the signature of the authorized official specified
in (h).
45
The following large position information must be
reported in the exact order as noted:
(a) Line 1, cash/immediate net settled positions;
(b) Line 2, net when-issued positions for to-be-issued
and reopened issues;
(c) Line 3, net forward settling positions, including
next-day settling positions;
(d) Line 4, net positions in futures contracts that
require delivery of the specific security that is the
subject of the large position report (but not futures
contracts for which the security that is the subject of the
large position report is one of several securities that may
be delivered and not futures contracts that are cashsettled) ;
(e) Line 5, net holdings of STRIPS principal components
of the specific security that is the subject of the large
position report;
(f) Line 6, the gross financing position, which is the
sum of the gross par amounts of a security issue received
from financing transactions (e.g., reverse repurchase
transactions, bonds borrowed, securities received in pledge
and collateralized credit extended);
(g) Line 7, net fails position, which is fails to
receive less fails to deliver in the specific security
issue; and
(h) Line 8, Total Reportable position, which is the sum
46
of lines 1-7.
All amounts must be reported in millions at par value.
See Appendix B for a sample reporting format.
The large position report provides for two memoranda
entries.
Memorandum Entry #1 is the sum of the gross par
amounts of a security issue delivered as part of a financing
transaction (e.g., repurchase agreements, securities loaned,
securities pledged and collateralized loans).
This amount
should not be included in the gross financing position (line
6) as noted in item (f) above.
Memorandum Entry #1 is
required.
Memorandum Entry #2 is to be reported by those entities
that take the voluntary exclusion pursuant to paragraph
420.2(c) to reduce the gross financing position reported on
line 6.
The amount shown is the amount of securities
received from financing positions over which the reporting
entity does not have effective control due to arrangements
such as third-party custodial structures, hold-in-custody
relationships or substitution rights.
This amount should
not be included in the amount reported on line 6.
Lines 1-5 of the large position report are consistent
with the items that determine the net long position for
auction reporting purposes. D
As with the auction rules,
the amounts to be reported for each of the items on lines 15 are the net of any long and short positions, so that the
D
See supra note 14.
47
entry can be a positive number (long position), a negative
number (short position), which should be shown in
parentheses, or zero (flat position).
Only securities
trades that have actually settled should be included in line
1, cash/immediate net settled positions.
Accordingly,
auction purchases that have not yet been settled or issued
should be included in the total reported on line 2, whenissued positions.
For line 6, Gross Financing Position, netting of these
positions is not permitted although certain items may be
excluded.
(See paragraph 420.2(c).)
For reporting entities
that take advantage of this limited exclusion, the gross
financing position should not include the amount of security
issues received from financing positions over which the
reporting entity does not exercise control.
Rather, the
amount associated with the exclusion should be
reporte~
in
the Memorandum Entry #2.
Line 7, Net Fails Position, can only be reported as a
positive number (which indicates fails to receive exceed
fails to deliver) or zero (which reflects fails to receive
are totally offset by, or are less than, fails to deliver).
Reporting Format
Rather than designing and mandating a specific
reporting form, the Treasury is proposing to allow the
reporting entities to develop their own large position
reports, provided the reports contain all of the required
48
information as prescribed in the rules, in the order stated
in Appendix B.
By permitting the reporting entities to
design their own large position report, firms will be able
to integrate the report into their existing systems as they
see fit and avoid the unnecessary burden of transferring the
information from internally generated reports to a Treasurymandated form.
While firms will have a certain amount of
latitude and discretion in designing a large position
report, the information on the various positions that
constitute the total reportable position must be reported in
the order shown in paragraph 420.3(c) and in the
sample/prototype report in Appendix B.
analysis of the data.
This will facilitate
Failure to include any of. the
required information, including administrative information,
on the large position report will constitute non-compliance
with the rule.
Filing of Large Position Reports:
Where, When and How
Pursuant to paragraph 420.3(d) the large position
report must be submitted to the FRBNY.
The report must be
received before 12:00 noon, Eastern time, on the second
business day after the issuance of the Treasury press
release requesting large position reports.
Given that large
position reports would generally be requested by the
Department in response to certain market conditions or
activity, the proposed rule has a fairly short response time
49
for submission of the reports.
The one and one-half day
reporting deadline balances the need for timely information
with the recognition that some time is required to compile
the information.
The reporting time frame should not
present significant problems since the information would be
derived from records required to be maintained by the
reporting entities.
Additionally, we understand that most
large firms engaged in the securities business compile their
positions on a daily basis.
Finally, since reporting is
"on-demand," the filing of a large position report will be
an exceptional event not requiring regular preparation.
The Treasury requests comments from market participants
on the proposed reporting time frame, specifically
concerning any potential obstacles, burdens or other factors
that would make meeting the deadline problematic, and the
extent of any extra costs that would be incurred.
The rule, in paragraph 420.3(d), also provides that the
large position report may be filed in any manner or media
(i.e., hard copy, facsimile or other electronic
transmission) "that is acceptable to the FRBNY.
As mentioned
earlier, the reporting entities are permitted to produce or
generate their own large position reports.
Follow~up
Inquiries
The requirement to file a large position report in
response to a specific Treasury notice requesting this
50
information is expected to be an occasional event.
The
requirement is satisfied upon receipt of the report by the
FRBNY within the required time frame and in the required
format as prescribed in paragraph 420.3. -The proposed rule
does not impose a continuous reporting requirement.
However, the Treasury and the FRBNY staff may contact a
designated filing entity after receiving a large position
report to discuss any aspect of the report, seek
clarification of the information provided or request
additional documents or information.
The purpose of such
inquiries or requests for data would be to understand the
concentration of positions better.
The Treasury or the
FRBNY staff may also request further detail on any position
reported, such as breaking out the gross financing position
into its component parts or identifying repurchase
agreements by their terms or types (e.g., overnight repos,
term repos, tri-party repos, hold-in-custody repos) .
Reporting entities are required to make good faith attempts
to respond to inquiries and provide any additional data
requested in an expeditious manner.
Testing of Large position Reporting Systems
The Department wishes to underscore the importance of
accurate, reliable and timely reporting of large position
information by affected market participants.
As the agency
of the Federal government most concern~d with minimizing the
51
interest cost on the public debt, the Treasury believes that
the united states is best served by a liquid and efficient
market for Treasury securities that is not overburdened with
regulation, but, at the same time, is not viewed as being
subject to manipulation.
In developing these proposed
rules, the Treasury has attempted to pursue a modest
approach that balances the need for additional regulation
with a desire to minimize the burdens on, and costs to, the
industry and to preserve the efficiency of the Treasury
securities market.
Compliance with these large position rules -- the
maintenance of reliable records and the accurate and timely
reporting of large position information
is essential t'o
preserving and strengthening the integrity of the Treasury
securities market.
One of the primary concerns with an on-
demand reporting system is the increased potential for
inaccurate or incomplete information on large positions due
to unfamiliarity by market participants with the reporting
requirements.
Large position information will be extremely
important for policyrnakers at Treasury, in consultation with
other regulatory officials, in determining whether, and what
course of, action should be taken to alleviate a
concentration of control in a particular Treasury security.
Thus, it is imperative that market participants fully
understand and comply with the large position recordkeeping
and reporting requirements.
52
To ensure that market participants remain knowledgeable
about the rules, specifically how to calculate and report a
reportable position, the Treasury intends to "test" the
reporting system by requesting large position reports at
least annually, regardless of market conditions for a
particular security.
The Treasury does not intend to notify
market participants that its request for large position
reports is merely a test.
Commenters are asked to address
this proposed treatment of "test" reporting.
The notice and
reporting requirements are proposed to be identical to a
call for large position information in which the Department
is concerned about price anomalies and concentrated
ownership.
"Test" reporting is consis'tent with the
statutory purpose since the Department believes it is both
necessary and appropriate to help
ensur~
that an on-demand
program of large position reporting is conducted
effectively.
4.
Section 420.4 - Recordkeeping.
Section
15C(f) (2) of the Securities Exchange Act of 1934 authorizes
the Secretary to promulgate rules requiring large position
holders to make and preserve records related to large
position reporting requirements.
Section 420.4 sets forth
the proposed recordkeeping rules supporting large position
reporting under that authority.
The proposed recordkeeping
rules are divided into two classes:
(1) records required
for entities that are currently subject to recordkeeping
53
rules of federal securities or federal bank regulators
(paragraph 420.4(b»; and (2) records required for all other
entities, such as hedge funds, insurance companies, and
pension funds (paragraph 420.4(ci).
Under paragraph 420.4(a) (1), the recordkeeping rules
would apply to all aggregating entities that may control
components of their respective reporting entity's reportable
position as of the effective date of the final large
position rules, but only if the aggregating entities'
respective reporting entity had a reportable position in any
Treasury security equal to or in excess of $2 billion (the
minimum large position threshold) at any time during the
prior two-year period ending 90 days after publication of
the final rule.
Thus, all reporting
entitie~
(through their
respective aqgregating entities) will be responsible for
determining whether they have controlled a reportable
position of at least $2 billion in a Treasury security
during the two-year period.
For some firms, this will
necessitate a thorough review of their records to determine
if their reportable positions reached that level.
In addition, under paragraph 420.4(a) (2), in instances
where a reporting entity controlled a reportable position of
at least $2 billion in a Treasury security during the twoyear
p~riod,
its designated filing entity will be required
to submit a letter to the FRBNY certifying that it has in
place, or will have in place by the effective date of the
54
final rules, a recordkeeping system (including pOlicies and
procedures) capable of making, verifying the accuracy of,
and preserving the requisite records.
This letter must be
signed by one of the following officials of the designated
filing entity:
the chief financial officer, the chief
operating officer, the chief executive officer, or the
managing partner or equivalent.
The letter must be received
by the FRBNY within 120 days after publication of the final
rule.
The Department believes this requirement would ensure
that entities having a history of controlling large Treasury
securities positions would have supporting records in place
in the event their reportable positions reach an announced
large position threshold for a specific issue, thereby
triggering the submission of a large position report.
These
potential large position holders would have several months
to develop methods to meet the proposed recordkeeping
requirements since there will be a delayed effective date
for the rules.
Subsequent to the effective date of the
rules, aggregating entities within a reporting entity that
had not previously had a reportable position in a Treasury
security equal to or greater than $2 billion but whose
reportable position reaches or exceeds $2 billion would be
subject to the large position recordkeeping requirements
from that point forward.
Regardless of the date aggregating entities become
55
subject to the recordkeeping rules, their being subject to
the rules is based on whether the reportable position of
their reporting entity reaches the large position threshold,
not on whether the position of the aggregating entity itself
reaches that threshold.
Thus, an aggregating entity may be
subject to the recordkeeping rules even though its own
position has been substantially below the threshold.
Entities Subject to Recordkeeping Rules of Federal
Securities or Federal Bank Regulators (Paragraph 420.4(b))
In developing the proposed recordkeeping rules, the
Department sought to strike an appropriate balance between
ensuring that large position holders maintain records that
document and facilitate the generation of accurate reports
and minimizing recordkeeping burdens on large position
holders.
Accordingly, the Department examined existing
securities-related recordkeeping rules of the SEC, the
Treasury, and the bank regulatory agencies to determine if
the records required under those rules include the type of
information necessary to create large position reports.
Specifically, the Department examined the following
recordkeeping regulations:
SEC recordkeeping regulations
applicable to registered broker-dealers, registered
investment advisors, and registered investment companies;
Treasury recordkeeping rules applicable to registered
government securities broker-dealers, financial institutions
56
that have filed or should file notice as government
securities broker-dealers, and depository institutions that
hold government securities as custodians; and bank
regulatory agency recordkeeping rules applicable to banks
that conduct securities transactions for
cu~tomers.29
The Department has determined that all of these
recordkeeping rules require the affected entities to make
and keep records of original entry (i.e., journals,
blotters, or similar records) containing itemized records of
all of the entities' securities transactions, including
information pertaining to the amount and identification of
each security or instrument.
Records of original entry are
basic, detailed records that cover, among other things, all
transactions related to the components of a reportable
position.
Most of the existing regulations of the federal
securities and federal bank regulators also require the
affected entities to maintain order tickets or memos and
various ledgers containing much of the same information
required in the records of original entry.30
29 17 CFR 240.17a-3, 240.17a-4, and 240.17a-7 (for registered
brokers and dealers); 17 CFR 275.204-2 (for registered investment
advisers); 17 CFR 270.31a-1, 270.31a-2, and 270.31a-3 (for
registered investment companies); 17 CFR 404.2 and 404.3 (for
registered government securities brokers and dealers); 17 CFR
404.4 (for noticed financial institutions); 17 CFR 450 (for
depository institution custodians that exercise investment
discretion); and 12 CFR Part 12, Part 208, or Part 344 (for banks
conducting securities' transactions for customers), respectively.
30 Most of the existing recordkeeping rules also require
affected entities to maintain position records, which provide a
composite listing of the long and short positions in each
57
The proposed treatment of depository institutions that
exercise investment discretion warrants specific discussion
with respect 'to recordkeeping requirements because such
entities are potential reporting entities.
Depository
institutions that exercise investment discretion are
genera~ly
subject to the securities recordkeeping
requirements of the bank regulatory agencies (12 CFR 12, 12
CFR 208, or 12 CFR 344), regardless of whether or not they
exercise investment discretion within their trust
departments.
In addition, for those rare cases in which depository
institutions exercise investment discretion and act as
custodians of government securities outside of their trust
departments, the recordkeeping provisions of paragraph
450.4(c) of the GSA regulations also apply.3l
The
Department views the information required by the
recordkeeping rules of paragraph 450.4(c) as comparable to
the basic information required in the records of original
entry under the existing rules of the SEC, the Treasury, and
the bank regulatory agencies.
security for which the broker-dealer or other entity is
responsible. However, position records do not include
information on positions resulting from certain unsettled and
off-balance sheet transactions (e.g., when-issued trades and
futures) .
31 Recordkeeping requirements for depository institutions
acting solely as custodians were not ~o~s~dered bec~use these
entities do not meet the proposed def1n1t1on of hav1ng control
under paragraph 420.2(b).
58
The Department believes that reportable positions can
be constructed relatively easily from the aforementioned
records required by the federal regulatory agencies.
As a
result, the Department has decided, with respect to large
position rules, not to propose any new recordkeeping rules
for aggregating entities that are: (1) subject to the
existing federal recordkeeping requirements, and (2) not
designated filing entities.
However, an aggregating entity that is also a
designated filing entity would be required to maintain
specific large position-related records in addition to its
existing securities-related records.
(Each reporting entity
would have only one designated filing entity.)
First, the
designated filing entity would be required to make and
maintain copies of all of the large position reports it
filed.
Also, since the designated filing entity, in some
cases, would have to collect and combine information
received from other aggregating entities within its
reporting entity, the designated filing entity would be
required to make and maintain supporting documents or
schedules (e.g., worksheets) that are used to compute the
reportable position and to prepare large position reports.
The designated filing entity would also be required to make
and keep a chart showing the organiiational entities (e.g.,
aggregating entities, if applicable) whose data is combined
for purposes of calculating a reportable position.
59
The Department believes that requiring supporting
schedules would enhance the ability of the designated filing
entity to produce accurate and timely large position
reports.
Moreover, the retention of supporting schedules
and organizational charts would be indispensable in
responding to follow-up inquiries from the regulatory
agencies and in the course of any in-depth review or
reconstruction of a reporting entity's reportable position
conducted by the Treasury, the FRBNY, or the SEC.
Designated filing entities would be required to retain
the additional records for the same period specified in
their existing securities-related recordkeeping rUles.32
In
instances where recordkeeping'rules contain more than one
retention period (e.g., SEC Rule 17a-4), paragraph
420.4(b) (4) of the proposed rule specifies that the longest
retention period will apply.
other Entities (Paragraph 420.4(c))
certain entities that have the potential to control
large positions, or portions thereof, in Treasury securities
within a reporting entity (e.g., hedge funds and insurance
companies) are not currently subject to federal requirements
to make and preserve securities-related records.
To ensure
that such entities make and preserve records that document
and facilitate the generation of accurate large position
32
See supra note 29.
60
reports -- while minimizing the burden on these entities
the Department proposes that all aggregating entities
(within their respective reporting entities) in this
category make and maintain records of original entry (the
equivalent of blotters or journals).
These documents should
be relatively easy for large, sophisticated investors to
implement.
In fact, it is our understanding that most such
investors already produce and maintain such records. as part
of their on-going business and accounting control systems.
Like the recordkeeping system applicable to entities
that are subject to federal securities-related recordkeeping
rules, an aggregating entity that is also a designated
filing entity would be required to make and maintain the
following large position-related records in addition to its
records of original entry:
copies of all of the large
position reports it filed, supporting documents or schedules
(e.g., worksheets) used to prepare large position reports,
and a chart showing the organizational entities (e.g.,
aggregating entities, if applicable) whose data is
aggregated in order to calculate a reportable position.
Such records would have to be preserved by the designated
filing entity for at least six years, the first two in an
easily accessible place.
5.
section 420.5 - Effective Date.
section
420.5 sets out the effective date for both the recordkeeping
and reporting provisions of the large position rules.
The
61
rule provides for a delayed effective date approximately six
months after pUblication of the final rule.
This period of
time is provided in order to give affected entities
sufficient time to make the necessary preparations for
compliance.
Only subsection 420.4(a) is not subject to this
date but instead contains its own specific dates for
compliance.
IV.
Special Analysis
The proposed rules reflect the Treasury's interest in
meeting regulators' informational needs while minimizing the
costs and burdens on market participants.
The rules propose
to adopt an on-demand reporting system, which will
significantly minimize operational and compliance costs for
market participants compared with the costs that would have
been incurred if a regular reporting system were required.
Further, in an effort to avoid imposing new requirements,
the proposed regulations adopt, for the most part, existing
federal recordkeeping requirements for the largest segment
of market participants that would be subject to the rules.
The proposal requires limited records to be maintained by
those entities that are not currently subject to federal
rules to make and
pres~rve
securities-related records.
Additionally, the establishment of a minimum floor of $2
billion for the large position threshold will also greatly
reduce the number of market participants potentially subject
62
to the proposed rules.
Therefore, based on the very limited
impact of the proposal, it is the Department's view that the
proposed regulations are not a "significant regulatory
action" for the purposes of Executive Order 12866.
In addition, pursuant to the Regulatory Flexibility
Act,33 it is hereby certified that the proposed regulations,
if adopted, will not have a significant economic impact on a
substantial number of small entities since the proposal
establishes a minimum large position threshold of $2
billion.
This assures market participants that the Treasury
would not request large position reports for positions below
that minimum amount.
The Department does not believe that
small entities .will control positions of $2 billion or
greater in any Treasury security.
Accordingly, the
inapplicability of the proposed regulations to small firms
indicates that there is no significant impact.
As a result,
a regulatory flexibility analysis is not required.
The Paperwork Reduction Act of 1995 requires that
collections of information prescribed in the proposed rules
be submitted to the Office of Management and Budget for
review and
approval.~
In accordance with this requirement,
the Department has submitted the collection of information
contained in this notice of proposed rulemaking for review.
Under the Act, an agency may not conduct or sponsor, and a
n 5 U.S.C.
~
601, et seq.
44 U.S.C. 3507(d).
63
person is not required to respond to, a collection of
information unless it displays a valid OMB control number.
Comments on the collection of information may be submitted
to the Office of Information and Regulatory Affairs, Office
of Management and Budget, Attention:
Desk Officer for
Department of the Treasury, Washington, D.C. 20503; and to
the Government Securities Regulations Staff, Bureau of the
Public Debt, at the address specified at the beginning of
this document.
The collection of information in this proposed
regulation is contained in proposed
proposed reporting requirements in
§§
§
420.3 and 420.4.
The
420.3 would require the
designated filing entity of any market participant, whose
position equals or exceeds the announced large position
threshold for a specific issue of a Treasury security, to
report information to FRBNY.
Although the Treasury cannot
be certain of the number of market participants that would
have large reportable positions for a specific issue on
which information is requested, we believe that very few
entities would likely have to file reports because the
proposed minimum reporting threshold is $2 billion.
Further, Treasury expects that its requests for information
will be relatively infrequent, and estimates that there will
only be an average of five reports filed in response to any
particular 'request.
The proposed recordkeeping requirements in
§
420.4
64
require any aggregating entity to make and preserve certain
records as of the effective date, but only if it has, during
a specified period, controlled a portion of its reporting
entity's reportable position in any Treasury security when
that reportable position is equal to or in excess of the $2
billion minimum large position threshold specified in
420.2(d).
§
For each reporting entity subject to the
recordkeeping rules as of the effective date, the designated
filing entity will be required to submit a letter, on a onetime basis, certifying that it has in place, or will have in
place, a recordkeeping system capable of making, verifying
the accuracy of, and preserving the requisite records.
As
mentioned above, while Treasury expects that very few
entities would likely control positions in excess of the
stated threshold that would require reporting, a larger
group of entities will be required to submit the one-time
letter.
For aggregating entities currently subject to, and in
compliance with, recordkeeping rules of federal securities
or federal bank regulators, and subject to the large
position recordkeeping rules, there are no additional
recordkeeping requirements, with one exception.
If the
aggregating entity is the designated filing entity for its
reporting entity, then it is required to make and maintain
copies of any large position reports filed; supporting
documents or schedules used to compute data for such large
65
position reports, including any information received from
aggregating entities within the reporting entity; and an
organizational chart showing the entities that are
aggregated in developing a reportable position.
Those aggregating entities that must comply with the
proposed rules but are not subject to paragraph 420.4(b)
must make and preserve journals, blotters or other records
of original entry containing an itemized record of all
transactions that fall within the definition of a reportable
position.
This provision accounts for the greatest
percentage of estimated recordkeeping burden hours.
However, this requirement is significantly less than the
full range of books and records requirements currently
applicable to entities subject to federal securities-related
recordkeeping requirements.
If the aggregating entity is
also a designated filing entity, the requirements for a
designated filing entity are also applicable.
The collection of information is intended to enable the
Treasury and other regulators to understand better the
possible reasons for any apparent significant price
distortions and the possible causes of market shortages in
certain Treasury securities.
The collection of information
will help ensure that the Treasury securities market remains
liquid and efficient, and is not viewed as subject to
manipulation.
The proposed rules apply to all market
participants controlling large positions, as defined in the
66
rules.
Per paragraph 420.3(c), it is a mandatory
requirement that reporting entities with reportable
positions that equal or ~xceed the specified threshold in a
Treasury notice respond through their designated filing
entities by filing a report in the required format and
within the specified reporting time frame.
In developing the proposed rules, we have consulted
with affected entities and regulatory agencies, and expect
that this process will continue through the development of a
final rule.
As previously mentioned, Treasury published an
ANPR35 which requested comments on a number of specific
issues, including the approach and structure for a large
position recordkeeping and reporting system.
The"estimated
reporting and recordkeeping burden hours are based on a
review of tenders submitted in Treasury auctions, position
reports that primary dealers already complete and
voluntarily submit to FRBNY, recordkeeping requirements that
are already in place for federally-regulated participants in
the government securities market and discussions with the
industry and other regulators.
Treasury invites further comments on:
(l) whether the
proposed collection of information is necessary for the
proper performance of functions of the Treasury,
incl~ding
the practical utility of the information; (2) the accuracy
of the Treasury's estimate of the burden; (3) enhancement of
~
See supra note 5.
67
the quality, utility, and clarity of information to be
collected; and (4) minimizing the burden of the collection
of information on respondents, including through tpe use of
automated collection techniques or other forms of
information technology.
Estimated total annual reporting and recordkeeping burden:
4,940 hours
Estimated annual number of recordkeepers:
100
Estimated annual number of respondents:
10
Estimated annual frequency of response:
On occasion
68
List of Subjects
17 CFR Part 400
Administrative practice and procedure, Banks, banking,
Brokers, Government securities, Reporting and recordkeeping
\
requirements.
17 CFR Part 420
Foreign investments in
u.s.,
Government securities,
Investments, Reporting and recordkeeping requirements.
For the reasons set out in the preamble, 17 CFR Chapter
IV, subchapter A is propcsed to be amended as follows:
PART 400 - RULES OF GENERAL APPLICATION
1.
The authority citation for part 400 is revised to read
as follows:
Authority: 15 U.S.C. 780-5.
2.
§
In § 400.1, paragraph (e) is added as follows:
400.1
scope of regulations.
* * * * *
(e)
Section 104 of the Government Securities Act
Amendments of 1993 (Pub. L. 103-202, 107 Stat. 2344) amended
Section 15C of the Act (15 U.S.C. 780-5) by adding a new
69
sUbsection (f), authorizing the Secretary of the Treasury to
adopt rules to require specified persons holding,
maintaining or controlling a large position in to-be-issued
or recently-issued Treasury securities to report such a
position and make and keep records related to such a
position.
Part 420 of this subchapter contains the rules
governing large position reporting.
* * * *
3.
*
Part 420 is added to read as follows:
PART 420 - LARGE POSITION REPORTING
Sec.
420.1 Applicability.
420.2 Definitions.
420.3 Reporting.
420.4 Recordkeeping.
420.5 Effective Date.
Appertdix A to Part 420 - Separate Reporting Entity.
Appendix B to Part 420 - Sample Large position Report.
Authority: 15 U.S.C. 78o-5(f).
S 420.1 Applicability.
(a) This part, including the Appendices, is applicable
to all persons that participate in the government securities
market, including, but not limited to, government securities
brokers and dealers, depository institutions, registered
70
investment companies, registered investment advisers,
pension funds, hedge funds and insurance companies, that may
control a reportable position in a recently-issued Treasury
bill, note or bond as those terms are defined in
§
420.2.
(b) Notwithstanding paragraph (a) of this section,
foreign central banks, foreign governments and international
monetary authorities are exempt from this part for the
portion of any reportable position they control that is held
at the Federal Reserve Bank of New York.
(c) Notwithstanding paragraph (a) of this section,
Federal Reserve Banks are exempt from this part for the
portion of any reportable position they control for their
own account.
(d) Notwithstanding the definition of recently-issued,
the Oepartment reserves the .right to collect large position
information on Treasury security issues that are older than
those specified, provided that such action is consistent
with the purposes of the Act (15 U.S.C 78o-5(f».
S 420.2 Definitions.
For the purposes of this part:
(a) "Aggregating entity" means a single entity (e.g., a
parent company or affiliate) that is combined with other
entities, as specified in paragraph (i) of this section, to
form a reporting entity.
In those cases where an entity has
no affiliates, the aggregating entity is the same as the
reporting entity.
(b) "Control" means having the authority to exercise
7:
investment discretion over the purchase, sale, retention or
financing of specific Treasury securities.
Only one entity
should be considered to have investment discretion over a
particular position.
(c) "Gross financing position" is the sum of the gross
par amounts of a security issue received from financing
transactions, including, but not limited to, reverse
repurchase transactions, bonds borrowed, securities received
in pledge, and collateralized credit extended.
In
calculating the gross financing position, a reporting entity
may not net its positions against repurchase transactions,
securities loaned, securities pledged or other deliveries of
the security issue.
However, a reporting· entity may elect
to reduce its gross financing position by the par amount of
the security received in transactions:
in which the
counterparty retains the right to substitute securities;
that are subject to third party custodial relationships; or
that are hold-in-custody reverse repurchase agreements.
(d) "Large position threshold" means, with respect to a
reportable position, the dollar par amount such position
must equal or exceed in order for a reporting entity to be
required to submit a large position report.
The large
position threshold will be announced by the Department and
may vary with each notice of request to report large
position informatfon and with each specified Treasury
security.
However, under no circumstances will a large
72
position threshold be less than $2 billion.
(e) "Net fails position" is the net par amount of
"fails to receive" less "fails to deliver" in the same
security.
The net fails position, as reported, may not be
less than zero.
(f) "Net trading position" is the net sum of the
following respective positions in the specific security
issue:
(1) Cash/immediate net settlep positions;
(2) Net when-issued positions;
(3) Net forward positions, including next-day
settling;
(4) Net futures contract positions that require
delivery of the specific security; and
(5) Net holdings of STRIPS principal components of
the security.
(g) "Recently-issued" means:
(1) with respect to Treasury securities that are
issued quarterly or more frequently, the three most recent
issues of the security (e.g., in early April, the January,
February, and March 2-year notes) .
(2) with respect to Treasury securities that are
issued less frequently than quarterly, the two most recent
issues of the security.
(3) With respect to a reopened security, the
entire issue of a reopened security (older and newer
73
portions) based on the date the reopened-security is
reissued by the Department (or scheduled to be reissued for
when-issued securities).
(4) For all Treasury securities, a security
announced to be issued or auctioned but unissued (whenissued), starting from the date of the issuance
announcement.
The most recent issue of the security is the
one most recently announced.
(h) "Reportable position" is the sum of the net trading
positions, gross financing positions and net fails positions
in a specified issue of Treasury securities collectively
controlled by a reporting entity.
(i) "Reporting entity"
m~ans
any corporation,
partnership, person or other entity and its affiliates.
For
the purposes of this definition, an affiliate is any:
entity that is more than 50% owned, directly or indirectly,
by the aggregating entity or by any other affiliate of the
aggregating entity; person or entity that owns, directly or
indirectly, more than 50% of the aggregating entity; person
or entity that owns, directly or indirectly, more than 50%
of any other affiliate of the aggregating entity; or entity,
a majority of whose board of directors or a majority of
whose general partners are directors or officers of the
aggregating entity or any affiliate of the aggregating
entity.
(1) subject to the conditions prescribed in Appendix A,
74
one or more aggregating entities, either separately or
together with one or more other aggregating entities, may be
recognized as a separate reporting entity.
Any entity that
previously has received recognition from the Treasury as a
separate bidder in Treasury auctions pursuant to Appendix A
of 31 CFR Part 356 is also recognized as a separate
reporting entity without further action.
(2) Notwithstanding this definition, any persons or
entities that intentionally act together with respect to the
investing in, retention of, or financing of, Treasury
securities are considered, collectively, to be one reporting
entity.
S 420.3 Reportinq.
(a) A reporting entity is subject to the reporting
requirements of this section only when its reportable
position equals or exceeds the large position threshold
specified by the Department for a specific Treasury security
issue.
The Department shall provide notice of such
threshold by issuance of a press release and subsequent
publication of the notice in the Federal Register.
Such
notice will identify the Treasury security issue to be
reported; the date or dates (as of close of business) for
which the large position information must be reported; and
the applicable large· position threshold for that issue.
is the responsibility of a reporting entity to take
It
75
reasonable actions to be aware of such a notice.
(b) A reporting entity shall select one entity from
among its aggregating entities (i.e., the designated filing
entity) as the entity designated to compile and file a
report on behalf of the reporting entity.
The designated
filing entity shall be responsible for filing any large
position reports in response to a notice issued by the
Department and for maintaining the additional records
prescribed in the
appl~cable
paragraph of
§
420.4.
(c) (1) In response to a notice issued under paragraph
(a) of this section requesting large position information, a
reporting entity with a reportable position that equals or
exceeds the specified large position threshold stated in the
notice shall compile and report the amounts of the reporting
entity's reportable position, as follows:
(i) net trading position comprising:
(A) cash/immediate net settled positions,
(B) net when-issued positions,
(C) net forward positions, including next-day
settling,
(D) net futures contracts that require delivery of
the specific security, and
(E) net holdings of STRIPS principal components of
the security;
(iiJ gross financing position; and
76
(iii) net fails position.
(2) The large position report should include the
following two additional items as memoranda:
(i) a total
that includes the amounts of securities delivered through
repurchase agreements, securities loaned, securities
pledged, and collateralized loans and other securities
deliveries.
This total should not be reflected in the gross
financing position; and (ii) if the reporting entity has
elected to exercise the option available in
§
420.2(c) to
reduce the amount of the gross financing position by the par
amount of securities received but over which the reporting
entity did not have effective control, the amount not
included.
The total amount of reduction should be.deducted
from the gross financing position prior to
dete~mining
the
reportable position.
(3) An illustration of a sample report is contained in
Appendix B.
Each of the net trading position elements shall
be netted and reported as the applicable positive or
negative number (or zero).
The gross financing position and
net fails position should each be reported as a single
entry.
If the amount of the net fails position is zero or
less, report zero.
All of these items should be reported in
the order specified above.
All position amounts and their
components should be reported at par in millions of dollars.
(4) All balances must be reported as of the close of
77
business of the reporting date(s) specified in the notice.
(5) Each submitted report must include the following
administrative information in addition to the reportable
position:
the name of the reporting entity, the address of
the principal place of business, the name and address of the
designated filing entity, the Treasury security that is
being reported, the eUSIP number, the report date or dates
for which information is being reported, the date the report
was submitted, the name and telephone number of the person
to contact regarding information reported, and the name and
position of the authorized individual submitting this
report.
The report must also be signed by the authorized
individual, who must be one of the following:
the chief
financial officer, the chief operating officer, the chief
executive officer, or the managing partner or equivalent of
the designated filing entity.
The designated filing entity
must also include in its report, immediately preceding the
signature, a statement of certification as follows:
"The reporting entity submitting this report and the
person(s) by whom it is executed hereby certify that all
information contained in the report is accurate and complete
and that the reporting entity is in compliance with the
requirements of 17 eFR Part 420."
(6) The report must be filed before noon Eastern time
on the second business day following issuance of the press
release.
78
(d) A report to be filed pursuant to paragraph (c) will
be considered filed when received by the Federal Reserve
Bank of New York.
The report may be filed in any manner
acceptable to the Federal Reserve Bank of New York.
(e) A reporting entity that has filed a report pursuant
to paragraph (c) shall, at the request of the Department or
the Federal Reserve Bank of New York, timely provide any
supplemental information pertaining to such report.
S 420.4 Recordkeepinq.
(a) (l) Notwithstanding the provisions of paragraphs (b)
and (c) of this section, an aggregating entity must make and
maintain records pursuant to this part as of its effective
date, but only if the aggregating entity has controlled a
portion of its reporting entity's reportable position in any
Treasury security when such reportable position of the
reporting entity has equaled or exceeded the minimum large
position threshold specified in § 420.2(d} (i.e., $2
billion) during the prior two-year period ending [90 days
after publication of the final rule].
Subsequ~nt
to the
effective date, an aggregating entity that controls a
portion of its reporting entity's reportable position in a
recently-issued Treasury security, when such reportable
position of the reporting entity equals or exceeds the
minimum. large position threshold, shall be responsible for
making and maintaining the records prescribed in this part.
79
(2) In the case of a reporting entity whose reportable
position ih any Treasury security has equaled or exceeded
the minimum large position threshold during the prior twoyear period ending (90 days after publication of the final
rule], each such reporting entity's designated filing entity
shall submit a letter to the Federal Reserve Bank of New
York certifying that it has in place, or will have in place
by the effective date, a recordkeeping system (including
policies and procedures) capable of making, verifying the
accuracy of, and preserving the records required pursuant to
this section.
(3) The letter specified in paragraph (a) (2) of this
section must be signed by one of the following:
the chief
financial officer, the chief operating officer, the chief
executive officer, or the managing partner or equivalent of
the designated filing entity and must be received by the
Federal Reserve Bank of New York no later than [120 days
after publication of the final rule].
(b)
Records to be made and preserved by entities that
are subject to the recordkeeping provisions of the
commission, the Department, or the appropriate regulatory
agencies for financial institutions.
As an aggregating
entity, compliance by a registered broker or dealer,
registered government securities broker or dealer, noticed
financial institution, depository institution that exercises
investment discretion, registered investment advisor, or
80
registered investment company with the applicable
recordkeeping provisions of the Commission, the Department,
or the appropriate regulatory agencies for financial
institutions shall constitute compliance with this section,
provided that if such entity is also the designated filing
entity it:
(1) Makes and keeps copies of all large position
reports filed pursuant to this part;
(2) Makes and keeps supporting documents or sChedules
used to compute data for the large position reports filed
pursuant to this part;
(3) Makes and keeps a chart showing the organizational
entities that are aggregated (if applicable) in determining
a reportable position; and
(4) with respect to recordkeeping preservation
requirements that contain more than one retention period,
preserves records required by paragraphs (b) (1)-(3) of this
section for the longest record retention period of
applicable recordkeeping provisions.
(c) Records to be made and kept by other entities.
(1)
An aggregating entity that is not subject to the provisions
of paragraph (b) of this section shall make and preserve a
journal, blotter, or other record of original entry
containing an itemized record of all transactions that fall
within the definition of a reportable position, including
information showing the account for which such transactions
81
were effected and the following information pertaining to
the identification of each instrument:
the type of
security, the par amount, the CUSIP number, the trade date,
the maturity date, the type of transaction (e.g., a reverse
repurchase agreement), and the name or other designation of
the person from whom sold or purchased.
(2)
If such aggregating entity is also the designated
filing entity, then in addition it shall make and preserve
the following records:
(i) copies of all large position reports filed pursuant
to this part;
-(ii) supporting documents or schedules used to compute
data for the large position reports filed pursuant to this
part; and
(iii) a chart showing the organizational entities that
are aggregated (if applicable) in determining a reportable
position.
(3) with respect to the records required by paragraphs
(c) (1) and (2) of this section, each such aggregating entity
shall preserve such records for a period of not less than
six years, the first two years in an easily accessible
place.
If an aggregating entity maintains its records at a
location other than its principal place of business, the
aggregating entity must maintain an index that states the
location of the records, and such index must be easily
accessible at all times.
82
S 420.5 Effective Date.
The provisions of this part, except for § 420.4(a),
shall be first effective on [180 days from the date of
publication of the final rule.
If the date does not fallon
the last day of the month, then move the date to the end of
the month.].
Appendix A to Part 420 - separate Reporting Entity.
Subject to the following conditions, one or more
aggregating entity(ies)
(e.g., parent or subsidiary) in a
reporting entity, either separately or together with one or
more other aggregating entity(ies), may be recognized as a
separate reporting entity.
All of the following conditions
must be met for such entity(ies) to qualify for recognition
as a separate reporting entity:
(1) Such entity(ies) must be prohibited by law or
regulation from exchanging, or must have established written
internal procedures (i.e., Chinese walls) designed to
prevent the exchange of information related to transactions
in Treasury securities with any other aggregating entity;
(2) Such entity(ies) must not be created for the
purpose of circumventing these large position reporting
rules;
(3) Decisions related to the purchase, sale or
retention of Treasury securities must be made by employees
of such entity(ies).
Employees of such entity(ies) who make
83
decisions to purchase or dispose of Treasury securities must
not perform the same function for other aggregating
entities; and
(4) The records of such entity(ies) related to the
ownership, financing, purchase and sale of Treasury
securities must be maintained by such entity(ies}.
