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Treas.
HJ
10
.A13
P4
v.364
Department of the Treasury
PRESS RELEASES
TREASURY DEPARTMENT LIBRARY
PRESS RELEASE NUMBERS THAT WERE NOT USED
1469
1470
1476
1481
1483
1528
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
CONTACT: Office of Financillg
202-219-3350
FOR IMMEDIATE RELEASE
January 2, 1997
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $19,298 million of 52-week bills- to be issued
January 9, 1997 and to mature January 8, 1998 were
accepted today (CUSIP: 9127944Q4).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Rate
Low
High
Average
Investment
Rate
5.2H
5.59t..
5.32%
5.31%-
5.62%-"
5.61%'
Price
94.651
94.621
94.631
Tenders at the high discount rate were allotted 23~.
The investment rate ~s the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$47,806,045
Acce:gted
$19,297,575
$41,666,872
914 I 173
$42,581,045
$13,158,402
914,173
$14,072,575
5,225,000
5,225,000
Q
$47,806,045
Q
$19,297,575
An additional $1,300,000 thousand of bills will be
issued to foreign official institutions for new cash.
5.30 -- 94.641
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 6, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $12,615 million of 13-week bills to be issued
January 9, 1997 and to mature April 10, 1997 were
accepted today (CDSIP: 9127944E1).
OF ACCEPTED
COMPETITIVE BIDS:
RANGE
Low
High
Average
Discount
Rate
Investment
Rate
Price
5.00%-
5.13%
5.02%-
98.736
5.16%5.16%-
98.731
98.731
5.02%-
Tenders at the high discount rate were allotted 25%-.
The investment rate ~s the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.01 -- 98.734
RR-1435
Received
$53,356,161
Accepted
$12,615,209
$47,862,540
$7,121,588
1.522,101
1.522,101
$8,643,689
$49,384,641
3,382,320
589,200
$53,356,161
589,200
$12,615,209
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 6, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $12,567 million of 26-week bills to be issued
January 9, 1997 and to mature July 10, 1997 were
accepted today (CUSIP: 9127945F7).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.10%'
Investment
Rate
5.3H
5.12 %'
5.:3 3%
5.ll%'
5.32%
Price
97.422
97.412
97.417
Tenders at the high discount rate were allotted 4~.
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-1436
Received
$53,557,995
AcceRted
$12,567,191
$45,052,949
1,289,346
$46,342,295
$4,062,145
1,289,346
$5,351,491
3,400,000
3,400,000
3,elii,:ZQQ
$53,557,995
;3,elii,:ZQQ
$12,567,191
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
Contact: Peter Hollenbach
(202) 219-3302
January 7, 1997
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY NEVADA FLOODS
The Bureau of Public Debt took action to assist victims of floods in Nevada by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Nevada affected by the Pacific Northwest Floods. These procedures will remain in effect
through February 28, 1997.
Public Debt's action waives the nonnal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected areas.
Most fmancial institutions serve as paying agents for savings bonds.
The counties of Douglas, Lyon, Storey, Washoe and the independent city of Carson City are
included in the declaration. Should additional counties be declared disaster areas the emergency
procedures for savings bonds owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-I048, available at most fmancial institutions or the Federal Reserve
Bank. .J3ond owners should include as much information as possible about the lost bonds on the
form. This inforination should include how the bonds were inscribed, social security number,
approximate dates of issue, bond denominations and serial numbers if available. The completed
form must be certified by a notary public or an officer of a financial institution. Completed
forms should be forwarded to Public Debt's Savings Bond Operations Office located at 200
Third St., Parkersburg, West Virginia 26106-1328. Bond owners should write the word
"Floods" on the front of their envelopes to help expedite the processing of claims.
000
PA-244
RR-1437
PUBLIC DEBT NEWS
Department of the Treasury • Bure~1I (')fthe Public Debt • Washington, DC 20239
Contact: Peter Hollenbach
(202) 219-3302
FOR IMMEDIATE RELEASE
January 7, 1997
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY IDAHO FLOODS
The Bureau of Public Debt took action to assist victims of floods in Idaho by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Idaho affected by the Pacific Northwest Floods. These procedures will remain in effect through
February 28, 1997.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
The counties involved are Adams, Boundary, Bonner, Boise, Clearwater, Elmore, Gem, Idaho,
Latah, Payette, Shoshone, Valley and Washington. Should additional counties be declared
disaster areas the emergency procedures for savings bonds owners will go into effect for those
areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most financial institutions or the Federal Reserve
Bank. Bond owners should include as much information as possible about the lost bonds on the
form. This information should include how the bonds were inscribed, social security number,
approximate dates of issue, bond denominations and serial numbers if available. The completed
form must be certified by a notary public or an officer of a financial institution. Completed
forms should be forwarded to, Public Debt's Savings Bond Operations Office located at 200
Third St., Parkersburg, West Virginia 26106-1328. Bond owners should write the word
"Floods" on the front of their envelopes, to help expedite the processing of claims.
000
PA-245
RR-1438
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
Contact: Peter Hollenbach
(202) 219-3302
January 7, 1997
BUREAU OF THE PUBLIC DEBT AIDS SAVTh'GS BONDS OWNERS
AFFECTED BY CALIFOR.'lA FLOODS
The Bureau of Public Debt took action to assist victims of floods in California by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
California affected by the Pacific Northwest Floods. These procedures will remain in effect
through February 28, 1997.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most fmancial institutions serve as paying agents for savings bonds.
California counties involved are Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, EI
Dorado, Glenn, Humboldt, Lake, Lassen, Madera, Mendocino, Modoc, Mono, Monterey,
Napa, Nevada, Placar, Plumas, Sacramento, San Benito, San Joaquin, San Maten, Santa Cruz,
Shasta, Sierra, Siskiyou, Solano; Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tuolumne, Yolo,
and Yuba. Should additional counties be declared disaster areas the emergency procedures for
savings bonds owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-I048, available at most fmancial institutions or the Federal Reserve
Bank. Bond owners should include as much information as possible about the lost bonds on the
form. This information should include how the bonds were inscribed. social security number,
approximate dates of issue, bond denominations and serial numbers if available. The completed
form must be certified by a notary public or an officer of a fmancial institution. Completed
forms should be forwarded to Public Debt s Savings Bond Operations Office located at 200
Third St., Parkersburg, West Virginia 26106-1328. Bond owners should write the word
"Floods" on the front of their envelopes, to help expedite the processing of claims.
I
000
PA-246
RR-1439
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
Contact: Peter Hollenbach
(202) 219-3302
FOR RELEASE AT 3:00 PM
January 7, 1997
PUBLIC DEBT AL"fflOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR DECEMBER 1996
Treasury's Bureau of the Public Debt announced activity figures for the month of December 1996, of
securities within the Separate Trading of Registered Int~rest and Principal of Securities program
(STRlPS).
DoHar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$928,139,515
Held in Unstripped Form
$704,991,159
Held in Stripped Form
$223,148,356
Reconstihlted in December
$12,240,936
The accompanying table gives abreakdo\vTI of STRIPS activity by individual loan description. The
balances in this table are subject to audit and subsequent revi.sion. These monthly figures are included
in Table VI of the Monthly Statement afthe Public Debt entitled "Holdings of Treasury Securities in
Stripped Fonn."
Infonnation 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-247
RR-1440
T,:,3LE VI - HO~DINGS 0= T;;:=-!,5..i"Y S:CURI7,:5 ,N 57R:;:"=:J FORM, DECEMBER 31.1996
(In :ho:Jsands)
Pr.~:::;;al
lean Descrlptlen
Maturity Date
(;511S.'S7 .
03115157 ......
11115/97..
C2!1S:SS .....
C5/15!S8 .....
OS/15iSB ......
11/15198 ......
02l15!99 ......
C5/15/99 .... _.
C8115/99 ..... _
11/15199 ......
02115/00 ... ...
CS/15/00 ......
OaI15/00 .... __
11115/00 ... _.
C2l15/01.. .. _.
05115/01... ...
OS/1S/01.. .. _.
11115/01... ...
05/15/02 ......
08115/0L ...
02115/0L ...
08/15/03 ......
02115/04 .. _. __
~5/15/04 ...
06/15/04 .... _.
11/15/04 ......
02115/05 ......
05115/05 ......
08/15/05 ......
11/15/05 ......
02115/06 ... __ .
05/15/06. _....
07115/06 .. _._.
10/15/06._._ ..
11115/04._ .. _.
05/15/05 ... _..
08/15/05._ ....
02115/06 .... _.
11115/14 ..... _
02115/15 ......
08/15/15 .. __ ..
11/15/15 ... __ .
02115/16._ .. __
C5/15/16 ......
11115/16._ ....
C5115117 .. _. __
03'15/17._._ ..
05/15/1S ......
11/15118 ......
02115/15 ... _..
09/1 5/~ 9._ ....
02l15/Z0._ ....
05115/20 ......
OB/15/20 .. _...
C2I15:21..._ ..
C5/15/21... ...
03115/21.. ....
11/15121.. ....
C3/15/22 ......
11115/22 ......
C2I15/2L
09/1S:n __ ...
11/15/24 ......
C2/1Si2L ...
C311S:25 .....
~2.'15;25 .. _...
:;3115:25 .....
11/15:25 ......
8-1/2% Nc:e A-le97
8-518% Note 9-, 597 ...
8-7/8% Note C-t997 ..
8-1/8% Note ;'.-:598 ...
9% Note 9-195S.
9-114% Note C-1998 ..
8-7/8% Note D-lg98 ....
8-7/8% Note A-1999 ..
9-118% Note 9-1999 .....
8% Nete C-1S?9 ........
7-7/8% Not! 0-1999 ..
8-1/2% Note A-2000 ..
8-7/8% N01! 5-2000 .....
8-3/4% Note C-2000 ......
8-112% Note D-2000 ......
7-3/4% Note A-2001.. ....
8% Nele B,2001 ..........
7-7/8% Note C-2001.. ....
7-112% Not! 0-2001...
7-112% Note A-2002 ......
&-3/8% Note B-2002 ......
&-114% Nete A-2003 ......
5-3/4% Note B-2003 ......
5-7/8% Note A-2004 ......
7-114% NOle 6-2004 ....
7-1/4% Note C-2004 ......
7-7/8% Note 0-2004 ......
7-1/2% Not! A-200S ......
&-112% Nete 9-200S ......
&-1/2% Nete C-2005 ......
5-7/8% Note 0-2005._ ....
5-5/8% Note A-2006 ......
&-7/8% Nete 3-2006 ......
7% Nete C-Z006 ..... _
6-112% Note 0-2006 ......
11-5/8% Bond 2004 ....
12% Bond 2005 ........ _..
10-3/4% Bond 2005 .......
9-3/8% Bend 2006._ .. _...
11-3/4% Bond 2009-14._ ..
11-1/4% Bond 2015 .......