Those
records must be identifiable - separate and apart from
similar records for other aggregating entities.
To obtain recognition as a separate reporting entity,
each aggregating entity or group of aggregating entities
must request such recognition from the Department pursuant
to the procedures outlined in ! 400.2(c} of this title.
Such request must provide a description of the entity or
group and its position within the reporting entity, and
provide the following certification:
"[Name of the entity(ies)] hereby certifies that to the
best of its knowledge and belief it meets the conditions for
a separate reporting entity as described in Appendix A to 17
CFR part 420.
The above named entity also certifies that it
has established written policies or procedures, including
ongoing compliance monitoring processes, that are designed
to prevent the entity or group of entities from:
"(1) Exchanging any of the following information with
any other aggregating entity (a) positions that it holds or
plans to acquire in a Treasury security; (b) investment
strategies that it plans to follow regarding Treasury
84
securities; and (c) financing strategies that it plans to
follow regarding Treasury securities, or
"(2) In any way intentionally acting together with any
other aggregating entity with respect to the purchase, sale,
retention or financing of Treasury securities.
"The above-named entity agrees that it will promptly
notify the Department in writing when any of the information
provided to obtain separate reporting entity status changes
or when this certification is no longer valid."
Any entity that previously has received recognition as
a separate bidder in Treasury auctions from the Department
pursuant to 31 CFR Part 356 is also recognized as a separate
reporting entity without further action.
Appendix B to Part 420 - sample Large position Report.
Formula for Determining a Reportab:e position
($ Amounts in Millions at Par Value)
Date For Which Information is Being Reported:
1.
cash/Immediate Net Settled positions
2.
Net When-Issued positions for
To-Be-Issued and Reopened Issues
+ $
3.
Net Forward settling positions
Including Next Day Settling
+ $
4.
Net positions in Futures Contracts
Requiring Delivery of the Specific
Security
+ $
5.
Net STRIPS Principal 'Components
of the Specific Security
+ $
$
85
6.
Gross Financing Position
(Includes total of securities
received through reverse repos,
bonds borrowed, securities received
in pledge, collateralized credit
extended. )
7.
Net Fails Position
(Fails to Receive less Fails to
Deliver.
If equal to or less
than 0, report 0.)
+ $
8.
TOTAL REPORTABLE POSITION
=
+
$_------
$
--------
--------
Memorandum #1: Report one total which includes the gross
par amounts of securities delivered through repurchase
agreements, securities loaned, securities pledged, and
collateralized loans. Not included in item #6 (Gross
Financing Position) as reported above.
$_-----Memorandum #2: If the optional exclusion was taken to reduce
the amount of the Gross Financing Position by the amount of
securities received but that the reporting entity did not
have effective control over (e.g., third party custodial
structures, hold-in-custody relationships, counterparty
retained contractual right to substitute), indicate the
total amount of reduction here. Deduct from item #6 (Gross
Fir.ancing Position) .
$_------
Administrative Information to be provided in the Report
Name of Reporting Entity:
Address of Principal Place of Business:
Name and Address of the Designated Filing Entity:
Treasury Security Reported on:
CUSIP Number:
Date or Dates for Which Information Is Being Reported:
86
Date Report Submitted:
Name and Telephone Number of Person to contact Regarding
Information Reported:
Name and Position of Authorized Individual Submitting this
Report (Chief Financial Officer 7 Chief operating Officer,
Chief Executive Officer, or Managing Partner or Equivalent
of Designated Filing Entity):
statement of certification:
"The reporting entity
submitting this report and the person(s) by whom it is
executed hereby certify that all information contained in
the report is accurate and complete and that the reporting
entity is in compliance with the requirements of 17 CFR Part
420."
Signature of Authorized Person Named Above:
*
--
*
*
*
*
Date:
."
.
--.----........,
f....
•.
. ' ____ -G/ '.
.--./
.'1"'--:.-_
(
,I.'
I
/"
~
-
..
,~/
. . - ( I!
"t--=,;..,,---, ~~ .• "
.-
,
Darcy Bradbury
Deputy Assistant Secretary (Federal Finance)
UBLIC
.
Department of the Treasury •
DEB'"["N]~:WS
-.~!)(,.
!
.",,>,
2\
~),;.i.f;
Bureau of the Public Debt • Washington, DC 20239
Jt1!1
FOR IMMEDIATE RELEASE
December 20, 1995
L9;) 0 U u2 5 )
CONTACT: Office of Financing
202-219-3350
,- - -i/',
. - ,
l
' 1 "._ "
c:
./
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Tenders for $18,254 million of 2-year notes, Series AM-1997,
to be issued January 2, 1996 and to mature December 31, 1997
were accepted today (CUSIP: 912827W32).
The interest rate on the notes will be 5 1/4%. All
competitive tenders at yields lower than 5.289% were accepted in
full.
Tenders at 5.289% were allotted 50%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 5.289%, with an equivalent price of 99.927. The median yield
was 5.250%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 5.210%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$39,749,756
Accepted
$18,253,546
The $18,254 million of accepted tenders includes $962
million of noncompetitive tenders and $17,292 million of
competitive tenders from the public.
In addition, $880 million of tenders was also accepted
at the high yield from Federal Reserve Banks for their own
account in exchange for maturing securities.
The $962 million noncompetitive total includes $400
million awarded to foreign official institutions.
RR-783
DEPARTMENT
OF
THE
TREASURY
TREASURY
OFFICE OF PUBUC AFFAIRS· 1500 PENNSYLVANlAAVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
December 21, 1995
STATEMENT OF TREASURY SECRETARY ROBERT E. RUBIN
This review of Ruby Ridge reminds us again of the essential facts: the events were a
tragedy, they never would have occurred had Randall Weaver appeared in court, ATF arrested
him lawfully, and in the three intervening years, the agency has engaged in important reforms.
Now that these facts have been repeated in the public domain, it is time to support the efforts
of ATF, under the outstanding leadership of John magaw, and its brave agents who risk their
lives daily protecting Americans from illegal guns, bombs and arson.
-30-
RR-784
Fm- press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
..
I .". - "
. 'I
Monthly Trea.~ury Statement
of ~:ceitJts-; ana tfu day s
I
'
,
_
of the United States Government
For Fiscal Year 1996 Through November 30, 1995, and Other Periods
Highlight
The cumulative deficit for Fiscal Year 1996 is $61,209 million.
RECEIPTS, OUTLAYS, AND SURPLUS/DEFICIT
THROUGH NOVEMBER 1995
250
B
I
L
L
I
0
N
S
Contents
Summary, page 2
200
Receipts, page 6
150
Outlays, page 7
100
Means of financing, page 20
Receipts/outlays by month, page 26
50
Federal trust funds/securities, page 28
0
Receipts by source/outlays by
function, page 29
-50
Explanatory notes, page 30
-100
Compiled and Published by
Department of the Treasury
Financial Management Service
Introduction
of receipts are treated as deductions from gross receipts: revolving and manag&ment fund receipts. reimbursements and refunds of monies prevIOusly expended are
treated as deductions from gross outlays: and interest on the public debt (publIC
issues) is recognized on the accrual basiS. Major information sources Include
accounting data reported by Federal entitieS. disbursing officers. and Federal
Reserve banks.
The Monthly Treasury Statement o( Receipts and Outlays o( the United States
Govemment (MTS) IS prepared by the Financial Management Service. Department of
the Treasury. and after approval by the Fiscal Assistant Secretary of the Treasury. is
normally released on the 15th workday of the month follOWing the reporting month.
The publicallOn IS based on data provided by Federal entities. disbursing officers.
and Federal Reserve banks
Triad of Publications
The MTS is part of a triad of Treasury financial reports. The Dally Treasury
Statement is published each working day of the Federal Government. It provides
data on the cash and debt operations of the Treasury based upon reporting of the
Treasury account balances by Federal Reserve banks. The MTS is a report of
Government receipts and outlays. based on agency reporting. The U.S. Government
Annual Report is the official publication of the detailed receipts and outlays of the
Government. It is published annually in accordance with legislative mandates given
to the Secretary of the Treasury.
Audience
The MTS is published to meet the needs of: Those responsible for or interested
In the cash position of the Treasury: Those who are responsible for or interested in
the Government's budget results: and individuals and businesses whose operations
depend upon or are related to the Government's financial operations.
Disclosure Statement
This statement summarizes the financial activities of the Federal Government
and off-budget Federal entities conducted in accordance with the Budget of the U.S.
Government. Le .. receipts and outlays of funds. the surplus or deficit, and the means
of financing the deficit or disposing of the surplus. Information is presented on a
modified cash basis: receipts are accounted for on the basiS of collections: refunds
Data Sources and Information
The Explanatory Notes section of this publication provides information conceming the flow of data into the MTS and sources of information relevant to the MTS.
Table 1. Summary of Receipts, Outlays, and the Deficit/Surplus of the U.S. Government, Fiscal Years 1995 and 1996,
by Month
[$ millions]
Period
Receipts
Outlays
Deficit/SurpluS (-)
FY 1995
October
November
December
January
February
March
April
May
June
July
August
September
Year-to-Date .......................... .
89.024
87.673
130,810
131,801
82,544
92,532
165,392
90,405
147,868
92,749
96,560
143,219
120.365
124.915
135,613
116,166
120,899
143,074
115,673
129,958
135,054
106,328
130,411
135,972
31.342
37,242
4,803
-15,635
38,355
50,543
-49,720
39,553
-12,814
13,579
33,851
-7,247
1,350,576
1,514,428
163,852
95,593
90,008
118,352
128,458
22,758
38,450
185,601
246,809
61,209
FY 1996
October
November
Year-to-Date .......................... .
2
Table 2. Summary of Budget and Off-Budget Results and Financing of the U.S. Government, November 1995 and
Other Periods
[$ millions]
This
Month
Classification
Total on-budget and off-budget results:
...............
Total receipts
Current
Fiscal
Year to Date
Budget
Estimates
Full Fiscal
Year'
Prior
Fiscal Year
to Date
(1995)
Budget
Estimates
Next Fiscal
Year (1997)'
90.008
185.601
1.414.641
176.696
1.473.929
63.651
26.357
135.851
49.750
1.046.796
367.845
127.467
49.229
1.088.626
385.303
128.458
246.809
1.578.481
245.281
1.654.983
101.767
26.691
193.918
52.892
1.273.064
305.417
194.770
50.510
1.337.953
317.030
-38.450
-61.209
-162.840
-68.584
-179.054
-38.116
-334
-58.067
-3.142
-225.268
+62.428
-67.303
-1.281
-247.327
+68.273
Total on-budget and off-budget financing
38.450
61.209
162.840
68.584
179.054
Means of financing:
....................
Borrowing from the public
Reduction of operating cash. increase (-)
By other means ...... .................
38.339
-4.912
5.022
51.693
11.844
-2.328
195.312
-10.000
-22.472
72.985
8.886
-13.287
213.415
On-budget receipts ..
Off-budget receipts
Reduction in corporate subsidies
Total outlays
2.000
1.000
...........
. .. . . . . . . . .
On-budget outlays
Off-budget outlays
Total surplus (+) or deficit (-)
On-budget surplus (+) or deficit (-)
Off-budget surplus (+) or deficit (-)
... No Transactions.
Note: Details may not add to totals due to rounding.
'These figures are based on the Mrd-Session Review of the FY 1996 Budget. released by the
Office of Management and Budget on July 31. 1995.
Figure 1. Monthly Receipts, Outlays, and Budget Deficit/Surplus of the U.S. Government, Fiscal Years 1994 and 1995
$ billions
180~------------------------------------------------,
FY
96
FY
95
3
-34.361
Figure 2.
Monthly Receipts of the U.S. Government, by Source, Fiscal Years 1995 and 1996
$ billions
160
140
120
100
80
60
40
20
0
I
Oct.
Figure 3.
Dec.
Feb.
Jun.
Apr.
Aug.
Oct. Nov.
FY
FY
95
96
Monthly Outlays of the U.S. Government, by Function, Fiscal Years 1995 and 1996
$ billions
Total Outlays
60
20~------------------------------------------1
Iinterest
I
Oct.
Dec.
Feb.
Apr.
Jun.
Aug.
Oct.
FY
FY
95
96
4
N~v.
Table 3. Summary of Receipts and Outlays of the U.S. Government, November 1995 and Other Periods
[$ millions)
This Month
Current
Fiscal
Year to Date
39,524
1,694
91,364
3,874
281,073
24,553
619,975
164,193
26,357
8,563
2,940
340
5,154
1,349
1,593
2,496
49,750
15,718
4,154
681
9,607
2,508
3,379
4,566
49,229
15,821
4,322
702
29,790
22,422
3,674
5,111
367,845
105,894
28,390
4,451
57,456
16,225
20,999
29,213
Total Receipts -, - _............................................ .
90,008
185,601
116,696
1,414,641
(On-budget) ................................................. .
63,651
135,851
127,467
1,046,796
(Off-budget) ................................................ .
26,357
49,750
49,229
367,845
Classification
Comparable
Prior Period
Budget
Estimates
Full Fiscal Year'
Budget Receipts
Individual Income taxes ............. .
Corporation income taxes ... .
Social insurance taxes and contributions:
Employment taxes and contributions (off-budget)
Employment taxes and contributions (on-budget)
Unemployment insurance
............ .
Other retirement contributions
Excise taxes
Estate and gift taxes
Customs duties
Miscellaneous receipts .....
Reduction in corporate subsidies
1,000
Budget Outlays
Legislative Branch .................. .
The Judiciary
Executive Office of the President
Funds Appropriated to the President
Department of Agriculture ...... .
Department of Commerce
Department of Defense-Military
Department of Defense-Civil ......... .
Department of Education
Department of Energy .......... " " .....
Department of Health and Human Services
Department of Housing and Urban Development
Department of the Interior
Department of Justice
Department of Labor ..
Department of State
Department of Transportation ..
Department of the Treasury:
Interest on the Public Debt ..
Other
.... " .. "" .. "".
Department of Veterans Affairs ..
Environmental Protection Agency .. ,
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Small BUSiness Administration
SOCial Security Administration
Other independent agencies:
Resolution Trust Corporation
Other
Allowances ...................... .
Undistributed offsetting receipts:
Interest
Other ..
173
196
14
1,203
6.540
280
20.262
2,707
2,336
1,383
26.828
2,350
478
985
2,822
341
3,300
348
393
28
1,925
12.350
634
37,532
5,367
4,392
2,878
51,247
3,438
1,119
1,793
5,337
871
6,437
570
353
35
4,731
14,432
605
39,115
5,294
4,271
3,013
46,618
5,329
1,464
1,726
4.037
1,329
6,944
2,952
3,339
188
10,681
56,348
4,051
249,543
31,934
30,324
15.580
324,928
21,388
7,264
13.760
33,809
5,539
37,457
26,006
-1,053
3,262
538
389
1,119
3,418
238
30,121
47,637
-1,084
4,881
1.022
728
2,247
6,994
254
58,356
44,644
-274
5,011
912
-11
1,987
6,528
210
55,758
349,259
21,812
37,707
6,507
494
13,681
42,992
310
380,481
-840
1,364
-1,785
2,951
-1,973
4,130
-1,214
14.118
-550
-5,736
-2,565
-6.150
-5,330
-6,338
-5,171
-95,851
-40,348
Total outlays .. , ........... , ............... , ................. , ..
128,458
246,809
245,281
1,578,481
(On'budget) ................................................. .
101,767
193,918
194.770
1.273.064
305,411
(Off-budget) ................................................ ,
26,691
52,892
50,510
Surplus (+) or deficit (-) .................................. ..
-38.450
-61.209
-68.584
-162,840
(On-budget) ................................................. .
-38,116
-58.067
-67.303
-225,268
-334
-3,142
-1.281
+62,428
(Off-budget) ................................................ .
'Includes an adjustment made for September 1995 to reflect the reclaSSification of refunds
previously reported by the Internal Revenue Service
Note: Details may not add to totals due to rounding.
'These figures are based on the Mid Session Review of the FY 1996 Budget. released by the
Office of Management and Budget on July 31. 1995.
5
Table 4.
Receipts of the U.S. Government, November 1995 and Other Periods
[$ mlillonl)
Classification
IndiVidual Income taxes:
WIthheld
PresIdentIal ElectIon CampaIgn Fund
Other
Total-Individual income taxes
.........................
G~'I (Deduct)
Refundl\ Receipts
Receipts
Groll
Receipts
39.945
1
1.991
86.863
1
7.891
41,937
94,755
(Deduct)
Receipt.
91,364
84,139
'3,066
81,073
8,195
'3,643
4,553
28,099
-110
28.099
-110
)
)
("j
("j
3,995
22,303
58
42,934
-34
643
58
42,291
-34
..
(
SOCial insurance taxes and contributions:
Employment taxes and contnbutions:
Federal old-age and survIvors ins. trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
DepoSIts by States
............
Other
...........
22.303
(
..
)
)
..
(
I (Deduct)
Refundl I Recel ts
p
3,392
7,870
1,362
Gross
Receipts
78.361
2
5.776
1,694
3,056
Federal disabIlity Insurance trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Receipts from railroad retirement account
Deposits by States .....................
Other
................
39,524
1 Refund'l
3,874
Corporation income taxes ....................................
Total-FOASI trust fund
2,414
Prior Flacal Year to D,te
Current Flacal Year to D,te
Thll Month
..
(
)
..
..
(
(
)
22,361
22,361
42,901
643
42,257
27,989
27,989
3,986
10
3,986
10
7,602
10
119
7,482
10
20,756
484
20,756
484
..)
n
(
3,996
3,996
7,612
119
7,492
21,240
21,240
8,273
23
8,273
23
15,077
17
-13
15,090
17
15,123
90
15,123
90
8,296
8,296
15,094
-13
15,107
15,213
120
147
120
147
304
307
)
304
307
309
305
7
302
305
34,919
34,919
66,218
750
65,468
65,056
7
65,049
2,540
400
2,540
400
3
3,412
736
6
3,604
719
6
8
)
3,412
738
6
3,604
712
6
2,940
2,940
4,156
3
4,154
4,330
8
4,322
Other retirement contributions:
Federal employees retirement - employee
contributIons
ContributIons for non-federal employees
332
8
332
8
668
14
668
14
686
17
686
17
Total-Other retirement contributions
340
340
681
681
702
702
38,199
38,199
71,056
752
70,303
70,089
14
70,074
Total-FDI trust fund
Federal hospital insurance trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Receipts from Railroad Retirement Board
DepoSIts by States
Total-FHI trust fund
Railroad retIrement accounts:
Rail industry pension fund
Railroad Social Security equivalent benefit
Total-Employment taxes and contributions
Unemployment insurance:
State taxes deposited in Treasury
Federal Unemployment Tax Act taxes
RaIlroad unemployment taxes
.. . . .. . . .. . . .. . . .. .. .
RaIlroad debt repayment
Total-Unemployment insurance
Total-Social insurance taxes and
contributions ........................................
Excise taxes:
................
M,scellaneous excise taxes 2
AIrport and aIrway trust fund .................
. . . . . . . . . .. .
Highway trust fund
Black lung dIsability trust fund .............. .............
..
(
..
(
..
)
(
..
(
n
)
15,213
3,173
449
1,737
52
256
2,917
449
1,737
52
5,402
916
3,485
103
299
5,103
916
3,484
103
5,944
896
2,901
116
'61
6
1
5,883
890
2,900
116
.....................................
5,410
258
5,154
9,907
300
9,607
9,858
68
9,790
Estate and gift taxes .........................................
1,375
26
1,349
2,581
72
2,508
2,497
'75
2,422
...............................................
1,709
116
1,593
3,592
213
3,379
3,926
252
3,674
2,117
379
(
..
)
2,117
379
3,874
695
3
3,874
692
4,542
574
6
4,542
569
Miscellaneous receipts ....... , ................
2,496
(* *)
2,496
4,589
3
4.566
5,116
6
5,111
........................................
On-budget ......................................
Off-budget ......................................
94,182
4,174
90,008
194,328
8,727
185,601
183,821
7,124
176,696
67,826
4,174
63,651
143,815
7,964
135,851
134,592
7,124
127,467
26,357
50,512
763
49,750
49,229
Total-Excise taxes
Customs duties
Miscellaneous Receipts:
DepoSIts of eamlngs by Federal Reserve banks
All other
Total Total
Total
Total -
Receipts
26,357
No Transactoons.
(•• ) Less than $500,000.
Note: Details may not add to totals due to rounding
'Includes an adjustment made for September t995 to reflect the rectassmcatoon of refunds
prevoously reported by the Intemal Revenue Se<vlce
'Indudes amounts for the Windfall profrts tax pursuant to P L 96-223.
6
49,229
Table 5. Outlays of the U.S. Government, November 1995 and Other Periods
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicable/ Outlays
Outlays
Receipts
Gross IAPPlic.ablel Outla s
Outlays
Receipts
y
Gross /APPlic.able / Outlays
Outlays
Receipts
Classification
Legislative Branch:
Senate..............
. .............................. .
House of Representatives ...
. ..................... .
. ................ .
Joint items ................
.................. .
Congressional Budget Office
Architect of the Capitol ......... .
Library of Congress ....................... .
Govemment Printing Office:
Revolving fund (net) ................... .
General fund appropriations .............................. .
General Accounting Office ...................... .
United States Tax Court ................................... .
Other Legislative Branch agencies ........... .
Proprietary receipts from the public .. . ............ .
Intrabudgetary transactions ...................... .
Total-Legislative Branch ............................... .
33
55
....
(
(
)
)
33
55
6
2
2
13
28
13
28
18
18
7
7
7
7
4
64
110
14
3
27
57
6
....
(
(
)
)
64
110
14
68
129
13
68
129
13
..
(' ')
( )
3
3
3
26
57
41
198
40
198
26
13
26
6
5
32
16
63
32
16
63
2
26
13
26
6
5
6
6
-1
-1
-1
6
6
-1
-2
-2
175
173
351
4
2
-1
3
348
-2
573
-2
3
570
The Judiciary:
Supreme Court of the United States ...................... .
Courts of Appeals, District Courts, and other judicial
services .................................................... .
Other ........................................................ .
3
3
5
5
4
4
185
10
184
10
371
18
370
18
331
18
Total-The Judiciary .................................... .
197
196
394
393
332
18
354
Executive Office of the President:
Compensation of the PreSident and the White House
Office .................................................. .
Office of Management and Budget ................. .
Other ........................................................ .
3
4
7
3
4
7
5
9
14
5
9
14
14
28
6
553
209
57
576
323
1
1
11
11
2
2
6
6
Total-Executive Office of the President
Funds Appropriated to the President:
Intemational Security Assistance:
Foreign military loan program ............. . ............. .
Foreign military financing program ....................... .
Economic support fund ................................... .
Peacekeeping Operations ................................. .
Other .............................................. .
Proprietary receipts from the public ..................... .
Total-International Security Assistance
International Development Assistance:
Multilateral Assistance:
Contribution to the International Development
ASSOCiation .................................. .
Intemational organizations and programs ..... .
Other ............................................ .
37
553
209
Total-Agency for International Development
International Monetary Programs .................... .
Military Sales Programs:
Special defense acquisition fund ...................... .
Foreign military sales trust fund ......................... .
Kuwait civil reconstruction trust fund .................... .
Proprietary receipts from the public ..................... .
Other ........................................................ .
Total-Funds Appropriated to the President ......•....
-7
39
764
973
..
)
7
576
323
38
89
6
10
19
35
35
137
2,025
1,463
54
83
2,025
1,463
7
2
-38
7
2
14
-14
68
3,566
3,634
314
314
246
9
9
170
170
15
212
212
15
15
535
535
202
618
202
618
147
15
147
15
264
44
264
44
221
67
221
67
40
52
41
40
52
41
82
103
75
82
103
75
70
132
74
70
132
74
20
-59
58
43
59
317
61
256
10
18
51
-41
18
803
..15
(
)
(
23
Overseas Private Investment Corporation
Peace Corps .............................. .
Other ..................................... .
Total-International Development Assistance ..
7
50
6
10
19
884
Total-Multilateral Assistance ............... .
Agency for International Development:
Sustainable development assistance program ......... .
Assistance for eastern europe and the baltic States ..
Assistance for the new independent States of the
former soviet union ................................... .
Development fund for Africa ........................... .
Operating expenses ............................. .
Payment to the Foreign Service retirement and
disability fund .................................. .
Other ........................................... .
Proprietary receipts from the public ............ .
Intrabudgetary transactions ............................ .
31
14
28
353
2
4
53
99
-99
625
103
522
64
9
15
33
17
256
1,224
167
83
198
-4
1,194
17
2,423
(
(
9
368
112
83
8
12
1,194
..
..
1,090
2,455
1,253
(
(
)
..
..
(
)
7
)
-1,090
)
1,203
31
..
)
..
2,623
4,835
2,910
(
)
246
7
133
36
-133
606
140
467
-50
5
50
33
-45
41
13
190
1,094
17
41
13
1,057
1,283
198
89
-14
2,423
32
1,985
(
(
..
..
)
-2,623
(
..
89
43
)
)
4
1,925
7,027
-11
1,985
..
(
1,995
)
-1,995
4
2,297
4,731
Table 5.
Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[$ millions]
Current Fiscal Year to Date
This Month
Classification
Gross jAPPUC8blej Outlays
Receipts
Outlays
Department of Agriculture:
Agncultural Research Service
Cooperative State Research Education and Extension
Service
Cooperative state research activities
Extension Service
Other
Animal and Plant Health Inspection Service
Food Safety and Inspection Service
Agncultural Marketing Service
Farm Service Agency:
Salaries and expenses
Conservation programs
Federal crop insurance corporation fund
Commodity Credit Corporation:
Price support and related programs
National Wool Act Program
Agricultural credit insurance fund
Other
Total-Farm Service Agency
Natural Resources Conservation Service
Conservation operations
Watershed and flood prevention operations
Other
Rural Utilities Service:
Rural electrification and telephone fund
Rural development insurance fund
Other
Rural housing and Community Development Service:
Rural housing insurance fund
Other
Foreign Agricultural Service
Food and Consumer Service:
Food stamp program
State child nutrition programs
Women, infants and children programs
Other
Total-Food and Consumer Service
Forest Service:
National forest system
Forest and rangeland protection
Forest service permanent appropriations
Other
Total-Forest Service
Outlays
Gross IAPPlicablej 0 tI
Outlays
Receipts
u ays
62
62
124
124
125
125
37
36
2
40
44
87
37
36
2
40
44
87
66
68
5
75
86
202
66
68
5
75
86
202
68
70
5
86
77
228
68
70
5
86
77
228
9
510
237
117
9
510
120
21
1,655
439
161
21
1,655
279
149
1,744
139
149
1,744
-263
2,375
325
2,050
3,644
838
2,806
.. )
10
134
-124
..)
20
179
-159
5,045
1
164
3,141
576
2,565
5,779
49
24
11
92
45
20
49
24
11
..
(
(
(
1,178
402
566
197
7,242
92
45
20
77
54
16
..
(
)
4,601
4,478
1
-34
1,165
)
6,077
77
54
16
72
54
54
164
36
32
-92
18
22
455
148
103
754
78
43
-300
70
60
160
149
51
313
93
27
-152
56
23
264
96
54
166
99
96
54
432
169
118
414
19
169
118
571
191
264
418
153
191
264
2,122
676
341
28
2,122
676
341
28
4,238
1,264
654
77
4,238
1,264
654
77
4,347
1,177
593
134
4,347
1,177
593
134
3,166
3,166
6,232
6,232
6,250
6,250
170
24
16
85
170
24
16
85
248
81
223
153
248
81
223
153
210
238
248
139
210
238
248
139
296
296
704
704
835
835
7
-82
48
42
-148
79
6
145
73
-145
12,350
16,599
2,167
14,432
9
Other
Propnetary receipts from the public
Intrabudgetary transactions
l
Gross jAPPIlcabie
Outlays
Receipts
Prior Fiscal Year to Date
..)
2
82
..)
..)
5
148
..)
(
(
6,540
14,970
48
13
17
47
13
17
85
46
44
84
54
75
54
3
46
44
50
75
54
154
41
17
340
96
32
5
338
96
27
342
66
25
7
4
153
41
14
6
336
66
19
Total-SCience and Technology
211
4
207
467
6
461
433
13
420
Other
Propnetary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts
7
7
-11
19
22
19
-22
26
11
21
26
-21
Total-Department of Agriculture
Department
Economic
Bureau of
Promotion
(
.......................
of Commerce:
Development Administration
the Census
of Industry and Commerce
Science and Technology:
National Oceanic and Atmospheric Administration
National Institute of Standards and Technology
Other
Total-Department of Commerce
7,598
1,058
(
2,620
..
(
.......................
296
16
8
280
663
29
634
642
..
(
)
37
)
605
Table 5. Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[$ millions]
Classification
Department of Defense-Military:
Military personnel:
........ , ....
Department of the Army ...
Department of the Navy ., .......... . . . . . . . . . . . . . .
............
Department of the Air Force
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross !APPlicablel Outlays
Outlays
Receipts
Gross IAPPlicable!
Outlays Receipts
Outlays
Gross !APPlicable lOti
Outlays Receipts
u ays
2.062
2.305
1.560
2.062
2.305
1.560
3.175
3.376
2,409
3.175
3.376
2,409
3.112
3.724
2.578
3.112
3.724
2.578
5.927
5.927
8.959
8.959
9.414
9,414
1.901
1.563
1.714
1.597
1.901
1.563
1.714
1.597
3.325
2.711
3.691
3.005
3.325
2.711
3.691
3.005
3.591
3.054
4.134
3.171
3.591
3.054
4.134
3.171
6,775
6.775
12.732
12,732
13.949
13.949
Procurement:
................ , ... ............
Department of the Army
....................
Department of the Navy
Department of the Air Force ............
..............
Defense agencies
576
1.486
941
264
576
1.486
941
264
1.031
3,068
2.215
570
1,031
3.068
2,215
570
1.128
3,939
3.230
712
1.128
3.939
3.230
712
...........
3.268
3.268
6.884
6.884
9.009
9,009
437
678
950
625
437
678
950
625
812
1.295
1.924
1,304
812
1.295
1,924
1,304
734
1.249
2.152
1,263
734
1,249
2,152
1,263
2.689
2,689
5,334
5.334
5.398
5.398
113
57
104
337
113
57
104
337
163
129
222
631
163
129
222
631
148
98
236
480
148
98
236
480
611
611
1.146
1.146
961
961
97
95
86
12
97
95
86
9
192
238
148
24
192
238
148
16
160
145
162
28
160
145
162
21
12
60
12
60
73
188
73
188
-27
41
-27
41
1.131
-9
1.131
-10
1,761
-32
1.761
-34
-137
-40
-137
-41
..
)
("')
2
1
18
1
Total-Military personnel
Operation and maintenance:
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies
.............
... . . . . . .....
Total-Operation and maintenance.
Total-Procurement
Research. development. test. and evaluation:
Department of the Army
Department of the Navy ..
...........
Department of the Air Force
. .............
Defense agencies ......
'
Total-Research. development, test and evaluation ...
Military construction:
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies ..... ,.
.............
...........
.............
Total-Military construction
Family housing:
Department of the Army
Department of the Navy
Department of the Air Force
................
Defense agencies ...........
Revolving and management funds:
Department of the Army ..
.............
Department of the Navy ...
............
Department of the Air Force
Defense agencies:
Defense business operations fund
........... ,
Other ..
Trust funds:
........... ...........
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies ........... . . . . . . . . . . . . . ............
Proprietary receipts from the public:
Department of the Army ........ ..............
. . . . . . . . .. . .
Department of the Navy .........
Department of the Air Force
Defense agencies
Intrabudgetary transactions:
Department of the Army
Department of the Navy
Department of the Air Force
...........
Defense agenCies ....
Offsetting governmental receipts:
...........
Department of the Army
...........
Defense agencies
Total-Department of Defense-Military
.............
(
4
..
(
)
18
131
7
5
-25
(
)
13
2
38
8
2
....
124
9
20,262
37,930
..
)
(
)
)
)
398
)
(
..
..5
(
2
7
..)
)
(
)
27
27
143
76
179
192
-172
-22
-220
36
126
427
103
-39
..)
..)
(
(
37,532
7
..
(
5
4
620
-42
-354
4
620
-42
-354
(
(
20,386
..
38
172
22
220
-36
-131
-7
-5
25
-2
35
-57
-364
-2
35
-57
-364
..
(
8
126
427
103
-39
..
..)
(
600
39,115
(
39,715
-143
-76
-179
-192
)
Table 5.
Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[S millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross .!APPlicable! Outlays
Outlays
Receipts
Gross !APPlic.ablei Outla s
y
Outlays
Receipts
Gross jAPPlicablej 0 tI
Outlays
Receipts
u ays
Classification
Department 01 Delense-Civil
Corps of Engineers:
Construction, general
Operation and maintenance, general
Other
Proprietary receipts from the public
Total-Corps of Engineers
.................
318
............
Military retirement:
Payment to military retirement fund . . . . . . . . . . . . . . .
Military retirement fund
..............
Intrabudgetary transactions
......................
Education benefits
Other ..
Proprietary receipts from the public
Totel-Department 01 Delense-Civil
174
271
228
2
84
141
92
-2
2
316
673
84
141
92
...................
2,378
10
5
2,378
1
10
5
-1
3
2,707
5,396
(" OJ
2,710
10,699
4,733
-10,699
-21
11
215
304
246
26
174
271
228
-26
26
647
765
1
2
10,699
4,733
-10,699
-21
11
-2
11,470
4,555
-11,470
-10
10
29
5,367
5,320
22
215
304
246
-22
22
742
1
2
11,470
4,555
-11,470
-10
10
-2
25
5,294
Department 01 Education:
Office of Elementary and Secondary Education:
Education for the disadvantaged ...
Impact aid ... . . . . . . . . . . . ..............
School improvement programs .... ............
Other
...........
616
19
88
14
616
19
88
14
1,222
59
191
46
1,222
59
191
46
857
67
211
15
857
67
211
15
Total-Office of Elementary and Secondary
Education
737
737
1,518
1,518
1,149
1,149
Office of Bilingual Education and Minority Languages
.............
Affairs
Office of Special Education and Rehabilitative Services:
Special education
...........
Rehabilitation services and disability research ..
Special institutions for persons with disabilities
Office of Vocational and Adult Education
8
8
21
21
33
33
189
187
4
68
189
187
4
68
461
381
13
276
461
381
13
276
463
365
23
262
463
365
23
262
Office of Postsecondary Education:
College housing loans ............
. ..........
Student financial assistance
Higher education
. . . . . . . . . . . ..
Howard University
Federal direct student loan program .............
............
Federal family education loans
Other
-8
519
60
13
170
315
2
1,216
123
22
179
62
-17
1,216
123
22
179
62
(00)
(0 0)
6
1,316
126
32
21
363
-7
24
519
60
13
170
315
2
-18
1,316
126
32
21
363
-7
1,071
1,602
17
1,585
1,857
24
1,833
28
57
81
75
76
2
57
81
-2
8
75
76
-8
19
4,392
4,302
31
4,271
Total-Office of Postsecondary Education
Office of Educational Research and Improvement
Departmental management ............
.............
Proprietary receipts from the public ..
Total-Department 01 Education
8
1,080
28
44
2,345
.................
Energy programs:
General science and research activities
Energy supply, Rand D activities
Uranium supply and enrichment activities
Fossil energy research and development
Energy conservation
Strategic petroleum reserve
Clean coal technology
Nuclear waste disposal fund
Other
Total-Energy programs
Power Marketing Administration
Departmental administration
Proprietary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts
Total-Department 01 Energy.", .. "" .. """ .........•
44
-1
........................
Department 01 Energy:
Atomic energy defense activities
8
17
2,336
4,411
937
937
1,988
1,988
2,057
2,057
96
259
18
51
62
15
96
259
18
51
62
15
186
582
19
80
101
30
186
582
19
80
101
30
407
549
16
76
98
37
407
549
16
76
98
37
9
16
71
(00)
16
71
145
(0 0)
44
144
56
147
(0 0)
56
147
588
(" 0)
588
1,187
(00)
1,187
1,385
(00)
1,385
129
24
114
15
24
-143
-39
277
59
228
49
59
-350
-54
355
75
257
4
98
75
-458
-141
-4
719
3,013
143
-39
44
350
-54
-1
1,639
256
10
1,383
3,457
(0 0)
(" 0)
578
2,878
458
-141
3,732
Table 5. Outlays of the U.S. Govemment, November 1995 and Other Periods-Continued
[$ millions)
Classification
This Month
Current Fiscal Year to Date
Gross !APPlicable! Outlays
Outlays Receipts
Gross !APPlicable!
Outlays Receipts
Outlays
Prior Fiscal Year to Date
Gross !APPlic.able
Outlays Receipts
I Outla ys
Department of Health and Human Services:
Public Health Service:
Food and Drug Administration ........................... .
Health Resources and Services Administration .......... .
Indian Health Services .................................... .
Centers for Disease Control and Prevention ............ .
National Institutes of Health .............................. .
Substance Abuse and Mental Health Services
Administration ............................................ .
Agency for Health Care Policy and Research ........... .
Assistant secretary for health ............................ .
64
196
163
153
845
63
196
163
153
845
131
379
322
320
1,912
130
379
322
320
1,912
139
349
331
291
1,692
139
349
331
291
1,692
207
10
59
207
10
59
390
21
124
390
21
124
359
21
10
359
21
10
Total-Public Health Service ........................... .
1,697
1,696
3,599
3,598
3,191
3,191
Health Care Financing Administration:
Grants to States for Medicaid ........................... .
Payments to health care trust funds
8,071
3,834
8,071
3,834
15,322
7,712
15,322
7,712
14,167
6,104
14,167
6,104
Federal hospital insurance trust fund:
Benefit payments ....................................... .
Administrative expenses ................................ .
Interest on normalized tax transfers .................. .
9,735
134
9,735
134
18,742
209
18,742
209
16,587
189
16,587
189
Total-FHI trust fund ................................ .
9,869
9,869
18,951
18,951
16,776
16,776
Federal supplementary medical insurance trust fund:
Benefit payments ....................................... .
Administrative expenses ................................ .
5,750
163
5,750
163
10,997
283
10,997
283
9,854
234
9,854
234
Total-FSMI trust fund .............................. .
5,913
5,913
11,280
11,280
10,089
10,089
Other ...................................................... .
-42
-42
14
14
44
44
Total-Health Care Financing Administration .......... .
27,645
27,645
53,280
53,280
47,178
47,178
1,630
72
35
1,630
72
35
3,257
122
48
3,257
122
48
3,009
171
72
3,009
171
72
70
(" 0)
70
rO)
,135
( -1
135
-1
139
35
139
35
99
176
591
99
176
591
180
387
693
180
387
693
145
466
773
145
466
773
289
10
289
10
556
22
556
22
434
1
434
1
Total-Administration for children and families ....... .
2,972
2,972
5,399
5,399
5,247
5,247
Administration on aging ..................................... .
Departmental management ................................. .
Proprietary receipts from the public ........................ .
Intrabudgetary transactions:
Payments for health insurance for the aged:
Federal hospital insurance trust fund ................. .
Federal supplementary medical insurance trust fund ..
Payments for tax and other credits:
Federal hospital insurance trust fund ................. .
Other .................................................... .
69
10
69
10
-1,729
135
59
135
59
-3,512
132
59
132
59
-3,085
-3,834
-7,723
-7,723
-6,103
-6,103
10
10
-1
-1
51,247
49,704
Administration for children and families:
Family support payments to States ..................... .
Low income home energy assistance ................... .
Refugee and entrant assistance ......................... .
Payments to States for the job opportunities and basic
skills training program ................................... .
State legalization impact assistance grants ............. .
Payments to States for the child care and development
block grant .............................................. .
Social services block grant ............................... .
Children and families services programs ................ .
Payments to States for foster care and adoption
aSSistance ................................................ .
Other ...................................................... .
Total-Department of Health and Human Services
1,729
-3,834
28,558
1,730
11
26,828
3,512
54,759
3,513
3,085
3,086
46,618
Table 5.
Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[$ millions)
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicablel Outla s
Receipts
y
Outlays
Gross IAPPlicable I Outlays
Outlays
Receipts
Gross jAPPlic.ablej Outla 5
Outlays
Receipts
Y
Classification
Department of Housing and Urban Development:
HOUSing programs
Public enterprise funds
Credit accounts
Federal hOUSing administration fund
HOUSing for the elderly or handicapped fund
Other
Rent supplement payments
Homeownersh,p assistance
Rental hOUSing assistance
Rental hOUSing development grants
Low-rent public housing
Public housing grants
College housing grants
Lower income housing assistance
Section 8 contract renewals
Other
Total-Housing programs
Public and Indian Housing programs:
Low-rent public housing-Loans and other expenses
Payments for operation of low-income housing
prolects
Community Partnerships Against Crime
Other
Total-Public and Indian Housing programs
17
13
5
29
18
11
24
18
6
313
265
48
-2
10
52
989
55
-676
210
48
-2
10
52
2.321
254
95
10
19
109
3.237
69
-916
184
95
10
19
109
1.040
326
92
22
21
109
1.010
110
31
215
92
22
21
109
227
343
2
777
490
26
244
703
3
890
502
49
244
703
3
890
502
49
249
651
4
1.670
733
21
227
343
2
777
490
26
2.568
1.056
1.512
5.226
3.324
1.902
4.961
1.138
3.823
225
173
52
227
186
41
241
196
44
230
17
5
437
37
13
437
37
13
435
23
173
303
714
186
529
700
196
18
59
-42
33
140
-107
92
125
-34
18
59
-42
33
140
-107
92
125
-34
389
95
29
8
389
95
20
790
190
58
19
790
190
39
659
188
47
25
659
188
22
512
8
504
1.038
19
1.019
894
25
869
145
7
57
145
7
-57
160
11
6
75
4
-6
3
160
11
-3
1,303
2,350
7,164
3,726
3,438
6,817
1,488
5,329
59
16
45
59
16
45
108
37
111
108
37
111
117
164
143
23
23
94
94
61
61
142
142
350
350
486
486
21
21
35
21
21
25
4
38
39
48
1
71
21
71
39
63
23
81
28
4
71
39
41
23
81
24
19
219
305
27
278
230
17
5
477
Government National Mortgage Association:
Management and liqUidating functions fund
Guarantees of mortgage-backed securities
Total-Government National Mortgage Association
Community Planning and Development:
Community Development Grants
Home investment partnerships program
Other
Total-Community Planning and Development
75
4
Management and Administration
Other
Proprietary receipts from the public
Offsetting governmental receipts
Total-Department of Housing and Urban
Devefopment .............................................
3,654
Department of the Interior:
Land and minerals management:
Bureau of Land Management:
Management of lands and resources
Other
Minerals Management Service
Office of Surlace Mining Reclamation and
Enforcement
Total-Land and minerals management
Water and SCience:
Bureau of Reclamation'
Construction program
OperaliOn and maintenance
Other
Central utah prolect
United States Geological Survey
Bureau of Mines
Total-Water and sCience
Fish and wildlife and parks:
United States Fish and Wlidlife Service
National Biological Survey
NaliOnal Park Service
Total-Fish and wildlife and parks
..)
(
249
651
4
1.670
733
21
435
23
504
117
164
143
38
12
38
11
38
39
63
1
71
25
127
117
238
87
6
116
87
6
116
188
13
239
188
13
239
216
20
244
216
20
244
209
209
440
440
480
480
(
..)
9
("')
11
12
15
22
Table 5. Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[$ millions]
Classification
Department of the Interior:-Continued
Bureau of Indian Affairs:
Operation of Indian programs
Indian tribal funds
Other .............
Total-Bureau of Indian Affairs
Territorial and international affairs ..
Departmental offices ...................
proprietary receipts from the public ...
Intrabudgetary transactions ...
Offsetting govemmental receipts
Total-Department of the Interior
. ..........
Prior Fiscal Year to Date
Gross !APPlicable! Outlays
Outlays
Receipts
Gross !APPlicabl1
Outlays
Receipts
Outlays
Gross IAPPlicablel 0 tl
Outlays
Receipts
u ays
73
31
28
73
31
26
165
65
51
132
131
281
12
17
12
17
-128
-22
124
24
128
.......................
...........................
Department of Labor:
Employment and Training Administration:
Training and employment services
Community Service Employment for Older Americans ...
Federal unemployment benefits and allowances .......
State unemployment insurance and employment service
operations .............
..............
Payments to the unemployment trust fund
Advances to the unemployment trust fund and other
funds ..
. ........... ...............
Unemployment trust fund:
Federal-State unemployment insurance:
State unemployment benefits ......
State administrative expenses
Federal administrative expenses
Veterans employment and training
Repayment of advances from the general fund
Railroad unemployment insurance ..
Other .............................. . . . . . . . . . . . . .
.
Total-Unemployment trust fund
Other ..
Current Fiscal Year to Date
-22
Department of Justice:
..............
Legal activities . . . . . . . . . . . . . .
Federal Bureau of Investigation
Drug Enforcement Administration ......
Immigration and Naturalization Service ............
Federal Prison System ..... ...........
Office of Justice Programs ..
Other
Intrabudgetary transactions
Offsetting govemmental receipts
Total-Department of Justice
This Month
. . . . . . . . . .. . . . .
Total-Employment and Training Administration
PenSion Benefit Guaranty Corporation
Employment Standards Administration:
Salaries and expenses
. . .. .. .....
.......... ,
Special benefits
Black lung disability trust fund ..
Other ........
Occupational Safety and Health Administration
Bureau of Labor Statistics
Other ........................
Proprietary receipts from the public
Intrabudgetary transactions
Total-Department of Labor " ...........................
618
2
165
65
49
236
-6
119
2
236
-6
117
2
279
349
2
347
124
24
-283
-35
238
62
283
-35
345
-81
(")
(")
304
1,119
1,838
22
390
277
148
252
421
184
168
-4
127
395
361
126
303
491
144
107
-6
-127
149
1,793
1,836
238
62
-345
-81
(")
(")
373
1,464
21
88
390
277
148
252
400
184
168
-4
-88
110
1,726
140
478
1,423
11
395
361
126
303
513
144
107
-6
54
244
175
61
157
260
77
68
-2
-54
65
985
1,942
408
30
24
408
30
24
703
60
49
703
60
49
738
58
41
738
58
41
22
22
110
110
13
13
1,598
240
8
12
1,598
240
8
12
3,135
463
17
23
3,135
463
17
23
2,924
524
16
29
2,924
524
16
29
6
1
6
1
10
3
10
3
9
3
9
3
1,864
1,864
3,650
3,650
3,504
3,504
4
4
10
10
13
13
2,353
2,353
4,583
4,583
4,368
4,368
320
158
381
145
15
46
47
15
20
17
41
32
129
90
31
41
37
74
32
129
90
31
41
37
74
38
-611
94
30
46
28
63
244
175
61
157
271
77
68
-2
1,050
80
-240
15
46
47
15
20
17
41
(")
-52
2,582
-240
13
-223
..
(
(' ')
-52
-61
2,822
5,114
)
-223
105
38
-611
94
30
46
28
63
-1
-59
(")
-61
-59
5,337
4,143
40
106
4,037
Table 5.
Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross /APPlicablei Outl
Outlays
Receipts
ays
Gross /APPIlc.a ble / Outlays
Outlays
Receipt.
Gross /APPlicable / Outla I
Outlays
Receipts
y
Classification
Department of State:
Administration of Foreign AffairS:
Diplomatic and consular programs
AcquIsition and maintenance of buildings abroad
Payment to Foreign Service retirement and disability
fund
Foreign Service retirement and disability fund
Other
Total-Administration of Foreign Affairs
International organizations and Conferences .............
~~;~~~tion and refugee ~ssist~nce
Proprietary receipts from the public
Intrabudgetary transactions
................
Offsetting governmental receipts ...............
Total-Department of State ..............................
Department of Transportation:
Federal Highway Administration:
Highway trust fund:
Federal-aid highways .............
Other
.....................
Other programs .....................
Total-Federal Highway Administration
National Highway Traffic Safety Administration
Federal Railroad Administration:
Grants to National Railroad Passenger Corporation
Other
......................
152
53
152
53
287
103
287
103
281
77
281
38
31
38
31
75
64
75
64
129
73
54
129
73
54
275
275
529
529
614
614
26
18
22
26
18
22
215
88
39
215
88
39
714
109
22
714
109
22
(••J
r·)
(•• J
(••J
-129
-129
341
341
871
871
1,329
1,329
1,857
16
21
1,857
16
21
3,477
28
46
3,477
28
46
3,530
32
36
3.530
32
36
1.894
1,894
3,550
3,550
3.598
3,598
28
28
48
48
44
44
..
(••J
(
)
77
20
18
56
42
2
56
39
344
32
2
344
30
20
19
97
2
95
376
2
374
172
176
4
172
176
4
341
347
39
341
347
39
240
336
84
240
336
352
352
727
727
661
661
341
341
742
742
281
281
Airport and airway trust fund:
Grants-in-aid for airports
............
Facilities and equipment
Research, engineering and development ............
Operations
125
186
18
125
186
18
283
339
34
r·)
(•• J
283
339
34
r .J
355
428
37
504
355
428
37
504
Total-Airport and airway trust fund .............
329
329
656
656
1,325
1,325
(•• J
(
)
r .J
(
..
(
671
1,398
(••J
Total-Federal Railroad Administration
Federal Transit Administration:
Formula grants
Discretionary grants
Other
. . . . . . .. . . .
Total-Federal Transit Administration . . . . . . . . . . . . . .
Federal Aviation Administration:
Operations
.............
..)
n
1,398
1,606
r .J
1,606
377
76
86
-3
377
76
86
-4
367
72
81
32
367
289
535
534
552
552
25
30
-1
85
50
51
49
-1
90
71
Total-Federal Aviation Administration
671
(
Coast Guard:
Opera ling expenses
AcqUISition, construction, and improvements
Retired pay
Other
210
25
43
11
(
210
25
43
11
290
(
Total-Coast Guard
53
30
Mantime Administration
Other
Propnetary receipts from the public
Intra budgetary transactions
Offsetting governmental receipts
Total-Department of Transportation
)
..)
..)
28
r .)
..)
34
(•• J
1
(
...................
3,336
5
-5
36
3,300
14
..
r·J
(
..
..
)
r .J
Other
(••J
84
6,489
)
..
(
72
81
31
39
r .)
..)
n
11
-11
54
6,944
(
)
13
-13
52
6,437
6,998
50
71
Table 5. Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
IAPPlicable/
Receipts
Gross /APPlicable/ 0 tl
Outlays
Receipts
u ays
Classification
Gross /APPlicable/
Receipts
Outlays
Outlays
Department of the Treasury:
Departmental offices:
EXChange stabilization fund
Other ........ . . . . . .. . . . . . . . .
.
. . . . . , . . . . . . .. . . . . . . . . .. .
. . . . .. . .. . . . . . . . .. .. . . .
-144
22
Financial Management Service:
.......................
Salaries and expenses
Payment to the Resolution Funding Corporation """""""""
Claims, judgements, and relief acts ..............
Net interest paid to loan guarantee financing accounts
............
Other
Intemal Revenue Service:
Processing, assistance, and management . . . . . . . . . . . . . . . .
Tax law enforcement
.........................
Information systems ............. ..........................
Payment where eamed income credit exceeds liability
for tax ......
. ...... " , ....................... " ...
Health insurance supplement to earned income credit
Refunding intemal revenue collections, interest .. , .......
Other ... ,
" ........ , ..... ,
-154
22
-401
92
23
-426
28
5
41
587
51
50
16
41
587
51
50
16
37
587
135
83
5
37
587
135
83
5
60
60
745
745
847
847
-106
-106
-219
-219
-223
-223
2
19
147
8
19
17
2
19
147
8
-108
17
29
38
275
5
28
29
29
38
275
5
-99
29
66
37
302
4
-42
58
66
37
302
4
-42
58
75
273
61
75
273
61
190
570
189
190
570
189
276
634
236
276
634
236
73
73
146
146
40
40
..
420
-1
420
-1
226
..
226
)
749
1,514
1,514
1,412
1,412
38
26
31
80
57
42
80
54
39
95
58
22
19,757
6.248
19,757
6,248
40.269
7,368
40,269
7,368
36,961
7,683
36,961
7,683
26,006
26,006
47,637
47,637
44,644
44,644
6
-280
13
708
13
-708
7
280
-1,387
-143
-2,328
230
-2,328
-230
-1,898
143
562
24,952
47,637
1,083
46,553
44,993
23
..32
32
)
(
r')
5
127
12
Outlays
-412
92
Total-Financial Management Service
Federal Financing Bank
Bureau of Alcohol, Tobacco and Firearms:
.....................
Salaries and expenses
Intemal revenue collections for Puerto Rico " .............
United States Customs Service ........ , ... ................
Bureau of Engraving and Printing
. . .. . . . . . . . . . . .. . .
United States Mint ........
., .......................
Bureau of the Public Debt
...........................
10
Gross
Outlays
127
3
-429
28
""
United States Secret Service
Comptroller of the Currency """"
Office of Thrift Supervison
..... " ..... ,
.. , .. " ....
... " .......
Interest on the public debt:
Public issues (accrual basis)
Special issues (cash basis) ""
.............
""
Other
... , ....... . . . . . . . . . . . . . . . . . .
Proprietary receipts from the public "
.......... , .........
Receipts from off-budget federal entities ..................
Intrabudgetary transactions " . ,
....... , .. , .....
Offsetting governmental receipts ....
Total-Department of the Treasury
267
(
..
)
749
Total-Intemal Revenue Service
Total-Interest on the public debt
267
(
.....................
38
28
30
..
2
(
)
6
-1,387
25,514
15
3
3
(
..
)
(
7
2
)
95
51
20
450
7
-450
161
-1,898
-161
623
44,370
Table 5. Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[$ millions]
Classification
Department of Veterans Affairs:
Veterans Heaith Administration:
Medical care
Other
Gross IAPPlicable/ Outlays
Outlays
Receipts
Gross /Applic.able I Outlays
Outlays
Receipts
Gross /ApPlicable/ Out/a s
Outlays
Receipts
y
18
129
72
8
1,488
116
4
53
31
4
80
1
8
-3
1,322
37
2,450
102
76
41
5
1,488
116
4
227
156
31
1,589
190
6
80
1
6
-3
175
2
18
-2
1,813
2,392
72
91
123
178
3
91
72
91
Construction
Departmental administration
Proprietary receipts from the public:
National service life
United States government life
Other
Intrabudgetary transactions ...........
..17
)
(
. ..............
.................
Environmental Protection Agency:
...............
Program and research operations
Abatement, control, and compliance
Water infrastructure financing
Hazardous substance superfund
Other
Proprietary receipts from the public
Intrabudgetary transactions
...............
Offsetting governmental receipts
Total-Environmental Protection Agency
...............
General Services Administration:
Real property activities
Personal property activities
Other
Proprietary receipts from the public
..
(
57
)
3,444
..
(
................
Total-National Aeronautics and Space
Administration ............................................
Office of Personnel Management:
Government payment for annuitants. employees health
and life Insurance benefits
Payment to Civil service retirement and disability fund
Civil service retirement and disability fund
Employees life insurance fund
Employees and retired employees health benefits fund
Other
Intrabudgetary transactions:
Civil service retirement and disability fund:
General fund contnbutions
Other
...............
182
..
-57
..
(
)
3,262
..
..
)
16
103
60
8
6
176
..)
(
)
141
227
132
55
-16
2,484
109
125
95
23
1,589
190
6
195
206
53
1,562
188
8
175
2
12
-2
182
3
18
3
2,216
2,419
164
2,254
123
178
101
268
(' ')
101
268
..11148
-48
-36
..)
118
-118
5,244
363
38
270
435
209
100
..
(
..)
28
44
89
61
9
5
(
(' ')
(
(
)
-2
4,881
5,378
38
270
435
209
99
-28
128
251
307
180
332
)
555
389
17
.. )
1,052
371
-25
43
674
-38
98
..
182
3
12
3
..
(
)
-111
-2
5,011
..35
128
251
307
180
332
-35
-250
-1
37
912
(
)
-1
538
106
145
44
1,562
188
8
367
-250
-1
2,484
65
2,450
69
..36)
(
)
(
(
33
-17
(
)
141
227
132
55
371
-25
43
National Aeronautics and Space Administration:
Human space flight
Science, aeronautics and technology
MiSSion support
Research and development
Space flight. control and data communications
Construction of facilities
Research and program management
Other
Total-Office of Personnel Management
Prior Fiscal Year to Date
1,904
Total-Veterans Benefits Administration
Total-General Services Administration
Current Fiscal Year to Date
1,322
55
Veterans Benefits Administration:
Public enterprise funds:
Guaranty and indemnity fund
Loan guaranty revolving fund
Other
Compensation and pensions
Readjustment benefits
Post-Vietnam era veterans education account
Insurance funds:
National service life
United States government life
Veterans special life ............
Other
..................
Total-Department of Veterans Affairs
This Month
29
1,022
949
-62
-86
137
6
674
-38
98
-6
-62
-86
137
-1
6
728
-10
-11
(
(
(* *)
389
734
387
444
170
77
19
21
846
761
326
148
113
48
2
2
50
136
191
851
649
39
70
2
50
136
191
851
649
39
70
2
387
444
170
77
19
21
)
1
1
846
761
326
148
113
48
2
2
1,119
1,119
2,247
2,247
1,987
1,987
377
377
435
435
574
574
347
1.269
3,243
-215
13
3
6,522
265
2,634
-10
6,522
-272
324
-10
6,228
229
2,519
22
-2
-5
-5
-5
1,616
3,418
9,841
6,994
9,567
(
..
..
)
3,243
132
1,281
3
(
-2
5,034
16
)
537
2,310
2,847
542
2,498
6,228
-313
22
22
-5
3,039
6,528
Table 5. Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[$ millions]
Classification
Small Business Administration:
Public enterprise funds:
Business loan fund
Disaster loan fund ..
Other
Other
Total-Small Business Administration
..................
Social Security Administration:
Payments to Social Security trust funds
Special benefits for disabled coal miners
Supplemental security income program
Office of the Inspector General ... . . . . . . . . . . . . . . . .
Federal old-age and survivors insurance trust fund (offbudget):
...........
Benefit payments
...........
Administrative expenses
Payment to railroad retirement account
...........
Other
Total-FOASI trust fund .....
Federal disability insurance trust fund (off-budget):
Benefit payments ....
Administrative expenses
Payment to railroad retirement account
Other ....... ...........
Total-FDI trust fund
...............
Proprietary receipts from the public:
On-budget
................
Off-budget . . . . . . . . . . .
. .............
Intrabudgetary transactions:
On-budget .............
. ...........
Off-budget' ..
............
Total-Social Security Administration
...................
Other independent agencies:
Board for International Broadcasting ....
............
Corporation for National and Community Service
Corporation for Public Broadcasting ..
District of Columbia:
Federal payment
Other ....
...........
Equal Employment Opportunity Commission .............
Export-Import Bank of the United States
Federal Communications Commission
This Month
Current Fiscal Year to Date
Gross IAPPlicablel
Outlays
Outlays
Receipts
Gross IAPPlicablel
Outlays
Receipts
Outlays
155
113
1
37
306
39
27
1
(")
116
86
-1
37
173
133
1
74
67
238
381
12
57
2,229
Gross
Outlays
IAPpll~blel
Receipts
Outla s
y
(")
107
75
-1
74
129
4
86
(' ')
36
87
1
86
127
254
297
88
210
967
114
2,346
1
637
123
2,357
637
123
2,357
(")
967
114
2,346
1
24,368
45
24,368
45
48,729
228
48,729
228
46,713
68
46,713
68
24,413
24,413
48,957
48,957
46,781
46,781
3,391
85
3,391
85
6,826
166
6,826
166
6,375
158
6,375
158
3,475
3,475
6,992
6,992
6,533
6,533
12
57
2,229
r')
66
59
3
Prior Fiscal Year to Date
77
41
42
3
54
-54
54
-54
35
-35
(")
(")
(")
(' ')
(* ')
(* ')
-12
-967
-967
-637
54
30,121
58,410
54
58,356
55,793
35
55,758
(")
r ')
(")
(* ')
39
39
51
275
51
275
28
59
286
81
-12
17
(")
42
6
379
-8
31
13
131
714
7
39
431
18
-38
6
714
-5
39
468
12
861
57
233
-679
-54
494
416
14
578
752
29
236
-336
-15
342
-12
30,175
-637
28
59
286
17
9
11
-68
5
77
6
379
5
31
56
138
Federal Deposit Insurance Corporation:
Bank insurance fund
Savings association insurance fund
FSLlC resolution fund ... ...............
Affordable housing and bank enterprise
93
1
257
162
15
171
-69
-14
87
182
3
727
(* ')
(* ')
Total-Federal Deposit Insurance Corporation
352
348
4
913
1,151
-238
1,009
1,017
-8
84
209
20
10
7
3
1
12
23
61
209
20
10
7
3
58
12
(' ')
48
369
41
22
14
4
27
17
99
465
38
26
15
9
56
34
63
(")
106
369
41
22
14
4
27
17
(* ')
37
465
38
26
15
9
56
34
84
97
35
62
-1
5
3
3
5
(")
Federal Emergency Management Agency:
...........
Public enterprise funds ...
Disaster relief . . . . . . . . . . . . . .
Emergency management planning and assistance
Other
Federal Trade Commission
Interstate Commerce Commission
Legal Services Corporation
National Archives and Records Administration
National Credit Union Administration:
Credit union share insurance fund
Central liquidity facility
Other.
81
12
(")
12
(")
85
6
(")
17
6
3
2
12
(' ')
(' ')
-4
3
Table 5.
Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[$ millions)
-----
Classification
Other Independent agencies:-Continued
National Endowment for the Arts
National Endowment for the Humanities
National Labor Relations Board
National SCience Foundation
Nuclear Regulatory Commission
Panama Canal Commission
Postal Service
PubliC enterpnse funds (off-budget)
Payment to the Postal Service fund
Railroad Retirement Board:
Federal Windfall subsidy
Federal payments to the railroad retirement accounts
Rail Industry pension fund'
Benefit payments
Advances from FOASDI fund
OASDI certifications
Administrative expenses
Interest on refunds of taxes
Other
Intrabudgetary transactions:
Payments from other funds to the railroad
retirement trust funds
Other
Supplemental annuity pension fund:
Benefit payments
Interest on refund of taxes
Railroad Social Security equivalent benefit account:
Benefit payments
Interest on refund of taxes
Other
Current Fiscal Year to Date
Gross 1APPlicable1 Outlays
Outlays
Receipts
Gross 1Applicable 1 Outlays
Receipts
Outlays
10
11
11
259
37
44
3.986
8
54
10
11
11
259
28
-11
24
24
23
468
79
96
24.604
-618
8.302
55
20
-992
55
7.850
61
145
94
8.643
30
27
29
394
-60
-5
-793
61
40
41
40
41
43
46
46
232
-92
92
5
232
-92
92
5
469
-184
184
10
469
-184
184
10
473
-181
181
10
16
473
-181
181
10
16
..)
r
(
1
-41
-41
-46
-46
..)
15
15
15
1
814
814
798
798
..)
(
(
(
(
(
1
1
673
1.349
1.349
1.358
1.358
562
7
55
1.746
211
328
2.348
925
24
49
1.817
178
398
2.898
202
-1.785
7
55
309
211
126
336
-1.973
24
49
504
178
62
15,879
14,713
1,166
16,654
14,496
2,157
7
15
7
(
407
(
407
..)
(
1.090
108
-840
4
32
186
104
50
7,358
6,833
524
Undistributed offsetting receipts:
Other Interest
646
(
..)
..)
0)
43
1
250
4
32
832
104
158
Total-EmplOver share, employee retirement
30
27
29
394
85
90
..)
Resolution Trust Corporation
Securities and Exchange Commission
SmithSOnian Institution
Tennessee Valley AuthOrity
United States Information Agency
Other
Employer share. employee retirement:
Legislative Branch:
United States Tax Court
Tax court Judges survivors annuity fund
The JudiCiary
JudiCial survivors annUity fund
Department of Defense-Civil:
MIlitary retirement fund
Department of Health and Human Services:
Federal hospital Insurance trust fund:
Federal employer contributions
Postal Service employer contributions
Payments for military service credits
Department of State:
Foreign Service retirement and disability fund
Office of Personnel Management:
C,Vil service retirement and disability fund
SOCial Secunty administratIOn (off-budget):
Federal old-age and survivors Insurance trust fund:
Federal employer contributions
Payments for military service credits
Federal disability Insurance trust fund'
Federal employer contributions
Payments for military service credits
Irdependent agenCies
Court of veterans appeals retirement fund
9.294
24
24
23
468
63
-13
I 0utIaY'
(
20
673
....................
16
109
Gross 1Applicable
Outlays
Receipts
(00)
Total-Railroad Retirement Board
Total-Other independent agencies
Prior Fiscal Year to Date
This Month
(
..)
(
..)
..)
..)
..)
(
..)
1.438
(
..
)
..
)
..)
1.313
..
..
(
..)
)
(
..
)
..
(
)
n
(
(
-914
-914
-1.838
-1.838
-2.026
-2.026
-155
-49
-155
-49
-360
-49
-360
-49
-316
-89
-316
-89
-9
-9
-17
-17
-17
-17
-763
-763
-1.555
-1.555
-1,481
-1.481
-403
-403
-807
-807
-788
-788
-72
-72
-144
-144
-141
-141
(
(
-2.365
-2.365
-4.769
-4.769
-4.858
-4.858
(
.. )
18
..
)
)
Table 5. Outlays of the U.S. Government, November 1995 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IApplicable I
Outlays
Outlays
Receipts
Gross IAPPlicablel
Outlays
Receipts
Outlays
Gross IAPPlicablel 0 II
Receipts
u ays
Outlays
Classification
Undistributed offsetting receipts:-Continued
Interest received by trust funds:
The Judiciary:
Judicial survivors annuity fund
Department of Defense-Civil:
Corps of Engineers
Military retirement fund
Education benefits fund
Soldiers' and airmen's home permanent fund
Other ..
Department of Health and Human Services:
...........
Federal hospital insurance trust fund
Federal supplementary medical insurance trust fund
Department of Labor:
Unemployment trust fund
Department of State:
Foreign Service retirement and disability fund
Department of Transportation:
Highway trust fund
Airport and airway trust fund
.................
Oil spill liability trust fund
Department of Veterans Affairs:
National service life insurance fund
United States government life Insurance Fund
Environmental Protection Agency
National Aeronautics and Space Administration
Office of Personnel Management:
Civil service retirement and disability fund
Social Security administration (off-budget):
Federal old-age and survivors insurance trust fund
Federal disability insurance trust fund
Independent agencies:
Railroad Retirement Board
........................
Other ............ ...................
Other
................
Total-Interest received by trust funds
.............
-6
-6
-6
-6
-4
-4
-1
-5,235
-13
-1
-5,235
-13
(")
(")
(")
(")
-1
-5,368
-13
-1
-1
-5,368
-13
-1
-1
-5,391
-15
-2
-1
-5,391
-15
-2
(")
(")
(")
(")
-55
-15
-55
-15
-123
-33
-123
-33
-13
-76
-13
-76
-12
-12
-33
-33
-77
-77
(")
(")
-1
-1
-1
-1
-20
-2
-2
-20
-2
-2
-26
-3
-2
-26
-3
-2
-72
-31
-2
-72
-31
-2
..-6
..
( )
(")
( )
..-4
..
(")
( )
(")
-3
-3
(")
(")
(")
(")
(")
( )
..
(")
(")
( )
(")
( )
-14
-14
-17
-17
-61
-61
-86
-6
-86
-6
-131
-15
-131
-15
-418
-27
-418
-27
-246
-4
-16
-246
-4
-16
-392
-6
27
-392
-6
27
-100
-2
-41
-100
-2
-41
-5,736
-5,736
-6,150
-6,150
-6,338
Rents and royalties on the outer continental shelf lands
Sale of major assets ..............
. .............
Spectrum auction proceeds ...
. ...........
200
-200
200
-8,301
..-6
(
)
561
-561
-10,920
561
-11,480
-11,196
-4
..
-6,338
313
-313
313
-11,510
................
-8,101
Total outlays ..... , ... , .... " ............ , ..... " .... " .......
143,746
15,288
128,458
280,703
33,893
246,809
275,375
30,094
245,281
...........................................
Total off-budget ...........................................
Total surplus (+) or deficit ................................
Total on-budget ...........................................
Total off-budget ...........................................
112,450
10,684
101,767
218,517
24,599
193,918
216,221
21,451
194,770
31,295
4,604
26,691
62,186
9,294
52,892
59,154
8,644
50,510
Total-Undistributed offsetting receipts
Total on-budget
-38,450
-61,209
-68,584
-38,116
-58,067
-67,303
-334
-3,142
-1,281
MEMORANDUM
Receipts offset against outlays
[$ millions]
Current
Fiscal Year
to Date
Proprietary receipts
Receipts from off-budget federal entities
Intrabudgetary transactions
Governmental receipts ................ .
Total receipts offset against outlays
Comparable Period
Prior Fiscal Year
7,203
7,765
32,648
388
31,544
411
39,720
... No Transactions.
(•• ) Less than $500,000
Note: Details may not add to totals due to rounding
'Includes FICA and SECA tax credits, non-contributory military service credits, special benefits
for the aged, and credit for unnegotiated OASI benefit checks.
'The Postal Service accounting is composed of thirteen 28-day periods. To conform with the
MTS calendar·month reporting basis used by all other Federal agencies, the MTS reflects USPS
results through November 10th and estimates for $1,450 million through November 30th.
19
Table 6.
Means of Financing the Deficit or Disposition of Surplus by the U.S, Government, November 1995 and Other Periods
[$ millions]
Assets and Liabilities
Directly Related to
Budget Oil-budget Activity
Net Transactions
(-) denotes net reduction of either
liability or asset accounts
Account Balances
Current Fiscal Year
Beginning of
Fiscal Year to Date
Close of
This month
This Month
This Year
liability accounts:
BorrOWing from the public
Public debt SeCUrities, Issued under general FinanCing authorities:
Obligations of the United States, Issued by:
United States Treasury
Federal FinanCing Bank
Total, publiC debt securities
Plus premium on public debt secuntles
Less discount on public debt securities
Total public debt securities net of Premium and
discount
Agency securities, Issued under special financing authorities (see
Schedule B. for other Agency borrowing, see Schedule C)
Net federal securities held as investments of government
accounts ........................ .
Total borrowing from the public
Accrued Interest payable to the public
Allocations of special drawing rights
Deposit funds
Miscellaneous liability accounts (includes checks Outstanding etc.)
Total liability accounts .................................................. ..
Asset accounts (deduct)
Cash and monetary assets:
US Treasury operating cash:'
Federal Reserve account
Tax and loan note accounts
I This
Month
4,068
15,347
85,770
4,958,983
15,000
4,970,262
15,000
4,974,330
15,000
4,068
15,347
85,770
4,973,983
4,985,262
4,989,330
-8
582
-15
-105
-15
917
1,236
81,231
1,228
80,545
1,220
81,126
3,478
15,437
84,838
4,893,989
4,905,947
4,909,425
970
1,180
-1,780
26,962
27,171
28,142
16,617
83,058
4,920,950
4,933,118
4,937,567
-33,730
-34,906
10,148
1,320,800
1,319,624
1,285,894
161
170
75
3,188
3,197
3,358
-33,891
-35,076
10,073
1,317,612
1,316,427
1,282.537
38,339
51,693
72,985
3,603.338
3.616.691
3.655,031
-15,298
-41
17,788
-1,423
-14,430
-99
16,734
-6,984
-9,037
-52
139
-4,764
50.611
7.380
8,186
4.813
51,479
7.323
7.132
-748
36.181
7.281
24.920
-2.171
39,365
46,913
59,271
3,674,329
3,681,877
3,721,242
-1.314
6,226
-2.917
-8.927
-1,501
-7,385
8.620
29.329
7.018
14.176
5.703
20,402
4,912
-11,844
-8,886
37.949
21.194
26.105
85
-1
46
11,035
-10.168
10.949
-10.168
11.034
-10.16B
85
-1
46
867
781
866
-223
-46
3
-535
89
-282
60
(' 0)
1
31,762
8.196
-26.315
-105
31.762
7.884
-26,180
-108
31.762
7.661
-26.226
-105
Balance
Special drawing rights
Total holdings
SDR certificates issued to Federal Reserve banks
Balance
Reserve poSition on the U.S. Quota in the IMF:
US subscription to International Monetary Fund:
Direct Quota payments
Maintenance of value adjustments
Letter of credit issued to IMF
Dollar deposits with the IMF
Receivable/Payable (-) for interim maintenance of value
adjustments
140
337
193
1.145
1.342
1,482
-126
-108
-28
14.682
14.700
14.574
-3,548
-369
2,297
30,525
33,704
30.156
1,323
12.322
-6.571
84.023
70.378
71.702
30
480
-918
223
1,782
-3,978
-226
1,012
-3,405
-12.714
19,732
-1,721
-12.521
21.034
-4.781
-12,491
21.513
-5.699
Balance
Loans to International Monetary Fund
Other cash and monetary assets
This Year
4,449
Total federal securities
Deduct:
Federal seCUrities held as investments of government accounts
(see Schedule D)
Less discount on federal securities held as investments of
government accounts
I Prior Year
(
Total cash and monetary assets
Net activity, guaranteed loan financing
Net activity, direct loan financing
Miscellaneous asset accounts
..)
(
..)
n
.................................................... .
915
14,295
-9,191
89,320
74,110
75,025
Excess of liabilities (+) or assets (-) .................................. ..
+38,450
+61,209
+68,462
+3,585,008
+3,607,767
+3,646,217
Total asset accounts
..)
Transactions not applied to current year's surplus or deficit (see
Schedule a for Details)
Total budget and oil-budget federal entities (financing of deficit (+)
or disposition of surplus (-)) ............................................. .
(
+38,450
'Malor sources of InformatIon used to determine Treasury's operating cash Income Include
Federal Reserve Banks the Treasury Regional Finance Centers. the Internal Revenue ServIce
Centers tile Bureau of the Public Debt and vanous electroniC systems DePOSits are reflected as
received and Withdrawals are reflected as processed
..)
123
+61,209
+68,584
(
+3,585,008
No Transactions
(•• ) Less than $500,000
Note Detruls may not add to totals due to rounding
20
+3,607,767
+3,646,217
Table 6. Schedule A-Analysis of Change in Excess of Liabilities of the U.S. Government, November 1995 and
Other Periods
[$ millions]
Fiscal Year to Date
Classification
This Month
This Year
...
Excess of hablhtles beginning of period:
Based on composition of unified budget in preceding period
Adjustments during current fiscal year for changes in composition
of unified budget:
Revisions by federal agencies to the prior budget results
1
Prior Year
3,607,767
3,584,970
39
-268
3,607,767
3,585,008
3,421,878
Budget surplus (-) or deficit:
Based on composition of unified budget in prior fiscal yr
Changes in composition of unified budget
38,450
61,209
68,584
Total surplus (-) or deficit (Table 2)
Excess of liabilities beginning of period (current basis)
3,422.146
38,450
61,209
68,584
Total-on-budget (Table 2)
38,116
58,067
67,303
Total-olf-budget (Table 2)
334
3,142
1,281
Transactions not applied to current year's surplus or deficit:
Seigniorage
........... .
Total-transactions not applied to current year's Surplus or
deficit
Excess of liabilities close of period .................................. .
..
(.. )
(
)
-123
-123
3,646,217
3,646,217
3,490,340
Table 6. Schedule B-Securities Issued by Federal Agencies Under SpeCial Financing Authorities, November 1995 and
Other Periods
[$ millions]
Net Transactions
(-) denotes net reduction of
liability accounts
Account Balances
Current Fiscal Year
Classification
Fiscal Year to Date
Beginning of
This Month
I Prior Year
This Year
Agency securities, issued under special financing authorities:
Obligations of the United States, issued by:
Export-Import Bank of the United States
Federal Deposit Insurance Corporation:
FSLlC resolution fund
Obligations guaranteed by the United States, issued by:
Department of Defense:
Family housing mortgages
Department of Housing and Urban Development:
Federal Housing Administration
Department of the Interior:
Bureau of Land Management
Department of Transportation:
Coast Guard:
Family housing mortgages
Obligations not guaranteed by the United States, issued by:
Legislative Branch:
Architect of the Capitol
Department of Defense:
Homeowners aSSistance mortgages
Independent agencies:
Farm Credit System Financial Assistance Corporation
National Archives and Records Administration
Tennessee Valley Authority
..
(
7
5
3
(
Total, agency securities .......................................... .
... No Transactions.
(' ') Less than $500, 000
Note: Details may not add to totals due to rounding
21
..)