10-5/8% Bond 2015 .......
9-7/8% Bond 2015 ........
9-1/4% Bond 2016 .. _.....
7-114% Bond 2016 ........
7-112% Bond 2016 ........
8-3/4% Bond 2017 .......
8-718% Bond 2017 ..... _..
9-1/8% Bond 2018 ........
9% Bend 2018 ............
8-7/8% Bond 2019 .......
8-1/8% Bond 2019 ........
8-112% Bond 2020 ........
8-3/4% Bond 2C20 ........
8-3/4% Bond 2020 ........
7-7/8% Bond 2C21.. ......
8-1/8% Bond 2021.. ......
8-1/8% Bond 2021
8% Bond 2021 ...........
7-114% Bone 2cn .
7-5/8% Bond 2C22 ........
7-1/W. Bond 2023 .......
6-1/4% Bond 2023 .......
7-112% 30nd 2C24.
7-5/8% 30nd 2C25 ...
&-7/8% Bond 2C25
6"10 Bend 2020 ........
&-314% Bond 2C26 ..
6-1/2% Bon~ 2C26
< ..
Tetal
To:a
':'::1e,m: Outs:anding
?cruon He!d in
U:1s:npped Form
~
Portion Held in
Stripped Form
7.414,037
6.578,836
6,128.329
6883,868
6.636,387
8,102.646
6.405,275
7.994,823
6,883,903
7,354,069
7_193,160
8.003,033
5,741,030
7,138,886
7.215,282
8,031,202
8.657,7C8
9.025,585
20.B87,222
10.043.357
22.697,415
23.21(i:435
921.237
9 j52836
9508.329
9.159.068
9.165.387
11.342.646
9902.875
9.719.523
10.047.103
iO.163644
10.773950
10.573.033
10A65.230
, 1.080.646
11.519.682
i 1.312802
:2.358.083
12.339.185
24.225.102
~ 1.714.397
23859.015
23.552.691
23.0".02B
:2.555.077
1t.o=.tO.372
:3.346.467
·0;3.i60
:3.33t.754
27,731,S~B
10 e;3 818
:: .'53.177
12951.8n
14,434.772
13.302.467
14.373.760
13.834,754
14.739.504
15.002.580
15.209.920
15.513,587
16.015.475
22.740,446
22,459,536
4,306,606
1,710.808
7,212,913
4,734,156
1,939.984
11,210.519
4.S07.516
4.803.859
6.459.654
18.637,151
18,174.128
11.339,769
8.116.058
3.455,839
3.385.670
5.605.998
18158.152
5878.468
3.753,603
6.122.606
9,756.573
5.449,448
5.278.042
6.070.694
8.486.390
2.875.626
13.839,961
20.311.924
4.054.862
5.187.570
12.19B.8Q7
12.799.016
10.839.418
11.492.377
;2~.'39 515
704.991.159
~4.73;S04
:S.002.580
:5.2Q5.520
:S.513.567
16.015A75
22.740,446
22.459.536
6.301.806
4.260.758
9.259.713
4.75=.916
6.005.584
~2.S67,799
7.149.916
5.e95.e59
7.255.!!54
i5.823.551
:a.a54.L48
:a.1St.169
~t.016.e5B
5.708.539
5.032.670
i:.250.798
2:.213.832
::.223.858
,:l.~5c.8a3
2' .418.606
',1.113.373
:: .S5a.B88
:2.163462
;2.7S:.394
·O.~52.790
1HS9.626
lU7<:.351
<2.505.044
i i .~6S 652
1'.72:.170
~2 6:2 007
~2.SIK916
=:=========~====;==================================;====================================
I
Ta:l:e
='''1:::1
s.. :::sequent adjustments
'
2,507,200 II
2,784,000 II
3.680.000 I I
2.275,200 I I
2,529,000 II
3.240,000 I I
3,497,600 I I
1,724.800 II
3,163,200 II
2,809,575 II
3,580,800 II
2,670,000 II
4,755.200 II
3,941,760 II
4,304,400 II
3.2Bl,600 II
3,740,375 II
3,313,600 II
3,338,880 II
1,671,040 r I
1,161,600 II
352.256 II
279,200 r I
3,200 II
5,600 II
44,000 II
011
011
011
011
011
36,000
65,600
20.800
115.200
48.200
24.000
52,800
19.200
9,600
52,800
0
173.600
48.000
23,360
112,400
66,400
41.600
33,600
4.960
4,800
137.600
47,B08
320,800
169.600
011
011
011
3,995,200 II
2,549,950 II
2,056,600 II
21,760 II
4,065,600 II
1,457,280 II
2.342,400 II
2,096,000 II
807,200 II
186,400 II
690,320 II
6.854,400 I I
5,900,800 II
5,252,800 I
5.647,200 I
13,644,800 I
2.055,680 I
4.350,400 I
6,405,2BO I
15.296,000 I
1,356,800 I
6.509,440 I
6.885,440 I
25,727,700 I
1,866,400 I
7,824,000 I
4,534,400 I I
2,597,120 II
7.414,BOO II
6,537,600 II
403.200 II
105.900 II
54,400 II
BOO II
0
0
0
0
7,600
376,000
0
20,000
875,350
456,320
448.000
47,200
296,000
120,480
847,680
449.600
660,800
759,400
572,800
254,720
168,000
9B,S80
547,040
132,800
26,240
1.822.400
82,800
277,600
70,400
0
377,568
191,200
324.800
69.120
419,000
II
12.240.936
223,14B.355
800
1,600
0
0
0
0
0
0
0
0
====================== =====================
Note On :~e ~:~ workday cf
:-:-::,.:'tn
VI will be avanabl<;; a,,:,=~ 3 ~: =::l <;;2s:e~n tl::!e:::1 tne CO::lmerCe Department's
Eccnom = "u,:e:m Board (=:= Ine te.epnone number for me-!; In'o~i:::" a~o,-,t ::5;s ;2:2\ tB2-1925 The balances
"' thiS ~a~ e a·e subJe:t tc a .. ::
Reconst~u:e:l
This Month #1
II
o II
#1 Effec!lve ~~ai 1, 1987, se::.::'":"'~~s held :n s~ripped form were eii'i:>:e fo~ !'"S':;::::I:1s:."tution to tne~:" U:1s::ippe: ferm.
e:::
II
Ii
II
NEWS
1500 PENNSYLVANIA AV£Nl.f£. N.W.· WASHINGTO~. D.C.· 20220· (2021622-2960
EMBARGOED UNTIL 2:30 P.M_
January ?, 1.997
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately S23,OOO million, to be issued January 16,
1997. This offering will result in a paydown for the Treasury of
about $4,575 -million, as the maturing weekly bills are outstanding
in the amount of $27,568 million.
Federal Reserve Banks hold $7,387 million of the maturing
bills for their own accounLS, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $4,182 million as agents for
foreign and international monetary authorities, which may be
~efunded within the offerlng amount at the weighted average
discount rate of accepted competitive tenders. Additional amounts
may be issued for such accounts if the aggregate amount of new
bids exceeds the aggre9a~e amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
DebL, Washington, D. c. Th~s offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356, as amended) for the sale and
issue by the Treasury to the public of marketable Treasury bills,
notes, and bonds.
Details about each ot the new securities are given
attached offering highlighcs.
000
Att.achment
RR-1441
~n
the
BIClBLlaBTS OF 'l"R.&A8tJRY orroINOs or nlltLY BXLLS
TO BR ISSUED JAHUARY 16, 1997
January 7, 1997
Oft.rtDq AmouAt . . . . .
DI.griRtign of Offering_
Term and type of security .
COSIP number
Auction date . . . . . .
I •• ue date
. . . .
Maturi ty date . . . . . . . . . . .
Original issue date . .
CUrr~tly
outstanding
Minimum bid amount
Multiples .
.
.
.
.
. .
$11,500 million
$11,500 million
91-day bill
~12794 4F 8
January 13, 1997
January 16, 1997
April 17, 1997
October 17, 1996
$13,059 million
$10,000
$ 1,000
182-day bill
912794 SE 0
January 13, 1997
January 16, 1997
July 17, 1997
January 16, 1997
$10,000
$ 1,000
Abe followiDg rul, • • pply to all '99urlti •• mentioned abOV, 1
Subm1saion of Bids:
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award . . . . .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders . . .
Payment Terms
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 ~m of the total bid
amount, at all discount rate., and the net
long position is $2 billion or greater.
(3) Net long position must be determined aa of
one half-hour prior to the closing time for
receipt of competitive tenders.
35\ of public offering
35t of public offering
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 • funda
account at a Federal Reserve Bank on issue date
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NEWS
'IREASURY
omeE OF PUBUCAFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASIUNGTON, D.C•• 20220. (202) 621-1960
TESTIMONY OF DONALD C. LUBICK,
ACTING ASSISTANT SECRETARY (TAX POLICY),
DEPARTMENT OF THE TREASURY,
BEFORE THE
NATIONAL COMMISSION ON RESTRUCTURING
THE INTERNAL REVENUE SERVICE
January 8, 1997
Chairman Kerrey, Chairman Portman, and Members of the Commission:
I am pleased to appear before you today in my role as Acting Assistant Secretary for Tax
Policy, in response to the Commission's request to discuss tax policy concerns related to the use
of the Internal Revenue Service ("IRS") for what have been described as "non-tax functions,"
As some of you may know, until last June I had been based in Europe for almost two
years. as Director of Treasury's Tax Advisory Program, advising the countries of East em Europe
and the former Soviet Union as they institute tax systems as part of the transition to a market
economy and a free society, This experience has left me with a heightened appreciation for the
effectiveness of our own system of taxation. Our system embodies some fundamental features -such as periodic self-reporting and self-assessment, withholding, information reporting, and
collections strictly in accordance with statutory and constitutional protections -- that many nations
are trying to copy. Along with A.mt:ricans' innate respect for democratic values and the rule of
law, this system has given us a high level of tax compliance at low cost. While we must continue
to improve efficiency and maintain correct and fair treatment of taxpayers, we should be
extremely careful not to unfairly discredit the efforts of the many dedicated public servants who
have created an independent, non-partisan mechanism to enforce our revenue laws.
My testimony today will address what the Commission's staffhas referred to as "non-tax
functions" in the briefing materials provided in connection with my invitation to testify. I will first
discuss the generic topic of using the IRS to perform so-called non-tax functions, and then
comment specifically on the provisions mentioned in your briefing materials. As the focus of
today's hearing is to consider certain aspects of the IRS's role in administering the taxes imposed
under current law, I will not address how the IRS's role might be different or similar under
alternative tax systems. As to our current tax system, there is always room for improvement.
Indeed, this Administration remains committed to working with Congress to simplify and improve
the federal tax system where feasible, as consistent with policy goals and budgetary and related
constraints.