I This Month
This Year
.. )
)
(")
(
158
158
158
6
6
6
87
88
93
13
13
13
(
..)
(")
(
182
183
185
5
3
Close of
This month
..)
.. )
.. )
(
(
964
1,171
-1,787
1,261
295
24.960
970
1,180
-1,780
26,962
1,261
295
25.166
1.261
295
26,131
27,171
28,142
Table 6.
Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
November 1995 and Other Periods
[$ millions]
Account Balances
Current Fiscal Year
Transactions
Classification
Beginning of
Fiscal Year to Date
This Month
I
This Year
Borrowing from the Treasury:
Funds Appropriated to the President:
International Security Assistance:
Foreign military loan program
Agency for International Development:
International Debt Reduction
.............................
Housing and other credit guaranty programs
............
Private sector revolving fund
Overseas Private Investment Corporation ...........................
Department of Agriculture:
Farm Service Agency:
Commodity Credit Corporation
Agricultural credit insurance fund
Natural Resources Conservation Service
Rural Utilities Service:
Rural electrification and telephone revolving fund
Rural Telephone Bank
............
Rural development insurance fund
Rural communication development fund
Rural housing and Community Development Service:
Rural housing insurance fund
Self-help housing land development fund
Rural Business and Cooperative Development Service:
Rural development loan fund
. . .. . . .. . . . .. . . . .. . . .. . . ... . . .. . . ..
Rural economic development loan fund .......................
Foreign Agricultural Service ..................................
Department of Education:
Federal direct student loan program
Federal family education loan program
College housing and academic facilities fund
College housing loans
Department of Energy:
Bonneville power administration fund
Department of Housing and Urban Development:
Housing programs:
Federal Housing Administration
Housing for the ederly and handicapped
Public and Indian housing:
......................
Low-rent public housing
Department of the Interior:
Bureau of Reclamation Loans
Bureau of Mines, Helium Fund
Bureau of Indian Affairs:
Revolving funds for loans
Department of Justice:
............
Federal prison industries, incorporated
Department of Transportation:
Federal Highway Administration:
High priority quarters loan fund
Federal Railroad Administration:
Railroad rehabilitation and improvement
finanCing funds
Amtrak corridor improvement loans
Other
Federal Aviation Administration:
Aircraft purchase loan guarantee program
...........
MinOrity bUSiness resource center fund
Department of the Treasury
Federal Financing Bank revolving fund
Department of Veterans Affairs:
Guaranty and indemnity fund
Loan guaranty revolVing fund
Direct loan revolVing fund
Native american veteran hOUSing fund
Vocational rehabilitation revolVing fund
343
I This Month
This Year
Prior Year
337
Close 01
This month
788
1.131
1.131
335
125
1
52
335
125
1
52
335
125
1
52
-7.250
1
-6.881
602
-12,093
-1.748
6.987
1.605
4
7.356
2.206
4
106
2.207
4
8
8
220
689
115
715
8.666
664
2.806
25
8.666
664
3.026
25
8.666
672
3.026
25
951
975
5.353
6.304
6.304
(")
(' ')
(
..)
17
40
5
-7
61
30
563
78
30
563
78
30
563
4.415
1.274
5.067
1.134
184
360
9.482
1.134
184
360
9.482
1.134
184
360
2,563
2,563
2,563
15
-'
\
-68
-21
-770
9
1,647
7,714
1,579
7,714
1,579
7,714
20
20
20
17
252
26
252
26
252
28
28
28
20
20
20
32
32
32
-1
..)
(
(
..
)
..)
3
(.. )
(
-2
22
-3,695
.. )
(
..3
)
15
15
15
69,297
67.622
66,693
302
1.272
1
7
2
302
1.272
1
7
302
1,272
1
7
..
-2,604
)
3
..)
(..)
(
-928
..
(
(
(
)
..)
(
Table 6. Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities
November 1995 and Other Periods-Continued
'
[$ millions]
Account Balances
Current Fiscal Year
Transactions
Classification
Fiscal Year to Date
This Month
This Year
Borrowing from the Treasury. Continued
Environmental Protection Agency:
Abatement. control. and compliance loan program
Small Business Administration:
Business loan and revolving fund
Disaster loan fund
Independent agencies:
. . . . . . . . . . . .. . ......... .
District of Columbia
Export-Import Bank of the United States
Federal Emergency Management Agency:
National insurance development fund
Disaster assistance loan fund
Pennsylvania Avenue Development Corporation:
Land aquisition and development fund
Railroad Retirement Board:
Rail industry penSion fund
Social Security equivalent benefit account
Smithsonian Institution:
John F. Kennedy Center parking facilities
Tennessee Valley Authority
Total agency borrowing from the Treasury
financed through public debt securities issued
Beginning of
1
Prior Year
10
59
-51
59
42
42
503
503
11
-27
477
This Year
I This Month
Close of
This month
37
47
47
342
7,999
342
7,999
342
7,999
147
2,665
96
2,665
96
2,723
268
222
268
222
310
222
85
85
85
2,128
2,828
2,128
2,827
2,128
3,331
20
150
20
150
20
150
-7,565
-2,427
-13,706
134,892
140,031
132,466
-16
-22
-24
3,493
3,487
3,471
1,470
1,470
1,470
Borrowing from the Federal Financing Bank:
Funds Appropriated to the President:
Foreign military financing program
Department of Agriculture:
Farm Service Agency:
Agriculture credit insurance fund
Rural Utilities Service:
Rural electrification and telephone revolving fund
............. .
Rural development insurance fund ..
. .................... .
Rural housing and Community Development Service:
Rural housing insurance fund ..
Department of Defense:
Department of the Navy ...
Defense agencies
Department of Health and Human Services:
Medical facilities guarantee and loan fund ..
Department of Housing and Urban Development:
Low rent housing loans and other expenses ..
Community Development Grants ............... .
Department of Interior:
Territorial and international affairs
Department of Transportation:
Federal Railroad Administration
General Services Administration:
Federal buildings fund
Small BUSiness Administration:
Business loan fund ..
Independent agencies:
Export-Import Bank of the United States
Pennsylvania Avenue Development Corporation
Postal Service
Resolution Trust Corporation
Tennessee Valley Authority ................ .
97
-134
48
21,875
3,675
21,644
3,675
21,741
3,675
-50
-685
-410
21,700
21,065
21,015
1,624
-192
1,624
-192
1,624
-192
-9
33
33
33
-58
-5
1.689
89
1,689
85
1,627
85
21
21
21
..)
14
14
14
..
-62
(
-62
-4
..
)
("')
-8
-2
51
1,893
1,899
1,891
-3
-9
-16
361
355
352
8
18
-893
-1.703
19
-900
-2,190
-200
2,506
374
7,265
13,209
3,200
2,506
384
7,265
12,399
3,200
2,506
391
7,265
11,506
3,200
-928
-2,604
-3,695
84,298
82,623
81,694
(
Total borrowing from the Federal Financing Bank
)
(
. No Transactions.
(' ') Less than $500,000
Note: Details may not add to totals due to rounding
Note: This table includes lending by the Federal Financing Bank accomplished by the purchase
of agency financial assets, by the acqUisition of agency debt securities, and by direct loans on
behalf of an agency. The Federal Financing Bank borrows from Treasury and issues its own
securities and in turn may loan these funds to agencies in lieu of agencies borrowing directly
tIlrough Treasury or Issuing their own securities.
23
Table 6.
Schedule D-Investments of Federal Government Accounts in Federal Securities, November 1995 and
Other Periods
[$ millions)
Net Purchases or Sales
Classification
Securities Held as Investments
Current Fiscal Year
(~)
Beginning of
Fiscal Year to Date
This Month
1 Prior
This Year
Federal funds:
Department of Agriculture
Department of Commerce
Department of Defense-MIlitary:
Delense cooperation account
Department of Energy
Department of HOUSing and Urban Development:
HOUSing programs'
Federal hOUSing administration fund
Government National Mortgage Association:
Management and liquidating functions fund:
Agency securities
Guarantees of mortgage· backed securities:
Public debt securities
Agency securilles
Other
Department of the Interior
Department of Labor
Department of Transportation
Department of the Treasury
Department of Veterans Affairs:
Canteen service revolving fund
Veterans reopened insurance fund
Servicemen's group life insurance fund
Independent agencies:
Export·lmport Bank of the United States
Federal Deposit Insurance Corporation:
Bank Insurance fund
Savings association insurance fund
FSLlC resolution fund
National Credit Union Administration
Postal Service
Tennessee Valley Authority
Other
Other
I This Month
2
20
21
22
291
1
4.951
1
4.983
1
5.217
~78
6,678
6,068
6,850
15
15
15
4,210
1
209
3,431
5,796
481
2,559
4,268
1
216
3.407
5,732
484
3,197
4,310
1
216
3.422
5,341
488
3,278
~38
38
526
4
37
523
4
37
521
4
(" .)
2
)
~4
234
266
782
172
(
..................
..
42
100
68
7
15
~9
19
473
~390
~454
~43
4
81
7
719
15
1,246
~1
~5
-2
Total public debt securilies
Total agency securities
Total Federal funds
This Year
Year
Close of
This month
.............................................
Trust funds:
Legislative Branch'
Library of Congress
United States Tax Court
Other
The JudiCiary
JudiCial retirement funds
Department of Agriculture
Department of Commerce
Department of Defense-Military
Voluntary separation Incentive fund
Other
Department of Defense-Civil:
Military retirement fund
Other
~5
103
196
~49
135
228
331
69
14
87
695
55
336
16
~329
~342
~92
~67
2,961
904
-2
59
1,712
904
5
96
21,017
3,600
528
3,325
1,249
1,242
1.422
2,978
21,643
3,640
112
3,350
(" .)
1,242
1.430
3,015
21,713
3,654
199
3.258
2,961
2,146
1.427
3,075
4,869
4,072
~352
64,399
16
63,602
16
68,471
16
4,869
4,072
~352
64,415
63,618
68,487
1
("')
(" .)
(" .)
( )
( )
(. 0)
..12
13
5
31
14
5
32
15
5
32
6
1
30
4
287
310
( )
..
285
312
( )
293
311
..18
)
685
88
641
88
641
71
14,666
1
112,963
1.495
120,668
1,531
124,646
1,579
2
..
7
~1
(
10
~2,701
..)
(
429
..)
~45
24
-17
~17
3,978
47
11,684
84
(
..
n
Table 6, Schedule D-Investments of Federal Government Accounts in Federal Securities, November 1995 and
Other Periods-Continued
[$ millions]
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (-)
Classification
Fiscal Year to Date
This Month
This Year
I
Beginning of
Prior Year
This Year
I
Close of
This month
This Month
Trust Funds-Continued
Department of Health and Human Services:
Federal hospital insurance trust fund
Federal supplementary medical insurance trust fund
Other
Department of the Interior
Department of Justice
Department of Labor:
Unemployment trust fund ,.
. . . . . . . . . ..
Other
Department of State:
Foreign Service retirement and disability fund
Other .....
Department of Transportation:
........ , ..
Highway trust fund ....
........... ............
Airport and airway trust fund
...........
Other
Department of the Treasury
Department of Veterans Affairs:
General post fund, national homes
National service life insurance
United States govemment life Insurance Fund ..
. ............ ,.
Veterans special life insurance fund
. . .. . . . .. . . . . .. . . . .
Environmental Protection Agency
National Aeronautics and Space Administration
Office of Personnel Management:
Civil service retirement and disability fund
Employees life insurance fund
Employees and retired employees health benefits fund
Social Security Administration:
Federal old-age and survivors insurance trust fund
Federal disability insurance trust fund
Independent agencies:
Harry S. Truman memorial scholarship trust fund
Japan-United States Friendship Commission
............
Railroad Retirement Board
Other
Grand total
0"
0
.. ,
,
0
0
....
0
,
" " " 0 ..
0
0
....
0
0
0
0
0' ..
.. 0
0
0
0
'000 . . 0
0
0
.. 0
..
0
0
0
0
0
0
....
0
0
0
0,
0
.. 0
0'
0
0
..
.... 0
0
..
..
0
,
.... 0
0
0
0
0
-3.311
16
-5
29
40
-21
-1,702
16
38
129.864
13.513
992
315
127.495
14.197
985
336
41
126.554
13,529
987
344
40
1.250
-16
1.014
-23
1.248
-20
47.141
77
46,906
69
48,155
54
-27
-52
-6
80
-50
7,801
29
7,775
24
7,748
24
72
212
11
-53
-905
491
-81
-951
-376
38
-52
18.531
11,145
1 ,880
235
17,555
11.424
1,869
207
17,626
11.636
1,880
154
-59
-1
-6
-133
-2
-13
102
-129
-3
-12
224
(")
(")
36
11.954
106
1,546
7.243
16
36
11,880
105
1.539
7.346
16
36
11,821
104
1,534
7,345
16
-41.849
213
-13
-43.995
270
-318
-3.970
316
-7
366,126
15.839
7.890
363.980
15,896
7.585
322,131
16,109
7,571
-1.668
576
-4,947
732
-14.470
15.587
447,947
35.225
444.667
35.381
442,999
35.957
54
16
14.501
546
53
16
14.851
540
(")
(")
(")
-1
-2
r ')
(")
(")
(")
350
-6
410
-4
-93
80
54
16
14,440
544
-38,598
-38,978
10.500
1.256,385
1.256,005
1,217,407
.... 0
-38,598
-38,978
10,500
1,256,385
1,256,005
1,217,407
...
-33,730
-34,906
10,148
1,320,800
1,319,624
1,285,894
Total public debt securities
Total trust funds
-941
-668
2
8
-1
0
•
Note: Investments are in public debt securities unless otherwise noted.
Note: Details may not add to totals due to rounding
. No Transacnons
Less than $500,000.
(,0)
25
Table 7.
Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1996
[$ millions)
Classification
Feb.
March
April
May
June
July
Aug.
Sept.
Fiscal
Year
To
Date
Com·
parable
Period
Prior
F.Y.
Oct.
Nov.
51.840
2.180
39.524
1.694
91.364
3.874
81.073
4.553
30.549
1.214
342
4.453
1,160
1,786
2,070
34.919
2,940
340
5,154
1,349
1,593
2.496
65.468
4,154
681
9,607
2,508
3,379
4,566
65.049
4,322
702
9,790
2,422
3,674
5,111
......
......
......
Dec.
Jan.
Receipts:
IndiVidual Income taxes
Corporation Income taxes
Social Insurance taxes and
contnbutlons
Employment taxes and
contnbutlons
Unemployment Insurance
Other retrrement contrrbutlons
EXCise taxes
Estate and gift taxes
Customs duties
Mlscellanecus receipts .
...........
95,593
90,008
185,601
(On-budget)
........................
72,200
63,651
135,851
(Off-budget)
........................
23,393
26,357
49,750
ro/ai-Rcct'll'/I I'flor rcar
89.024
87.673
176.696
(On hlla!;c/)
65.384
62.083
127.467
(0(7 hlla!;c/)
23,639
25,590
49.229
175
197
14
173
196
14
348
393
28
570
353
35
120
764
884
3,566
801
-199
256
183
1,057
-16
1,094
71
820
4,990
353
2,104
4.436
280
2,924
9,426
634
4,744
9,689
605
3,033
5,957
3,616
5,927
6,775
3,268
8,959
12,732
6,884
9,414
13,949
9,009
2,645
535
307
2,689
611
287
5,334
1,146
594
5,398
961
489
796
381
1,192
-487
1,989
-107
-164
59
17,270
20,262
37,532
39,115
2,660
2,056
1,495
2,707
2,336
1,383
5,367
4,392
2,878
5,294
4,271
3,013
1,902
1,696
3,598
3,191
7,252
9,082
8,071
9,869
15,322
18,951
14,167
16,776
5,367
3,934
5,913
3.792
11,280
7,726
10,089
6,147
2.426
-5,545
2,972
-5.485
5,399
-11,030
5,247
-8,997
1,087
641
809
2,350
478
985
3,438
1,119
1,793
5,329
1,464
1,726
1,786
730
531
1,864
957
341
3,650
1,687
871
3,504
533
1,329
1.632
1,873
3,504
3,562
Total-Receipts this year
Outlays
Legislative Branch
The Judiciary
Executive Office of the President
Funds Appropriated to the President:
Intemational Security ASSistance
Intemational Development
Assistance
Other
Department of Agriculture:
Commodity Credit Corporation and
Foreign Agncultural Service
Other
Department of Commerce .
Department of Defense:
Military:
Military personnel
Operation and maintenance
Procurement
Research, development, test, and
evaluation
Military construction
Family hOUSing
RevolVing and management
funds
Other
Total Military
CIVil
Department of Education
Department of Energy
Department of Health and Human
Services:
Public Health Service
Health Care FinanCing Admlnrstratlon:
Grants to States for Medicaid
Federal hospital Ins. trust fund
Federal supp med Ins. trust
fund
Other
Administration for children and
families
Other
Department of HOUSing and Urban
Development
Department of the Intenor
Department of Justice
Department of Labor
Unemployment trust fund
Other
Department of State
Department of Transportation
Highway trust fund
26
Table 7. Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1996-Continued
[$ millions]
Oct.
Classification
Nov.
Dec.
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Fiscal
Year
To
Date
Comparable
Period
Prior
F.Y.
Outlays-Continued
Other.
Department of the Treasury:
..
Interest on the public debt
Other ..
Department of Veterans Affairs:
Compensation and pensions .
National service life
United States govemment life
. . . . . . . . ..
Other.
Environmental Protection Agency
General Services Administration .
National Aeronautics and Space
Administration
Office of Personnel Management . . . . . . .
........
Small Business Administration
Social Security Administration:
Federal old-age and survivors ins.
trust fund (off-budget)
Federal disability ins. trust fund (off......
budget) .
.....
Other.
Independent agencies:
Fed. Deposit Ins. Corp.:
Bank insurance fund .. ... .....
Savings association insurance
... ..... .........
fund
FSLlC resolution fund .....
Affordable housing and bank
......
enterprise .
Postal Service:
Public enterprise funds (off...... . . . . . . . . .
budget) ....
Payment to the Postal Service
............... ..
fund
Resolution Trust Corporation
Tennessee Valley Authority
Other independent agencies
Undistributed offsetting receipts:
Employer share, employee
retirement
. . . . . . . . . . . .......
Interest received by trust funds
Rents and royalties on outer
continental shelf lands ......
....
Other.
Totals this year:
Total outlays
.........................
(On-budget) ........................
(Off-budget) ........................
Total-surplus (+) or deficit (-) .....
1,506
1.427
2,933
3,382
21,631
-30
26,006
-1,053
47,637
-1,084
44,644
-274
101
75
1
1.442
484
339
1.488
63
1
1,710
538
389
1,589
139
2
3,152
1,022
728
1,562
134
3
3,312
912
-11
1,128
3,576
16
1,119
3.418
238
2,247
6,994
254
1,987
6,528
210
24,544
24.413
48,957
46,781
3,516
174
3.475
2,233
6,992
2.407
6,533
2,444
-609
-69
-679
-336
-40
407
-14
87
-54
494
-15
342
n
(
-992
-793
n
-618
55
-946
123
2,026
-840
186
1,792
55
-1,785
309
3,818
61
-1,973
504
4,367
-2.404
-415
-2,365
-5,736
-4,769
-6,150
-4,858
-6,338
-361
-200
-561
-313
118,352 128,458
246,809
92,151 101,767
193,918
......
......
......
......
......
......
n
26,201
...
n
r .)
26,691
52,892
-22,758 -38,450
(On-budget) ........................ -19,951 -38,116
-58,067
(Off-budget) ........................
-2,807
-334
-3,142
....
13,353
38,339
51,693
Total-outlays prior year
(On-budget)
(Off-budget)
Total-surplus (+) or deficit (-) prior
year.
(On-budget)
(Off-budget)
)
-374
-61,209
Total borrowing from the public
..
n
72,985
120,365 124,915
245,281
95,307
99,464
194, 770
25,059
25,452
50.510
-31,342 -37,242
-68,584
-29,922 -37.381
-67.303
-1,420
-1,281
+138
'. No transactions.
(" 'J Less than $500,000
Note: Details may not add to totals due to rounding.
27
Table 8.
Trust Fund Impact on Budget Results and Investment Holdings as of November 30, 1995
[$ millions)
This Month
Securities held as Investments
Current Fiscal Year
Fiscal Year to Date
Classification
Beginning 01
Receipts
Outlays
Excess
Receipts
Outlays
Excess
This Year
Trust receipts. outlays, and Investments
held:
Airport
Black lung disability
Federal disability Insurance
Federal employees life and health
Federal employees retirement
Federal hospital Insurance
Federal old-age and survivors insurance
Federal supplementary medical Insurance
Highways
Military advances
Rallmad retirement
Military retirement
Unemployment
Veterans life Insurance
All other trust
2,280
15,799
44,078
11,090
3,510
2,623
1,044
17,905
4,243
42
623
656
90
6,992
52
6,600
18,951
48,957
11,280
3,879
2,423
1,309
4,733
3,650
189
667
262
14
745
-52
-4,320
-3,153
-4.879
-190
-369
200
-265
13,172
593
-147
-44
-152
111,995
30,460
110,427
30,460
1,567
43,734
-152
81,535
79,967
1,567
49,350
22
87,648
22
-38,298
110,424
42
173,200
42
-62,776
49,328
87,626
-38,298
110.382
173,158
-62,776
6,316
6,316
-38,450
185,601
246,809
1,133
8,633
22,861
5,498
1.757
1,090
512
6,149
3,001
20
354
329
47
3,475
-202
3,283
9,869
24,413
5,913
2,065
1,194
653
2,378
1,864
86
369
121
5
600
202
-2,150
-1,236
-1,552
-416
-308
-104
-141
3,771
1,137
-67
-16
Total trust lund receipts and outlays
and investments held from Table 6·
0 ..........................................
Less: Interfund transactions
55,585
12,003
55,737
12,003
Trust fund receipts and outlays on the basis
of Tables 4 & 5
43,582
Total Federal fund receipts and outlays
Less: Interfund transactions
Federal fund receipts and outlays on the
basis of Table 4 & 5
Less: Offsetting proprietary receipts
Net budget receipts & outlays
...............
450
52
4,075
2,902
2,902
90,008
128,458
918
104
7,736
I This Month
11,145
11,424
11,636
35,225
23,729
374,219
129,864
447,947
13,513
18,531
35,381
23,481
372,045
127,495
444,667
14,197
17,555
35,957
23,681
330,177
126,554
442,999
13,529
17,626
14,440
112,963
47,141
13.606
14.060
14.501
120,668
46,906
13,524
14,161
14,851
124,646
48,155
13,458
14,136
1,256,385
1,256,005
1,217,407
-61,209
Note Details may not add to totals due to rounding.
No transactIons
Note Interfund receipts and outlays are transactions between Federal funds and trust funds
such as Federal payments and contnbutions, and Interest and prOfits on investments In Federal
secuntles They have no net effect on overall budget receipts and outlays Since the receipts Side of
such transactions IS offset against bugdet outlays. In thiS table, Interfund receipts are shown as an
adjustment to arrive at total receipts and outlays of trust funds respectively
28
Close 01
This Month
Table 9. Summary of Receipts by Source, and Outlays by Function of the U.S. Government, November 1995
and Other Periods
[$ millions}
Classification
This Month
Fiscal Year
To Date
Comparable Period
Prior Fiscal Year
39.524
1,694
91,364
3,874
81,073
4,553
34,919
2,940
340
5,154
1,349
1,593
2,496
65.468
4,154
681
9,607
2,508
3,379
4.566
65,049
4,322
702
9.790
2.422
3,674
5,111
90,008
185,601
176,696
21,234
1,616
1,474
489
2,245
2,291
-1,465
3,284
1,087
4,185
10,189
14,058
18,134
27,889
3,280
1,258
717
19,058
-2,565
39,588
2.690
2,901
837
5,080
3,400
-3,125
6,412
2,030
7.741
19,846
26,728
32,656
55,950
4,874
2,481
2.430
39,623
-5,330
41,237
6,516
2,789
691
5,448
4,832
-1,717
6,940
2.043
7,733
18,156
23,786
31.426
53,314
5,014
2,516
2,816
36,911
-5,171
128,458
246,809
245,281
RECEIPTS
Individual income taxes
Corporation income taxes
Social insurance taxes and contributions:
Employment taxes and contributions
Unemployment insurance
Other retirement contributions
Excise taxes
Estate and gift taxes
Customs
Miscellaneous
Total ....................................................... ..
NET OUTLAYS
National defense
International affairs
General science, space, and technology
Energy
Natural resources and environment
Agriculture
Commerce and housing credit
Transportation
Community and Regional Development
Education, training, employment and social services
Health
Medicare
Income security
Social Security
Veterans benefits and services
Administration of Justice
General government
Interest
Undistributed offsetting receipts
Total ."., ........ , .......... ", ............................. .
Note: Details may not add to totals due to rounding
29
Explanatory Notes
1. Flow of Data Into Monthly Treasury Statement
The Monthly Treasury Statement (MTS) IS assembled from data in the
central accounttng system. The malor sources of data include monthly
accounting reports by Federal entities and disbursing officers, and daily
reports from the Federal Reserve banks. These reports detail accounting
transactions affecting receipts and outlays of the Federal Government
and off-budget Federal entities, and their related effect on the assets and
liabilities of the U.S. Government. Information is presented in the MTS on
a modified cash basIs.
the employee and credits for whatever purpose the money was Withheld
Outlays are stated net of offsetting collections (including receipts of
revolving and management funds) and of refunds. Interest on the public
debt (public issues) is recognized on the accrual basis. Federal credit
programs subject to the Federal Credit Reform Act of 1990 use the cash
basis of accounting and are divided into two components. The portion of
the credit activities that involve a cost to the Government (mainly
subsidies) is included within the budget program accounts. The remaining
portion of the credit activities are in non-budget financing accounts
Outlays of off-budget Federal entities are excluded by law from budget
totals. However, they are shown separately and combined with the onbudget outlays to display total Federal outlays.
2, Notes on Receipts
Receipts Included in the report are classified into the following major
categories (1) budget receipts and (2) offsetting collections (also called
applicable receipts). Budget receipts are collections from the public that
result from the exercise of the Government's sovereign or governmental
powers, excluding receipts offset against outlays. These collections, also
called governmental receipts, consist mainly of tax receipts (including
social insurance taxes), receipts from court fines, certain licenses, and
deposits of earnings by the Federal Reserve System. Refunds of receipts
are treated as deductions from gross receipts.
Offsetting collections are from other Government accounts or the
public that are of a business-type or market-oriented nature. They are
classified into two major categories: (1) offsetting collections credited to
appropriations or fund accounts, and (2) offsetting receipts (i.e., amounts
deposited in receipt accounts). Collections credited to appropriation or
fund accounts normally can be used without appropriation action by
Congress. These occur in two instances: (1) when authorized by law,
amounts collected for materials or services are treated as reimbursements to appropriations and (2) in the three types of revolving funds
(public enterprise, intragovernmental, and trust); collections are netted
against spending, and outlays are reported as the net amount.
Offsetting receipts in receipt accounts cannot be used without being
appropriated. They are subdivided into two categories: (1) proprietary
receipts-these collections are from the public and they are offset against
outlays by agency and by function, and (2) intragovernmental fundsthese are payments into receipt accounts from Governmental appropriation or funds accounts. They finance operations within and between
Government agencies and are credited with collections from other
Government accounts. The transactions may be intrabudgetary when the
payment and receipt both occur within the budget or from receipts from
off-budget Federal entities in those cases where payment is made by a
Federal entity whose budget authority and outlays are excluded from the
budget totals.
Intrabudgetary transactions are subdivided into three categories:
(1) interfund transactions, where the payments are from one fund group
(either Federal funds or trust funds) to a receipt account in the other fund
group; (2) Federal intrafund transactions, where the payments and
receipts both occur within the Federal fund group; and (3) trust intrafund
transacttons, where the payments and receipts both occur within the trust
fund group.
Offsetting receipts are generally deducted from budget authority and
outlays by function, by subfunction, or by agency. There are four types of
receipts, however, that are deducted from budget totals as undistributed
offsetting receipts. They are: (1) agencies' payments (including payments
by off-budget Federal entities) as employers into employees retirement
funds, (2) Interest received by trust funds, (3) rents and royalties on the
Outer Continental Shelf lands, and (4) other interest (i.e., interest collected
on Outer Continental Shelf money in deposit funds when such money is
transferred Into the budget).
4. Processing
The data on payments and collections are reported by account symbol
into the central accounting system. In turn, the data are extracted from
this system for use in the preparation of the MTS.
There are two major checks which are conducted to assure the
consistency of the data reported:
1. Verification of payment data. The monthly payment activity reported by
Federal entities on their Statements of Transactions is compared to the
payment activity of Federal entities as reported by disbursing officers.
2. Verification of collection data. Reported collections appearing on
Statements of Transactions are compared to deposits as reported by
Federal Reserve banks.
5. Other Sources of Information About Federal Government
Financial Activities
• A Glossary of Terms Used in the Federal Budget Process, January
1993 (Available from the U.S. General Accounting Office, P.O. Box 6015,
Gaithersburg, Md. 20877). This glossary provides a basic reference
document of standardized definitions of terms used by the Federal
Government in the budget making process.
• Daily Treasury Statement (Available from GPO, Washington, D.C.
20402, on a subscription basis only). The Daily Treasury Statement is
published each working day of the Federal Government and provides data
on the cash and debt operations of the Treasury.
• Monthly Statement of the Public Debt of the United States
(Available from GPO, Washington, D.C. 20402 on a subscription basis
only). This publication provides detailed information concerning the public
debt.
• Treasury Bulletin (Available from GPO, Washington, D.C. 20402, by
subscription or single copy). Quarterly. Contains a mix of narrative, tables,
and charts on Treasury issues, Federal financial operations, international
statistics, and special reports.
• Budget of the United States Government, Fiscal Year 19 _
(Available from GPO, Washington, D.C. 20402). This publication is a
single volume which provides budget information and contains:
-Appendix, The Budget of the United States Government, FY 19_
-The United States Budget in Brief, FY 19 _
-Special Analyses
-Historical Tables
-Management of the United States Government
-Major Policy Initiatives
3, Notes on Outlays
Outlays are generally accounted for on the basis of checks issued,
electronic funds transferred, or cash payments made. Certain outlays do
not reqUire Issuance of cash or checks. An example is charges made
against appropriattons for that part of employees' salaries withheld for
taxes or savings bond allotments - these are counted as payments to
• United States Government Annual Report and Appendix (Available
from Financial Management Service, U.S. Department of the Treasury,
Washington, D.C. 20227). This annual report represents budgetary
results at the summary level. The appendix presents the individual receipt
and appropriation accounts at the detail level.
30
Scheduled
~
Listed below are the scheduled release dates for the 1996 Statements.
The release time will be 2:00 p.m. EST.
Accounting
M2n1h
January 1996
February 1996
March 1996
April 1996
May 1996
June 1996
July 1996
August 1996
September 1996
October 1996
November 1996
December 1996
~~
2-22-96
3-21-96
4-19-96
5-21-96
6-21-96
7-22-96
8-21-96
9-23-96
(')
11-22-96
12-20-96
1-23-97
'Release date subject to completion of year-end reporting requirements.
For sale by the Superintendent of Documents, U.S. Government Printing
Office, Washington, D.C. 20402 (202) 512-1800. The subscription price is
$35.00 per year (domestic), $43.75 per year (foreign).
No single copies are sold.
The Monthly Treasury Statement is now available on the Department of Commerce's Economic Bulletin Board
For information call (202)482-1986
UBLIC DEBX,·;·:·NEWS
Department ofthc Treasury •
Bureau of the Public Debt • Washington, DC 20239
JJ ,---;]c.;Uibl
FOR IMMEDIATE RELEASE
December 21, 1995
CONTACT: Office of Financing
'I. '_. ! i . , 202-219-3350
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $12,015 million of 5-year notes, Series T-2000,
to be issued January 2, 1996 and to mature December 31, 2000
were accepted today (CUSIP: 912827W40).
The interest rate on the notes will be 5 1/2%. All
competitive tenders at yields lower than 5.550% were accepted in
full.
Tenders at 5.550% were allotted 13%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 5.550%, with an equivalent price of 99.784. The median yield
was 5.530%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 5.500%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$30,700,469
Accepted
$12,014,574
The $12,015 million of accepted tenders includes $169
million of noncompetitive tenders and $11,846 million of
competitive tenders from the public.
In addition, $800 million of tenders was also accepted
at the high yield from Federal Reserve Banks for their own
account in exchange for maturing securities.
RR-785
DEPARTMENT
OF
THE
TREASURY
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANL\AVENUE, N.W•• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
December 22, 1995
CONTACT:
Calvin Mitchell
(202) 622-2920
U.S.-PORTUGAL TAX TREATY ENTERS INTO FORCE
The Treasury Department today announced that instruments of ratification were
exchanged on December 18, 1995, bringing into force a new Convention between the
United States and Portugal to avoid double taxation and prevent fiscal evasion with
respect to taxes on income. The Convention and a related protocol were signed on
September 6, 1994.
The provisions of the new Convention generally will take effect as of January 1,
1996. The provisions concerning taxes withheld at source will have effect for amounts
paid or credited on or after that date; and the provisions concerning other taxes will
have effect for taxable years beginning on or after that date.
-30-
RR-786
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
a
a
m If)
CD
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federal financing
WASHINGTON, D.G. 20220
C\J
CD
N
a
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of November 1995.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $81.7 billion on November 30,
1995, posting a decrease of $928.4 million from the level on
October 31, 1995. This net change was the result of a decrease
in holdings of agency debt of $893.1 million, in holdings of
agency assets of $50.0 million, and an increase in holdings of
agency-guaranteed loans of $14.8 million. FFB made 14
disburs~ments during the month of November.
In addition, FFB
executed 10 Section 306C refinancings on behalf of borrowers
whose loans are guaranteed by the Rural utilities Service. FFB
also received 22 prepayments in November.
Attached to this release are tables presenting FFB November
loan activity and FFB holdings as of November 30, 1995.
RR-787
N
(\J
CD
N
C\J
a
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(\J
~
Q.
December 26, 1995
'0"
(\J
fi:
lL
Page 2 of 3
FEDERAL FINANCING BANK
NOVEMBER 1995 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
AGENCY DEBT
*U.S. Postal Service
*u.S. Postal Service
*u.S. Postal Service
$300,000,000.00
$300,000,000.00
$500,000,000.00
2/15/96
2/15/96
2/15/96
5.670% S/A
5.670% S/A
5.670% S/A
11/3
11/8
11/22
11/22
11/28
$2,857.62
$319,135.22
$70,011.00
$2,817.22
$2,799.42
9/2/25
1/2/96
7/31/25
7/1/25
4/1/97
6.337%
5.660%
6.367%
6.367%
5.544%
11/20
$7,808,821. 57
11/2/26
6.346% S/A
11/6
11/6
11/6
11/6
11/9
11/22
11/22
11/22
11/22
11/22
11/22
11/22
11/22
11/22
11/22
11/28
11/28
11/28
$14,895,000.00
$28,812,000.00
$28,812,000.00
$28,812,000.00
$259,000.00
$1,173,303.90
$4,764,315.55
$1,564,837.43
$5,742,012.31
$1,265,757.49
$1,570,670.82
$1,559,144.89
$926,266.23
$2,619,531.10
$1,307,669.86
$222,000.00
$2,247,000.00
$143,000.00
1/2/24
12/31/24
12/31/24
12/31/24
1/3/28
1/2/07
1/2/07
1/2/07
1/3/05
1/3/05
1/3/05
1/3/06
1/3/06
1/3/06
1/3/06
1/3/23
12/31/24
6/30/99
6.301%
6.306%
6.306%
6.306%
6.290%
5.891%
5.899%
5.899%
5.831%
5.831%
5.831%
5.863%
5.863%
5.863%
5.863%
6.261%
6.269%
5.648%
11/15
11/15
11/15
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Atlanta CDC Office Bldg.
Memphis IRS Service Cent.
Foley Square Office Bldg.
HCFA Headquarters
Chamblee Office Building
S/A
S/A
S/A
S/A
S/A
GSA/PADC
ICTC Building
RURAL UTILITIES SERVICE
East Kentucky Power #412
East Kentucky Power #413
East Kentucky Power #413
East Kentucky Power #413
Amelia Telephone #394
+Kansas Elec. Power #904
+Kansas Elec. Power #904
+Kansas Elec. Power #904
+Kansas Elec. Power #904
+Kansas Elec. Power #904
+Kansas Elec. Power #904
+Kansas Elec. Power #904
+Kansas Elec. Power #904
+Kansas Elec. Power #904
+Kansas Elec. Power #904
Alabama Electric #386
Alabama Electric #393
Monitor Coop. Tele. #402
S/A is a semi-annual rate: Qtr. is a Quarterly rate.
* maturity extension or interest rate reset
+ 306C refinancing
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Net Change
Program
Agency Debt:
Export-Import Bank
Resolution Trust Corporation
Tennessee Valley Authority
U.S. Postal Service
sUb-total*
Agency Assets:
FmHA-ACIF
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural utilities Service-CBO
Small Business Administration
sub-total*
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural utilities Service
SBA-Small Business Investment Cos.
SBA-State/Local Development Cos.
DOT-Section 511
sub-total*
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
November 30, 1995
October 31, 1995
$ 2,506.3
11,505.5
3,200.0
7,264.7
24,476.5
$ 2,506.3
12,398.7
3,200.0
7,264.7
25,369.6
1,470.0
3,675.0
21,015.0
8.1
23.8
4,598.9
0.1
30,790.9
3,470.8
84.9
1,626.8
2,282.4
21.0
1,432.1
17,141.9
3.0
349.0
l.L.l
26,425.9
11/1/95-11/30/95
$
FY 196 Net Change
10/1/95-11/30/95
0.0
-893.1
0.0
0.0
-893.1
$
0.0
-1,703.0
0.0
0.0
-1,703.0
1,470.0
3,675.0
21,065.0
8.1
23.8
4,598.9
0.1
30,840.9
0.0
0.0
-50.0
0.0
0.0
0.0
0.0
-50.0
0.0
0.0
-685.0
0.0
0.0
0.0
0.0
-685.0
3,486.7
85.4
1,688.5
2,282.5
21.0
1,432.1
17,045.3
3.0
352.2
14. 5
26,411.1
-15.9
-0.5
-61.7
-0.1
0.0
0.0
96.6
0.0
-3.2
-22.3
-4.2
-61. 7
15.6
0.0
0.0
-133.7
-2.5
-6.8
===========
=========
$ 81,693.2
$ 82,621.6
$
-Qd
-O.~
14.8
-216.0
=========
=========
-928.4
$ -2,604.0
DEPARTMENT
• •_
OF
THE
TREASURY
~17'8{9: . . .• • • • • • • • • • • • • •
. . . . . . . . . . . .