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So°ocaJled "non-tax functions"
There can be little doubt that the most important function of the Internal Revenue Service
(IRS), like that of any revenue system, is the collection of the revenue prescribed by the federal
tax laws. That revenue, in turn, enables the federal government to fmance the myriad of
responsibilities which the American people, through their elected representatives, have delegated
to Washington. As our federal tax system relies so heavily on self. assessment and voluntary
compliance, the collection of revenue by the IRS must be handled both efficiently and fairly. The
IRS's revenue-collection responsibilities are explicit in the Internal Revenue Code (Code). For
example, section 7801 of the Code provides that, "[e]xcept as otherwise expressly provided by
law, the administration and enforcement of this title shall be performed by or under the
supervision of the Secretary of the Treasury." Section 7802 establishes the office of
Commissioner oflnternal Revenue. and section 7803 authorizes the Secretary to employ such
other persons "as the Secretary deems proper for the administration and enforcement of the
internal revenue laws." In fact. administration of most of the Internal Revenue Code has been
delegated to the IRS, with only a few subject areas (notably excise taxes on alcohol, tobacco, and
firearms) delegated to other agencies.
The central revenue-collection responsibility of the IRS, and the guiding principles
governing how those responsibilities are to be carried out, are summarized in the IRS's Mission
Statement I know that you have all reviewed the Service's Mission Statement, but I think it
nonetheless bears repeating:
The purpose of the Internal Revenue Service is to collect the proper
amount of tax revenue at the least cost; serve the public by continually improving
the Quality of our products and services; and perfonn in a manner warranting the
highest degree of public confidence in OUf integrity, efficiency and fairness.
Like any mission statement, this one describes the ultimate goals that the IRS is constantly
striving for, And of course the IR S, like any institution. sometimes falls short of these aspirations.
But the Mission Statement captures what the public should expect of the IRS.
Contrary to the rhetoric of some of its critics. the IRS does not aim to extract the
maximum amount of money it can from every member of an unwilling public; rather, its job is to
coneet the correct amount of tax that has been imposed by law, whether that amount is more or
less than the amount a taxpayer has paid in any particular case. Stating that the lRS collects only
the "proper amount" of tax revenue, however, does not answer all the questions regarding what
that "proper amount" of tax revenue is. The answers to those questions depend greatly on
substantive tax law. not merely the administrative structure of the tax-collecting agency or the
procedural methods by which the tax is collected.
The Code is under constant scrutiny and is frequent1y amended, in large part because it is
used to implement social policies or goa1s other than those that would be prescribed solely by
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revenue raising objectives. The various taxes imposed under the Code .- income taxes, excise
taxes, employment taxes, estate and gift taxes, and social insurance taxes _. also serve various
policy goals, such as encouraging or discouraging certain activities. supporting specific programs
with earmarked funds. or matching the cost of a particular government function with its
anticipated beneficiary.
There is nothing inherently wrong with including incentives and disincentives through the
tax laws, and indeed it seems to be inevitable under all tax s~ whether based on income,
wealth, or consumption. Something similar is the result in nearly every tax system I have worked
with in Europe and Asia.
It is important, however, to recognize what is being done and to keep the system ftom
breaking down under such matters as unanticipated revenue drains, the complexity of rules that
taxpayers must comply with and the IRS administer, or simply the frequency and number of
changes to the law. In the 19608. Stanley Surrey and others here in the United States developed
the "tax expenditure" concept _. looking at tax incentives as if they were expenditures of
appropriated funds -- to illustrate the extent to which the Internal Revenue Code deviates from
the revenue consequences of a pure (u. Haig-Simons) income tax model. Estimated tax
expenditure 'Cbudgets" are now prepared annually by the Joint Committee on Taxation and the
Treasury Department to remind us of the extent to which such provisions are built into the Code
and the cost of those specific policy decisions.
In a broad sense. any tax expenditure might be considered a "non-tax function," since it
serves other social goals and not exclusively revenue raising goals. On the other hand, once a
conscious decision is made that the best way to implement a desired policy is to use elements of
the tax system (such as exemptions. deductions, or credits). then the administration of the
particular provision becomes a "tax function" by definition. A question that policy makers must
consider, in the context of the entire federal financial system (including for example the Budget
Enforcement Act), is the comparable efficiency and fairness of using the tax system to implement
the desired social or economic policy.
Recall that the IRS is charged with the administration and enforcement oftbe internal
revenue laws. Once a provision is added to the Code. the IRS must determine the proper amount
of tax due taking that provision (and its exemptions, deductions, or credits) into consideration.
That. of course. is a necessary component of the function of the revenue administration in any
government.
I mentioned that among the important factors to be weighed in deciding whether to use
the tax system to implement particular policy goals are the administrative burdens, for both the
IRS and taxpayers, of targeted, and sometimes complex, changes to the Code. Before I tum to
some specific provisions, let me suggest a few issues that should be considered, questions that we
in the TreasuJY Department's Office of Tax Policy take into account in evaluating the
administrative impact of tax proposals. Some tax expenditure functions are more resource-3-
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intensive to administer than others, and in an era of belt-tightening the IRS should not be given
additional responsibilities of this nature unless Congress is willing to support them with
appropriations for the necessary personnel and equipment. On the other hand, policy goals that
do not demand large additional resources can sometimes be implemented efficiently in the tax
system, since the IRS already transacts business with the vast majority of Americans annually.
A second factor that should always be considered is the impact of a program on taxpayers
and their relationship with the IRS. A provision that is too complex for taxpayers to comply with,
or that makes the filing process too burdensome, is likely not only to lead to lost (or at least
improper) amounts of revenue. It may also jeopardize the confidence taxpayers have in the IRS
and the voluntary self-assessment system on which we rely.
Thus in every case there must be a "cost v. policy benefit" analysis: Can this program be
administered most efficiently through the Internal Revenue Code and by the IRS? Or is there
another agency (or non-tax method) better suited to do it? Consideration needs to be given to
whether tax provisions are likely to be more or less- effective than alternative mechanisms (~,
spending programs) for achieving the federal policy objectives. The Administration is developing
a framework fOT evaluating the economic and other effects of tax expenditures as part of its
efforts under the Government Performance and Results Act, and we expect to report to Congress
on this work later this year. This new framework could lead to an even more rigorous assessment
of the effectiveness of policies implemented through the tax system.
But for today's hearing it is sufficient to note that implementing policies that are driven by
more than just revenue considerations through the tax laws requires a balancing between targeting
and administrability. One of the typical arguments in favor of using the tax system is the
understanding that the behavioral response to the incentive or disincentive will be influenced
relatively more by market forces without being impeded by bureaucratic processes. On the other
hand, however, to the extent a tax provision is narrowly targeted (whether for budgetary reasons
or simply to encourage a particular type of activity by particular taxpayers), the IRS often faces
difficult resource-allocation issues with respect to monitoring compliance with the targeting
criteria. In general, administrative concerns would dictate that more narrowly targeted tax
incentives be reserved for promoting the most important non-revenue goals.
I would also like to mention here the role that the Treasury Department's Office of Tax
Policy plays in this context. This office has the primary responsibility within the Administration
for evaluating proposed amendments to the Code. The vast majority of the analysis within the
office is performed by non-partisan- economists and lawyers. who take into account administrative
as wen as efficiency, equity, budgetary, and other considerations. In analyzing proposals. we
devote substantial time and energy to potential administrative issues that may be faced by
taxpayers or the IRS. We often work closely with the IRS in identifYing potential problems, and
consult with the tax-writing committees to resolve them before the proposals are enacted. We
also~ctivety consider on an ongoing basis ways in which the tax laws can be simplified.- For
example, we expect to p~opose later this year a number of measures that in the aggregate would
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provide substantial sta.tutory and administrative simplification, for taxpayers as well as the [RS.
Thus, our goals in this area are similar to those of this Commission, and we look forward to
working with and assisting the Commission in its efforts.
Specific areas described as "non-tax functions"
I will turn now to discussing the particular issues mentioned in your briefing materials.
Some of these functions and programs are typical of the many societal aims, not directly related to
revenue collection, that successive Congresses and Administrations have attempted to implement
through either specific tax incentives or other operational features of our tax system. However,
as discussed below, most of these programs as implemented are properly viewed as tax functions.
Employee Plans and Exempt Organizations, A prime example involves the Employee
Plans and Exempt Organizations ("EP\EO") function within the IRS. This country has long
determined that retirement savings and charitable activities should be fostered through substantial
tax incentives. OUT goals are to encourage the development of a broad, privately funded
retirement system and private charitable programs for the common good. In the retirement
context, for example. hundreds of thousands of tax-qualified plans, including traditional pension,
401 (k), Keogh, and other plans. cover about 50 million participants and hold trillions of dollars in
assets. However, we have also determined that these valuable tax benefits should be made
available only under specified conditions. such as the widespread availability to rank and file
workers of pension benefits or the actual performance of charitable activities, without special
benefits to managers and donors. It is therefore essential that the IRS protect against misuse of
the foregone revenue, as well as implement the social purposes of the corresponding tax benefits,
by actively enforcing the rules and limitations under which the tax benefits are granted. While only
limited additional revenue is usually generated by enforcement of this part of the tax code, failure
to enforce the conditions of favored tax treatment would clearly lead to extensive abuse of the
valuable benefits Congress has provided, a result contrary to the law and unfair to compliant
taxpayers,
This discussion of the EPIEO function highlights a more general principle: in an ideal,
perfectly compliant world, there arguably would be no need for a tax administrator, because
everyone would comply with the law, always paying the correct amount of tax due without any
controversy or disagreement whatsoever. Needless to say, dris will never come true in the field of
taxation any more than in any other field of human endeavor. Rather, in the EPIEO area, success
is indicated by lower amounts of noncompliance instead of simply by additional amounts of
revenue, Further, IRS presence in this area (as well as the involvement of the Labor Department
and the Pension Benefit Guaranty Corporation (PBGC)) improves compliance and deters
noncompliance. In this connection, I would note that Congress and the Administration recently
worked together to enact legislation providing for "intermediate sanctions" as part of the
Taxpayer Bill of Rights 2, Pub. L. No. 104·168, 110 Stat. 1452, 1475 (1996). By authorizing
additional remedies better suited to minor offenses by non-compliant exempt organizations, these
provisions should most importantly improve compliance and incidentally provide some revenue in
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this area.
Thus, even though employee plans and exempt organizations are generally not liable for
tax, the IRS must nevertheless allocate appropriate resources to ensure compliance with the law's
specific conditions for the grant of exemption. Enforcement of the Code is a tax function,
whether the particular Code provisions relate to collection of, or exemption from, taxes.
Earned Income Tax Credit. Let me now discuss another program which the
Commission's staff has questioned as possibly a "non-tax function," the earned income tax credit
(EITC). The Administration is strongly committed to the EITe and to its goals: to make work
pay and to lift workers out of poverty in the most efficient and administrable manner possible.