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
December 26, 1995
Contact:
Jon Murchinson
(202) 622-2960
STATEMENT OF TREASURY SPOKESMAN HOWARD SCHLOSS
Secretary Rubin fully shares Chairman Archer's desire to avoid a debt limit
confrontation. However, as the nation's chief financial officer, it is his duty and intention to
take all legal steps necessary to assure that the Nation's financial obligations -- obligations
already approved by Congress -- are honored. If Congress had enacted a clean increase in
the statutory debt limit, as Secretary Rubin has been urging since July, there would have been
no need to invoke extraordinary measures to avoid default. These measures, all of which are
provided for in existing law, have been made necessary only because of the Majority's
insistence on using the debt limit as leverage to force the President to accept their budget
priorities.
-30RR-788
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
UBLIC IlEBT"r; NEWS
Department of the Treasury - Bureau of the ,Public I?~~t_.
L "'.; \j j lJ I.. ,
1;;
FOR IMMEDIATE RELEASE
December 26, 1995
-
I
Washington, DC 20239
CONrl\-CT: Office of'Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,004 million of 13-week bills to be issued
December 28, 1995 and to mature March 28, 1996 were
accepted today (CUSIP: 912794X82).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.87%
4.91%
4.91%
Investment
Rate
5.01%
5.05%
5.05%
Price
98.769
98.759
98.759
Tenders at the high discount rate were allotted 82%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$41,217,419
Accepted
$13,003,759
$36,161,197
1,248,187
$37,409,384
$7,947,537
1,248,187
$9,195,724
3,257,835
3,257,835
550,200
$41,217,419
550,200
$13,003,759
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
4.89 -- 98.764
RR-789
4.90 -- 98.761
UBLIC DEB'ErNEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
[r\1
" ...!
FOR IMMEDIATE RELEASE
December 26, 1995
,i ,_-.,-' ,")
L I
".~'
I
(,,'.) 'J u U L f ~t
CONTACT: Office of Financing
--"T._--.
402-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,049 million of 26-week bills to be issued
December 28, 1995 and to mature June 27, 1996 were
accepted-today (CUSIP: 912794Z56).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.03%
5.04%
5.04%
Investment
Rate
5.25%
5.26%
5.26%
Price
97.457
97.452
97.452
Tenders at the high discount rate were allotted 97%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
RR-790
Received
$41,489,122
Acce:gted
$13,048,762
$33,599,390
1,023,632
$34,623,022
$5,159,030
1,023,632
$6,182,662
3,400,000
3,400,000
3,466,100
$41,489,122
3,466,100
$13,048,762
DEPARTMENT
OF
TREASURY
THE
TREASURY
NEWS
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622.2960
FOR RELEASE AT 2:30 P.M.
December 26, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $28,000 million, to be issued January 4,
1996. This offering will provide about $400 million of new cash
for the Treasury, as the maturing weekly bills are outstanding in
the amount of $27,602 million.
Federal Reserve Banks hold $7,172 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $3,372 million as agents for
,foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders.
Due to the public
debt limit and Treasury's need to plan for the debt level, additional amounts of Treasury bills will not be issued to Federal
Reserve Banks as agents for foreign and international monetary
authorities in these auctions.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at th~ Bureau of the Public
Debt, Washington, D. C.
This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-791
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JANUARY 4, 1996
December 26,
1995
Offering Amount .
$14,000 million
$14,000 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 X9 0
January 2, 1996
January 4, 1996
April 4, 1996
April 6, 1995
$30,410 million
$10,000
$ 1,000
183-day bill
912794 2Y 9
January 2, 1996
January 4, 1996
July 5, 1996
January 4, 1996
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
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Semi1Annnai Report to
Congress by the
Secretary of the Treasury
on behalf of the President
Pursuant to the
Mexican Debt Disclosure Act
0/1995
December, 1995
Semi-Annuli Repon
December 1995
Contents
I.
Summary
II.
Changes in wages, prices, and credit controls
in the Mexican economy
3
III.
Changes in tax policy
4
IV.
Privatization and regulatory reform
5
V.
Consultations between the U.S. Treasury
and the Government of l\iexico
10
VI.
Outstanding loans, credits, and guarantees
14
VII.
Conduct of monetary policy
19
page 1
Appendix
Tab
Tab
Tab
Tab
Tab
Tab
Tab
Tab
1:
2:
3:
4:
5:
6:
7:
8:
Outstanding U.S. Funds to the Government of Mexico
The Treasury Secretary's Monthly Report for December
Summary of the Treasury Secretary's Monthly Report for
Summary of the Treasury Secretary's Monthly Report for
Summary of the Treasury Secretary's Monthly Report for
Summary of the Treasury Secretary's Monthly Report for
Summary of the Treasury Secretary's Monthly Report for
Graphs
a.
b.
c.
d.
e.
f.
g.
h.
1.
Monetary Policy
Fiscal Policy
Tesobono Repayment and Debt Profile
Inflation and Interest Rates
Bond Markets
Currency and Stock Markets
International Reserves
Trade Balance
GDP, Construction Output, and Employment
November
October
September
August
July
Semi-Annud Report
December 1995
I. Summary
Mexico continues to satisfy its commitments under the financial agreements signed
by U. S. and Mexican authorities on February 21, 1995. The Mexican
Government has adopted a rigorous adjustment program to put its economy on the
path to sustained economic growth.
In October, the Mexican government signed an agreement with the Bank of
Mexico (BOM) and representatives of the labor, rural, and business sectors. The
stated objective of this "Alliance for Economic Recovery" (ARE) is to consolidate
financial stabilization and achieve sustainable growth. In this new economic
accord, the signatories support maintenance of firm fiscal and monetary policies,
and the extension of structural reforms.
Provisions in the ARE include tax incentives aimed at promoting savings and
investment, encouraging job creation, and reducing the fiscal burden on businesses
and individuals. The ARE also provides for an increase in the minimum wage,
Mexico's only formal wage control, of 20% from November 1, 1995 through
December 31, 1996 -- in line with the government's inflation projections of 20.5%
in 1996.
To protect the poor from rapid increases in the prices of basic foods, the Mexican
government announced an expansion of the subsidy program for producers of
bread, tortillas, and milk. In De·cember· 1995, the Mexican government increased
prices for gasoline and electricity, by an average of 7 %, and will increase these
prices by 6% in April 1996, and by 1.2% per month in 1996 (except for April).
The Mexican government has embarked on a broad array of measures to open
certain sectors to private and foreign investment, as well as preparing state-owned
enterprises for privatization. Privatization and structural reforms are designed to
increase productivity, attract foreign investment, raise government revenue, and
kindle private-sector initiative. During 1995, the government has focused on
establishing the legislative and regulatory framework for privatization, with initial
concessions awarded for port operations and for long-distance telecommunications
services. In 1996, concessions and sales are planned in the railroad,
petrochemical, telecommunications, satellite, and airport sectors.
As of December 22, 1995, $13.5 billion in U.S. funds have been disbursed to
Mexico under the support program. Of this amount, a total of $11.8 billion
remain outstanding -- $1.3 billion in short-term swaps and $10.5 billion in
medium-term swaps. The total outstanding reflects the repayment by Mexico of
1
Semi-A 11lTIJ£i Report
December 1995
$700 million in short-term swaps on October 11, 1995. To date, the United States
has not extended any securities guarantees to Mexico under the support program.
Outstanding loans, credits, and guarantees provided to the Government of Mexico
by other U.S. agencies include: (1) approximately $2.7 billion outstanding in total
exposure (including loans, guarantees, insurance, rescheduled loans, and claims
and recoveries) to the Government of Mexico and its parastatals by the ExportImport Bank (as of December 6); (2) $2.5 billion in guarantees and loans
outstanding, including $2.4 billion in the form of contingent liabilities, and $79
million in rescheduled loans, through the Department of Agriculture's Conunodity
Credit Corporation (as of October 31); and (3) $13.2 million in loans outstanding
to the Government of Mexico from the U.S. Agency for International
Development (as of October 31).
The U. S. Department of the Treasury has closely monitored Mexico's compliance
with the February 21 Agreements and the Mexican Government's implementation
of its stabilization program. Formal consultations at the policy level, as well as
staff-level discussions on the performance of the Mexican economy, have
underscored the position that Mexico should conduct sound fiscal and monetary
policies, improve transparency and dissemination of economic and financial data,
continue with structural reforms, and rebuild reserves by reaccessing private
capital markets.
Mexico has made substantial progress in solidifying the independence of the Bank
of Mexico, conducting strict monetary policy, and stabilizing the peso. Mexico's
constitution provides that the Bank of Mexico, "shall be autonomous in the
exercise of its function and administration," and that "[i]ts primary objective shall
be to ensure the stability of the purchasing power of the national currency." As
an independent central bank, the Bank of Mexico has clearly stated its monetary
policy goals and has enacted a series of policy and institutional changes designed
to achieve them.
The Bank of Mexico continues to maintain a floating rate for the peso, although it
intervened three times during the second half of the year (to December 19),
during days of extreme volatility in the foreign exchange markets. As stated in a
November 9 announcement, the BOM remains committed to a floating exchange
rate and will limit its interventions to reducing unwarranted market volatility,
while not resisting the market's role in setting the peso's fundamental value.
2
Semi-AnnUli Report
December 1995
II. Changes in Wage, Price, and Credit Controls
On October 29, 1995, the Mexican government signed an agreement with the
Bank of Mexico and representatives of the labor, rural, and business sectors. The
stated objective of the "Alliance for Economic Recovery" (ARE) is to consolidate
financial stabilization and achieve sustainable growth. In this new economic
accord for 1996, the signatories support maintenance of firm fiscal and monetary
policies, and the extension of structural reforms.
One provision of the ARE is to increase the minimum wage, the only formal wage
control in Mexico. The minimum-wage increase would be in line with the
projected inflation target for 1996 of 20.5 %.
•
The minimum wage increased by 10% on December 4, 1995, and will
increase by an additional 10% on April 1, 1996.
The Mexican government will increase prices of publicly provided goods and
services.
•
Gasoline and electricity prices were increased by an average of 7 % in
December 1995. In addition, these prices are set to be increased 1.2 % per
month in 1996, except for April when there will be a 6% increase.
The Mexican government has also expanded subsidy programs to -assist the poor.
•
To protect the poor from rapid increases in the prices of basic foods, the
Mexican government announced an expansion of the subsidy program to
producers of bread, tortillas, and milk.
•
The government will also expand the provision of school breakfasts, which it
estimates will benefit 2 million children by the end of 1996.
3
Semi-Annud Report
December 1995
III. Changes in Tax Policy
1996 Measures aim!d to boost the recovery
The "Alliance for Economic Recovery" (ARE) included a number of tax incentives
to reduce the fiscal burden on enterprises, promote investment, and encourage job
creation. These tax incentives, introduced on November 1, 1995, will remain in
place through December 31, 1996.
•
All companies with gross revenues of NP7 million or less during 1995 will be
exempt from the asset tax during 1996.
•
Companies that exceed their first ten months of 1995 investment levels in 1996
will be allowed to deduct up to 100% of the difference.
•
Companies that increase their average employment in 1996 from their average
employment during the first ten months of 1995 will receive a tax credit. The
tax credit will be equal to 20% of an annualized minimum-wage salary for
each additional worker.
Tax law amendments have been introduced in the Mexican Congress that are
designed to simplify tax administration while protecting legal security for
taxpayers. These measures include:
•
The establishment of an optional income-tax regime for those businesses and
individuals whose income does not exceed 77 times the minimum wage. This
regime is intended to make income-tax payments easier hy assessing tax
liabilities according to a predetermined percentage of gross earnings.
•
A proposal to create a decentralized and autonomous agency to improve the tax
collecting functions of the Federal Government, and the quality of taxpayer
services.
•
A reduction in the maximum time allotted by law for refunds by the Federal
Government, including the payment of a surcharge to taxpayers if the
government fails to comply.
4
Semi-Annud Report
December 1995
IV. Privatization and Regulatory Reforms
Market-oriented refortm have proceeded throughou the year
Mexico's adjustment program continues a privatization program that has already
seen the divestiture of over 1000 of Mexico's 1155 state-owned enterprises that
existed in 1982. This year, the government expanded the program to privatization
and liberalization of traditionally regulated sectors such as transportation,
telecommunications, and energy. These efforts are intended to support
modernization by increasing productivity, attracting foreign investment, raising
government revenue, and kindling private-sector initiative.
In several sectors, Mexico has developed regulations from scratch, while also
establishing independent regulatory authorities. Activities in these sectors have
traditionally been regulated through state ownership. In order to promote
competition and efficiency, privatization requires that new regulatory regimes be
developed to avoid transforming state-owned monopolies into privately-owned
monopolies.
During 1995, the government has focused on establishing this legislative and
regulatory framework for privatization, with initial concessions awarded for port
operations and for long-distance telecommunications services.
•
The Mexican Congress amended the country's constitution this year to allow
private and foreign investment in railroads and satellite communications,
telecommunications services, and natural gas distribution and storage.
•
In July and August, the Communications and Transportation Ministry (SCT)
awarded concessions at six port facilities and announced bidding for further
concessions in November and December.
•
Since September, SCT has awarded six concessions for the operation of longdistance services to joint ventures that include both domestic and foreign
participants.
•
In November, bidding rules were announced for sales and concessions in the
railway, petrochemical, and natural gas distribution sectors.
5
Semi-Annuli Report
December 1995
•
In August, the World Bank approved a $30 million loan to support technical
assistance in developing regulations and preparing fInns for privatization in
certain sectors including telecommunications, energy, and transportation.
•
In September, the government also announced a new infrastructure investment
fund, which is initially capitalized at NP 1. 7 billion (approximately $255
million), to provide financing intended to catalyze small and medium-sized
infrastructure projects.
During 1996, further steps will be taken to continue the complex process of
putting in place necessary mechanisms to regulate these sectors. As part of this
effort, seT recently announced its intention to establish a new legal framework to
regulate and privatize infrastructure development. The goal of these regulations
will be to foster competition and develop rule-based procedures for granting
concessions. In 1996, concessions and sales are planned to be completed in the
railroad, petrochemical, telecommunications, satellite, and airport sectors.
Deve/opm?nts in Key Sectors
Telecommw1ications
•
Since September, the government has awarded six concessions for foreign and
domestic providers who wish- to offer long-distance services when Telefono de
Mexico's monopoly ends on January 1, 1997. These concessions were
provided without fees, given an expectation of substantial investment and
improved efficiency that would result from increased competition.
•
In October, the government also awarded 158 concessions to both domestic
and foreign providers to operate paging services and cable channels. These
concessions were also provided without a fee.
•
The Mexican government plans to auction part of its radio spectrum for
specialized telecommunications services during the first half of 1996. The
government also plans to auction rights to provide cellular, paging, and
personal communication services during 1996.
•
By late 1996, the Mexican government intends to set up an independent
regulatory authority, along lines similar to the Federal Communications
Commission in the United States.
6
Semi-Annud Report
December 1995
Natural Gas Distribution
• The Mexican Congress has approved legislation allowing private companies to
obtain concessions to build and operate natural gas pipelines.
• In November, the Energy Regulatory Commission announced regulatory
guidelines and began the first round of bidding for concessions to distribute
natural gas, both imported and locally produced, in northern Mexico.
•
PEMEX
will remain the sole producer of natural gas in Mexico.
Ports
•
In July and August, the government announced winning bidders to operate six
port facilities. The government raised approximately $180 million from these
port privatizations.
•
The government announced bidding for further port facilities in November and
December, with concessions expected to be provided in the first quarter of
1996.
•
The Mexican government has also established independent port authorities,
which it plans to privatize partially over the next 18 months. Foreign investors
are allowed to own up to 49 % of the port authorities.
Petrochemicals
•
In November, the government announced bidding for majority ownership in
the Cosoleacaque plant -- the first of four main petrochemical facilities to be
privatized. Bidding rules for the other three major facilities -- La Cangrejera,
Morelos, and Pajaritos -- are expected to be announced during the first quarter
of 1996.
•
The winning bids for the Cosoleacaque facility are expected to be announced in
April 1996, with the initial sale to be completed by August. Sale of the other
three main facilities are expected to be finalized by the end of 1996.
•
PEMEX
will maintain a 20% share of these facilities for no more than five
years.
7
Semi-Annuli Reporl
December 1995
•
Private analysts expect most of the bidders to be joint ventures of foreign and
Mexican finns.
Railroads
•
The Mexican government plans to offer concessions to operate on existing
railroad tracks for up to 50 years. The Mexican Congress approved the
necessary constitutional amendments in March, and approved a more detailed
law governing the sales in May.
•
To maximize competition, the Mexican government will auction concessions to
operate the tenninal of Mexico City and three main lines, separated
geographically. Each line will have access to Mexico City and a port on each
ocean.
•
Regulatory guidelines for the sales were published in November 1995, with
bidding expected to be completed during the third quarter of 1996, and initial
sales to be finalized in December.
•
In a run up to the bidding process, work is underway to value the railroad's
extensive inventory, resolve environmental liabilities, negotiate severance pay
with workers, determine the legal title to an extensive real estate portfolio, and
decide how to handle squatters occupying railroad-owned land. The
government will assume pension-liabilities incurred in the past.
•
On December 13, 1995, the government announced that it would assume $900
million in debt from the state-owned rail company, Ferrocarriles Nacionales de
Mexico, in preparation for next year's privatization. The debt is expected to
be paid off over ten years, partially through the use of proceeds from the sale
of railway concessions and assets.
•
Mexican government officials also plan to establish an independent regulatory
authority for the railway system next year.
Airports
•
In December, Congress passed legislation giving new legal security to private
investors in Mexico's airports. Related regulations are expected to be
announced during the first half of 1996.
8
Semi-AnnuLi Report
December 1995
•
The government is expected to announce bidding for concessions to operate
existing airport facilities in the middle of next year, with sales to start by the
end of 1996.
Satellites
•
The Mexican government plans to sell existing satellite and transmission rights
for four geostationary orbits above Mexico. The Mexican Congress has
already passed the necessary constitutional changes, as well as a law governing
the sales.
•
Mexican government officials are now working on proposals to regulate
transmission, which would affect privatization revenues. Mexican government
officials currently expect the auctions to take place in 1996.
9
Semi-A nnud Repol1
December 1995
V. Consultations with the Government of Mexico
IMF reviews of the Mexican Econo~
Second Review of Mexico's IMF standby arrangemenl
On June 30, after a favorable review of Mexico's progress under the 1995 standby
arrangement, the IMF Executive Board made about $2 billion available (the IMF's
second disbursement of the year to Mexico). The Board set the schedule and
tenns for the release of the remaining $8.7 billion (approximately) under the
standby arrangement approved on February 1, 1995. Funds were to be made
available in five equal installments of about $1. 7 billion each from August 1995
through August 1996, subject to continued satisfactory perfonnance.
In August 1995, the next tranche of $1.7 billion was drawn down as scheduled by
Mexico, without an IMF Executive Board meeting.
Third Review of Mexico's IMF standby arrangement
The IMF Executive Board again reviewed Mexico's standby arrangement
favorably on December 15. As a result, Mexico will receive in December a
fourth disbursement under its IMF loan program, amounting to $1.65 billion.
New targets for 1996 have been established with the aim of supporting an
economic recovery, reducing inflation further, and accumulating additional
international reserves.
us.
Treasury Policy Consultations
U.S. Department of the Treasury representatives have closely monitored Mexico's
compliance with the February 21 Agreements and the Mexican government's
implementation of its stabilization program.
Formal Consultations
Senior policy-level Treasury officials have held extensive consultations with senior
policy-level Mexican officials by telephone and in face-to-face meetings. Since
July 1, 1995, senior Treasury officials have met, both in the United States and
Mexico, with senior Mexican officials from the following agencies:
10
Semi-AnnULi Report
December 1995
(1)
July 25: Bank of Mexico (BOM)
(2)
July 28: Mexico's National Banking and Securities Commission (CNBV)
(3)
August 15: Mexico's Ministry of Finance and Public Credit (HACIENDA)
(4)
September 19: HACIENDA
(5)
October 9: Mexican President Ernesto Zedillo
(6)
October 10-11: HACIENDA
(7)
November 6-7: HACIENDA and BOM
(8)
November 14: Mexico's Ambassador to the United States
(9)
November 21: CNBV and BOM
(10)
December 11: HACIENDA
(11)
December 15: BOM
(12)
December 18: HACIENDA
Treasury officials used these discussions to underscore the importance to Mexico
of maintaining sound fiscal and monetary policies, improving transparency and
dissemination of economic and financial data, continuing with structural reforms,
and rebuilding reserves by reaccessing private capital markets.
Treasury's Due Diligence Program
In addition to discussions at the policy level, U. S. Department of the Treasury
staff have been closely tracking the implementation of the U.S. support package
and the Government of Mexico's stabilization program.
In February, the Mexico Task Force (Task Force) was established within the
Office of the Assistant Secretary for International Affairs to implement the
February 21 Agreements, including monitoring Mexico's compliance and ensuring
the timely provision of information by the Mexican authorities, as called for under
those agreements. Task Force members include international economists,
11
Semi-Annud Report
December 1995
attorneys, and fmancial analysts from within Treasury and from other U.S.
Government agencies, with areas of expertise ranging from monetary policy to
banking regulation to emerging fmancial markets.
Members of the Task Force consult regularly with their staff-level counterparts in
Mexico. Daily communication includes phone calls and facsimile transmissions
for the purposes of updating economic and fmancial data, monitoring fmancial
markets, monitoring relevant transactions undertaken by the Mexican financial
authorities, and following policy discussions and legislative developments within
Mexico that affect both macroeconomic and structural policies. Throughout the
reporting period, Treasury staff have met periodically with their Mexican
counterparts in both the United States and Mexico:
(1)
On July 10-14, members of the Task Force conducted a compliance
mission to Mexico on the financial plan, reserve accumulation, the balance
of payments, and monetary policy.
(2)
On July 11-12, members of the Task Force travelled to Mexico to conduct
meetings with PEMEX on the oil proceed facility agreement.
(3)
On July 20, 1995, staff from HACIENDA met with members of the Task
Force in Washington to discuss conditions of Mexico in the capital
markets.
(4)
During the week of August 7, 1995, members of the Task Force travelled
to Mexico to hold meetings with officials from CNBV, BOM, HACIENDA, and
NAFINSA, the state-owned development bank, on bank supervision and
regulation, as well as monetary policy. Other discussions were held on
economic indicators and the balance of payments.
(5)
On August 15, 1995, staff members of HACIENDA and BOM met with Task
Force members in Washington to discuss fiscal policy and the financial
plan.
(6)
On September 19, 1995, staff from HACIENDA met with Task Force
members in Washington on fiscal policy, monetary policy, the financial
plan, and capital markets.
12
Semi-A1'111Uli Report
December 1995
(7)
On October 10-11, 1995, members of the Task Force held a series of
meetings with staff of HACIENDA and BOM in the United States regarding.
monetary and fiscal policy, as well as the financial plan.
(8)
During the week of November 6, members of the Task Force, joined by
staff from the Federal Reserve Board, visited Mexico to meet with
HACIENDA and BOM regarding monetary and exchange-rate policy.
(9)
On November 9-13, a member of the Task Force travelled to Mexico to
meet with HACIENDA and the Ministry for Communications and
Transportation about privatization and other structural reforms, as well as
the 1996 budget.
(10)
During the week of November 20, staff from Mexico's CNBV and BOM met
with Task Force members in Washington, as well as other U. S. officials in
the bank regulatory community, to discuss the banking system.
(11)
On December.4, 1995, a member of the Task Force visited Mexico to meet
with PEMEX to discuss the oil proceed facility agreement.
(12)
On December 4-7, 1995, members of the Task Force were joined in
Mexico by staff from the Federal Reserve Board to hold meetings with
HACIENDA, BOM, and CNBV to discuss fiscal policy, the IMF program, and
the banking system.
(13)
On December 6-8, 1995, members of the Task Force were joined in
Mexico by staff from the Federal Reserve to meet with BOM and HACIENDA
to discuss monetary policy, reserve accumulation, and the financial plan.
(14)
On December 15, 1995, the Task Force hosted BOM staff in Washington
for consultations about monetary policy.
13
Semi-Annuli Report
December 1995
VI. Disbursements, Swaps, Guarantees and Compensation to the U.S.
Treasury
As of December 22, 1995. $13.5 billion in U.S. funds have been disbursed to
Mexico under the support program. Of this amount. a total of $11.8 billion
remain outstanding -- $1.3 billion in short-term swaps and $10.5 billion in
medium-term swaps. The outstanding total reflects the repayment by Mexico of
$700 million in short-term swaps on October 11, 1995. To date, the United States
has not extended any securities guarantees to Mexico under the support program.
•
Under the swap agreements, Mexico purchases dollars and credits a
corresponding amount of pesos to U.S. accounts at the Bank of Mexico.
On the maturity date. Mexico repurchases the pesos by paying back the
dollars.
•
Both the short-term and medium-term swap facilities require MexicQ to
maintain the dollar value of peso credits to the United States, adjusting the
amount of pesos on a quarterly basis, in accordance with changes in the
dollar-peso exchange rate.
•
As provided in the Agreements. Mexico must pay interest to the U.S.
government on the swap balances outstanding. The interest charges applied
to short-term swaps are designed to cover the cost of funds to the Treasury
and thus are set at the inception of the swap based on the Treasury Bill
rate. Interest rates are reset at the time of any roll-overs of existing shortterm swaps.
•
Interest charges applied to the medium-term swaps are designed to cover
the cost of funds to the Treasury plus a premium for the credit risk
associated with the extension of such funds. as assessed at the time of each
disbursement. Paragraph 6 (d) of the Medium-Term Exchange Stabilization
Agreement (the Medium-Term Agreement) provides that interest rates on
swaps with Mexico are "intended to be at least sufficient to cover the
current U. S. Government credit risk cost for Mexico. "
14
Semi-Annud Report
December 1995
•
For each disbursement under the Medium-Term Agreement, the premium is
the greater of (1) a rate determined by the U.S. Government's inter-agency
country risk assessment system OeRAs) as adequate compensation for
sovereign risk of countries such as Mexico, or (2) a rate based on the
amount of U.S. funds outstanding to Mexico from short-term swaps,
medium-term swaps, and loan guarantees at the time of disbursement.
•
Mexico has not missed any interest payments or required principal
repayments under any of the swaps. Through December, the Exchange
Stabilization Fund (ESF) has received $447.4 million in interest payments
from Mexico for short-and medium-term swaps. Through December, the
Federal Reserve has received $46 million in interest on its short-term swaps
with Mexico. On January 2, 1996, $242.4 million in interest is due to
Treasury on the medium-term swaps.
The schedule of swaps under both ESF and Federal Reserve swap lines is as
follows:
FSFswaps
As of December 22, 1995, $12.0 billion has been disbursed to Mexico through the
ESF, of which $11.15 billion remains outstanding.
FSF short-term swaps
•
On January 11 and January 13, 1995, Mexico made two
drawings of $250 million each under short-term swaps through
the ESF. Mexico repaid these drawings on March 14, 1995.
•
On February 2, 1995, the U.S. disbursed $1 billion under a
short-term swap through the ESF; this swap was rolled over for
an additional 90-day period on May 3, 1995, and on August 1,
1995. On October 11, Mexico repaid $350 million of this swap.
The $650 million balance of this swap was rolled over on
October 30, 1995, for an additional 90-day period for a new
maturity date of January 29, 1996. The current quarterly
interest rate expressed annually is 5.25 %.
•
On December 15, the Department of the Treasury and the Bank
of Mexico renewed their bilateral short-term swap agreement,
15
Semi-Armud Report
December 1995
the Exchange Stabilization Agreement (ESA), for one year to
December 13, 1996. The ESA is the successor to a series of
bilateral swap agreements that have been in place between the
Treasury and the Bank of Mexico since 1941. This renewal
does not represent an extension of new funds to Mexico by the
Treasury.
FXF nedium-term swaps
•
Mexico drew $3 billion under a medium-term swap on March
14, 1995. The current quarterly interest rate expressed annually
is 7.55%.
Repayment is to be made in seven installments as follows: six
equal installments of $375 million each, payable on June 30,
1998, and each successive calendar quarter date to and including
September 30, 1999; and one installment of $750 million,
payable on December 31, 1999.
•
On April 19, 1995, Mexico made a second $3 billion drawing
through a medium-term swap. The current quarterly interest
rate expressed annually is 10.16%.
Repayment is to be made in twelve installments as follows:
eleven equal installments of $245 million each, payable on June
30, 1997, and each successive calendar quarter date to and
including December 31, 1999; and one installment of $305
million, payable on March 31, 2000.
•
On May 19, 1995, Mexico drew $2 billion under a mediumterm swap. The current quarterly interest rate expressed annually
is 10.16%.
Repayment is to be made in twelve installments as follows:
eleven equal installments of $170 million each, payable on June
30, 1997, and each successive calendar quarter date, to and
including December 31, 1999; and one installment of $130
million, payable on March 31, 2000.
16
Semi-Annud Reporl
December 1995
•
Most recently, on July 5, 1995, Mexico drew $2.5 billion under
a medium-term swap. The current quarterly interest rate
expressed annually is 9.20%.
Repayment is to be made in twelve installments as follows:
eleven equal installments of $205 million each, payable on
September 30, 1997, and each successive calendar quarter date
to and including March 31, 2000; and one installment of $245
million, payable on June 30, 2000.
Federal Reserve swaps
Disbursements to Mexico through the Federal Reserve System total $1.5 billion,
with $650 million outstanding. All Federal Reserve disbursements are in the form
of short-term swaps.
•
On January 11 and January 13, 1995, Mexico made two
drawings of $250 million each under short-term swaps. Mexico
repaid these drawings on March 14, 1995.
•
A short-term swap of $1 billion was extended on February 2,
1995; this swap was rolled over for an additional 90-day period
on May 3, and on August 1, 1995. On October 11, Mexico
repaid $350 million of this swap. The $650 million balance of
this swap was rolled over on October 30, 1995, for an additional
90-day period for a new maturity date of January 29, 1996. The
current quarterly interest rate expressed annually is 5.25 %.
OUstanding loans, credits, and guarantees provided to Mexico by other Us.
agencies
•
As of December 6, 1995, the Export-Import Bank of the United States
recorded approximately $2.7 billion outstanding in total exposure (including
loans, guarantees, insurance, rescheduled loans, and claims and recoveries)
to the Government of Mexico and its parastatals.
•
As of October 31, 1995, the Department of Agriculture, through its
Commodity Credit Corporation, had just over $2.5 billion in guarantees
and loans outstanding, including $2.4 billion in the form of contingent
17
Semi-A1'l11Ud Report
December 1995
liabilities, and $79 million in rescheduled loans to the Government of
Mexico.
•
As of October 31, 1995, the U. S. Agency for International Development
had some $13.2 million in loans outstanding to the Government of Mexico.
18
Semi-A nnud Report
December 1995
VII. Conduct of Monetary Policy
Mexico has tmde progress in reinforcing the independence of the Bank of Mexico,
conilocting strict nvnetary po/icy, and stabilizing the peso
The Bank of Mexico is legally independent. Mexico's constitution provides that
the Bank, "shall be autonomous in the exercise of its function and administration, "
and that "[i]ts primary objective shall be to ensure the stability of the purchasing
power of the national currency."
As an independent central bank, the Bank of Mexico has clearly stated its
monetary policy goals and has enacted a series of policy and institutional changes
designed to achieve them. Since the beginning of 1995, the Bank of Mexico has
conducted a monetary policy designed to: (1) reduce inflation, eventually to single
digit rates; (2) stabilize the value of the peso in the context of a floating exchange
rate; and (3) attract ongoing capital from the market.
Monetary policy has been tight, and, in combination with other Mexican economic
policy measures and the external support package, has stabilized the peso, limited
inflation, and helped produce an accumulation of reserves.
The growth of net domestic credit has been strictly limited.
•
While many factors influence net domestic credit, it is important to emphasize
that peso credit to financial intermediaries (including lending to commercial
banks, development banks, and FOBAPROA, the central bank's insurance fund)
has fallen significantly.
•
Thus, despite inflation of 47% in the first eleven months of the year, total peso
credit to financial intermediaries fell by about 18 %, for a real decline of 44 %.
•
The contraction of real credit has combined with high interest rates, the fall in
output, and pre-existing structural weaknesses to place stress on the banking
system. Even so, the above data show that, to date, measures taken to extend
credit to the banking system, including the small debtor's relief program
(ADE), have not caused an increase in total credit to the banking system.
•
The Bank of Mexico has made plain that it will continue to ensure that any
measures taken to address banking problems do not weaken its monetary
policy.
19
Semi-A nnud Report
December 1995
Partly as a result of this tight credit policy, the money supply has been strictly
controlled.
• . The money supply (monetary base) increased by about 3.7 % between
December 31, 1994 and December 8, 1995 .• The real money supply fell by
about 30% during this same period. Due to large seasonal demand factors,
December is historically the period of greatest money supply growth. The
Bank of Mexico estimates that the year-end monetary base will be about NP63
billion, a nominal increase of about 10% and a real decline of about 22 % for
the year.
Interest rates have been allowed to rise as high as necessary to complement tight
control over credit and the money supply.
•
The monthly average auction rate on 28-day cetes, the benchmark government
security, fell to a low of 34% (on an annualized basis) in September. This was
significantly less than a high of 83 % in March.
•
When financial markets were turbulent in October and November, Mexico
allowed interest rates to climb once again, reaching as high as 60 % in the
November 14 auction. Since then, rates have fallen to about 50% in the
December 11 auction.
•
The real interest rate in November (defined as the average yield on one-month
government securities after adjusting for actual inflation in November) was
about 20 % on an annualized basis.
Instituional reform; will help ensure the independence and efficiency of nvnetary
policy
The Bank of Mexico has made a number of institutional changes to enhance its
independence, improve its control over monetary policy, and strengthen its
monetary policy stance.
•
It has instituted zero monthly average reserve requirements on commercial
banks. Through this mechanism, the Bank of Mexico can tighten monetary
conditions immediately as necessary. This mechanism induces marketdetermined interest rate hikes, rather than requiring the Bank of Mexico to
force up interest rates directly, as before.
20
Semi-A11JlU£i Report
December 1995
•
The procedure by which the Bank of Mexico intervenes in the money market
to control the money supply has been made more market-oriented. Previously,
the Bank announced a rate prior to each auction. Now, the interest rate is
freely determined in the primary auction and in the secondary market.
•
The payments system has been reformed to increase the efficiency of monetary
policy and lessen the risks that the Bank of Mexico has to bear in its role as
overseer of the interbank payments mechanism.
•
Perhaps most important, the Bank of Mexico has increased the amount and
frequency of information it releases to the market. For example, the Bank
releases its balance sheet weekly. This includes information on the stock of
international reserves, the money supply, and credit to financial intermediaries.
Each day the Bank releases the monetary base as well as its planned operations
to change the monetary base for that day.
Exchange Rate po/icy
The Bank of Mexico continues to maintain a floating rate for the peso. In
response to the peso's weakness during the first half of November, the central
bank tightened credit policy and intervened twice (1119 and 11114), spending about
$300 million to buy pesos. A drop in the peso on December 8 led the BOM to
intervene in the foreign exchange markets again. During each of these
interventions, monetary policy was tightened to support the peso's value. As
stated in a November 9 announcement, the Bank remains committed to a floating
exch~mge rate and will limit its interventions to reducing unwarranted market
volatility, while not resisting the market's role in setting the peso's fundamental
value.
21
Tab 1:
Outstanding loans, credits, and guarantees provided to
Mexico by other U.S. agencies
Attached are (1) Exim-Bank's Country Exposure Summary and (2) U.S. AID's
loan balances with the Government of Mexico.
•
As of December 6, 1995, the Export-Import Bank of the United States
recorded approximately $2.7 billion outstanding in total exposure
(including loans, guarantees, insurance, rescheduled loans, and claims
and recoveries) to the Government of Mexico and its parastatals.
•
As of October 31, 1995, the Department of Agriculture, through its
Commodity Credit Corporation, had just over $2.5 billion in guarantees
and loans outstanding, including $2.4 billion in the form of contingent
liabilities, and $79 million in rescheduled loans to the Government of
Mexico.
•
As of October 31, 1995, the U.s. Agency for International
Development had some $13.2 million in loans outstanding to the
Government of Mexico.
Country Exposure Summary
CUllenl As
MEXICO (547)
O~
12/06195
TC Closing As Of 09130195
PRIVATE
PUBLIC
Tolal
Soverelgn(1)
Non-Sollerelgn
Fin Inslitulion
Non.Financial(2)
Amount
Amounl
Amount
Amount
In'litulion Amount
253
$3,518,472,502
t>1,2Jtl.672,JU:.
f,20' ,J00,041
31.' 52 .644.856
S92~.855.301
253
$3,518.472,502
$1.236,672,305
$201, )00,041
",152,644,B56
$925,865.301
5
SB,593,665
$0
10
$0
SB 593.665
Singlebuyer I\.1T Policy
60
t 705,320, 3'J2'
30
~O
$0
57U~,J20.392
Singlebuyer ST Policy
30
~1)7.616,951
~o
$0
$0
5137.616.951
Singlebuyer STMT Policy
83
$1,596,934,175
$0
10
$0
SI,596,934,175
$87,391,643
$0
$0
$0
~7.J91.641
199
$2,535,856,826
SO
SO
$0
$2,535,856,825
366
$99,580,204
$27,479,128
$809,905
~o
$71,291,172
0
$565,146,601
$565,146,601
$0
iO
$0
826
$6,719,066,133
$1,831,298,034
$202,109,946
$1,157,644,8Sii
$ 3,5 n,OOl, 2 99
Actual Exposure
Loans and Guarantees
Operative Final Commitments
Total roans and Guarantees
Insurance
- - - --Lease Policy
---
---
Multibuyer Policy
Total Insurance
Claims & Recoveries
--Toral Claims & Recoveries
Rescheduled loans
Total Rescheduled loans
Total Actual Exposure
-
Country Exposure Summary
CUllenl As
MEXICO (547)
or
12106/95
Te Closing As Ot 091]0/95
PRIVATE
PUBLIC
Tolal
Sovereign(1)
Non-Sovereigll
Fin Inslltutlon
Non·Flnandaf(2)
Amount
Amount
Amount
Amount
Inslltullon Amount
11
$717,477,795
~ 15,65~.022
5551,552,395
$91.2:12.293
$59.03),085
')
S176,JJS,422
SO
$0
SO
$17!lJ35,422
iD
SO
SO
10
$0
S585,JJ9,2B9
$ :to.066, 795
SII1l03'J,' 1 7
$1)),868.907
$J03,J64,470
S200,000,000
so
to
~\I
S20(IODO.OOO
$26,500,000
ill
~o
$0
S25,~OO,000
",706,647,506
H5,721,817
l(j69,591,512
$225,101,200
5766,232,977
to
$0
$0
'0
SO
Potential Exposure
Loans and Guarantees
Aulhonled (Not Operative) Final Commltmen
Pending Final Commitments
Outstanding Preillninary Cornmltments
Outstanding lellers 01 Interest
37
Pending Pretllnlnary Cornmllments
Pending leIters of Interest
Total Loans and Guarantees
5~
Insurance
Lease POlicy
Singlebuyer MT PoliCy
39
5392,696,700
$0
$0
to
$392.696.700
Single buyer ST Policy
10
137,109,179
~o
$0
$0
$37,109,779
9
$190,150,000
SO
SO
SO
5190,150,000
$72,134,310
$0
$0
$0
Sn,114,310
$6,200,000
$0
$0
$0
$5,200,OOlJ
60
$69B,290,769
60
$0
$0
$69B,290,1B9
~
J2,404,93B,295
145,721,617
1669.591,512
$225,101,200
51,464,52),766
Single buyer STMT Policy
Multibuyer Aggregated Credit Limits
Multibuyer Consignment Limit
Tatal Insurance
Total Potential Exposure
11
Country Exposure Summary
MEXICO (547)
941
12/06/95
09130195
PRIVATE
PUBLIC
Total Exposure
Current As 01
TC Closing As 01
Amount
Fin In5111ullon
Amount
Non.Flnanclal(2)
InsUlutlon Amount
$871,701,458
51,317.746,056
&4,997,527,065
Tota'i
Soverelgn(1)
Non-SovBrelgn
Amount
Amount
59,123,V94,42B
$1,877,019,651
U.S. AID's loan balances with the Government of Mexico
LOANS WITH
THE GOVERNMENT OF MEXICO
BALANCES AS OF OCTOBER 31.1995
LOAN NO.
AMOUNT AS OF 5/95
AMOUNT AS OF10J9S DIFFERENCE
so
5.245,901.65
523-L-02SR
860,92805
573.952.06
523-L-026R
2,331.20940
2.331,20940
000
S23-L-027R
2,821,12438
2,821,124.38
0.00
523-L-028R
2.228.446 13
2.228.446.13
000
13.815,47846
13,200.633.62
614,84484
523-L-020
TOTAL
5.573.770
• PAYMENT MADE IN JUNE.
- PAYMENT MADE IN JULY
327,868.85 •
286.97599 ••
Treaswy Secretary's Report to OJngress
Decerrber 1995
Contents
I.
Overview
II.
Current Condition of Mexico's Economy
a.
Monetary Policy
Fiscal Policy
Structural Reform and Privatization
Information Disclosure
Economic Adjustment
Banking Sector Developments
Financial Market Trends
International Reserves
b.
c.
d.
e.
f.
g.
h.
page
1
3
III.
Disbursements, Swaps, Guarantees and Compensation
to the U.S. Treasury
27
IV.
Mexico's Financial Transactions
32
V.
Status of the Oil Facility
33
Treasury SecretaTy's Report to Congress
Decerrher 1995
I.
Overview
In providing assistance to Mexico under the February 21 Agreements, the U.S.
government acted to protect vital U. S. interests -- American exports and jobs·,
the security of our common border, and the stability of other emerging market
economIes.
During 1995, Mexico has put in place the rigorous adjustment policies
necessary to address the financial crisis that threatened its economic stability
and prospects for sustained growth. For 1996, the Mexican authorities have
indicated continuation of sound fiscal and monetary policies in their 1996
budget, their October "Alliance for Economic Recovery", and their December
11, 1995 release of 1996 monetary program.
The 1995 policies have led to a budgetary surplus for the first three quarters of
1995 of 1.5% of GOP, and, as of December 15, an increase in the nominal
monetary base for the year of 19%, even though the price level was about
50% higher than at the end of 1994. In 1996, the authorities call for a
primary surplus and an overall balanced budget, as well as money growth
consistent with their targets of 20.5 % inflation and 3 % real GOP growth.
The recession in 1995 that has accompanied the financial crisis has been deep,
as GOP dropped 9.6% in the third quarter compared to the third quarter of
1994. On a seasonally-adjusted basis, however, GOP rose by 2.4% from the
second to the third quarter, according to the government of Mexico. Mexican
authorities have brought about a rapid economic adjustment, while averting a
sovereign default, and regaining access to private capital markets -- raising
$6.4 billion in 1995, far exceeding levels achieved in 1993 and 1994. The
government's firm and credible stabilization policies, the increased efficiency
of the economy following seven years of reforms, the good export
performance, and the liquidity provided under the U.S.-led support program
are hastening Mexico's eventual recovery.
Default concerns associated with the government's tesobono obligations have
been eliminated; by December 31, 1995, all but $246 million of the $29.2
billion outstanding at the end of 1994 will have been retired. Meanwhile, as of
December 15, international reserves have risen $8.5 billion above the end -1994
level of $6.1 billion. The monthly inflation rate for November of about 2.5 %
was slightly higher than the July through October average of 2 %, but well
below the peak of 8 % in April.
The IMF Executive Board reviewed favorably Mexico's standby arrangement
on December 15. As a result, Mexico will receive in December a fourth
disbursement under its IMF program, amounting to about $1.65 billion. New
targets for 1996 have been established with the aim of supporting an economic
1
Treasury Secretary's Report to Congress
Decerrber 1995
recovery, reducing inflation further, and accumulating additional international
reserves.
In December, the peso remained roughly unchanged to NP7.59 as of December
21. The Mexican stock market in peso terms remained about 22 % above precrisis levels as of December 21, although it is down about 44 % in dollar
terms. With a more stable peso, interest rates on the benchmark 28-day cetes
declined to 49.1 % in the December 18 auction from 53.5% in the November
28 auction, well below the 83 % annual rate reached in March.
Mexico's banking sector remains strained; however, the government's
measures to mitigate the immediate impact of the problem, to improve
regulation and supervision, and to encourage capital infusions have lent
important support. It was announced in December that Mexico's two largest
banks are negotiating with the government of Mexico to strengthen their
balance sheets through arranging a sale of loans to FOBAPROA, the central
bank's insurance fund, and through new private capital injections. So far,
eight large banks, holding 37% of banking system assets, have been
recapitalized. As a result of additional capital provided by bank shareholders,
and the sale of loans to FOBAPROA, these banks have sharply raised their net
worth.
Outstanding U. S. disbursements under the February 21 agreements total $11.8
billion, all of which are backed by the full faith and credit of the Mexican
government. Through December, the United States has received more than
$490 million in interest payments from Mexico. In addition, all of Mexico's
obligations to the United States are backed by proceeds from Mexico's crude
oil, oil products, and petrochemical product exports. Payments for these
exports flow through a special account at the Federal Reserve Bank: of New
York. As of December 11, about $6.4 billion had passed through this account.
2
Treasury Secretary's Report to OJngress
DeceniJer 1995
II.
Current Condition of Mexico's Economy
a.
Monetary Policy
Mexico has lminJained its tight tnJnetary policy
Throughout 1995, the Bank of Mexico (BOM) has conducted monetary policy to
contain inflation, stabilize the peso, and encourage capital inflows. The Bank's
chief policy instrument is its control over the growth rate of the monetary
base. It achieves this control through limits on the growth of net domestic
credit (defined as the monetary base less international reserves).
Control of dom!Stic credit is key
By definition, any increase in net domestic credit (NDA) by the Bank of Mexico
must be associated with either an increase in the money supply or a decrease in
net foreign assets (international reserves) of the Bank. A limit (ceiling) on
increases in NDA therefore implies a ceiling on the growth of the money supply
that can occur without a corresponding rise in international reserves.
•
Net domestic credit (BOM definition) has fallen by NP70 billion from the
beginning of the year through December 15. ,More recently, in the four
weeks ending December 15, NDA increased by NPl1.2 billion, the
nominal monetary base grew by NP16 billion, while net reserves fell by
about Np4.9 billion to about NPI13 billion.
The Bank of Mexico tmintains strict control over the ItVney supply
•
The monetary base (bills and coins in circulation, plus commercial bank
deposits in the central bank) as of December 15 was about 19% above
its level at the end of 1994, even though the price level was about 50%
higher than at the end of 1994. More recently, in the four weeks
ending December 15, the monetary base grew by 31 %. The BOM
projects that the monetary base will fall from its current peak during the
last week of December and settle at roughly a NP63 billion level at the
end of the year, resulting in a 10.6 % nominal increase in base money
for the year. The monetary base seems to be following the seasonal
demand patterns that the BOM has forecast.
3
Treasury Secretary's Report to Congress
DeceniJer 1995
•
M 1 (the nominal monetary base plus checking deposits) fell about 7.4 %
in nominal tenns from December 1994 through the end of November..
M 1 does not show the same degree of seasonal fluctuation as that seen
in base money because some of the demand-driven increase seen in base
money is the result of substitutions between different components of M 1
(from bank: accounts into currency).
Monetary aggregates can be hard to interpret and have a significant seasonal
conponent
Restricting the growth rate of the money supply through control of net
domestic credit is central to controlling inflation and meeting other objectives
of monetary policy. Nonetheless, changes in the money supply must be
interpreted carefully in tenns of their implication for the stance of monetary
policy, in part because of seasonal changes in money demand.
Mexico's money demand has a very strong seasonal component. Most of
Mexico's yearly monetary growth typically occurs in the fourth quarter, and
roughly 70 % of the fourth quarter growth occurs in December, as the
Mexican public sharply increases its demand for cash balances during the
Christmas season. Such an increase in money demand appears to be
underway. Reasonable accommodation of this seasonal demand can be
consistent with a decline in inflation.
Market indicators suggest that mmetary policy renWns tight
Given the inherent difficulties in interpreting monetary aggregates, it is useful
to look at market indicators for the stance of monetary policy. Real interest
rates remain high. suggesting tight monetary policy. The real interest rate (the
nominal rate adjusted for inflation) on 28-day cetes in mid-December was
about 20%, about the same rate as that of last month and up from about 10%
in mid-October.
•
The December 18 primary auction resulted in a yield of about 49 % on
28-day cetes, the benchmark Mexican government security. This
interest rate is below the average auction rate of 56% in November,
although up from the average auction rate of 41 % in October. The
December 18 rate is significantly lower than the 83 % annual rate in the
March 22 auction.
4
Treaswy Secretary's Report to Congress
Decerrber 1995
•
Secondary market rates have moved with the primary auction rates.
The average 28-day cetes rate for the first half of December was 50%,
down from 57% during the same period in November and up from 40%
for the first half of October.
Tight policy has limited inflation, though there was an uptick in November and
another is expected for December.
•
After rising rapidly in the first four months of the year, and peaking at
8% in April, monthly inflation fell rapidly, and has averaged about 2%
per month since July.
•
Consumer prices rose about 2.5% in November, slightly higher than
October's increase of 2.1 %, but in line with private analysts'
expectations. Higher prices of tradeable goods, due to the peso's recent
depreciation, and increases in some utility prices (as set out in the
"Alliance for Economic Recovery," described in the October 1995
report) have caused the uptick and could boost inflation temporarily.
•
Inflation is likely to spike moderately in December as well, due to
increases in minimum-wage levels and increases in public prices.
After appreciating about 26 % from its March low to May, the real exchange
rate remained roughly unchanged through mid-October. The peso's November
decline reduced its real value by about 15 %. The real exchange rate has
remained stable since then, about 11 % above its March low.
Third review of Mexico ~ IMF standby arrangenrnt
The IMF Executive Board reviewed favorably Mexico's standby arrangement
on December 15. As a result, Mexico will receive in December a fourth
disbursement under its IMF loan program, amounting to about $1.65 billion.
New targets for 1996 have been established with the aim of supporting an
economic recovery, reducing inflation further, and accumulating additional
international reserves.
5
Treasury Secretary's Report to Congress
Deceni:Jer 1995
Governm!nt announced nrJnetary program for 1996
In its 1996 monetary program released on December 11, 1995, the Bank of
Mexico analyzed the impact of monetary policy this year and set new targets
for next year.
The BOM predicted an uptick in inflation and a seasonal increase in money
supply for December 1995.
•
The BOM forecast inflation to be 52 % for the year.
•
The BOM projected the monetary base to reach NP63 billion by the end
of the year, an increase of about NP9.4 billion in December, and NP6.1
billion for the year (a 10.7 % increase).
The BOM presented its 1996 monetary program based on the Mexican
Government's assumption of 3% real GDP growth and inflation of 20.5%. The
BOM's strategy is to control the growth of monetary aggregates consistent with
its inflation target and growth assumptions. The BOM has stated that it will
maintain a floating exchange rate for the peso and will limit its interventions to
reducing unwarranted market volatility, while not resisting the market's role in
setting the peso's fundamental value. The BOM projects an average exchange
rate of NP7. 7 for next year, which would imply essentially no change, on
average, from current levels and -a real appreciation.
•
The monetary base is programmed to increase in 1996 by NP 18 billion
(28.6 %). This growth is programmed to include an increase of NP 15
billion in net domestic credit and an increase of NP3 billion of net
international reserves (NIR).
•
Quarterly targets have also been set for the first time, with most of the
year's programmed increases in NIR and NDA coming in the fourth
quarter.
•
The monetary base growth forecast for 1996 includes about 3.7 % of
nominal money growth in excess of the growth of nominal GDP.
This forecast is based on the assumption that renewed economic
growth, lower inflation expectations, and lower interest rates
will generate increased money demand. The projected increase
6
Treasury Secretary's Report to Congress
DeceniJer 1995
in the monetary base in excess of the growth of nominal
less than that seen in other post-recession years.
GDP
is
By contrast, base money is projected to grow by 22 % less than
nominal GDP in 1995. Financial turbulence, high interest rates,
and reduced total wages have dampened money demand.
The BOM'S primary monetary management tool will be controlling monetary
aggregates, particularly net domestic credit. The BOM has stated that if
conditions warrant, it could adjust these aggregates to better achieve its
inflation and other monetary goals.
•
For example, the BOM has stated that net domestic credit growth could
be reduced in response to any indications that money demand growth is
less than predicted.
•
If money demand exceeds predictions with inflation on track, net
international reserve accumulation could be augmented rather than net
domestic credit.
•
Other indicators of monetary policy that will be watched include the
exchange rate, inflation and inflationary expectations, and the balance
of payments.
The 1996 Program will introduce a new BOM definition for net international
reserves. Net international reserves will now net out IMF liabilities, in line
with IMF practice. The previous Bank of Mexico NIR definition did not net
out IMF liabilities, and so resulted in higher reported net reserve levels. This
accounting adjustment will increase the BOM-defined stock of net domestic
credit, and reduce net international reserves; the monetary base will be
unaffected by this change.
II.
h.
Fiscal Policy
TIght fiscal policy prodoced surpluses in the first three quarters of 1995
With its strong fiscal position at the close of the third quarter, the Mexican
Government expects to surpass its year-end fiscal goal. Despite the economic
slowdown, Mexico has produced a budget surplus from a combination of
strong oil revenues and significant cuts in programmed spending.
7
Treasury Secretary's Report to Congress
Decerrber 1995
•
The non-fmancial public sector surplus was NP17.4 billion at the end of
the first three quarters of 1995 0.5% of GDP), compared to a NP2
billion surplus (0.2 % of GDP) for the same period last year.
•
Mexico's primary surplus, which excludes interest payments, was
NP70.3 billion (6.3 % of GDP) for the first nine months, compared to a
NP32.2 billion surplus (3.5% of GDP) for the same period in 1994.
M~o
renWll5 on track to 117!et its 1995 fiscal targets
The overall and primary surpluses have thus far exceeded those targeted in the
economic program announced on March 9, 1995. This program targeted a
1995 budget surplus equal to 0.5 % of GDP, and a primary surplus equal to
4.4% of GDP. The 1996 budget (described in the November report), projects a
primary surplus of 4 % of GDP and a overall balanced budget.
II.
c.
Structural Reform and Privatization
Market-oriented reforlffi continue
Mexico's adjustment program continues a privatization program that has
already seen the divestiture of over 1000 of Mexico s 1155 state-owned
enterprises that existed in 1982. -This year, the government eXpanded the
program to privatization and liberalization of traditionally regulated sectors
such as transportation, telecommunications, and energy. These efforts are
intended to increase productivity, attract foreign investment, raise government
revenue, and kindle private-sector initiative.
I
•
The Mexican Congress amended the country's constitution this year to
allow private and foreign investment in railroads and satellite
communications. It also passed legislation to open telecommunications
services, natural gas distribution and storage, and airport services to
private investment and foreign competition.
•
In November, bidding rules were announced for sales and concessions
in the railway, petrochemical, and natural gas distribution sectors.
8
~~
JJ
::~
~g
\0
% ofGDP (3)
Taxes
Income Tax
Value Added Tax
Excise Taxes (Oil, Alcohol, Tobacco, etc)
Import Duties
Other (Auto Registration, Tax Pena~ies, Export)
Non-Tax Income
Fees
Oil
Other
Other (Central Bank Profits, Privatization)
Expenditures
% ofGDP (3)
Discretionary
% of GOP (3)
Operating Expenses
Salaries
Other
Public Investment
Transfers
Education
Other
Non-Discretionary
% ofGDP (3)
Outlays From Past Yea~s Obligations
Revenue Sharing
Interest Payments
Intemal
Extemal
Transferll To State Er.!erpnses, Errors & Omissions
18,251
10,055
6,703
2,819
2,722
18,581
9,955
6,208
2,742
2,999
-11.4%
-13.9%
-19.4%
-15.4%
-4.2%
1%11
oW
10.3%
-51.4%
-43.0%
-44.4%
~
c:>
cr'
~
-20.8%
-0.8%
-35.5%
-35.2%
-27.8%
~
~
S
~
~
:><
o·
,.,; 37,269:
108%,' ..
12.1%,
10500;--' 100921
7 127 :).":,'6' 400i
3373
,"I
'
;
4.591 :'/' 4651l'
19.454 ~' 22'
,
6,611 ,',
k3'602:
12,844
18,985
59%
571
12,019
6,395
3,894
2,501
(1
CIl
10,403
1.222
3,604
52,177
150%
27,066
78%
90~1
6.891
2.150
813
17.212
7,491
9,721
25,111
7.2%
2,602
11.137
11.372
3,448
7.924
851
100%
to,508
7,531
2,977
2,954
24,584
8,419
16,165
28,779
7.5%
838
14,324
13,617
7.170
6.448
38.9%
-26.6%
-28.5%
-106%
145.4%
42.9%
31.7%
-6.5'1.
72.1%
-5.7%
-21.2%
-9.6%
,17 5%
-17 5%
-183%
-11.5%
-79%
-21.3%
-72 0%
-12.5%
-3.3%
-18.5%
·1.9%
-25.0%
-20.9%
-339%
-51.8%
-5.3%
-4.6%
·5.7%
13.5%
-18.7%
-134%
-301%
-47.5%
-12.3%
-66%
-15.2%
5.3%
-42.9%
-2.3%
17,9%
-33.8%
78.4%
·75.5%
(1) Based on a year-over-year increase in the CPI of 15% for the first quarter, 34% second quarter, 42% for the third quarter, and 30% for the first 9 months of 1995.
(2) Beginning In 1995, Mexico City budget no longer Included.
(3) Third quarter nominal GOP estimated by adjusting the 9.6% decline In real GOP between the third quarters of 1994 and 1995 by the 42% Increase In consumer prices
during this period. This will, of course, differ from estimates using the GOP dena tor, which has not yet been reported.
-44,3%
·8.9%
37.1%
33.6%
40.6%
-5.1%
c..,-
,.....
0
6,513
1,449
4,383
50,794
172%
28.522
96%
8.883
6,508
2.375
2.523
17,116
6,742
10,374
22,272
7.5%
3,963
9,918
8,391
4,528
3,863
3,017
~!
to
C
0-
(JQ
~
~
~
~
~~
~j
::~
~g
Part B: Public Sector Balances
NP MIllions (Nomlnall
Federal Government Budget Balance
% of GOP (3)
Federal Government Primary Balance
% of GOP (3)
Public Seelor Non-Financial Balance
% of GOP (3)
Public Sector Primary Balance
% of GOP (3)
1994
1995
1994
1st gtr
2nd gtr
'3rc(qtr';:::?' 1st gtr
2nd gtr
[aru ... " .~~, ... , .. mu ...
(916)
(562)
(1,436)
2,686
4,386'
,~ .~~.
-0.3%
-0.20/0:
05%1
0.8%
1.2%
7,475
5,8331'
.5.,7B7~
14,058
18,003
2.5%
1.80/0 ,',.9%}
4.1%
4.7%
4,345
(1,287)
(1,087)
8,990
6,302
1.50/0
-0.4% ~
-O.4%~
2.6%
1.7%
11,386
12, 152 ~
,8,696]
25,769
25,462
3.9%
3.8%,
.2.8~J
7.4%
6.7%
~
~
1995
0-
, •• , ..... ~
- •
- f
_A.
.
(')
0
~
.....
S·
c(1)
1994
83,81~
i 2•1f2%'
Interest Payments
0/0 of GOP
Pemex Revenues + Pemex Taxes Paid 10 GOM
%ofGDP
Non-Petroleum Revenues
%ofGOP
Non-Pelroleum Revenues, Excluding Value-Added Tax
%ofGDP
o
~!'''1
~4.3o/.
Jg;091
6.6%
55,823
18.9%
45,768
15.5%
ji)9.9'Y;,
62,708
r15.9o/~1
49.094.
14.7% .
~12.40/0!
25, 768
2.8%
63,894
'9%
172,480
18.1%
143,923
15.6%
1
I
c.,"
Ci"
0r~
~!
44.4%
67.6%,
a:.<w.6%1
49.0%
34.8%
~5%1 ~n,~
29.6%
-8.4%
·17.8% . 'f.!.26.9%~
-18.5%
-7.2%
-23.2%
"-32.2%]
-22.1%
(1) Based on a year-aver-year increase in Ihe CPI of 15% lor the flrsl quarter, 34% second quarter. 420/0 for Ihe Ihird quarter, and 30% lor Ihe first 9 monlhs of 1995.
(2) Beginning in 1995, Mexico City budget no longer included.
(3) Third quarter nominal GDP eslimaled by adjusting the 9.6% decline in real GDP between Ihe Ihird quarten! of 1994 and 1995 by the 42% Increase in consumer prices
during this period. This will, of course, differ from estimates using the GDP denalor, which has not yel been reported.
~
~
Q
a
OQ
t..;
Treaswy Secretary's Report to Congress
DeceniJer 1995
•
In August, the World Bank approved a $30 million loan to support
technical assistance in developing regulations and preparing fInns for
privatization in sectors including telecommunications, energy, and
transportation.
•
In September, the government also announced a new infrastructure
investment fund which is initially capitalized at NP 1.7 billion
(approximately $255 million), to provide fInancing intended to catalyze
small and medium-sized infrastructure projects.
Additional long-distance concessions awarded
Since September, six concessions for the operation of long-distance services
have been awarded to joint ventures that include both domestic and foreign
participants. Of these, two concessions were awarded in December.
•
•
On December 6, the Communications and Transportation Ministry
awarded concessions for the provision of long-distance service to
Unicorn SA, a joint venture between Grupo Financiero Bancomer and
Valores Industriales (Mexico), GTE (U.S.), and Telefonica de Espana
(Spain). Unicorn has announced plans to invest $925 million over 5
years, including $175 million during 1996 .
. A joint venture between Alfa.(Mexico) and ATT (U.S.) was also
awarded a long-distance concession on December 6. Alfa-ATT has
announced plans to invest $1 billion over the next 5 years.
Preparations for railroad privatization continue
On December 13, the government announced that it would assume $900
million in debt from the state-owned rail company, Ferrocarriles Nacionales de
Mexico, in preparation for next year's privatization. The debt is expected to
be paid off over ten years, partially through the use of proceeds from the sale
of railway concessions and assets.
Bidding for additional port facilities annolUlCed
On December 14, the Communications and Transportation Ministry announced
that it was accepting bids for 20-year concessions for operating rights of the
ports of Acapulco and Puerto Vallarta. This announcement follows the
11
Treaswy Secretary's Report to Congress
DecerriJer 1995
privatization of six port facilities in July and August, and the announced
bidding for a further concession at the port of Altamira in November.
Mexico ~ Congress approves plan for pension reform
The Mexican Congress voted to give final approval to a bill to reform the
Social Security Institute (IMSS) Law OQ December 12. The law would create a
variety of retirement fund administrators (AFORES) that would manage
retirement funds much like private investment funds. Several amendments,
however, were added to the law to retain a role for IMSS and reduce the
autonomy of the AFORES. These amendments have left the final shape of the
new system unclear. Regulations are scheduled to be written in March to
determine the actual extent of the reforms.
•
The IMSS would turn over retirement funds to Mexican workers, who
would then be able to choose from a variety of AFORES that would be
formed by private firms, social organizations, and the IMSS itself. The
government would also increase its contributions to the pension system.
•
By allowing more workers to utilize professional money managers, it is
hoped that better investment returns would attract greater worker
participation and increase the nation's pool of domestic savings.
•
The IMSS would still coHect worker and employer contributions and
fees, which would later be transferred to AFORES. The IMSS would still
provide assurance of a minimum inflation and devaluation-adjusted
pension for salaried and non-salaried workers who retire as of 1997.
•
A commission will be created to oversee the functioning of
the way the fund administrators handle contributions.
II.
d.
AFORES
and
Information Disclosure
Mexico has significantly increased the breadth and frequency of its reporting
Public disclosure of financial data by the Mexican government and the Bank of
Mexico has increased substantially this year.
•
In December, the Bank of Mexico began to publish quarterly targets for
net domestic credit and net international reserves. This change from the
12
Treasury Secretary's Report to Congress
Decetrber 1995
previous annual targets should facilitate even closer monitoring of monetary
policy.
•
Mexico has improved the coverage and timing of its reporting on both real
and financial indicators, including data on output, inflation, international
reserves, balance of payments, fiscal and monetary aggregates, and public
debt.
•
The Mexican government and the Bank of Mexico now provide a wide set
of historical and current data on the Internet.
II
e.
Economic Adjustment
Mexico's economic adjustment program has so far succeeded in its objectives
of limiting the inflationary impact of the fmancial crisis and improving the
country's external position. The economy has experienced a deep recession,
however, with high unemployment and losses in real income. While
uncertainties remain large, there have been some recent encouraging signs that
the economy has stabilized and may be beginning to recover.
Inflation renuiflS contained
After rising rapidly in the first four months of the year, and peaking at 8 % in
April, monthly inflation fell rapidly, and has remained roughly constant since
July, averaging about 2 % per month .
.,
Consumer prices rose about 2.5% in November, slightly higher than
October's increase of 2.1 %, but in line with private analysts' expectations.
Higher prices of tradeable goods, due to the peso's recent depreciation, and
increases in some utility prices (as set out in the "Alliance for Economic
Recovery," described in the October 1995 report) have caused the uptick
and could temporarily boost inflation.
•
Inflation is likely to spike moderately in December as well, due to
increases in minimum-wage levels and increases in public prices.
13
Treoswy Secretary's Report to Congress
Decerrber 1~5
M~o~
trade balance retmins strong
Mexico registered a merchandise trade surplus of $837 million in October.
This is slightly down from $904 million in September, but represents an
increase of more than $2.4 billion from the $1.6 billion deficit of October
1994. For the first ten months of 1995, Mexico's merchandise trade surplus
was $6.1 billion, compared to a $15.3 billion deficit during the same period in
1994. This merchandise trade surplus has substantially reduced Mexico's
external financing needs, at the same time that strong export growth has
partially offset weakness in internal demand.
•
Total imports remain lower than levels of a year ago, as a result of the
increase in peso costs and the fall in domestic economic activity.
However, the level has recently edged up due to increased inputs of
intermediate and consumer goods. Total imports, on a seasonally-adjusted
basis, increased 8 % in October from September after a decrease of 5 % in
September from August.
•
Exports remain strong, particularly in the manufacturing and petroleum
sectors; total exports were up 36% in October compared to the same period
last year even after slipping 2 % compared to September, on a seasonallyadjusted basis.
From January through September, manufactured exports from the
general economy grew by 50% compared to the same period in 1994,
maquiladora exports were up a less spectacular 18 % over the same
period.
Mexico ~ econo~ has
turnaround
contracte~
altlwugh sOm! indicators point to
a
The economic adjustment necessitated by the large drop in capital inflows has
been an important factor leading to a deep recession, notwithstanding the
tempering effects of the U. S. -led multilateral support package. After
declining substantially in the first half of the year, economic output in the third
quarter contracted by 9.6 % from the same period a year ago. According to
the government of Mexico, however, output rose by 2.4% between the second
and third quarters on a seasonally-adjusted basis.
14
Treaswy Secretary IS Report to Congress
DeceniJer 1995
As in the second quarter, domestic demand remained subdued in the third
quarter, although the export sector continued to perform strongly.
•
One important difference was an unusually sharp decline of inventories
(about 7% of GDP) in the third quarter. This fall may suggest that demand
was firming in the third quarter as sales exceeded production.
Table 2. Mexico's Real GDP
(percent change from year-earlier period)
by Demand
Q494
Q195
Q295
Q395
Private conswnption
6.3
-8.9
-16.2
-13.3
Public conswnption
-0.2
-1.8
-5.7
-6.4
Gross Fixed Capital
Formation
9.9
-19.7
-33.9
-35.9
Exports
3.9
29.5
26.6
33.6
Imports
12.0
-19.7
-31.0
-30.6
5.2
-3.8
-13.7 -
-13.0
4.0
-0.8
-10.5
-9.6
GuP
Domestic Demand
CDP
- --
•
Output in the hard-hit construction sector rose 3.0% in September, the
third consecutive monthly increase (seasonally adjusted), after rising 4.7%
in August, the highest monthly increase this year.
•
Industrial sector output fell by 1.7% from August to September, after
rising by 4.7% from July to August (seasonally adjusted).
On a month-over-month basis, manufacturing production output fell
1.9% in September after rising 5.2% in August (seasonally adjusted).
•
Consumer imports, after sharply declining earlier in the year, appear to be
edging up. They rose 13 % from September to October (not seasonally
adjusted).
15
Treasury Secretary IS Report to Congress
DeceniJer 1995
Labor I1W'kets have begun to firm
After employment and incomes dropped earlier in the year, labor markets have
recently shown signs of strengthening.
• The open unemployment rate, a narrow rate of joblessness in the formal
sector, declined from 6.7% in October to 6.0% in November (preliminary
data), after peaking at 7.6% in August.
•
The rate of workers who work less than 15 hours a week, an indicator of
underemployment, declined to 4.6% in November (preliminary data),
compared to 5.4% in October and 4.9% in September.
•
Employment in the formal sector has recently increased, as the number of
workers registered in the social security system (IMSS) increased by almost
79,000 from August through October, after falling sharply earlier in the
year.
While uncertainties relmin, the
econo~
is projected to recover in 1996
•
In its 1996 budget presentation, the Mexican Government projected that
GOP would grow by 3% in 1996.
•
In an October survey by Consensus &onomics, private analysts forecast
that GOP would rise 2.7% in 1996.
II.
f.
Banking Sector Developments
Banking system continues to restrlCture
To help restore solvency to the banking system, the Mexican government has
initiated a program through FOBAPROA, the central bank's insurance fund, that
provides incentives for shareholders to inject additional capital. Through
FOBAPROA, the government has purchased loans from banks in proportion to
new capital injected by shareholders. FOBAPROA pays for the acquired loans
with non-amortizing, long-term government bonds.
16
Treasury Secretary's Report to Congress
Decerrber 1995
•
Through November, the banks Serfin, Probursa, Promex, Internacional,
Atlantico, Bancrecer, Banoro and Banorte have been recapitalized under
the program.
As a result of the capital injections and the sale of loans to FOBAPROA,
these banks have raised their net worth by an amount equal to about
36 % of the net worth of the banking system (excluding intervened
banks).
These recapitalized banks hold 37% of banking system assets.
•
On December 15, Banamex, Mexico's largest bank, announced plans to
sell NP15 billion in nonperforming loans to FOBAPROA. In return, Banamex
will increase its capital base by NP8.5 billion, injecting approximately half
of the amount in 1995, and the remainder before year-end 1996.
•
Bancomer, Mexico's second largest bank, has announced a $300 million
injection in the form of non-convertible debt. A FOBAPROA agreement has
not been announced.
The participation of these two institutions in the bank recapitalization program
would increase the holdings of recapitalized banks to 76 % of"banking system
assets.
•
Banorte bank has assumed control of Bancentro bank, and it is expected
that they will merge to create Mexico's sixth largest bank.
Banorte is one of the banks participating in the government's
recapitalization program. Shareholders will inject NP1,050 million and
FOBAPROA will purchase NP1,6oo million of its loan portfolio, net of
provlslons.
announced in December that it will become the controlling owner of
Inverlat, Mexico's fifth largest bank with total assets of NP57 billion as of
September 30, 1995. FOBAPROA will retain control of the bank until the bank's
situation can be normalized.
FOBAPROA
17
Treasury Secretary's Report to Congress
Decerrber 1995
Banking system renuin5 under strain
The government reported nonperforming loans as of September 30 at 10.6%,
based on 84% of the banking systems assets. The reported nonperforming
loans do not include those of eight institutions whose administration has been
assumed by FOBAPROA and banks that are in process of resolution through
negotiated sales or recapitalization. At the end of June, the nonperforming
loan level was reported at 10.8% for the reported banks.
•
Including all institutions and the loans sold to FOBAPROA would increase the
nonperforming loan level as of September 30 to approximately 17 %.
Overall, the rate of increase in nonperforming loans (exclusive of the eight
institutions listed above) has continued to decline.
•
The recent rise in interest rates may add renewed pressure on the banking
system and set back the improvement in nonperforming loan levels.
The reduction in nonperforming levels is mainly the result of the various
government programs to encourage loan restructuring.
Loan restrlCturing efforts continue
The government created the Investment Unit Program (UDI) to help banks
restructure portions of their loan portfolios. The current deadline for
restrut;turing loans under this program is January 31, 1996. At that time, the
program will be evaluated and a decision made on its status.
•
As of November 10, loans totaling NP64 billion had been restructured
under the various UDI programs. This represents 53.8% of the amount
allocated to the program.
The UDI program targets several types of loans. Allocated funds used
thus far include: 61.8% of the mortgage program's loans, 74% of the
state and municipal government program's loans, and 35% of the
business program's loans.
The debt relief program (ADE) targeted at consumer, credit card, small
business, and mortgage borrowers became operational on September 11.
Under this program, borrowers enter into written agreements with the banks to
18
Treasury Secretary's Report to Congress
DeceniJer 1995
restructure and service their debt. In return, the nominal interest rate on the
loan is fixed for one year. The government makes up the difference between
this fixed rate and a spread over interbank rates.
The program, which covers about 25 % of outstanding loans, is intended to
encourage additional loan restructuring, avoid the development of a nonpayment culture, and provide a transitional period for borrowers to restructure
into VDls.
•
The program covers credit card balances of NP5,000 or less, business loans
of NP200,000 or less, and consumer loans of NP30,000 or less.
•
The authorities estimated that 2,110,000 accounts would be eligible to be
restructured under ADE. As of November 30, a total of 1,310,516
accounts, approximately 62 % of eligible accounts, had been restructured.
II.
g.
Financial Market Trends
During the second half of November, the peso appreciated and the stock
market rallied. The rally faltered in early December, however, as the peso
slipped somewhat and investors prepared to close their books on 1995.
As liquidity in the Mexican foreign exchange market dried up at the end of the
year, the peso suffered from increased volatility. A sharp drop in the peso on
December S led the Bank of Mexico to intervene in the foreign exchange
markets for the third time in the past two months. The Bank of Mexico has
stated that these interventions "do not imply the abandonment of a floating
exchange rate policy ... " and that it will not use intervention to interfere with
the market's fundamental valuation of the peso.
•
After reaching new lows during November (closing at a low of NPS.14 on
November 9), the peso strengthened to NP7.59 as of December 21, roughly
unchanged for the month of December.
•
Buying and selling spreads on the peso, a measure of volatility, have
averaged less than 0.4% in December. By way of comparison, at the
height of the crisis, in January, spreads reached 4-5 %.
•
As of December 19, Mexico's stock market, in peso terms, was about 22%
above pre-crisis levels and about 96 % above its late February lows.
19
Treasury Secretary's Repon to Congress
DeceniJer 1995
•
In dollar terms, the stock market is down about 44% from its midDecember 1994 level but is up about 54 % from its February lows.
Interest rates rose sharply during the flrst half of November, particularly with
peso volatility and the tightening of credit by the central bank. Interest rates
have since receded and remain substantially below those reached at the height
of the crisis.
•
With a more stable peso, rates decreased to 49.1 % in the December 18
auction of 28-day cetes, the benchmark government security, from 53.46%
in the November 28 auction. This rate remains significantly lower than the
83 % annual rate in the March 22 auction.
•
In the secondary market, the overnight cetes rate jumped from about 34 %
at the end of September closing as high as 74.2 % on November 14, but
dropped back to 51 % on December 21.
•
Another sign of improved money market conditions, was the Bank of
Mexico's decision to offer and sell six-month cetes at its November 28
auction. This was the first time that six-month paper had been successfully
offered since late-September. Investor demand was very strong (NP4.02
billion, 6.7 times the NP600 million offered); by comparison, the October 6
auction for six-month cetes was cancelled because of low demand.
The recent weakening of the peso also affected Mexican Brady bonds. As the
peso has stabilized, however, Mexico's Brady bonds, as well as those of other
Latin countries, have again strengthened.
•
Mexican Brady Bond interest rate spreads over U.S. Treasuries, adjusted to
remove the effect of partial collateralization, rose from 10.28 % in midOctober to as high as 12.38% on November 14. Since then, spreads have
declined to 9.99% on December 19, 938 basis points below the 19.37%
spread in mid-March.