The EITC achieves these goals of making work pay and relieving poverty by reducing the tax
liabilities oflow and moderate-income families. The EITC thus provides an adjustment to tax
liability to reflect taxpayers' ability to pay, in much the same manner as the dependency exemption
reduces the tax liabilities of taxpayers with fami1y responsibilities. Thus, it is incorrect to
characterize the EITe as a "non-tax function" of the IRS.
Perhaps the question in this regard relates to the refundable nature of the EITe and the
budgeting conventions applied with respect to it. Under conventionaJbudget accounting
practices, the EITe is shown in the budget as a reduction in taxes only to the extent to which it
offsets a taxpayer's liability for taxes paid through the income tax system. This is because the
EITe is claimed through the income tax system and because, as a practical matter, the credit can
be most easily measured as an offset agairist the taxes paid through that system. Thus, under
these conventions. about one-fifth ofEITC costs in FY 1997 are shown in the budget as a
reduction in federal income taxes and other taxes paid through the income tax system, including
self-employment taxes (SECA).
Because the EITe was created to offset the overall tax burden oflow and moderate·
income families. however, it should not simply be measured as an offset to income and SECA
taxes. Nearly three-quarters ofEITC costs offset the combined individual income tax and
employee and employer portions of socia) security tax liabilities attributable to recipients' income.
Even this measure does not take into account other federal taxes which are offset by the EITC.
During the consideration of both OBRA 1990 and OBRA 1993, the EITC expansions were also
viewed as a way of offsetting the burden of increases in excise taxes, including the increases in the
gasoline tax. Thus, notwithstanding the fact that it is defined as a refundable income tax credit,
the EITe continues to serve its role of relieving recipients' overall tax burden.
The Commission staff has also posed the question of whether the EITe indicates the need
to establish new procedures to ensure that administrability is considered during the legislative
process. This Administration, like previous ones, has given significant weight to the goals of
simplicity and verification with respect to the EIrC. A detailed description of some of those
efforts is set forth in Appendix. A to this testimony. As a consequence, compliance bas improved,
while the other goals of the EITe have been met. It is not clear whether explicit procedural
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guidelines could further elevate EITe administrative concerns without upsetting this balance.
Federal-State Cooperation and Information Sharing. The Commission staff's briefing
materials also mentioned as an example of a "non-tax function" the IRS's information-sharing
efforts with State tax administrators, which are intended to facilitate and coordinate tax filing,
examination, and certain collections practices with them. The Administration has previously
proposed and supported additional Federal-State cooperative efforts - for example, a version
contained in H.R. 3419 in the l03rd Congress -- and we will continue to work with Congress to
ena.ct additional Federal-State legislation. (Please note that a memorandum in your briefing
materials, dated April 11, 1995. from David Mader of the IRS to my predecessor Les Samuels,
reflects only an earlier draft of this legislation and not a final Administration proposal.)
As with pensions, exempt organizations. and the EITe, I believe that it is inaccurate to
describe the Federal-State program as a "non-tax function." Rather, tax administration is the
primary responsibility of both the IRS and the State tax agencies with whom information is shared
and enforcement is coordinated. We also believe that enhancing further joint cooperative efforts
is in everyone's interest -- the States, the IRS. and the taxpaying public. For example, taxpayers
may one day be able to electronically file a single return, with only one agency, for both State and
federal income tax purposes. This will potentially reduce paperwork burdens on all three parties,
so it's not just a "win-win" situation, it's a "win-win-win." We firmlybeJieve that IRS expansion
of the Federal-State cooperative program is appropriate, within certain constraints that reflect
long· standing policies regarding the collection offederal income taxes and tax information
sharing.
Turning to the specific issue of information sharing, disclosure of returns and return
information under section 6103(d) is currently pennitted, and should continue to be permitted,
only if the disclosure is for the purpose of "the administration of [StateJ tax laws." It is true that
in its current form section 6103 presents a potential barrier to single return filing as described
above. That is why a technical amendment relating to common data elements should be made to
section 6103(d), as the IRS has suggested. The information at issue involves common data
elements that are essential to the determination of tax liability for both federal and State purposes,
and sharing them would thus be a tax administration function. The amendment is necessary to
permit subsequent use of the common data by the State for non-tax purposes under its own laws,
the same as if it had collected the information on a State return directly from the taxpayer.
Although the goal offurther Federal-State cooperation may require several other, similarly
technical changes to existing Internal Revenue Code provisions, I want to comment further on
section 6103. as I understand that it has been the subject Of some previous testimony before this
Commission. The Treasury Department firmly supports the policy underlying section 6103.
Taxpayers submit their returns and other tax information with the expectation that they will
remain confidential, and that expectation is essential to maintaining confidence in our selfassessment system. Further. that expectation of confidentiality should be respected, and taxpayer
information should be disclosed only under the most compelling circumstances. This policy is
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reflected in section 6103, which as you know states a general rule of non-disclosure and then goes
on to list the specific situations in which limited disclosure is considered acceptable.
Notwithstanding this well-established general policy, Treasury and the IRS, as well as
Congress, are frequently faced with additional requests for the use of tax return information.
Decisions whether to support additional exceptions to this confidentiality policy should be made
only after carefully balancing the general policy of confidentiality against criteria designed to
demonstrate the necessity for any exception. For example, the requested information must be
shown to be relevant to the program for which it is to be disclosed; the request must be narrowly
tailored to the information actually necessary; the information must be the best data that is
available; the disclosure must not involve significant resource demands on the IRS; the disclosure
must not be expected to have an adverse impact on tax compliance; and the information must
continue to be treated confidentially within the agency to which it is disclosed.
We are always open to discussing the precise contours of any particular disclosure
exception, within the parameters discussed above. Clearly. some are more critical than others.
and some changes may be appropriate. But I would urge this Commission not to overturn the
general non-disclosure policy embodied in section 6103 of the Code or to recommend wholesale
changes to that provision.
Refund Offset. Another program mentioned by the Commission's staff. and which also
involves policy questions concerning information disclosure. is the use of "refund offset" to .
collect other, non-tax debts. This program does indeed implicate the central question of what a
"tax function" is,
Often, due to overwithholding or higher estimated tax payments than necessary, taxpayers
find that they have overpaid their federal income taxes. Generally, Congress has given the lRS
discretionary authority to apply any overpayment to other federal taxes due or to refund it to the
taxpayer. See generally Corle § 6402(a). For the vast majority of taxpayers due a refund) the
matter ends when they receive a refund check for the full amount they overpaid and expected to
get back.
Congress. however. has also decided that certain kinds of debts are important enough that
overpayments or refunds may be "offset/' or reduced, in order to use the money to pay the other
outstanding debt. (Indeed, the IRS's authority to apply a refund for one tax year against another
federal tax due for another year is just a variation on this general theme, limited to the field of tax
debts.) The categories of non-tax debts that can be coUected include delinquent child support
payments and other "past-due legaUy enforceable" debts to federal agencies, the most notable of
which are probably delinquent studentloans. See generally Code §§ 6402(c), (d). There are
certain technical requirements that must be met before a delinquent debt will be offset against a
refund, mostly intended to guarantee that the debtor has been accorded due process, and the
Treasury has issued regulations governing these requirements. See generally 31 U.S.C. § 3720A;
Treas, Regs. §§ 301.6402·5 and -6.
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Your briefing materials contain a Tax Notes article by George Guttman, describing how
the refund offset program has worked in the past. and also some statistics which illustrate that the
refund offset program has been very effectiv~ in collecting many qualified non-tax debts. See G.
Guttman, "Using Refund Offsets and the IRS to Collect Nontax Debts,'· Tax Notes (May 20,
1996), On the other hand, as Mr. Guttman's article mentions, there is some evidence (in studies
separately performed by IRS and GAO) that offsetting refunds may have an adverse impact on the
rate of subsequent-year return filings by the debtors whose refunds are offset. The amounts
collected through refund offset outweigh the revenue potentially lost by subsequent noncompliance. Moreover, some of the lost revenue is recaptured through standard 1RS enforcement
efforts, and some is voluntarily paid late by the taxpayers. Although manageable, this compliance
effect indicates the need for examining the balance between tax policy and non-tax policy goals
whenever we contemplate giving the IRS broader collection functions.
The refund offset program is currently undergoing some significant revisions in
connection with the Clinton Administration's ongoing efforts to reinvent and streamline
Government. Within the Treasury Department, the Financial Management Service ("FMS") is
responsible for actually making all sorts of federal payments, including disability and pension
payments, payments on certain federal contracts, and even IRS refunds. In effect. when such a
federal payment is approved, FMS is the agency that "cuts the check" to the recipient. FMS also
manages the Treasury Offset Program ("TOP"), under which many non-tax federal payments are
subject to being intercepted and offset against other, non-tax federal debts, See generally 31
U.S.C, § 3716, It makes sense to coordinate the tax and non-tax offset programs, and the
Administration proposed just that in its Debt Collection Initiative, which became the Debt
Collection Improvement Act of 1996, Pub. L. No. 104-134.
The Debt Collection Improvement Act gives Treasury's disbursing officials (~, FMS)
the authority to administer the tax refund offset program, and recently the IRS and FMS entered
an Agreement to merge the refund offset program, currently managed by the IRS, with the
Treasury Offset Program, administered by FMS. A copy of this Agreement is in your briefing
materials. In the future, FMS will coordinate with other agencies and in effect keep a master list
of the delinquent debts owed to them (the "National Interactive Delinquent Debtor Database").
This database will be cross-checked against many types of federal payments that FMS administers,
including (after January, 1998) tax refunds payable, and payments owed to delinquent debtors will
be intercepted and offset to reduce their debts. After the IRS performs its own offsets to satisfy
federal taxes, the IRS will certify refund payments to FMS, and FMS will perform offsets of other
debts. In short, it is anticipated that the IRS wit] not be performing the tota1 refund offset
function in the future.
Inevitably, some disclosure issues under section 6103 of the Code arise in merging the
offset functions, and you will see that several provisions of the IRS-FMS Agreement deal with
these issues. While the Code and regulations permit the use of contractors in discrete and
carefully defined circumstances involving tax administration., no such authority exists to disclose
tax information generally to contractors for non-tax purposes. One particularly sensitive issue,
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which is mentioned in your briefing materials. is the provision of refund offset information. or
other tax return information. to private debt collection agencies, which some federal non·tax
agencies retain to manage and collect their delinquent debts. We have strongly opposed
providing tax return information (including even the fact and amount of a refUnd offset) to private
debt collectors. as it is fundamentally inconsistent with the confidentiality policy underlying
section 6103 and is especially subject to potential abuses. This was a concern in consolidating
refund offset with other FMS offset programs (although the briefing materials are erroneous in
implying that this concern was the sole guo of "insourcing" the re1bnd offset function with
FMS).
This issue has been resolved to the satisfaction of all agencies in a manner that preserves
the integrity of taxpayer return information under section 6103 and still manages to satistY aU
parties with a need for such information. Far from illustrating a problem with "non-tax functions"
or infonnation sharing under the Code. this process demonstrates that reasonable people can
accommodate the privacy policy inherent in section 6103 without unduly hampering efficient
government.
Refund offset to collect non-tax debts may represent the outer boundary of what is
logically viewed as a "tax function." Certainly the Treasury bas tbe taxpayer's money in band
only because of the tax system •• usually overwithholding or excess estimated tax payments, but
perhaps because an IRS examination found the taxpayer to have overpaid. Likewise, refunding
the money to the taxpayer would be considered by most people to be a "tax function," as '
presumably would offsettina a refund to satisfy another federa11ax: debt. Offsetting the refund to
collect a State tax debt (as some Federal-State proposals suggest) is more remote from the IRS's
revenue collection function. but it is still "tax administration." albeit not federal tax administration.
Conecting non-tax federal debts through refund offset is arguably not a ''tax function~" it is
unclear, however. whether the distincdon between a "tax function" and a ''non-tax function" is
particularly meaningful in this context, particularly after the programs are consolidated in a nontax, fiscal services agency (FMS). In this instance, at least, collecting both tax and non-tax debts
through the refund offset system appears to be an efficient use of government resources.
Low Income Housing Tax Credit. The Commission staff has also descnDed the low
income housing tax credit (LIHTC) as an example ofa so-called "non-taxl! function of the IllS.
The Administration is strongly committed to the objectives of the LIHTC. which are to make
decent and safe housing available to low and moderate income individuals and families and to
achieve this objective through a federalJState partnership. This Administration supported the
permanent extension of the LIHTC in 1993.
Although the credit mechanism is new, the use of the tax incentives for accomplishing
housing goals is not. Congress determined in 1986 that prior tax incentives for encouraging low
income housing were poorly targeted. and in response' enacted a very detailed statute to specify
requirements with respect to the types of projects, the income of tenants, the role ofthe State and
local housing agencies in administering the provision, and the responsibilities of the IRS. Each of
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these details relates to the amount of credit that can properly be taken by a taxpayer, and thus
implicates the IRS's responsibility to see that the proper amount of revenue is collected,
In this context, the LIHTC may be viewed as an example of where decision makers
detennined that the importance of the relevant social goals warranted a narrowly targeted
incentive, and accordingly one that requires greater resources to administer. For example, the
State or local housing agency files a form with the IRS identifying a specific building and the
amount of credit for which that project is eligible. Because these projects are typically syndicated
to many limited partners, IRS monitoring of the proper credit amount taken in anyone year
requires a check of the partners' individual tax, In the past, the IRS did not make monitoring of
this temporary credit a priority in allocating its limited resources available for matching
information returns to tax returns. Now that the credit is permanent, the IRS has taken steps to
assure compliance with this aspect of the LIHTC.
I would like to point out that many of what might be characterized as "non-taxI! functions
with respect to the LIHTC are delegated by statute to State and local partners. The State housing
agencies, and in some cases local housing agencies, playa vital role in establishing priorities with
respect to which projects within their jurisdiction will receive the credit, in allocating the credit
and filing allocation information with the IRS, and in monitoring compliance with the detailed
rules in the tax code. For example, the State allocating agency is given the responsibility of
monitoring whether the building receiving a credit meets certain continuing requirements (such as
the income of tenants). In the event the State monitoring process turns up noncompliance, the
State is required to notify the taxpayer of the violation and gjve the taxpayer a period in which to
cure the problem. lfthe taxpayer does not cure the problem, the State must notify the taxpayer
and the IRS that the building no longer qualifies for the full amount of the credit. .No other
federal tax code provision establishes this unique relationship between the IRS and a State or local
agency, and the IRS is continuing to work through the issues that have arisen from this early
effort by Congress to "devolve" federal responsibilities to the States,
Organ and Tissue Donation. The Commission staff's briefing materials refer to one final
provision, a provision sponsored by Senator Dorgan and included in the Health Insurance
Portability and Accountability Act of 1996, relating to organ donation information. Of all the
programs I have discussed so far, this is the one which is probably the least related to taxes. But
it again illustrates the general principle that our tax system is often the most convenient vehicle for
implementing non-tax: social policies.
When the Treasury Department sends taxpayers income tax refunds by mail. it
occasionally inserts additional material into the envelope besides just the refund check. Previously
there were no statutory provisions governing the content of such additional materia1, a1though
FMS, which actually mails the checks out, has heretofore insisted that inserts be directly related to
the information on the refund checks or serve as a means of generating additional federal revenue.
The organ donor card provision, however, requires Treasury to include a different kind of insert
with income tax refund checks that are mailed during the 1997 filing season. The document must
- II -
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encourage organ donation. include a detachable organ donor card, and urge recipients to sign the
card, to discuss organ donation with their family members, and to encourage their family members
to request or authorize organ donation.
The inserts provide an easy way to reach millions of taxpayers with this message. And this
leads to my final point. which is that the tax system is often used by decision-makers for non-tax
goals because it is indeed the best method of implementing them. A donor card document that
was directly mailed to tens of millions of Americans would probably be treated as junk mail,
perhaps discarded before even being opened, and would undoubtedly cost millions of dollars. But
most people who are due an income tax refund will be watching for their check from Uncle Sam
and will at least open the envelope, even if they may not read the insert material carefuUy. So in
this case, at least, using one minor aspect of the tax system for a non-tax purpose 1S probably an
efficient. low-cost method of accomplishing the desired policy goal. We note that no
appropriation was provided for the cost of preparing the organ donor inserts, although as your
briefing papers note the expense is not a particularly Jarge one.
Conclusion
In our view, the use of the term "non~tax function" is misleading when considering the
administrative responsibilities of the IRS. Simply put, the IRS is charged with administering
federal tax laws, and those laws often reflect a variety of social goals that extend beyond
generating the revenues sufficient to fund governmental activities. If given appropriate resources,
we believe the IRS is capable of administratively handling its responsibilities. Yet, the ms' 5
performance in this regard can only be enhanced when substantive and administrative simplicity is
accorded due weight in evaluating potential changes in the tax laws. Both Congress and the
Administration should work toward greater simplification and, in those cases where simplicity
must be balanced with other considerations, the IRS's administrative responsibilities should be
anticipated and acknowledged appropriately.
###
(Appendix A attached)
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APPENDIX A
As the BITC has been expanded during the past decade to improve its effectiveness as a
work incentive and anti-poverty tool, the Treasury Department has recognized tbe need to ensure
that BITe eligibility criteria are simple and verifiable. If eligibility rules are simpl~ taxpayers can
more aoourate1y claim the BITe and avoid costly errors. With simple and verifiable eligibility
rules, the IRS can also better ensure that the EITe is paid only to those taxpayers eligibJe for the
credit.
Congress and the Bush Administration recognized the importance of simplicity and
verification during the consideration ofOBRA 1990. At that time, the IRS released data from the
1985 Taxpayer Compliance Measurement Program (TCMP), showing that 39 percent ofElTC
claims exceeded the amounts for which taxpayers were eligible. The TeMP data suggested that
EITC erron were linked to complicated and unverifiable support and household maintenance
tests. These rules were DIl difficult for taxpayers to understand because they did not conform
well to most people's notions of caring for a child. Moreover, the IRS could not enforce these
rules because infonnation was not readily available on taxpayersl expenditures in support of their
children or household. OBRA 1990 thus replaced the support and household maintenance rules
for BITe eligibility with simpler age, residency, and relationship tests. lowered the age
requirement for reporting a taxpayer identification number for EITC qualifying children. and
created a Schedule ErC. These provisions were a first step toward reducing EITe error rates.
This Administration, with the support of Congress. has taken additional legislative and
administrative actions to further improve IRS's ability to verifY EITe e1il1bUity. First, Congress
has enacted stricter reporting requirements proposed by the Clinton Administration, and the lRS
has tightened enforcement of these requirements. Since 1995, the IRS has transcribed the social
security numbers of III EITe qualifying children and most dependents, and it has intensified its
examination of returns with missing social security numbers. The Personal Responsibility and
Work Opportunity Reconciliation Act of 1996 (the welfare reform act) contains a Clinton
Administration proposal which will enable the IRS to use the simpler and more cost-efficient
mathematical error procedures to deny both the EITe and dependent exemptions to taxpayers
who fail to provide valid social security numbers. As a consequence of the Uruguay Round
Agreement Act of 1994, taxpayers will also be required to provide social security numbers for all
dependents and EITC qUalifYing children without regard to their age on their 1997 tax returns.
Other reporting requirements have also been strengthened. The Uruguay Round requires
the Department of Defense to report to both the IRS and military personnel nontaxable earned
income used in the computation of the EITe. The 1996 welfare reform act also authorizes the
IRS to treat the omission of self..employment taxes as a mathematical error. if the taxpayer claims
eligibility for the BITe on the basis of self-employment income.
The IRS, with the support of Treasury and Congress~ has also intensified sorutinyof
"questionable" BITe claims and preparers. For the last several years, the IRS has conducted
studies of BITe compUance and bas ·used this information to better identify questionable retums.
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During the 1995 filing season, the IRS slowed EITe refunds for over four million taxpayers who
matched profiles of noncompliant taxpayers. In addition. the IRS increased scrutiny of electronic
return originators (EROs), instituted fingerprint and credit checks on certain new ERa applicants.
and eliminated the direct deposit indicator.
Finally. the Administration has consistently opposed proposals which would add
significant complexity to the EITC and has striven to ensure that EITe reforms can be
administered. In 1993, the Administration proposed the repeal of two supplemental credits (for
children under the age of one and for the purchase of health insurance for qualifying children).
arguing that the IRS could not enforce the eligibility criteria for them. and these supplemental
credits were subsequently repealed. In 1995. the Administration successfully opposed, on
admirustrative grounds. Congressional proposals to base EITe eligibility on child support
payments and hours of work. The Administration's proposal to deny the EITC to undocumented
workers, included in the welfare reform act, was designed to be based on information available to
the IRS through social security records.
In combination, it is likely that legislative and administrative changes have been successful
at significantly reducing the EITC error rates. A pilot IRS study ofEITC compliance, drawn
from a sample of over 1,000 taxpayers who filed electronically during a two-week period in
January 1994, found that about 26 percent of every doUar claimed in the EITC was in excess of
the actual amount owed to the taxpayer. When this estimate is adjusted for certain IRS
enforcement activities and the repeal of the complicated supplemental credits, the net error rate
declines to 19 percent. The remaining EITC noncompliance problems present difficult issues. but
they are not inherently different from the administrative issues associated with other tax
provisions (such as dependency exemptions). Moreover, other tax provisions -- such as income
reporting by sole proprietors and independent contractors -- continue to constitute a much larger
share of the total tax gap than the EITC.