•
Yields of the stripped portion of Argentine and Brazilian Brady bonds have
also declined from increases earlier this year that had been sparked by the
Mexican crisis. Spreads have fallen 1283 and 733 basis points from their
highs earlier this year through December 19, for comparable bonds from
Argentina and Brazil, respectively.
20
TreL1S1DY Secretmy's Report to Congress
Decerrber 1995
Mexico has solidified its standing in the international capital rmrkets since
earlier in the year
Mexican government agencies, PEMEX, and Mexico's privately-owned
corporations and financial institutions have successfully attracted new capital in
international markets.
•
The Mexican government and its agencies have raised $6.4 billion in the
private capital markets thus far in 1995 (see Table 3, below), far exceeding
public-sector bond issuances in each of the last two years.
On December 5, Mexico's one-year $1.5 billion note off--ing settled. This
was Mexico's largest debt offering of the year.
•
This" dual note" was originally set for $500 million, but was increased to
$1.5 billion in response to strong investor demand.
At maturity, investors will receive the higher of the 12-month LIB OR
rate; or the compounded monthly average 28-day cetes rate, less six
percentage points, with the principal adjusted to reflect the appreciation
or depreciation of the peso-dollar exchange rate from the date of
Issuance.
Investors have the opportunity to gain from an appreciation of the peso,
while Mexico will receive funds at LIBOR if economic conditions should
deteriorate.
On December 12, the UMS received approximately $400 million, with the
settlement of two Japanese yen-denominated note issues: a ¥30 billion ($290
million) issue with a 2.85% coupon maturing in 15 months, and a two-year
¥13 billion ($127 million) note with a 3 % coupon.
•
The government of Mexico recently completed revision of its global
medium-term note program, increasing the program from $1.5 billion to $5
billion. The UMS yen-denominated notes were issued under this program.
On November 30, NAFINSA, the state-owned development bank, raised FFr150
million ($30 million) through a six-month note issued as part of the bank's
Euro medium-term note program. This sale of notes in France was the first
for a Mexican government agency since 1992.
21
Treasury Secretary IS Report to Congress
DeceniJer 1995
On December 19, NAFINSA sold a $50 million, two and one half-year floatingrate note at LIBOR+2.875%. This issue was also sold under NAFINSA'S Euro.
medium-term note program.
Mtrocan corporate issuers were also able to take advantage of nvre positive
muket conditions during DeceniJer
•
Grupo Mexico, Mexico's largest mining company, privately-placed $525
million in asset-backed notes in the largest corporate sale of corporate
securities by a Mexican firm since last December's devaluation.
The secured export notes, maturing in 5, 7, and 12 years, were
structured in such a way as to receive an investment-grade debt rating.
•
DESC, a large Mexican conglomerate, completed a seven-year, $50 million
export-securitized financing at LIBOR + 1/2 % in December.
22
Treasury Secretary's Report to Congress
DeceniJer 1995
TABLE 3.
Issuer
Bancomext
Nafinsa
Pemex
Mexican public sector bond and note issuances
Date l
Type
Amount
(US$ M)
Tenor
Interest
rate
Euro Cp2
May 13
$20
3 months
L1BOR +
5.75%3
Euro FRN 3
May 23
$30
I year
L1BOR +
5.85%
EMTtt
May 31
$75
1 year
L1BOR +
5.38%
Euro FRN
144A
June 23
$300
2 years
L1BOR+ 5%
Eurobond
October 2
¥20 billion
($193)
2 years
3% coupon
EMTN
May 4
$100
1 year
L1BOR +
6.50%3
EMTN
May 4
$70
7 months
LIBOR +
6.50%3
EMTN
May 9
$50
I year
L1BOR+ 6%
EMTN
July 1
$100
6 months
L1BOR+ 5%
Eurobond
August 17
DM250
($180)
3 years
10%
coupon
Eurobond
September 29
SwFrl50
($122)
3 years
7.50%
coupon
EMTN
November 30
FFrl50
($30)
6 months
PlBOR +
3.25%3
Euro FRN
December 19
$50
2 '12 years
LI~OR +
2.875%
Yankee
bonds
February 6
$137
6 112 years
7.66%
coupon
Private
Placement
October 2
$130
15 years
10%
(avg. rate)
Eurobond
November 28
SwFrl50
($132)
2 years
6% coupon
23
Treasury Secretary's Report to Congress
DeceniJer 1995
2
3
4
S
6
Issuer
Type
United
Mexican
States
Euro FRN
144A
July 20
EMTN
August 17
¥100 billion
($1,100)
3 years
5% coupon
Eurobond
November 2
DMI billion
($700)
5 years
9.375%
coupon
Global
144A
December 5
$1,500
358 days
cetes - 6%,
or L1BOR
EMTN
December 12
¥30 billion
($295)
15 months
2.85%
coupon
EMTN
December 12
¥13 billion
($128)
2 years
3% coupon
MTN
Date
Amount
(US$ M)
Tenor
$1,000
2 years
Interest
rafe
L1BOR
+
5.375%
Date of settlement unless otherwIse noted.
Commercial paper.
Discount to yield.
Floating rate note.
Euro medium-term note.
Issued by Pemex Export Trust, with U.S. Export-Import Bank support.
II.
h.
International Reserves
As of mid-December, international reserves had risen by about $1 billion from
late-November to $14.6 billion, about $8.5 billion above the end-1994 level. In
addition, the IMF Executive Board reviewed favorably Mexico's standby
arrangement on December 15. Mexico will receive a fourth disbursement
under its IMF loan program, amounting to about $1.65 billion.
Inflows to reserves in December:
•
Recent capital market placements by the government were reflected in
reserves.
24
Treasury Secretary's Report to Congress
Decerrber 1995
Neutral effects of reserves in December:
•
Other capital market issues by the government roughly matched maturing
debt.
•
Pemex export receipts, still somewhat depressed by the previous
interruption of production resulting from the October hurricanes, will likely
be below the government's interest payments on external debt.
Outflows of reserves in December:
•
Tesobono redemptions will remove about $200 million from reserves in
December. At year end, there will remain only $246 million in tesobonos
outstanding, down from $29.2 billion a year earlier.
•
The Bank of Mexico intervened in the foreign exchange market on
December 8 using $160 million of reserves.
Aggregate reserves are
IWW
in line with several ~asures o/reserve adequacy
•
Reserves equal more than three months of non-maquiladora imports,
compared to only 1.3 months of imports at the end of last year.
•
With the sharp drop in short-term debt exposure resulting from the
amortization of tesobonos, reserves have exceeded short-term (less than
one-year) public sector external debt (including tesobonos) by a growing
margin since July.
25
Treasury Secretary's Report to Congress
DecerriJer 1995
Table 4. Mexico's international reserves (US$ billions)
1990 December
10.2
1991 December
17.5
1992 December
18.6
1993 December
24.5
1994 December
6.1
1995 January
3.5
February
9.0
March
6.9
April
8.7
May
10.4
June
10.1
July
13.9
August
15.1
.September
14:7
October
13.5
November
13.6
December 15
14.6
26
Treaswy Secretary's Report to Congress
Decetri;er 1995
III.
Disbursements, Swaps, Guarantees and Compensation to the U.S.
Treasury
As of December 22, 1995, $13.5 billion in U.S. funds have been disbursed to
Mexico under the support program. Of this amount, a total of $11.8 billion
remain outstanding -- $1.3 billion in short-term swaps and $10.5 billion in
medium-term swaps. The outstanding total reflects the repayment by Mexico
of $700 million in short-term swaps on October 11, 1995. To date, the United
States has not extended any securities guarantees to Mexico under the support
program.
•
Under the swap agreements, Mexico purchases dollars and credits a
corresponding amount of pesos to U.S. accounts at tht: Bank of Mexico.
On the maturity date, Mexico repurchases the pesos by paying back the
dollars.
•
Both the short-term and medium-term swap facilities require Mexico to
maintain the dollar value of peso credits to the United States, adjusting the
amount of pesos on a quarterly basis, in accordance with changes in the
dollar-peso exchange rate.
•
As provided in the Agreements, Mexico must pay interest to the U.S.
government on the swap balances outstanding. The interest charges applied
to short-term swaps are designed to cover the cost of funds to the Treasury
and thus are set at the inception of the swap based on the Treasury Bill
rate. Interest rates are reset at the time of any roll-overs of existing shortterm swaps.
•
Interest charges applied to the medium-term swaps are designed to cover
the cost of funds to the Treasury plus a premium for the credit risk
associated with the extension of such funds, as assessed at the time of each
disbursement. Paragraph 6 (d) of the Medium-Term Exchange
Stabilization Agreement (the Medium-Term Agreement) provides that
interest rates on swaps with Mexico are "intended to be at least sufficient
to cover the current U. S. Government credit risk cost for Mexico. "
27
Treosruy Secretary IS Report to Congress
DeceniJer 1995
•
For each disbursement under the Medium-Term Agreement, the premium
is the greater of (1) a rate determined by the U.S. Government's inter- .
agency country risk assessment system (ICRAS) as adequate compensation
for sovereign risk of countries such as Mexico, or (2) a rate based on the
amount of U.S. funds outstanding to Mexico from short-term swaps,
medium-term swaps, and loan guarantees at the time of disbursement.
•
Mexico has not missed any interest payments or required principal
repayments under any of the swaps. Through December, the Exchange
Stabilization Fund (ESF) has received $447.4 million in interest payments
from Mexico for short-and medium-term swaps. Through December, the
Federal Reserve has received $46 million in interest on its short-term
swaps with Mexico. On January 2, 1996, $242.4 million in interest is due
to Treasury on the medium-term swaps.
The schedule of swaps under both
follows:
ESF
and Federal Reserve swap lines is as
FSFswaps
As of December 22, 1995, $12.0 billion has been disbursed to Mexico through
the ESF, of which $11.15 billion remains outstanding.
FSF short-term swaps
•
On January 11 and January 13, 1995, Mexico made two
drawings of $250 million each under short-term swaps through
the ESF. Mexico repaid these drawings on March 14, 1995.
•
On February 2, 1995, the U.S. disbursed $1 billion under a
short-term swap through the ESF; this swap was rolled over for
an additional 90-day period on May 3, 1995, and on August 1,
1995. On October 11, Mexico repaid $350 million of this swap.
The $650 million balance of this swap was rolled over on
October 30, 1995, for an additional 90-day period for a new
maturity date of January 29, 1996. The current quarterly
interest rate expressed annually is 5.25 %.
•
On December 15, the Department of the Treasury and the Bank
of Mexico renewed their bilateral short-term swap agreement,
28
Treoswy Secretary's Report to Congress
Decerrher 1995
the Exchange Stabilization Agreement (ESA), for a one-year
period to December 13, 1996. The ESA is the successor to a
series of bilateral swap agreements that have been in place
between the Treasury and the Bank of Mexico since 1941. This
renewal does not represent an extension of new funds to Mexico
by the Treasury.
fSF I7'r!di~term swaps
•
Mexico drew $3 billion under a medium-term swap on March
14, 1995. The current quarterly interest rate expressed annually
is 7.55%.
Repayment is to be made in seven installments as follows: six
equal installments of $375 million each, payable on June 30,
1998, and each successive calendar quarter date to and including
September 30, 1999; and one installment of $750 million,
payable on December 31, 1999.
•
On April 19, 1995, Mexico made a second $3 billion drawing
through a medium-term swap. The current quarterly interest
rate expressed annually is 10.16%.
Repayment is to be made in twelve installments as follows:
eleven equal installments of $245 million each, payable on June
30, 1997, and each successive calendar qu::.rter date to and
including December 31, 1999; and one installment of $305
million, payable on March 31, 2000.
•
On May 19, 1995, Mexico drew $2 billion under a mediumterm swap. The current quarterly interest rate expressed annually
is 10.16%.
Repayment is to be made in twelve installments as follows:
eleven equal installments of $170 million each, payable on June
30, 1997, and each successive calendar quarter date to and
including December 31, 1999; and one installment of $130
million, payable on March 31,2000.
29
Treasury Secretary IS &po11 to Congress
DeceniJer 1995
•
Most recently, on July 5, 1995, Mexico drew $2.5 billion under
a medium-term swap. The current quarterly interest rate
expressed annually is 9.20 %.
Repayment is to be made in twelve installments as follows:
eleven equal installments of $205 million each, payable on
September 30, 1997, and each successive calendar quarter date
to and including March 31, 2000; and one installment of $245
million, payable on June 30, 2000.
Federal Reserve swaps
Disbursements to Mexico through the Federal Reserve System total $1.5
billion, with $650 million currently outstanding. All Federal Reserve
disbursements are in the form of short-term swaps.
•
On January 11 and January 13, 1995, Mexico made two
drawings of $250 million each under short-term swaps. Mexico
repaid these drawings on March 14, 1995.
•
A short-term swap of $1 billion was extended on February 2,
1995; this swap was rolled over for an additional 90-day period
on May 3, and- on-August 1, 1995. On October 11, Mexico
repaid $350 million of this swap. The $650 million balance of
this swap was rolled over on October 30, 1995, for an additional
90-day period for a new maturity date of January 29, 1996. The
current quarterly interest rate expressed annually is 5.25 %.
Table 5 gives the amortization schedule of outstanding swaps.
30
Treasury Secretary's Report to Congress
December 1995
Table 5. Amortization Schedule of Outstanding Swaps with Mexico
Quarter
Amount Due IUS$ million)
Ending
Quarterly I Annually"
11 800
11 800
Outstanding Amount
Oec-95
Mar-96
0
Sep-96
0
Oec-96
0
Mar-97
0
415
Jun-97
----
1,300
Jun-96
Sep-9?
620
Oec-97
620
1,300
Repayment Schedule of Disbursements to Date (US$ million)
02/02/95-03/14/95 I 04119/95 I 05119/95
I 07105/95
1 300
3000
3000
2000
2500
0
0
0
0
0
0
0
0
.0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,655
0
245
0
170
0
0
0
245
170
205
0
245
170
205
Mar-98
620
0
245
170
205
Jun·98
Sep-98
995
375
170
995
375
245
r 245
170
205
205
Dec-98
995
375
245
170
205
Mar-99
995
Jun-99
995
Sep-99
995
Dec·99
1,370
Mar-2000
640
Jun·2000
245
Sep-2000
0
Dec-2000
0
3,605
!
~
----4,355
----,I
I
885
375
245
375
245
375
245
750
245
0
305
0
0
0
0
0
0
170 1
.
-
-
205
--205
205
----205
----130
205
-.- .-o[
245
0
0
0
01
170 !
170
170
* This column represents the sum of quarterly payments in a given year, It does not represent an additional payment
**$2 billion in short term swaps disbursed on February 2,1995, were rolled over for an additional90-day period on
May 3, 1995, and August 1, 1995. On October 11, MeXICO repaid $ 700 million of these obligat.ons.
The outstanding $1_3 billion was rolled over for an additIOnal gO-day period on October 30,
for a new matuflty date of January 29,1996.
31
Treosury SecreJaTy's Report to Congress
Decetrber 1995
IV.
Mexico t s Financial Transactions
Effective upon the signing of the agreements on February 21, 1995, and prior
to each disbursement, Mexico must provide Treasury with information on the
intended use of V. S. funds, and Treasury must verify that such uses are
consistent with Mexico s Financial Plan.
I
•
To date, Mexico has requested and Treasury has authorized the use of
funds to redeem tesobonos and other short-term, dollar-denominated debt
of the Mexican government and its agencies.
•
V. S. funds have been used to redeem tesobonos.
In part with V.S. and other official support, Mexico has reduced the amount of
outstanding tesobonos, or short-term, dollar-linked government debt by about
$29 billion since the beginning of the year.
•
Since the beginning of 1995, the amount of tesobonos outstanding has
declined from $29.2 billion to $246 million as of December 21.
32
Treasury Secretary's Report to Congress
Decetrber 1995
V. Status of the Oil Facility
Pay~nts
tlvough the Federal Reserve Bank ofNew York account
The payment mechanism, established under the Oil Proceeds Facility
Agreement, continues to function smoothly.
An independent review in August has confIrmed that the Mexican oil proceeds
fInancial mechanism is working well. Petroleos Mexicanos' independent public
auditors, Coopers & Lybrand, analyzed the illformation utilized for the last two
quarterly export reports prepared by PEMEX and provided a report to the U.S.
Treasury pursuant to the Oil Proceeds Facility Agreement. Their review
revealed that the reports "fairly present" information related to both PEMEX'S
oil exports and the collection of proceeds from such exports. Similar reviews
will be performed every six months.
As of December 11, 1995, about $6.4 billion had flowed through Mexico's
special funds account at the Federal Reserve Bank of New York since the
agreement went into effect in early March. An average of about $25 million
flows through the account each day. To date, there have been no set-offs
against the proceeds from Mexico's crude oil, petrochemical, and refined
product exports.
33
Tab 3:
November Summary
In providing assistance to Mexico under the February 21 Agreements, the U.S.
government acted to protect vital U.S. interests -- American exports and jobs,
the security of our common border, and the stability of other emerging market
economIes.
During 1995, Mexico has pursued rigorous adjustment policies to address the
financial crisis that threatened its economic stability and prospects for sustained
growth. In presenting its 1996 budget on November 15, 1995, the government
emphasized continuity of these policies, stating that its guiding principle was to
construct a plan that was fiscally sound, based on realistic assumptions, and
sustainable through future uncertainties.
In the 1996 budget, the government has projected a primary surplus and an
overall budget balance, continuing the sound fiscal policies that resulted in a
budgetary surplus for the first three quarters of 1995 of 1.5% of GDP.
The recession that has accompanied the financial crisis has been deep, with
GDP down 9.6% in the third quarter compared to a year earlier, and about
6.9% in the first nine months of the year compared to the same period in
1994. On a seasonally-adjusted basis, however, according to the government
of Mexico, GDP rose by 2.7% in the third quarter compared to the second
quarter. While it is difficult to draw firm conclusions based on monthly
indicators, other recent data on industrial production, manufacturing,
construction, and unemployment also suggest that economic activity may have
begun to expand once again.
'
The Mexican authorities have succeeded in bringing about a rapid external
adjustment, averting a sovereign default, and regaining access to private capital
flows -- having raised approximately $4 billion in the private capital markets
thus far in 1995 (not including approximately $1. 9 billion in issuances
announced but not settled during the last week of November). The
government's firm stabilization policies, the good export performance, the
increased efficiency following seven years of reforms and the liquidity
provided under the U. S. -led support program are hastening Mexico's eventual
recovery. In an October survey by Consensus &onomics, private analysts
forecast that GDP would rise 2.7% in 1996.
Default concerns associated with the government's tesobono obligations have
been eliminated, with $28.5 billion of the $29.2 billion in tesobonos
outstanding at the end of 1994 retired. Meanwhile, international reserves have
risen $7.6 billion from the end of 1994, to $13.7 billion as of November 24.
Though inflation for the first half of November was about 1.4 %, an uptick
from previous months, inflation has decreased significantly from a high of 8 %
per month in April to roughly 2 % a month from July through October.
Mexico experienced significant market volatility during the first half of
November as the peso reached new lows. In response to the peso's weakness
during the first half of November, the central bank tightened credit policy and
intervened twice (11/9 and 11/14), spending about $300 million to buy pesos.
After the interventions, the Bank of Mexico stated that these interventions "do
not imply the abandonment of a floating exchange rate policy ... " and that it
will not use intervention to interfere with the market's fundamental valuation of
the peso.
The peso closed at a low of NP8.14 on November 9. Since then, the peso has
strengthened to NP7.55 as of November 30, a 7.8% appreciation. Despite
recent financial market turbulence, Mexico's stock market is about 15.5%
above its pre-crisis levels in peso terms and about 86 % above its low in late
February after having rallied by 16.6% in November, although it remains well
below previous dollar highs.
The interest rate on 28-day cetes, the benchmark Mexican government
security, rose during the peak of recent volatility to as high as 60% on an
annualized basis in the November 14 primary auction, up from about 43 % at
the end of October. With a more stable peso, rates fell to 53 % in the
November 28 auction. This rate remains significantly lower than the 83 %
annual rate in March.
Mexico's banking sector remains strained, facing a reported nonperforming
loan level as of September 30 of 13 %. The growth rate of nonperforming
loans has declined in recent months, although the recent rise in interest rates
may add renewed pressure. The government's measures to mitigate the
immediate impact of the problem, to improve regulation and supervision, and
to encourage capital inflows have lent important support. For example, eight
banks, holding 37% of banking system assets, have been recapitalized, and
Mexican authorities estimate that under the small debtor's relief program
(ADE), 62 % of the eligible accounts have had their loans restructured.
Outstanding U. S. disbursements under the February 21 agreements total $11.8
billion, all of which are backed by the full faith and credit of the Mexican
government. As of November 30, the United States has received more than
$490 million in interest payments from Mexico. In addition, all of Mexico's
obligations to the United States are backed by proceeds from Mexico's crude
oil, oil products, and petrochemical product exports. Payments for these
exports flow through a special account at the Federal Reserve Bank of New
York. As of November 17, about $6 billion had passed through this account
since March 8, 1995.
Tab 4:
October Summary
In providing assistance to Mexico under the February 21 Agreements, the U.S.
government acted to protect vital U. S. interests -- American exports and jobs,
the security of our common border, and the stability of other emerging market
economies.
During 1995, Mexico has pursued rigorous adjustment policies to address the
financial crisis that threatened its economic stability and prospects for sustained
growth. These policies have led to strong financial progress as evidenced by
Mexico's return to international capital markets, its accumulation of reserves,
and, on October II, a repayment to the United States of $700 million in shortterm swaps. Through a concurrent five-year, DMI billion (about $700 million)
Eurobond issue, Mexico refinanced its short-term obligations to the United
States with longer term obligations to private lenders.
This $700 million repayment has reduced the total amount of U.S. funding
outstanding from $12.5 billion to $11.8 billion. On October 30, the Federal
Reserve and Treasury rolled over the remaining $1.3 billion of these shortterm swaps, leaving unchanged the $11.8 billion in outstanding funding.
Financial market turmoil in October, particularly during the week ending
October 28, highlights Mexico's difficult course back to fully restored market
confidence. Despite recent slippage, overall financial market reaction to the
stabilization program has been favorable. The peso is about 6.5 % above its
March 9 low in nominal terms, and about 17% in real terms. Mexico's stock
market is near pre-crisis levels in peso terms and about 55 % above its low in
late February, although it remains- well below previous dollar highs.
The recession that has accompanied the financial crisis has been deep.
However, the Mexican authorities have succeeded in bringing about a rapid
external adjustment, averting a sovereign default, and regaining access to
private capital flows -- having raised approximately $4 billion in private capital
markets thus far in 1995. Fiscal and monetary indicators have been favorable:
the government budget is in surplus and monetary aggregates are under
control. The government's firm stabilization policies, the good export
performance, the increased efficiency following seven years of reforms and the
liquidity provided under the U.S.-led support program are hastening Mexico's
eventual recovery. In an October survey by Consensus &onomics, private
analysts forecast that GDP would rise 2.7 % in 1996.
During his October State visit to the United States, Mexican President Ernesto
Zedillo met with President Clinton, congressional leaders, and U.S. business
representatives. He reaffirmed his administration's commitment to both
political and economic reforms, including maintenance of tight monetary and
fiscal policies. He also restated his administration's position of allowing the
peso to remain freely floating, with its value being determined by exchange
market forces. In addition, structural reform continues to improve long-term
prospects for the economy, attracting both domestic and foreign investment.
For example, in October, a group of U.S. companies confirmed plans to invest
$12 billion in Mexico over the next five years.
On October 29, the Mexican government signed an agreement with the Bank
of Mexico and representatives of the labor, rural, and business sectors. The
stated objective of the "Alliance for Economic Recovery" is to consolidate
financial stabilization and achieve sustainable growth. In this new economic
accord for 1996, the signatories support maintenance of firm fiscal and
monetary policies, an increase in the minimum wage in line with projected
inflation, and the extension of structural reforms.
Default concerns associated with the government's tesobono obligations have
been eliminated, with $27.3 billion of the $29.2 billion in tesobonos
outstanding at the end of 1994 retired. Meanwhile, international reserves have
risen $7.6 billion from the beginning of 1995, to $13.7 billion as of October
20. Though inflation for the first half of October, at 1.1 %, was slightly higher
than market e .. pectations, inflation has moderated significantly from a high of
8 % per month in April to 2.1 % in September. Interest rates on short-term
government securities increased in October to about 42 % on an annualized
basis from about 34 % in late-September, but they remain well below the
82.7% annual rate in March.
Mexico's banking sector, facing a high level of nonperforming loans, remains
strained. The government's measures to mitigate the immediate impact of the
problem, to improve regulation and supervision, and to encourage capital
inflows have lent important support. In addition, six sizable banks, holding
34 % of banking system assets, have been recapitalized.
Outstanding U. S. disbursements under the February 21 agreements total $11.8
billion, all of which are backed by the full faith and credit of the Mexican
government. Interest rates on currency swaps between the United States and
Mexico are sufficient to cover the risks that the United States bears. As of
October 31, the United States has received more than $490 million in interest
payments from Mexico. In addition, all of Mexico's obligations to the United
States are backed by proceeds from Mexico's crude oil, oil products, and
petrochemical product exports. Payments for these exports flow through a
special account at the Federal Reserve Bank of New York. As of October 18,
$5.3 billion had passed through this account since March 8, 1995.
Tab 5:
September Summary
During 1995, Mexico has put in place the rigorous adjustment policies
necessary to address the fmancial crisis that threatened its economic stability
and prospects for sustained growth. In providing assistance to Mexico under
the February 21 Agreements, the U.S. government acted to protect vital U.S.
interests -- American exports and jobs, the security of our common border, and
the stability of other emerging market economies. In a major address
delivered in September, President Zedillo appropriately emphasized the
importance of holding the line on the stabilization program, and pushing
forward with growth-oriented economic reforms.
The recession that has accompanied the fmancial crisis has been deep, as GDP
dropped 0.6% from a year earlier in the first quarter and 10.5% in the second.
However, the Mexican authorities have succeeded in bringing about a rapid
economic adjustment, averting a sovereign default, and regaining access to
private capital flows. The government's firm and credible stabilization policies,
the increased efficiency of the economy following seven years of reforms, and
the liquidity provided under the U.S.-led support program are all hastening the
eventual recovery. The pieces are now in place for Mexico to avoid a
repetition of the protracted recession that followed the 1982 financial crisis.
Structural reform continues to improve long-term prospects for the economy,
including sweeping changes announced this month in the telecommunications
sector. Adjustment policies have contributed to financial stability, as both
fiscal and monetary indicators have been favorable: the government budget is
in surplus and monetary aggregates are under control With good export
performance, sound financial policies, renewed access to the private capital
markets, and continued structural reforms, Mexico should be able to return to
sustained economic growth by next year.
By the end of September, default concerns associated with the government's
tesobono obligations had been eliminated, with $26.6 billion of the $29 billion
in tesobonos outstanding at the end of 1994 retired. Meanwhile, international
reserves had risen $9.0 billion from the beginning of 1995, to $15.1 billion as
of September 15. Inflation continued to decline, to 1.7% per month in August,
the lowest monthly increase this year, from a high of 8 % in April. Interest
rates on short-term government securities declined as well, from an 83 %
annual rate in March to 34 % in late-September.
Financial markets have responded favorably to the stabilization program. Peso
trading has been generally stable with volatility far below levels during the
height of the crisis. Mexico's stock market retraced some gains near the end
of the month, but remains at pre-crisis levels and about 60 % above its low in
late February. The stock market is still down about 45 % in dollar terms from
its mid-December level due to the peso's depreciation.
While monetary and fiscal policies are expected to appear less restrictive over
the last two quarters of 1995, this should be no cause for alarm. The money
stock can be expected to expand in response to the normal Christmas surge in
consumer buying. At the same time, the budget surplus will likely diminish;
on a year-to-year basis, as the one-year anniversary of the crisis approaches.
Mexico's banking sector, facing a high level of nonperforming loans, remains
strained. Five sizable banks, representing 28% of banking system assets,
have been recapitalized. The government's measures to mitigate the immediate
impact of the problem, to improve regulation and supervision, and to
encourage capital inflows have lent important support. An increase in
investment inflows has enabled commercial banks to repay the dollars
borrowed from FOBAPROA, the central bank's insurance fund; and one of six
banks that had accessed PROCAPTE, the government's capital assistance
program, has now left the program. Further, by arranging targeted relief for
small borrowers, the government has reduced the number of non-performing
loans in the banking system.
Outstanding U.S. disbursements under the February 21 agreements total $12.5
billion, all of which are backed by the full faith and credit of the Mexican
government. Interest rates on currency swaps between the United States and
Mexico are sufficient to cover the risks that the United States bears. To date,
the United States has received more than $200 million in interest payments
from Mexico. In the unlikely event of default, all of Mexico's obligations to
the United States are backed .by proceeds from Mexico's crude oil, oil
products, and petrochemical product exports. Payments for these exports flow
through a special account at the Federal Reserve Bank of New York. As of
September 18, $4.6 billion had passed through this account since March 8,
1995.
Tab 6:
August Summary
During 1995, Mexico has implemented and maintained the strong adjustment
policies necessary to address the financial crisis that threatened its economic
stability and long-term prospects for growth. In providing assistance to
Mexico under the February 21 Agreements, the U.S. government acted to
protect vital U. S. interests -- American exports and jobs, the security of our
common border, and the stability of other emerging market economies.
The deep recession in Mexico during the first half of 1995 was an inevitable
consequence of the economic adjustment. However, Mexico's strong
stabilization policies, the increased efficiency of its economy following seven
years of reforms, and the liquidity provided under the U.S.-led support
program suggest that the adjustment will be less protracted than that which
followed the 1982 crisis. Although there was a sharp drop in GOP of 10.5% in
the second quarter, there are already some signs that the economy is on the
path to recovery. With strong export performance, sound financial policies,
renewed access to the private capital markets, and continued structural
reforms, Mexico should return to economic growth by next year.
During August, Mexico continued to implement economic adjustment policies
consistent with its commitments under the February 21 Agreements. The Bank
of Mexico continued to conduct monetary policy to contain inflation, stabilize
the peso, and encourage capital inflows. Despite the recession, the
government's fiscal policy remained tight in the second quarter, resulting in a
surplus in the first half of 1995 of 2.1 % of GOP, a substantial increase from the
0.5% of GOP for the first half of 1994. In August, the government continued
to take steps to advance structural reforms, including additional privatizations
of ports. Public disclosure of financial data by the Mexican government and
the Bank of Mexico has increased substantially. This month, the Mexican
government and the Bank of Mexico began to provide a wide set of historical
and current data on the Internet.
Mexico's adjustment policies, reinforced by the U.S.-led multilateral support
package, are working. By the end of August, default concerns associated with
the government's tesobono obligations were virtually eliminated, with $26
billion of the $29 billion in tesobonos outstanding at the end of 1994 retired.
At the same time, international reserves rose by $7.2 billion from the
beginning of 1995 to $13.4 billion to August 18. Inflation continued to decline
to 2.04% in July and 0.9% in the first half of August, from a high of 8.0% in
April. Interest rates on short-term government securities declined as well,
from a 83 % peak in March to 34 % in August.
Financial markets have continued to respond favorably to the stabilization
program, as investor confidence in Mexico's prospects for recovery continue to
grow. The peso is about 20% above its mid-March low. Mexico's stock
market has risen to pre-crisis levels, up nearly 70 % since its low in late
February, although it is still down about 40% in dollar tenns since midDecember. Assisted by rising U.S. bond prices, Mexican Brady bonds are
also trading near pre-crisis levels, and the prices of Latin American Brady
bonds that fell with those of Mexico earlier this year have also risen,
suggesting that the risk of contagion has diminished.
Importantly, bond issues by the Mexican government and its agencies have
been sold to private investors for longer maturities and on better terms than
many market participants had expected. Following the initial return of the UMS
to the international capital markets in July with a $1 billion Eurodollar issue,
Mexico raised approximately $1.1 billion in August with a second UMS
offering in international markets. By contrast, after the 1982 crisis, it took
Mexico seven years to return to international capital markets for normal
borrowing.
Mexico's banking sector remains strained, but the government's measures to
mitigate the immediate impact, improve regulation and supervision, and
encourage capital inflows have lent important support. An increase in
investment inflows has enabled commercial banks to repay almost all the
dollars they borrowed from FOBAPROA, the central bank's insurance fund. In
August, the government announced a new program designed to provide
additional temporary relief to consumer, credit card, small business, and
mortgage debtors. In announcing the program, the government emphasized its
objective of providing targeted relief at a manageable cost.
-
Outstanding U.S. disbursements under the February 21 agreements total $12.5
billion, all of which are backed by the full faith and credit of the Mexican
government. Interest rates on currency swaps between the United States and
Mexico are sufficient to cover the risks that the United States bears. In the
unlikely event of default, all of Mexico's obligations to the United States are
backed by proceeds from Mexico's crude oil and petrochemical product
exports. Payments for these exports flow through a special account at the
Federal Reserve Bank of New York. As of August 22, over $3.95 billion had
passed through this account since March 8, 1995.
Tab 7:
July Summary
Mexico continues to meet its commitments under the agreements signed by
U.S. and Mexican authorities on February 21, 1995. Mexico's strong
economic adjustment program has been reinforced by the U.S.-led international
support program, designed to safeguard U.S. exports, American jobs, the
security of our common border, and the stability of other emerging market
economies. Mexico's recession is deep, but continued strong export
performance and financial market adjustments in the context of strict monetary
and fiscal policy and ongoing structural reform should help Mexico's economy
return to growth by 1996.
In July, Mexico continued to pursue a combination of tight monetary and fiscal
policies and market-oriented reforms. Mexico's nominal monetary base has
fallen 16% from January 1 through July 21, and the government's disciplined
fiscal policy yielded a budget surplus for the first four months of the year
double that for the same period of last year. The government's fiscal policy
appears to have remained tight during the second quarter. Structural reforms,
including privatization, are underway, such as measures to open Mexico's
telecommunication system, ports, and energy sector to private investment.
Mexico has already auctioned three port facilities in the first wave of port
privatizations, and will open bidding for facilities at seven additional ports in
August, 1995. The government has also taken steps to auction state-owned
railways, airports and petrochemical facilities. During the reporting period,
the government has again expanded its disclosure of key financial data.
-
With the program of international· support, the Mexican government's
adjustment policies are working. Mexico has managed its dollar debt
successfully, retiring almost 80% of the $30 billion in tesobonos coming due
this year. Despite heavy amortizations, most notably a $6.8 billion
concentration of tesobonos in July and August, Mexico's international reserves
exceeded $13.9 billion as of July 21, up from $3.4 billion at the end of
January. The 28-day cetes benchmark interest rate has fallen sharply from a
peak of over 80% in March to 39% on July 25. Inflation has moderated to
3.2% in June compared to a peak of 8 % in April.
Financial markets have responded positively to Mexico's adjustment program.
The peso has strengthened about 25 % since its low point in March, and trading
has stabilized in the neighborhood of NP 6 to the dollar. The stock market has
rebounded 70% since February and is now at pre-crisis levels in peso terms.
Brady bonds are now also trading at pre-crisis levels, and stripped spreads (i.e.
the interest rate spread over dollar instruments after removing U.S. Treasury
backing) have narrowed considerably, to 820 basis points on July 27, from
1949 basis points on March 20 and 438 basis points on December 16.
Securities issues by the government and state agencies have found demand
from foreign investors, as Mexico has regained some access to international
capital markets. In early July, Mexico's $500 million bond offering, its first
sovereign issue since December, was oversubscribed by more than three times,
leading the government to double its initial offering to $1 billion. By contrast,
after the 1982 debt crisis, it took Mexico seven years to return to international
capital markets for normal borrowing.
As Mexico endures a difficult recession, the government has also taken steps to
strengthen the country's social safety net. To help cushion the poor from the
impact of adjustment, the government has secured fin::lncing from the World
Bank and the Inter-American Development Bank (IDB). One billion dollars in
social sector loans will help protect health and education services. Looking
beyond the crisis, in the National Development Plan announced in June, the
Zedillo administration stated its commitment to increase domestic saving,
invest in a more productive workforce and secure the political reforms needed
to promote long-term growth.
The banking sector remains weak, but the government has taken measures to
mitigate the immediate impact, improve regulation and supervision, and
encourage capital inflows, particularly from foreign investors. These measures
have facilitated the recapitalization of Multibanco Mercantil Probursa by Banco
Bilbao':'Vizcaya and Banca Serfin by its shareholders. Financial sector loans
from the World Bank and the lOB will support the government's efforts.
Outstanding U.S. disbursements under the February 21 agreements total $12.5
billion, all of which are backed by the full faith and credit of the Mexican
government. Interest rates on currency swaps through the ESF are sufficient to
cover the risks that the United States bears. In the unlikely event of default,
all of Mexico's obligations to the United States are backed by proceeds from
Mexico's crude oil and petrochemical product exports. Payments for these
exports flow through a special account at the Federal Reserve Bank of New
York. As of July 26, over $3.2 billion had passed through this account since
March 8, 1995.
Mexico has pursued tight monetary policy_
• Money supply growth has been controlled.
Nominal M1
q- qq- ~
II)
II)
II)
II)
II)
II)
II)
II)
II)
II)
~
~
•
m
m ~ ~ ~ ~
m m m ~ m m
~ m m m m m m m m m m II)
m
...
c:: .0 ~ Q. >- c:: "3 0lQ.t) > t,) c:: .0 ~ Q.
c:: "3 0 l Q . t )
....,~ u.Q) ~ « ~~ ....,:l ...., «:l C/)Q) 0 z0 0Q) ....,~ u.Q) ~ « ~~ ....,:l ...., «:l C/)Q) 0 0>
z
... ...
...
Change from previous year
Change from previous month
r:-t·:*:,
-
·Pre/iminary data.
• Net domestic credit has been reduced .
120,000
110,000
100,000
90000
80:000
70000
en
.~
60:000
50,000
40,000
~ 30,000
a. 20,000
z 10,oog
10,000
20000
30:000
40,000
50,000
60,000
Monetary Gross International Net Domestic
Base
Reserves
Credit
1:-:·:-:·1
_
-
Despite the effects of recession on revenues,
Mexico has maintained a fiscal surplus .
• Gains from the oil sector
and a VAT increase
helped offset sharp
declines in other public
sector revenues during
the 1st three quarters of
1995.
3 40%
~
o
~
t.