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
January 8, 1997
Monthly Release of U.S. Reserve Assets
The Treasury Department today released U.S. reserve assets data for the month of
December 1996.
As indicated in this table, U.S. reserve assets amounted to $75,090 million at the end
of December 1996, down from $75,444 million in November 1996.
End
of
Month
Total
Reserve
Assets
Gold
Stock II
Special
Drawing
Rights
2/3/
Foreign
Currencies M
ESF
System
Reserve
Position
in IMF
21
November
75,444
11,049
10,386
19,240
19,253
15,516
December
75,090 P
11,049p
10,312
19,112
19,182
15,435
II Valued at $42.2222 per fine troy ounce.
2/ 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.
3/ Includes allocations of SDRs by the IMF plus transactions in SDRs.
41 Holdings of Treasury Exchange Stabilization Fund (ESF) and Federal Reserve System.
Beginning November 1978, these holdings 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-1443
For press releases, SPl!eches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
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NEWS
omCE OFPUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C .• 20220 - (202) 622-2960
America's Role in Global Economic Integration
Lawrence Summers
Deputy Secretary of the Treasury
Brookings Conference ~n
"Integrating National Economies: The Next Step"
January 9, 1996
•
Washington, DC
Good afternoon. Thank you, Bob for that kind introduction. I wish to applaud Bob, Bob Lawrence
and all those who have participated in this ongoing project on the vital subject of economic
integration. It is altogether appropriate that we honor Eddie Bernstein as well. As one of the chief
architects of the Bretton Woods agreement, Eddie played a major role in creating a framework for
development and integration that has transfonned the world and lifted entire nations from the throes
of poverty.
1. The Importance of American Leadership
It is, in many ways, a critical moment in our nations' history.
•
America is the world's largest economy and strongest nation with no single, dominant
competitor.
•
At the same time, Americans are weary after a long period of conflict. Increasingly, they are
preoccupied by problems at home, not abroad, and wish to withdraw from foreign
entanglements.
•
Conservative ideas are in ascendancy; there is high regard for business and the rights of
capital; markets are strong; successful investors are heroes. Yet workers and those at the
bottom of the ladder- still feel insecure.
•
Internationally, the breakdown of empires and the absence oflarge power balances has made
the world ripe for ethnic and nationalist conflicts.
•
A major nation traditionally remote from the US is growing rapidly and asserting itself on the
international stage.
I suppose I could be describing 1997. I am actually describing 1927. That was a time of high
optimism, a time when continued peace and stability was widely foreseen, a time when Americans felt
RR-1444
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-2very safe at home and yet in the succeeding 15 years the world system spiraled out of control, first
economically and then politically. The period of depression and World War that followed are perhaps
the darkest two decades in of this century and, arguably, the two darkest decades of the last
millennium.
ffistory does not repeat itself And any historical analogy between the world of today and the world
of the 1920s is surely imperfect.
But I think many historians would accept the idea that different American policies could have done
more to avert depression and the Second World War.
The US withdrawal from international organizations weakened international nonns against
aggressIOn. American protectionism set off a spiral of prot.ectionism that contributed to the
depression.
Punitive policies toward Germany and Japan did much to create the resentments that encouraged the
aggressions that led to the Second World War. Think of what it might have meant for humanity if
after World War I. the US had not allowed unpayable debts to be placed on Germany, had been
prepared to participate in collective security arrangements that could have resisted Mussolini's
aggression and if no cycle of tariff increases and devaluation had made the Great Depression great.
Eddie Bernstein and his generation learned these lessons. That is why after World War II, they
shaped the global vision of an America committed to create an ever-widening circle of ever more
prosperous, ever more international economy as the centerpiece of America's foreign and economic
policy.
It is this idea that lies at the center of President Clinton's economic policy. It starts with the
recognition that the US is the world's indispensable nation, that it must compete, not retreat and that,
"open and competitive comrnerce... spurs us to innovate and promotes global growth without which
no rich country can help to grow wealthy".
These ideas shape what we have done over the last four years and what we will continue to do over
the n~xt four years. We have been and remain focused on creating an ever-widening circle of more
prosperous, integrated nations, not just because it means more exports and more jobs, though it does,
but because of what it means for the prospects for a safe, secure world.
I believe the case for globalist economic policy is now stronger than it has ever been.
After World War II, -the primary concern was with the economic development of a war-ravaged
Europe and Japan. Now our challenge is to integrate the 5 billion people of the developed world into
a truly global economy.
-3A half century ago, there were only a small number of nations able to inflict casualties at a distance.
Today there are many. New problems of narcotics, greenhouse gases, the proliferation of weapons
of mass destruction have raised our stake in enlarging the circle of cooperation.
And our ideology, capitalism, is in ascendance, not just in the formerly Communist countries, but also
in the developing world.
But as the examples of economies like Korea, Taiwan and Argentina illustrate, economic
improvement brings democratization in its wake. And yet despite the force of these arguments and
the convictions of almost everyone of the kind of people that participate in Brookings conferences,
American internationalism is under siege.
The critics ofthe Bretton Woods Washington Consensus form ct wide and growing school of what
might be called separatists. This is not a new strain in American history. Indeed, one might also call
this group Washingtonians, mindful of that George Washington's admonition against "entangling
alliances". I have purposely avoided choosing the term isolationists because of its pejorative
connotation.
Separatists argue that integration is not good for people, economically, that the Bretton Woods
Washington Consensus is bad diplomacy because it is bad economically for those to whom it is
preached and finally that it is no longer a luxury we can afford. Their argument has three principle
elements.
First, Separatists suggest that economic integration impoverishes most Americans who must compete
with low wage labor for the benefit of a small number of American international businesses. In a
nutshell, this is the thesis of Bill Greider's recent book and is manifest in much of the opposition to
NAPT A and other trade agreements we have seen.
It is a serious argument that needs to be taken seriously. But I believe that our integrationist strategy
benefits the vast majority of American workers.
Note, first, that American trade barriers are already very small. We give up very little when we enter
into t{ade agreements and others give up much more. NAFTA, for example, brought trade barriers
in Mexico down by five times as much as it reduced American trade barriers.
Note also that countries' wage rates reflect their productivity.
If our desire is to eliminate competition from low wage workers abroad, we have a far better prospect
of making their wages grow by helping their economies to develop than by maintaining US trade
barriers and accepting restrictions on US exports.
Of course, imports replace jobs; but exports create them and the export jobs pay better, are more
secure and have better fringe benefits.
-4 More fundamentally, it is important to understand that what constrains the American economy is not
a lack of demand but our productive potential. That is why it is so important that we invest in all of
OUf people, save and invest more and marshall technology as effectively as possible.
Now I know that many people wony about the foreign investment that goes with trade, believing that
foreign investment exports jobs.
By this standard, Americans are fortunate the global capital market is as free as it is because we are
substantial importers of investment.
American foreign direct investment has been shown in study after study to increase the quantity of
US exports of capital equipment to set up plants, of goods to fill distributive capacity and of
American supplies for production and operations.
America will fare better as a platfonn for global business than it will by walling itself off.
The second argument that Separatists make against the Bretton Woods Washington Consensus policy
is paradigm is that we ·are exporting a chimera, that market-oriented policies abroad will work only
for a few, not the many and that the effort to export the Bretton Woods model ultimately will lead
to a clash of cultures and reduce stability.
That is why the Clinton Administration has urged with considerable success the IFIs to be more
transparent to focus on growth as well as adjustment and to worry about the quality as well as the
quantity of deficit reduction.
That is why we have sought to put labor standards and the environment in a prominent place in
discussions of international trade.
It is why we have put such an emphasis on promoting democracy and popular participation in our
economic policy.
Abroad as in America, growth must be inclusive it is to be enduring. But I believe that it is a real
mistake to suppose that there are alternatives to market-oriented development that work.
The historical record is quite compelling. It is not just that countries that adopt the Bretton Woods
Washington consensus participate more fully in the global economy and purchase more of our
products which they do:
•
Over the period 1981 to 1994, countries receiving World Bank lending linked to policy
changes, recorded an 8.3% annual rise in imports from industrial countries and a 6.6% rise
from developing countries compared with growth rates of3.6% and 6.4% in countries not
receiving Bank policy-based lending.
•
The US saw its exports to that group of countries rise 11.8% per year compared with 3.7%
to countries that did not receive loans from the Bank.
-5It is also that countries that adopt the Bretton Woods Washington Consensus view ultimately do
better than those that stick with more traditional, dirigiste, nationalist approaches as case after case
has shown.
A third main argument of those who oppose the Bretton Woods Washington consensus that Eddie
Bernstein helped develop is that they are something we can no longer afford.
George Bush was never more wrong than when he said we have more will than wallet. We are
spending $100 billion less than we would be spending if the Cold War had not ended.
Ifwe could afford that S100 billion ten years ago when the economy was only 80% as large as that
today, we can afford to spend a small fraction of that to maintain US economic leadership.
In fact, the real question is if we can afford not to engage in the defense of our interests by promoting
prosperity and integration around the world.
The Marshall Plan would have been a bargain for the US at twice its costs in tenns of the future costs
we avoided. It represented 2% ofGDP, $140 billion at current magnitudes.
The current US Foreign Assistance budget is, including all efforts through the IFIs, only about 5%
as large.
International economic leadership is the forward defense of America's deepest security interest. It
is still a dangerous world and US leadership is needed to make it safer.
It is interesting to note that one variant of this argument against American leadership that might have
been heard three years ago is now hollow, namely that America can no longer bear the burden of
leadership it bore after World War II since it was Germany and Japan that won the Cold War. To
the contrary, the experience of the 1990s has shown that the four decades-old story of convergence
has ended. The United States began the 1990s as the richest country in the world and is pulling away.
The debates in this city this year will determine the capacity of the US to continue to exercise
leade.rship as it has in the past.
In a long-run sense, I doubt that the US has security priorities greater than maintaining open markets
through Congressionally authorized trade agreements and restoring our credibility in global financial
institutions by meeting our financial obligations.
II. The US Agenda
.
More specifically, there are three crucial priorities for the US in the international economic sphere:
first, promoting open markets
second, fostering global economic growth and stability~ and
-6third, strengthening cooperative efforts to address global concerns.
Let me address each in tum.
Promoting Open Markets
This is not the forum for a detailed articulation of our trade strategy. But it is, I think, clear in today's
complex world that our approach to trade must rest on three pillars ..
First, we will work to widen and deepen the integration achieved by the WTO to widen it by bringing
as many countries as possible, including the major cases of China and Russia as rapidly as possible,
consistent with their meeting the necessary conditions.
We will deepen the WTO's effectiveness by expanding its reach as we take up such issues such as
financial services beginning this April.
In the multilateral sphere, we will also work with the OECD to continue to reduce tied aid as we have
already to reach a multilateral investment agreement.
The second pillar of our trade policy consists of regional agreements.
•
We have already laid the groundwork with our commitments in APEC, after the Summit of
the Americas and in the transatlantic dialog.