30% n---a~~
20%
~
i 10%
jI
:
1-
o%~----~---------------,~~~
-0.8%
10%
f -20%
•
I -30%
L....-_ _ _ _ _ _ _ _ _ _ _- I -_ _ _ _ _ _-=22=.1..;....;.%~
I
• Cuts in real non-interest
public sector spending,
particularly investment,
more than offset higher
real interest payments ..
DOil Revenues.VATOOther Revenues
I
~ 80%
60%
lj
1!
~ 40%
~
c
g 20%
0%
2
}
~
-20%
--
- ~ -40% .
. -60%
a:
L - -_ _ _ _ _ _ _ _-'---_ _ _---'=.L..~_ __
O Interest
Payments
• As a result, the public
sector non-financial
balance increased
compared to the first nine
months of 1994.
.Non-Interest
SpendirJ
DFed. Wages IIFederal
and Benefits
Investment
8
7
6
~ 5
-
(!)4
o
'#.3
2
oL-...c:::;::====
First 3Q 1994
I~OYerall
First 3Q 1995
Balance. Primary Balance
I
Third quarter nominal GOP estimated using reported increase in
Mexican CPl. Primary balance equals overall balance less
interest payments.
Mexico has effectively restructured its short-term
dollar debt...
• The outstanding balance of tesobonos has been reduced by about 98% "this
year.
Weekly Amortizs(ions in US$M
OUIstan<ing Balance In US$B
1000
1500
1200
1100
30
1400
1300
25
1000
20
900
800
700
600
500
10
400
300
5
15
200
1~jJ~~~~~UHHUHHHHHHrnrnurn~rnm~~II~II;ml!lIiiIRILL0
Jan-95 Feb-95 Mar-95
Apr-95 May-95 Jun-95
I Ol1stal!!.Balance Amortizatio~
Jul-95
Aug-95
~95
Oct-95 Nov-95
in Pesos Redeemed = Y into
Dec-95
ussl
and has reconfigured its debt profile.
• Maturities of external debt· have been
extended.
• Domestic debt- is now mostly
pes(Hjenominated: tesobonos
are dollar-linked instruments .
. - - - - - - , 100%
140
o
Short -term
mTescOoros
• Long-term
120
C1IMF
080ndes
OCetes
-Alustabonos
01'escOonos
80%
100
60%
<II
c:
g
80
:5
~ 60
40%
:::>
$
40
20
o~~~~~~~-
End 1994
End Q3 1995
* All external public sector debt plus tesobonos,
ONed by GOM, plus IMF and U.S. liabilities of the
Bank eX Mexico.
End 1994
End of Nov '95
... Debt held by public.
Mexico's stabilization policies have produced
strong results.
• Inflation has moderated.
_
_
Mexican Consumer Price Index
(not seasonally adjusted)
• Nominal interest rates have fallen since their March peak.
90%
28-<1ay Cates
80%
-
auction rate
70%
60%
50%
40%
30%
20%
10%
O%u-~~~~~
3129
3/1
3115
__
~~~
4/12
__
5123
4/26
5/9
~-L~
6120
__
~-L~
7/18
616
8/1
7/4
__
8115
~-L~
9/12
8129
_ _~~~~~~
10/9
9/26
11n
10/24
11/21
12105
12118
• High real interest rates reflect tight monetary policy.
30%
20%
10%
O%~--~-----------------------------------------------------10%
I
-20%
-30%3115 3131
Real
4/15 4130
5115 5130 6115 fI30
~erest rates
7/15
7/31
I
8115 8131
9115 9/30 1<Y1510/31 11/1511130 12115
Bond markets have reacted favorably to
Mexico's stabilization program, suggesting
improved investor confidence.
• Stripped spreads on Mexican Brady Bonds have tightened
sign ificantly.
20%
15%
5%
-
Stripped Spread
O%W-~~L-~~~-L~~~~~~-L~~~~~~-L-L_
01/05 02102 03102 03/31 04/28 05(26 06(26 07(24 08(21 09(20 10/18 11/17
12122 01/19 02116 03116 04/14 05/12 06/12 07/10 08/07 09106 10/04 11/01 12106
• Yields on United Mexican States Yankee bonds have declined
since March.
24%
22%
20%
18%
16%
14%
12%
10%
8% 1211
212
3115
4(25
6f7
811
9/20
10103 10/11 10/19 10/31 11128
12128 2122
414
5117
7/4
8/30
09/28 10/06 10/16 10(24 11/8
12113
Secondary market yields
Mexico's financial markets have improved
markedly since the height of the crisis.
• Volatility in peso trading has decreased.
Spreads in Peso Spot Msr1cBt
4%
4%
3%
3%
2%
1~~~12%
1%
1%
0%
CD
N
N
-......
It)
N
......
0
• Despite falls in October and November, the real exchange rate is
still some 11 % above its March low.
110
100
0
0
.,....
90
II
0
~
.,....
80
70
60
Dec-94 Jan-95 Fetr95
Mar-95
Apr-95
May-95 .lIn-95
.lI1-95
Aug-95 Sef;95 Oct-95
Nov-95 Dec-95
• Mexico's stock market is above its pre-crisis levels in peso terms.
120
110
g
100
.....
90
II
~
80
0>
-.....
N
N
70
60
~
50
.E
40
30
"'0
I~~I
During 1995, Mexico has rebuilt international
reserves this year from $6.1 billion to $14.6
billion, while amortizing significant debt.
• USA 0 IMF 13 Reserves. Tesobonos iii Other sources or uses, net •
14,000
0195
12,000
11:1
C
g
0395
E 10,000
~
en
::J
11:1
~
;;::
0295
8,000
CD
0)
~
6,000
~
o
~
§, 4,000
.~
o
04** 95
l.L
2,000
o
Sources Uses
Sources Uses
Sources Uses
Sources Uses
* Current account balance, public sector external debt issuances and amortizations, and private capital
flows.
- Fourth quarter through December 15.
-
r-
Sep-94
I-
I-
Fel:r95
Mar-95
£
Q)
~
OJ
CD
0-
•
::;i
Q)
May-95
Apr-95
Mar-95
Fel:r95
Jan-95
Oec-94
Nov-94
Oct-94
Sep-94
Aug· 94
JUI-94
Jun-94
May-94
Apr-94
Mar-94
Fe I:r 94
Jan-94
Nov-95
Oct-95
Sep-95
Aug-95
~
I-
I--
l-
I
Q
.....
0
N
0
*' *' *' *' *'
VI
Ii
Nov-95
•
(I)
"C
C
-
..,
C
Sep-95
Oct-95
CD :l
0. CD
m ....
....
0
..,..,
m~
CC·ur
0.3
C"a
£l·
o
:l..,
a~
"a CD
!'Jc.
(I)
Iia-
~
CD
CD
<
~i
:l
3
o
CD
c:r.=r
< m
Aug-95
CD'
..,
::1
Q)
CD
nur
C
~
1..,
~i~i~<§
8~
:l"a
(I) 0
CD ..,
~ ~ ~ ~
Jul-95
Jul-95
-
-
:::l
VI
I
N.....
0
o
Jun-95
~
--
o
~
...... c
8 §, 8, ~~:
.....
Jun-95 r-
May-95
r-
Apr-95 ,...
-
Jan-95
Oec-94
Nov-94
r-
Oct-94 r-
I-
-
Aug-94
Jul-94
Jun-94
May-94
Apr-94 r-
Mar-94 r-
Fel:r94 r-
Jan-94
N
- -..... -.....
~ -§ ~ §'.
Mexico has experienced a sharp recession,
although there are some recent signs of an
upturn.
• GOP.
·uuaneny tJgures seasonallY 8C1jusrea OY J.P. Morgan.
• Construction output.
20%
10%
0%
I----..-..--~
-10%
-20%
I
Year over, . r change Olange from
-30%
-40%
..".
0)
c
~
~
~
... Cl :;,Cl
... Q.~
c::
~
If ~
<t
f
-,
..".
0)
'3
-,
..".
Cl
0)
0>
Q.
:;,
«'
~
..".
0)
U
0
~
;..
0
~
~
{6
0
~ month (SA.)
II)
0)
c
~
II)
0)
~
(f
II)
0)
...
II)
0)
...
I
II)
0)
;:...
~
II)
0)
IV
~
~ ~ ~ ....,:;,c -,:;,
II)
0)
!5'
<t
~
~
(/)
SA indicates seasonally adjusted
• Employment.
Open
INmIIqmenI'lIo
8%
7%
~ WartIInI CIt
'.Il00)
1'.760
11.500
6%
5%
4%
3%
2'lI.
11.000
10.760
1%
0% ....I . . . . - - - - - I - -.............-:-:---:~::___:__I_;::___:_:~;____;:_::_;:;;-_::_:;~-_::::~~;::_:_~~==::;_~~ 10.500
Dec 94
Jan 95
Feb 95
Mar 95
Apr 95
May 95
Jun 95
Jul95
Aug 95
Sep 95
Oct 95
Nov 95
·Social Security Syssm.
~
D EPA R T MEN T
0 F
THE
T R ·E A
s·~u
RY
--.
~.-
-
~~i78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
....................................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANlAAVENUE,N.W .• WASHINGTON, D.C.. 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
December 29, 1995
STATEMENT BY TREASURY SECRETARY ROBERT RUBIN
Steadfast action by Bureau of Alcohol, Tobacco and Firearms investjgat@f..S has
resulted in indictments against members of an illegal gun-trafficking orgaIiization based
in Alabama. Once again, A TF has demonstrated its critical role in the fight against
crime by helping break up an organization reponsible for supplying more than 350
weapons, many of which were used in crimes in the New York City area.
The success of the investigation resulted from close coordination among A TF
enforcement and inspections personnel in Alabama, New York and Washington, as well
as A TF's National Tracing Center in West Virginia. In typical A TF fashion, they worked
closely with other federal and local law enforcement officials
to
break up a major gun-
running operation.
This case is but another example of the work done everyday by the men and
women of the ATF to protect Americans from violent crime.
-30Contact: Chris Peacock or Darren McKinney
(202) 622-2960
RR-793
For press releases, speeches, public schedules and official biographies, call Ollr 24.hollrfax line at (202) 622·2040
OFFICE OF PUBLIC INFO
~
Department of the Treasury
202 622 1999
NO.530
P001/01~
Bureau of Alcohol, Tobacco and Firearms
0'1' f •• ,
Washington, DC 20226
n ,I
~I
24 Hour Telephone: (202) 927-8500
For Immediate Release
Contact: Larry Washington
FY-96-l2
December 29, 1995
MAJOR GUN TRAFFICKERS INDICTED
STATEMENT BY ATF DIRECTOR JOHN MAGAW
Washington--Today's indictments mark the onset of
bringing to justice suspects involved in a major
firearms trafficking conspiracy, thereby causing an
impact on the violent criminal activity that plagues
our communities.
This case is a prime example of how the Bureau of
Alcohol, Tobacco and Firearms (ATr) , working with local
law enforcement, uses the full extent of the law to
investigate those who are involved in the illegal
trafficking of firearms.
Beginning in 1993, ATF agents in Birmingham and New
York City developed information on a pattern of
firearms being illegally transported from Alabama to
New York. Many of these firearms were recovered from
crimes committed in New York City.
The varied, integrated resources used by AIF in this
complex investigation include the following:
Through Project LEAD in New York City, ATF's
Tracing Center identified the source of the guns being
used in that city's crimes. By using Project LEAD's
state-of-the-art software, ATF agents analyzed trace
data and targeted these illegal firearms traffickers.
As a unique facility capable of tracing the origin
of firearms used in violent or drug-related crimes
nationwide, ATF's National Tracing Center was a
cornerstone of this investigation.
ATr inspectors conducted investigations of ~he
records at Traders Two, the former Federal Firearms
Licensee involved in this conspiracy.
-more-
OFFICE OF PUBLIC INFO
~
202 522 1995
-2-
I commend everyone from AIF and the local law
enforcement agencies who worked on this case. We are
proud to answer the public outcry that something be
done to stop the violence in the streets. We must stem
the illegal flow of firearms into our cities and into
the hands of the criminal element, who use them as the
~tools of their trade" to victimize our citizens.
(end of Director Magaw's statement)
For further information on this case,-pl~ase con~ct
Special Agent in Charge James Cavanaugh in Birmingham
at (205) 731-1205.
###
p~=-.=:~
NO. 969
205 731 1313
BIRMINGHAM FIELD DIU
•••••, ",t";;,,.- ..... _
, ..... ~.iil.. ·.......'.
...
..
'~
...
t j.l:
DEP ARTMENT OF JUSTICE
~
l.~~':1
:;.
".•
" r •. , .
.. ...
~'i:~
.'
CARn P. PRJVETI
tJN1TED STATES ATIORNEY
, . ,,1"
.~,.
". :_.JIII" .•'
'.
~
•• ; . ,
,,#
NORTHERN DISTRICf OF AlABAMA
NEWS RELEASE
FOR IMMEDIATE REL.EASE:
.....ontact: _Qt;olyu Stevenon
::'~'20S) 731-1785
oe~··~-,.,.·.:,il~95
,
'.",J;'
'".
United states Attorney caryl P. Privett announced today that
a tederal grand jury in B1rminqhm 1m11ctea. a firearma dealer and
aix
ether
persons
on
inoludinq
eharqc5
con~pir~cy,
illV9al
pcss.ession of f'lrearms, an4 mak1nq false statements on tirearms
records.
'%'he inc!icae.nt resulted from a
l~nqt.hy
~nd
conc1uoted by the Bureau Qt Aleohol Tobacco
!o~e.r
investiqa1:ion
firearms of the
Trader. TWo c;un shop in Forestc:lale.
Those
III, 52, ot
in~ictaQ
in the
cottonQ~l.,
co~~ir&cy
were
Gerar~
Charles Greco
the federal fi.earms liceneee who formerly
operated Traders TWo; Christopher Lavrence Dollar ot Trafford,
former employee at
Charles
fonnerly
wills.
of
*Wllen
of
Two;
Mathe~ H~t,
Brooklyn,
NY;
Jar.es
Binning-hal:!; Victor LaMr Pees)c;.,
Frank Sryant
~erely
27,
Tr~d.r8
a
Le~iB,
~4,
ot
28, of Brooklyn,
Edwin
26,
Martin,
of !nsley;
~
PV.
"
• I
25,
and
~Qley.
dfJt.n~ant il! c:.h.arged vi til a ~ izue,
the charge i .
&n aeeueation and the detendant is pre~uQ.d 1nno c ent
until and unless proven
~ilty.
-1'1 0 R E-
2\3S7313.52~
NO.959
205 731 1313
BIRMINGHAM FIELD DIV
Tno indictment alleges tnat
205 731 1313
~etween
F
P.04/
August 1992 Gnd December
1993 approximately 366 r1rearms Yore illegally £old at Traders Two
by
means ot "straw purchase u transactions
vher~by
one
detenda~t
signed requir~ fir~ transaotion records tor ~otb.r deten~ant
Who waG
1ne11q1~le
to purchase tbe firearms 61rectly. It is alleged
that the tirearms were theft
trensport~d
to N.w York where they vere
sold.
It ccnvictec1 en the
con.~iracy
eharqe--,
,th""'f1.e·tend~ntstac.
a
maximum sentence ot ~ year. imprisonment anal~' ·$25.0, ()~.o~. fing.
Arraiqnm~nts
are scheduled before
Ma~i8trate
Judqe
E11%~beth
TOdd
campbell on Janu.ary 11, 1996, vith trial scheduled tor J'uly 11996.
Asa1stent U. S. Attorney Robert Posey and Assistant; U. s.
Attorney Shirley Keearty will prosecute the case.
-E N 0-
2'257313524
2es 731 1313
BIRMINGHAM FIELD DIU
2as 731 1313
cv./fCP• .1an.
~,.S
IN THI UIIITG 8TATE8 DI&1'KIC'l' coua-r
!'OR TBJ: ICORfiI&IOJ 1)ISftlCT
or
AtABMA
IQP'PBP' QMIZQH
UlII't1D .-rAUI OF AllD%CA
)
)
)
v.
NO.
)
)
)
)
)
)
)
)
)
)
)
)
IHDl~%IIIB%
COpNT
911;
TI\e
(~.
v••• c. S 311]
G~and ~vy
1"
1.
Fro. on
O~
cbuf•• :
eonlpirlRY and
It·
9~~wqta
altout Auguat: 15)'2 aa4
cont1nu~1I9
t;ha-.atter
until on or about Decephsr 19'3, within the Northern Diatrict of
Ala... ud .l..v!aw., the defendant.,
GaUtD CIIAIl.U GUCO III, alao JtDcnm -caUCK" 1
eJUlI8TOnu LMraIIICZ DOLLNt, .lev 'known •• "'CIDl!S-1
JlA'IKIV 1R1ft, .lao Jcnovn •• "8'1"1''';
CR...Ut.J=. Wll.LS, a1.0 knOWn •• "CBAn";
VICTOR LADa PUD:
fIWG DUIIT
and
.1AIIP EDIttN JWrrIII,
un"
knevln91y aft4 villtully corurp1re4 and
O'Cbel" aftd "1~
ju~,
other p.r.one
~o~
a9~. .d
tov.tl2ar,
•• c:A
Mown and unlmcnrn t.o the g:ano.
to co_it ott.n••• a ..a1n8't the United st.etee,
DEC-28-1995
vl~
tba~
1.,
P.02
205 731 1313
BIRMINGHAM FIELD DIU
Ca,
205 731 1313
To kncvinVly and willfully tal.ity, cane•• l and
COVQ" \II' by trick, aeb... anet d.vie. "~.I"i.l tact. 1n _t.t.era
Yl~in
the jUZ'i..tiatlon of the Oftlted 8tat.. Oepartaent
Treasury, Bureau of Alcabol, TObacco and rll'••na.. in
01
~itl.
o~
tJ'le
viola~lon
11, united Stat. . Code, Section 1001.
To lcnav~ly Uk. tal_ -cahll"'~. and
(b)
r ......ent.~lcm. vlt!l
~••JMtCt ~o
lUol'IIati.on Z"eQU1n4 to be kept
1ft tba ~.a~a ot • lioanaed flrear.aa 4aal.~, in vlo1.ti.a~r
~lte4
Title II,
ltae.. Coda, Section la.(a) (1) (1)1
'o~.
(e)
~CUla nCJt.
rlra&n8 u
licena•• 'a place of
18, United state.
r=
(d)
P\lftj.ebUle
licenae4
r ..lclinv in
~.1n•••
caesa.
r~.ara8
d.aler to ..11 an4
~e Ra~a
in wiab
~11Y.r
~
i. located. 1n violation of
Ti~l.
s.;tlon !Jaa CD) (3) 1
penona vt&o bay. . . . . CCAtvlctec1 or • or1••
~y
po••••• fir••rae in aft4 affect1n9 co...rea, in violat.ion er T1tl.
11, United state. Coder 8ect,lQJl 922(9) (1.);
'10 Dlp, truw~ aM
(.)
inter.tau couawc. in
• lla.nae, il\
122(.,
~.
vlo1a~iOft
-=
reo.'" tinana 1n
ooun. of d •• l1ft; 1n flS' . .~
of Tlt.l. 1',
un1~e4
vlU~
ltoat•• COde, Section
U., (AJ.
"Me; and "'M Of PI epMpirae:t
z•
Ii: va. part of the c:onQuacy that
CHAaLI8 GRBCO lXX, •
federall~
Det~t
GDARD
11cen.ed tir •• r.a. d.aler doing
wa1na•• at 't'rac!en TWo. Inc.. 1313 roH.toal. Squua,
.i~1n9baa,
Al.aba.. (lulr.1n.,ter --rra4u". Two-), &rid Deteftd.nt;
2
oeC-29-1995
P.03
205 731 1313
FIELD DIU
BIRMl~AM
205 731 1313
CDISTOPHD l.AWRIIfCI DOLLAa, an ..ploy•••t Trader. TWo,
il1eq.lly .014 approxt.at.lf ~e. bundred etxty-.1x (3",
..
firearm. to eoeoaap1rator. ~ ••~ of ••tr.v~urcha •• ~
~.ft
~ion.
vberein • oocon.pirator
-.u.v ",,"Oba.u"
to~
to directly purclla.e
anO't.fter
&
a~tin9
•• an
cocon.plr.~ot', who
1nt.~1ar.r O~
v.. 1nali.,1ttl.
tLZ'eU'll, .1~.d tlte r1naNa TraMaetlon
beare, ATP for. •• 73, required ~ tecl.al l.w, t~1•• 1~
~.~. .e"t.in,
"_C. . .
3•
Qat tla.
".~I'.V
0' .",. '1J:......
,vcha••l"" va. the ac:tual 'wyeJ: and
It va. !u.rtber a part of
'tbe
con.piracy tUt tile
tll.
8t.~.
of ....v York and coftvicte feloNt, o}tt:Ain~ fire.raa f~aa
'1'I"&«.e
TWo ~
uiftIJ Antbony t.ov.1. 1I1noyancs
Derendan~. 7ltAH'K
I.JUT LlWIS. VIC"1'O'R LUDll PIAD, JUl'!S EDWlIf IGR'fIH aftd
perllOft.
ft"_
~c:llaaer.·
,.
ft. . . .
of the
ue
)mown ~ ~ ~._
jUI"Y ••
~.r
".traw
ti~..na.
It: va. tvtlsN' part of tlae c:cmap1racy that Anthony
Kincy and Def.ndant.. vrc:f01l IMAR PUll,
~
~i.
BRYAH'l' LIWIS,
JNU8 EDIfDf KUrrX' and other per.onl who •• Maee u. lalovn to the
grana jury .1gne4 Fir••rm. Tran•• etion a.Gorda, ATF fora. 4.'l,
tal •• ly ren..ent1r\9 th. . . .lve. to _
buy... and tz1an.ter••• of
f1re.na pgrchaa'" troa Tradere TVo, Vben in trutb .n4 tact they
v.~.
"a~rav p~cba.er."
actin; .. 1nteraadiariel or
Defendaftt:.
I.
~
smrr
for
aM CHAaL!S WlLLS.
%t va. furtbK part of the oon.p1~acy ~t Dcfanclanu
GBMaD CHAPLR GUCO I I I and CBRIBTOPIJER LaW'RElfCE DOLLD cSlrect.ci
l
DEC-2B-l995
2~S
731 1313
BIRMJNGHAM FIELD DIU
205 731 1313
nux
Anthony LoUie Ki.nGr UI4 DeteMlnt. VIC'fOa LUlU ,lAD,
.RYAIIT LlWtS, JAIIU IiDIflB IWlTIH and otller pu.0ft8 vho..
u. known u dle vraftd jury to .1911
1nCCDlpl.~
rtruru
'l"I'UHc:tioft a.col"d., AT" rona 44'13, vaa1= eo"taJ.ned no
of
t1r~
.old Aftd no tr.....acton Cite.
aJ.gn_ tozwe ver. aa1fttained at
DetandaJrt.a IDA"
DOLlM to
cnm.u
Th...
~...,.. ~
QUCO III an4
••
1ncapl.~
r.aWlllHC~
c:a%ftOPRIR
..l.a of fuauu to Defeacs.ftt41 JIA'1'Hft JnJJft' and
~ecar4
pU'cma.....
It vae
11.~ifttJ
and VWnt ued ."
CJlUt.&. WILLa, tbaray t.l.ilyiq aM DOncNllftV
tile tna
~
of
~.
f~
u.
lG~t~r
of
fUMn..
part of til. cOAapiracy
~t
tireuu
purc::bae. tl'_ fta4KI !Vo v.l'e .hipped and tl"anapo!"tecl froa tb.
Rate of Uabula to tale stat... of lev
they vera .old
1•
%e
Dy
Yo~k.
&ft4 Maw "era.)" where
DetendMt.1 JlATH'IV HUJn' u4 alaLia 1f%u,s.
fV't!a.~anoe Of
the cOMpil'aoy
.no t.o
.tt.~
tile
obja~.
ot tile coup1:racy, the tollav1J\9 ovart .cta, ..~
othU8,
vere ccaltted w1thln the )fortlWm olauict ot
"1~
and el.cWftee.
(al
on or ~CNt. AUpI' 35. 1"2, Def.lI4Aft~ 3 . . . . DlV1"
Kazot:i.n .191'.' a pirearaa ~&ft••~tion Jleoo~, AT"
Z'ep..."tin;
taaa~
as. va.
piatol. tra 'traders
TWD.
tu
rora •• 13,
mayer aad " . ., .... at tiv.
that 1_,
0".
(1)
eD~IY . . .
(5)
pi.tol, em.
Iryeo .l'O-c:altber pi.tOl, one (1) LaE'c1n .380-C&1~r pi.tol.
and two (2) G~en4el .l,C-caliber pi.tola;
DEC-28-1995
205 731 1313
BIRMINGHAM
(~J
aftcl
on
Def.n4.n~
O~
~IELD
GDAJtD caul •• OUCO lIt .J.,ned • l'!rNna.
4473, repHHntu.V' t!\at Antbony
FoZ'll
LOu1. lfiftcr v.. t.ase WYU' and
e1) au.,..
205 731 1313
about r_!anuy at, 11':1, AnQonr Lou'. KLnO)'
ftanaaet10n . .co~cS, AD
Tr.~. ~,
DIU
~~
t~.ut.r" of e1¥
1., tour (4) LorciD
C') pi.tol. fro.
.3'o-o.1~~ p'.Co~.,
one
t_ pi.tol, e.nd one (1) Coftay • "0-A11bel' pi_tol;
on os- uout
(0)
2', 1"3, aatenunt._TOW
r~&"f
JiOiI'T .... CBAJlLD VILLI cleliwrecl and cau... to be "aJ.ivwecl ~o
,....., Dlpr••• fol'
ui~
in
ift~~e
COfttaininv the . . . . .1. (I) pi,tole
ft.fte.o~lon
on the r1r.arae
Iteoorcl, AT!' pon ."3, ._criMeS in pUq'I'apb
. .v • •&lu __ •
(d)
It.~
CCMaU"ca. packa.,_
7(b)
to 350 Va" liel.ft Avaaue, BrooJclyn, Hev Yozokl
on or al)Out
A~il
27, 111', D.t.n4aft~.
raux
aa~AH'
LZlfI. and G!Il\lU) cu.uJr.B1 QJtIco III e191'- a ,irearu ftarwact.ion
"cord, ATr ron "73. .....pr•••ftt.ll\Cj
that
oereftdut
nAIIK
""AlIT
t,I,Wll ".. the bUyer au! traut.ne of a1x (6l pistol. fs-Ga
Tl"aclv. IIfVa I
(.)
Oft o~
uout Ray 1, 1"3, Defendont. DTIIDf BUIlT and
CRULZ8 Wlu,s 4elivved or cauaecS to be delivel'.cl to
E¥,pr... for ahipaant 1ft
1ft~er.~~.
".".1'.1
caaa.roa • paekav. contalnift9
thl'.. C') of the pi.tol. 11.ted an the
1leeo1"d, ~'fF Fo~ .''73, deacri.t.4 1ft
P1~ •• ~ ~.n••ctlon
pa:oa,I".pr1 7 (el) above
a44r•• -.4 to 42A Tbel. . eourt (A), statUi I. land, Rev YOl'lt;
(r)
on or about May 18. 19'3, DeteJ\4aftta IlATBft
an4 PRANK BRYM'I' LDfIS v.nt into '1'racl... Two and
••vara1 firearm. by
tEC-~-l995
geten4an~
~.
IIVM'r
ahovn
allUlTOPR!R LAWRDCZ DOLLNl,
p.a;
205 731 1313
BIRMINGHAM FIELD DIU
(9)
O~ abau~ Au9U8~
On
205 731 1313
KA~HUNT
5, 19", o.rendante
and l'RAN1t BRYANT LZWIS vent t:o Treder. TWO and Cefendant MTHZ'If
sgwT~eeeived
a
containi"q.1x C') t1r•• r.a fro.
~
o.t.ftd.~~
GDAaD CIWlLIS CUCC III:
On D:ru.wt "ptewber I, 1"3, D.tendant. J"JIAHK
(II)
v~.1.n
DVAft LBW%8 and VIC'rOa LAXAR PP.AJQ; vent to nadera TWO,
o.teftdUt rMIIK I~YAJl'l' LEWIS .icmeeS •
ftuwMr
'.'J, which
'iRan -ft1IJ\Hc:ticm lIIIOo:rd., Aft'
r....
Itettnve'af
~. .~ian
r~~
em or
(i)
.old·ano ho
u.ut
1"ooaPl.~.
of
4at•• ,
octOftz' 13, 1"3, OefUldant. M1.'IDf
HUN'1'r VICTOR LNIUl pug and PIWOt DYQ'l' Ln't8 vnt to
TWe, WIlen1ft
o.~.a4&ft't ~
F1I'~ ·ftana.~io"
no
COft,,*iI'IM
utA1ft' LZVIII .J.9ftM
fo~
fta4e~.
(.)
a.oor4a, ATr roJ'U '.73, •• WJ.r and
tr.Mt. . . . fo:' tvoftty-t.ftI'M (3') p1.col. aOld
a:.r
Defendant
c:BUS'fOI'RD LDJlDlCI DOLLUl to Defendant _'dIN 1IUI1';
(j)
a1\4
on 01' uaut
Q~.r ~.an.
1Ihoa. n.... va
t~.I'O"ed ~'tJ-.l.
t~a.
Octo~
1', 1193,
aD,",
De#eMan~
~o ~
(Jc)
eft or al:rciN~ Decabr
CRUL~8 CJr£eo III
9raftd j\U"Y
(a6) pl.tole P'"c:ha••" fraa
the state of Alabawa to the state Of Wev
IlAftDf KUIft
Tra.el'. TWo,
Je~.eyf
1., 1"3, DefananU GDUD
a1\4 CKJt.ISTOl'ftD UdlUJfCZ D01"tA1\ had i.n the1t:
pO. . . . . ion at Tra4ere Tvo, appro¥1..~elf ••vant.an (17)
.473,
A~P
Foraa
,.ireaz-aa 'rranNction aecorels, Which hac! been .19ft" "Y
D.r.ft4.ft~ ntAJII'Jt
no li.t1nv- of
ap.proxt.&tely
BRYUT LZWlS 11\ tlse epace tor "}Nyu·,
~.
tinlaZ'1la .01d and no uanHct10n
twen~y-raur
(24)
AT'
Forma •• 7~,
tR&~
d.~•• ,
with
And
P1r••~
P.B'?
205 731 1313
BIRMINGH~M
2ElS 731 1313
FIELO OJU
Tranaactioh aecorda, alqned by other "buyera" who ••
known to tlae 9rand
juror which cont.inad no 11.tjn;8 ot tile
ttrearma .old an4 no
(1,
on
are
n~••
tr~.otjon
datee,
or about Dec_ber 22, 19.3, DefencS&nte JIA'l'BBW
RtJNT anel ~ aRYAIIT LlWZ5 went to Tr'~ ifWo, Ifh_nin
Detadut. LEWIS a19ft" • rk• ."..
n-.,..~tLon
MeooreS, Afr
FCJR
•• '3, •• Inayer and UOan.t8l"8. of • t1t'MB •• lwe~ ..4 '~ p.1d for
I7Y DtatMdult UTUIf JMIT.
All in violation of ~itle 11, United
Sta~••
Code, s.ction
3'71.
QQPNT TIP:
(1' V.I.C. I 1001]
The G&-ancI 3ury
ou.q•• :
'that. on at' about the
N~.m
34~
4ay gt FUnal')" , 1893, within the
~n
Dl.tI'lcf; or Ala. . . ,
a utt.r within the ju,"iarJict1on
at t.b8 united stat•• C,panaant ot the ft"M'ury, Bur. au of
A1COhcl, ToMC:CO and ,ire&r1l., til. 4.tmtdant,
CJIJWU) CIWtLII GUCO
&180 knOWn . .
ttl,
-cauat" ,
knowinglY and vl11fQl1y falalfle4, cona•• le4 .n4 covered up by
trick, ach __ and d.vice a material fact in that he .xecutecs a
rit"ea:naa
~.n.aGt.ion
191), wbl=
RacorcS,
~epZ'.aentec1
"r ron .6"',
dat.\i P.~ary
that Ant!lOJ\y t.cNi. X1nc::y w..
an4 tran.ter•• of gR't4in t11"R1U l1.tacJ on the
truth an4 f.C~, •• the
~e ~~y.r
t01"1l,
p~.onf
wben in
cl,ten4ant then knew, An'tbony Lout. Mincy
v.. not the true buyer and traneter.. of the f1reara.
• ctlnq aa .,ent,
26,
lftt~iary
and
",traY
purcb&ae~ft
bu~
w••
tor another
ln violat1on 0: Title 18, Uftlte4 Itat•• COde, ••ct1on
7
1=>.00
2135 731 1313
BIRMINGHAM
DIU
FIE~D
2es 731 1313
1001.
CQRHT
T'BIZ'
[11 V••• ~. I 1001J
The Cr&IICI 3Ury =aq•• :
Tbat an
OZ'
al:»out tll. 27th cI.y of April, 1903, vi'C!lift til.
Northern Di.tI"1o~ of Alat...a r 1ft • aattu within til. ,ur1ed1ctiora
or til- un1ted Stat. . o.part ••nt of tee t'r••• u.n',
Alcohol, IfON"O .nd
rirearu,
.u.r..
~
ot
tb. detendant,
GDAIID CUAIS Galea ZII,
alao known •• "ClUCK-,
knov1ft91r and
v111f~11y
triGk ••g h _ and
F1~ea~
deY1~.
falalf1e4, conc••led and oovered up by
a aaterial
11'1
~.~ ft.
execute« •
Traft.aetion Record, ATF Form " " , 4ated April 21, 19t',
which repre.cntecS tAat
FRANJ(
IRYUT LEWIS va.
tranarar•• of ceRa1n rlruraa
an4
r.ct
f.c:~,
li.~.4 Oft
~.
lNyel" aft"
tbe form, vta.n in tNth
•• t.be def.ndant th.n kneW, rJtAD DVU'f LBVJ8 va. not
tlle UU. buy.r and. f.ranafer•• of the fire&Z"1U lNt v •• actln9
agent, 1ntenedlary ana ".trav puzdla. .Z'· tOl"
an~her
a.
par.oft, in
-violation of-Title 18, united Itat•• c04e, section 1001.
QRgMT rqga:
(11 U.S.C. S 1001)
ft. GAnd 3Ur1
'l'ILa~
on or
~•• :
aMU~
tile 13th clay of October, It'3, within the
Hortbern Dl.trlct of
Al.~,
in - . .~t.r within the iuri"1ation
of the united St.t••
o.p&rt.a.n~
AlcohOl, Tobacco end
r1r.~.
of the
~••• ury.
8\11'••u
of
tbe d.fendant,
CHRISTOPHER LAWRDfCZ DOt.LAR,
elao known ••
DEC-28-1995
•
"awl" r
p.~
205 731 1313
SIRMlNUHAM FIELD DIV
triak, .eh... and device •••~rt.l
205 731 1313
raot 1n
tba~
h. e •• outed •
F1re.~ T~.ft.a~ioft Racard, AT' Fora •• 73" d.ted Oa~ober 13,
1993, wbleb rtlpJ:W.efttecl that PRAn DYAIf'f LDIR v •• the buyar and
tranarv.. of certain f1r••nIl. li.ted on the ton, vllaa 1ft cntll
and
•• t.b_.feftdant
f.~,
~.ft
Jmev, ra&IfI .aYABf t.n%8 va. not.
the true buy_ and tl'u.fer•• of the tirean8 bUt va.
lnte~i..q" ·.~~.v purdlUU'8 fo~ ua~.~ "~ft,
• ,ut,
Yiolation of T1\1. 18, united stat.. Code,
QQPIT
aotinfJ ••
1.YC~
-n..
lOOt
(11 U.I.C. 1.'22(9)(1)]
O~ud ~r/ cba~.1
'ft\at on
Ho~Z'n
'aect~
1n
OZ' .~~
g1au1ct of
tlI. 13th clay of OC'tobN', ltV), vitbin
~1."...
ancl el.cwbR'e, the
i;l\.
4.t_4aft~,
MTHP 1JOlIIT,
a1ao known a. -KAfT 8 ,
having be_
cOlWi~ecl
tera ••oeecS1ftt Oft.
affecti"
ccma.~oe,
ot a =-1•• pWli.habl.
~
Upriaon.ant tor a
(1) r"~, did poll. . . . t1¥'ean.
that ie, Hven (1) GJ:enCSel
1ft and
.JIO-Al~
pi.to18, tour (t) Sundance .l5-calia.r pi.tola, two (2) P.boeft1x
Arae,
RaYeft .25-cali~
pi.tala, one (1) Marth
Aa.~lC&ft
Araa .22-
oa11ber revolver, one (1) 3ennlftg_, Bryco tma pi.tol, one (1)
Tauru. , . . pi.tOl, ofte (1) Taurua .l8 .,.o1a1 caliber revolver,
two (2) cObray M-ll 9mm pi.tola, one (1) CObr.Y.-12 .lBO-caliber
pi.tol,
fa~r
(.) auger 'aa p1.tola, an_ (1) . .
~
Kiael, , . .
pi.tol, and one (1) Ror1neo , .. pi.tol, in violation of Title 1"
Un1ted state. code, S.otion 922(9)(1).
,
DEC-2&-l995
p.le
285 731 1313
F!ELD DIU
81RMINGH~M
Q;PKT'II:
[1' O.S.C.
S 932(9)(1) and
20S ?31 1313
(2)
'a»
'l"h. Ck'a"cS Jury obarp.:
That em or
D1a~riot
of
aJ:»ou~ Au9U.~ 5,
Al.~
1"3, within til. Ifortharft
an4 .l.evbare, the 4erendante,
.lao
M'fBIW tmIIT,
JuIavn ••
CIIUT.q W1'LL8,
".ft-,
and
.
• 1.0 knavn •• -CRAIl",
eaCh a1c1.c1 and Uette4
by
tbe otller, •• ch bav1nq bee ccmv1ct.cl
of. "be punt_ule by iIIpi. . . ."t tor a ten exaeedlfti;J1 one
1n and aft."tinv c .....re.,
(1) year, cliG . . . . . . fidal'U
• ix
(il
.3eO
unJmon u
ltat••
cal~
pi_tol., •
tba poud jury,
furtb.~
'etat,
i•
4•• arlptloft of ¥bleb 1.
in vlo1aticm ot Title 1., lIft1te4
cad., section 133 (V) (1)
and (2)(.).
It TRUE BlU,
CUYL P. PlUVIft
un!te4 State. Attorney
10
DEC-2S-1~
P.ll
"'T1RARY
T
,L1D l.
Ii
111111 III I II II 1111
1 009008~