In Latin America and Asia, for example, the debate 5 years ago was about whether economic
integration was good.
Today, the debate takes economic integration as a given and asks whether the US should be part of
it.
Ifwe are not prepared to participate in regional arrangements, we take a very real risk that they will
be trade diverting, not trade creating to slip into economists' jargon and that it is trade with the US
that will be diverted.
Regulatory arrangements can also be important symbols of policy commitment and can reinforce a
momentum of economic reforms as with NAFT A.
The third pillar of cur trade policy is to promote unilateral trade measures to insure that markets are
opened. The American people will not support an open world trading system if it is only we who are
open. Our trade policy towards Japan over the last few years has been successful in stimulating
American exports in a number of key sectors.
If the US were to renounce the use of unilateral trade policy, the consequences could be backsliding
in a number of other countries' openness to imports and backsliding in our own political commitment
to opening markets giobally.
-7Fostering Global Growth and Stability
. .
The second crucial priority is promoting global growth. When other countnes grow more rapid, they
buy more of our products, produce better goods for us to buy and cooperate on global objectives.
We promote growth around the world in a whole range of ways.
The most important but least often discussed means is through our example and knowledge. U.S.
technical assistance efforts have made an enormous difference in promoting financial stability and
privatization through the formerly Communist world. At Treasury, our most crucial international
priority remains the creation of a well funded, truly global capital market.
•
•
•
That's what Secretary's Rubin's periodic meetings with Latin American and Asian financial
ministers are all about.
That's what a post-Mexico agenda of transparency, better surveillance and improved capital
markets to respond to emergencies is all about.
That's what our ongoing work to strengthen the regulatory apparatus ... at banks and financial
systems in other countries is all about.
But promoting global growth depends on more than capital markets. That's why it is in a sense the
ultimate mission of the Bretton Woods institutions. The IMF does its work in stabilization. The
World Bank does its work on reducing poverty. For the majority of the world's nations that still
carmot attract private capital on a large scale, the financing these institutions can provide is absolutely
critical.
To be in a position to encourage them to do the things we think should be done to promote growth,
help the environment, attack corruption and reduce military expenditures, we will have to maintain
our firm commitment in years ahead.
Things have been easier for us in the US than for those in Japan and continental Europe but we will
continue to cooperate with them to promote stabilization and encourage growth.
Addressing Global Concerns
OUf third crucial priority is that there must be closer cooperation to address global concerns. We
have seen important progress in recent years with the creation of...
•
•
•
•
The Global Environmental Facility
The Global Agreement to Reduce the Debt of the Heavily Indebted Poor Countries
The US Japan Common Agenda
International agreements to set standards for money laundering; and the list goes on.
B~t w~ ar~ only at the beginning. There is much more that can be done. I expect the next few years
will bnng unportant challenges where it will be essential that we employ the substantial resources of
the development banks as creatively and effectively as we can. As private markets take on more
-8functions that development banks once penonned, these energies can be channeled to meeting social
concerns.
That has been our successful strategy as we have replenished these institutions and will continue to
be our strategy.
No discussion of the global agenda can be complete without a word about Africa. In too many
countries, children are more likely to die before the age of five than to attend secondary school.
However, there are important signs of progress.
Those countries that have entered into adjustment programs have seen growth rates significantly
accelerate. As we move to the Denver Summit and beyond, helping Africa rejoin the global economy
as a strong partner must be a key priority.
Conclusion
My point here today has really been a simple one. The United States' economic policy should and
will be based on the idea that promoting integration and prosperity around the world is enormously
in our national interest, enormously in our national interest because of the stability it brings in a world
that is still a dangerous place.
The great challenge we face is to maintain broad support for this idea. It is much harder now than
it was after World War II for at least three reasons.
•
•
•
There is no longer the Communist threat to motivate us.
There is a more populist approach to international economic policy than there once was; I am
confident that no one ever focus-grouped the Marshall plan.
And there is more economic insecurity but less generosity and willingness to focus on the
future on the part of our people.
What, then can be done? Explaining history, explaining economics and making the case issue
by issue can surely help. But ultimately whether we remain an international leader will depend on
deeper currency.
Ifwe succeed in giving our people the tools they need to prosper in a changing economy, they
will come to see the world more as an opportunity and less as a threat.
Now after the Cold War, it is a question of whether we can restore trust in public institutions
Moves to restore civility in our political life will make possible the kind of bi-partisan
cooperation that made the Marshall Plan and so much else possible.
-9The era of big government may be over. But no one denies that national security is a
govenunent's responsibility. And as the 1920s remind us, mistakes in international economic policy
can have great security consequences.
From: TREASURY PUBLIC AFFAIRS
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FOR lMMEDIATE RELEASE
Remarks as Prepared for Delivery
January 9, 1997
"Russia's Stake in Capital Market Development"
Deputy Secretary of the Treasury Lawrence H. Summers
Kennedy School of Govemm~nt
Cambridge, MA
Introduction
Thank you, Graham for that kind introduction, It is a pleasure to be here tonight among
a group that is doing so much for Russia's future, I share with the organizers of this conference
the view that the development of Russia's capital markets will be critical to Russia's re·
dedication to the process of reform. This evening I would like to talk about two things. First, I
would like to strike a note of warning: Russia must restore momentum to its process of reform.
Second, I would like to discuss the potential of Russia's capital markets and chart out th.e
concrete steps that Russia must take to achieve this potential.
1. The Stakes for Russia
I do not have to tell this group about the tremendous distance that Russia has covered in
its journey towards a market economy. Since embarking on a process of reform, Russia has .. ,
•
fundamentally changed the character of its soCiety to a market economy,
•
shifted 70 percent of its enterprises to a private form of ownership; and
•
laid to rest the risk ofhyperinfiat ion.
Last year, Russian inflation dropped to 22 percent -. below Mexico) 5 27 percent, and
near the 19 percent recorded by Hungary and Poland.
Yet in applauding what Russia has achieved, we must also recognize that 1996 was a
year consumed less by policy than by politics and cardiology. Let me be frank: The Russian
government drew and defended a line on macroeconomic policy in 1996, but the rest of the
economic reform process stalled,
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Privatization of large firms proceeded at a snail's pace amidst serious questions about the
fairness of the process.
Key structural measures dropped off the reform agenda.
Other reforms slowed as well including efforts to audit and tax major state enterprises,
adjust pension fund benefits, and make "strategic customers" pay for energy purchases.
The Russian tax system was essentially missing in action in 1996, at least for domestic
firms, threatening macroeconomic stability and even the minimal core functions of the
government.
To compare Russia's process of reform to a football game, the team has had a pretty
good fIrst half. But halftime has gone on too long, for most of 1996 in fact, and the crowd has
begun to squirm in its seats. It is now time for Russia's economic reform team to come back on
the field, or else risk losing the contest by default.
Let me be clear about the risks Russia faces if it fails to follow through on reform.
Successful transition does not end with the creation of markets. Far too many market
economies, where poor policies have discouraged investment, have struggled from economic
crisis to crisis without managing to raise living standards. In contrast, countries that succeed in
creating a favorable investment climate, can see living standards double in only a decade.
The record of development shows that the longer you delay, the harder progress
becomes. Latin America, for example, paid a steep price for gradual reform in the 1970s.
Whether Russia ends up trapped in a cycle of instability and despair, or graduates to
become a strong economy, has tremendous implications not only for Russia but for the world as
a whole.
Compare the following two scenarios, the nrst in which Russia stands still and the second
in which it renews its commitment to reform.
•
In Russia today:
At current exchange rates, per capita GNP is about $3400 or only one sixth of the EU
average.
•
•
•
Only 25 companies' shares trade actively in Russia, and the top 200 firms (excluding
Gazprom) are capitalized at under $40 billion -- roughly equal to the capitalization of
Gillette or Motorola.
Turning to Russia's major export sector, a barrel of oil reserves in Russia is capitalized at
under 5 cents, versus about $2.50 anywhere else.
Russian international trade reflects the primitive state of many of its industries. Russians
import half their food and pay for it with oil, timber and aluminum. Russians buy more
consumer goods in Istanbul than they do in St. Petersburg.
2
From: TREASURY PUBLIC AFFAIRS
D9
3-3-97 2:54pm
p. 17 of 43
While I do not claim to have 20/20 vision in looking into Russia's future, I have found it
instructive to speculate on what Russia could look like in the year 2020 if it accomplishes goals
already met by other emerging countries-Musing some simple arithmetic.
•
Were Russia able to attain the same depth of capital markets as other emerging
economies, the capitalization of the Russian stock market would be 35 times what it is
today, or over $1 trillion -- a combination of increased capital issuance and share
appreciation.
•
If Russian economic growth were to average six percent a year to the year 2020, per
capita income in dollars would be four times what it is now--or 514,000 (in real terms)-on a par with that of Spain.
•
Sustained growth in Russia would lead to huge demand for consumer durables..•
automobiles, appliances. and electronic equipment--as it has already in Eastern Europe.
If Russian domestic demand reached current Spanish· levels, this would mean...
•
55 million passenger cars on the roads versus 13,million today; and
•
60 million telephone lines versus 25 million today;
I want to emphasize that these are possibilities not predictions. But while ambitious, they
lie within Russia's power to achieve. Growth at this pace will muhappen automatically,
however. And it most assuredly will run happen unless Russia Ie.. invigorates its process of
reform.
II. What Russia Needs to Do
The list of reforms Russia needs to rediscover to join the highly successful market
economies is extensive and detailed. But they share one thing in common: if enacted, they will
improve Russia's hospitality to capital.
Russia must enact reforms to attract capital but it must also put an end to policies and
practices that repel it. Two things in particular keep capital at arms-length -- the tax system and
crime and corruption.
Tax Reform
The most potent factor repelling investment in Russia is the Russian tax system, as many
in this group can probably attest. Despite some of the highest tax rates in the world, Russia has
one of the lowest rates of overall tax collections.
•
The high rates, complexity. and arbitrariness of the tax system. lead far too many
investorS -- actual as well as potential -- to throw up their hands in despair -- as you are
all no doubt aware.
•
In fact nowhere on earth is the case for supply-side economics as strong as it is in Russia
and several other countries of the NIS.
In contrast to the current system tax rates should be low, and applied to as wide a base as
3
From: TREASURV PUBLIC AFFAIRS
009
3-3-97 2:55pm
p. 19 of 43
possible. In addition, taxes should be paid by all According to some estimates, only about 17
percent offmns pay taxes regularly and in full while at least a third publish no accounts and
l
make no tax payments at all.
•
With a federal tax system that now collects only 9 percent of GDP in taxes~ Russia has
room to boost its revenues and still remain one of the world's lowest tax environments.
Crime and CQemption
The second factor repelling capital is crime and corruption. No society is completely
free of crime or corruption, but the pervasiveness, and certainly the perception of widespread
crime and corruption has increased sharply during Russia's transition and, equally debilitating,
there is a growing sense among businesses that they have no recourse when problems occur.
•
•
By some estimates, 80 percent of businesses make paym~ to criminal organizations to
provide a "roof' or kryshe [KRlH-SHA] over their heads.
The Russian Interior MinisUy sent a truck loaded with vodka on a 700 Ian trip in 1995.
Police stopped the truck 24 times, and demanded bribes in all but 2 oases.
I have spoken often before on the issue of crime and corruption, arguing that
liberalization eliminates opportunities for bribery, urging reforms of the criminal code and
judicial procedure, and offering U.S. assistance in strengthening law enforcement.
•
But we must also recognize that a successful campaign against crime and corruption must
begin with a commitment at the very top. The leadership of the government must say
flatly that there is no longer impunity in Russia. And that statement must be followed by
action-·prosecutiotlB and imprisonment--demonstrating that the rule of law will be
applied evenly and universally and that even prominent and powerful people will be
called to account.
Capital Market Development
I have talked about the things that keep capital away. Now let me talk about how Russia
can attract capital for productive investment.
I don't need to convince this audience of the importance of capital market development
for investment and long term growth. Capital market development is necessary in order to...
•
channel funds from savers to investors
•
discipline managemen1 to ensure good performance
•
meet individual needs such as housing and retirement finance; and
•
provide citizens with afmancial stake in the success of Russian capitalism.
Almost all of the former Communist countries have set up securities markets, but capital
markets are much more than a stock exchange and a group of listings.
4
From: TREASURV PUBLIC AFFAIRS
•
3-3-97 2:55pm
p. 19 of 43
In fact the equity markets in Russia, the rest of the NlS. and all of Eastern Europe raised
less than 51 billion in new capital from 1991 to 1995. This is about equal to net inflows
into US mutual funds per day last year.
Infrastructure
What is lacking is the basic infrastructure for participation in the capital markets,
principally mechanisms that confum, facilitate and legitimize securities ownership and
transactions .
•
With equity shares in Russia largely paperless, ownership is recorded in the ledgers of
share registries. Hundreds of registries exist in Russia, most of them outside of Moscow
and most representing a sirigle company.
•
If you buy shares in a Siberian company, your broker has to travel there to transfer the
shares and verify that the registry entry is accurately made in your name.
•
For example, the register of Komineft was until recently· kept in the city of Ukhla in the
Komi Republic -- a city not knO'Ml for the frequency of its international flight
connections.
•
If the fact that companies often own the registrars of their shares makes you suspicious, i!
should. There have been cases where registry entries have been "erased" and shares
assigned to someone else.
•
In one notable case two years ago, UK-based Transworld bought a 20% stake in
Krasnoyarsk Aluminum Smelter, only to fmd that the enterprise had unilaterally
decertified its holdings.
In addition. concepts of minority shareholders' rights have not yet taken hold, and both
managements and controlling shareholders regularly abuse the smaller holder.
•
In October, the Surgut Holding Company purchased an entire new share issue in
Surgutneftegaz at a price far below market. After actions by the Federal Commission on
Securities Markets, Surgut was forced to increase its purchase price by 40 percent.
•
In April 1995, Primorsky Shipping sold a secret share issue worth $20M
to a subsidiary for $90,000, diluting the holdings offoreign investors.
The Russian Federal Commission on Securities Markets has taken action to develop and
.regulate independent share registries for registries that have over 500 shareholders.
•
But enforcement of new regulations remains a problem; it is one thing to delicense a
poorly performing registry; it is another thing to get it to cease operations.
•
Even some very simple steps have yet to be taken to improve the security of Russian
share registries. One of the major selling points of the National Registry Co., for
example, has been that unlike many competitors. they back up their data.
•
Other infrastructure elements must also be developed. Share depositories and
improvements in payments systems would greatly facilitate trading in shares.
One of the sharpest paradoxes of Russian stock trading is that, with over 50 stock
5
Fro~~
D009
TREASURV PUBLIC AFfAIRS
3-3-97 2:57pm
p.
za of
exchanges and over 2,000 banks, virtually all stock trading is nonetheless done over..the..counter
and settled offshore.
•
Recognized custodial services, along with centralized depositories. would allow purchase
of Russian shares by U:S. mutual funds, greatly increasing demand.
Taxation
The Russian tax system is also an obstacle to development of smoothly functioning
securities markets. Broker/dealers pay taxes of 43 percent on their share-trading profits.
Moreover, their capital losses cannot be used to offset capital gains. and there is no allowance
for inflation.
The tax system also discriminates against certain kinds of securities, and certain kinds of
institutions :
•
Broker/dealers, but not banks. are subject to a 3 percent road yae tax on their profits from
share trading.
•
As a result of the difficulties in settlement and the tax system. 9 out of 10 Russian
securities transactions are settled offshore.
Transparency and Corporate Governance
Yet another obstacle to fair and eftlcient markets is the absence of appropriate
mechanisms for corporate governance. Russian privatization resulted in a concentration of
ownership in the hands of company insiders. In well over half of privatized firms, insiders hold
a majority stake.
•
The absence of protections for minority shareholders has retarded access to equity capital
and the development of equity markets.
•
To illustrate the problem, the Gazprom Board of Directors has the right to
approve or disallow each trade in Gazprom shares in Russia. Not surprisingly,
trades are few.
•
Let me particularly emphasize the importance of accurate information •• through
accounting standards of value to investors, auditing, and rules on disclosure--to healthy
markets. A strong body of research suggests that access to information drives the
development of markets. One need only look to the passage of the Companies Act of
1900 in the United Kingdom., which opened up the growth of equity markets there.
Mutua) Funds
One area of great potential is the development of mutual funds to tap the estimated 520.
30 billion in mattress savings. In the longer run, the development of private pension funds,
which now have assets of under $500 million, could provide a powerful impetus to the growth of
6
43
From: TREASURY PUBLIC AFFAIRS
3-3-97
2~S?pm
p. 21 of 43
this market.
•
•
The creation and effective regulation of mutual funds is a priority of the Federal
Commission on Securities Markets, which licensed its first funds in November. Nine
funds are now operating in Russia.
However public confidence is still fragile after the experience with the MMM: pyramid
scheme and the abuses that characterized many of the voucher funds. Careful
shepherding of the funds industry will be crucial to its development; Russia cannot afford
another small investor debacle.
Capital Markets Forum
Assisting Russia in the development of its capital markets is a top priority of the
Treasury Department. Secretary Rubin and SEC Chairman Levitt have agreed to co-chair the
US.-Russia Capital Markets Forum, designed to marshal the e'fpertise of the U.S. private sector
to help support and guide the development of Russia's capital markets.
•
Four working groups, drawing on some of the best talent that the United States has to
offer, are working on capital markets infrastructure, investor protection, mutual funds,
and accounting and tax issues.
•
The Forum will produce detailed, operational recommendations endorsed by high level
officials from Russia and the Ucited States.
•
While foreign direct investment will playa vital role in supplying technology and
managerial expertise, and in supplementing Russian capital, we should recognize that
Russia will largely fmance its investment needs from its own resources. By quickly
implementing the recommendations of the Capital Markets Forum, Russia can begin to
tap the considerable savings of the Russian population, as well as those of overseas
investors who have remained on the sidelines.
1lI. Conclusion
Let me conclude where I began. Russia has made the transition to a market economy,
Out the transition has lost momentum. The reforms necessary to place Russia in the ranks of the
highly successful economies are both technically and politically difficult. But the rewards are
enormous.
To do nothing, or to continue to show the lethargy that characterized 1996, will almost
urely consign Russia to the ranks of struggling nations and leave Russians little better off in a
lecade's time than they are today
But if Russia renews its commitment to reform and the kind of market-friendly
environment that attracts capital. rather than repels it, then., I believe, Russia can assume its place
s a free, great, and prosperous market economy.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OFPUBUCAFFAIRS el500PENNSYLVANIAAVENUE, N.W. e WASlllNGTON, D.C. e 20220. (202)622-2960
FOR IMMEDIATE RELEASE
Remarks as Prepared for Delivery
January 13, 1997
Treasury Secretary Robert E. R!lbin
International Development Conference
J.W. Marriott Hotel
Washington. D.C.
Since the beginning of the Administration, President Clinton has spoken often and forcefully
about the importance ofU_S. leadership in the world and in the global economy. He understands that
now more than ever, the United States is in~xtricably linked to the rest of the world; that our economic
success is a function of a healthy global economy; that we are affected by what happens in distant places
on issues ranging from political instability to environmental degradation; and that the United States is
truly the only nation in the world that can provide leadership in the global economy. With this
understanding, we've had a coordinated strategy that has enabled us to advance our interests by
promoting gwwth and reform in the global economy.
Opening markets and expanding trade have been a large and highly visible part of this effort.
Passage of NAFTA, GATT and scores of other trade agreements has been an important result.
Yet beyond trade, there is another part to our strategy in the global economy. It receives far less
attention but is absolutely vital to our interests. That is our effort to promote growth and reform in the
developing world, particularly through instruments such as the development banks and the IMP.
Bringing developing countries into the economic mainstream raises living standards, promotes
'political stability, extends the reach of democratic institutions and ideals, and contributes directly to
human dignity and promise_ Many would argue that for these reasons alone America's enormous effort
and support over the past fifty years have been justified and worthwhile -- and they are probably right.
But economic growth and development abroad also increase markets for U.S. products and ideas and
promote our own national security.
It is vital for all of us in the economic development business -- public officials, practitioners,
legislators and investors -- to appreciate fully these crucial linkages. The developing world now absorbs
RR-1446
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
about 42 percent of America's total exports. Between 1990 and 1995, exports to the developing
countries surged 75 percent, twice as fast as exports to other industrialized countries. Developing Asia
now accounts for nearly a quarter of world GDP, with imports growing at an average annual rate of
percent. In 1995, U.S. exports to the 79 countries eligible for IDA funding from the World Bank
totaled approximately $26 billion. During the same period, countries that have graduated from IDA
funding imported roughly $60 billion worth of American goods and services.
Maintaining this progress, and extending the reach of free markets, democracy, and equitable
prosperity, are therefore not some abstract policy objectives with little apparent connection to the lives
of ordinary Americans. They are a real imperative, with concrete benefits for each of us here today as
well as future generations, benefits in the form of jobs, profits, new companies, new markets and new
ideas.
The international financial institutions have never been mote central to this effort, nor more
uniquel y suited to the task at hand. The last half century of progress has been due to many things. But
surely U.S. leadership has been a key factor; and surely these institutions have been--and remain--at the
core of much that we have achieved. We need not look far to see the evidence of this leadership, and
from that to conclude that America's continued leadership role in the multilateral system must remain a
top priority.
Under U.S. intellectual and financial leadership, the international financial institutions have
become the leading force for market-oriented policy reforms to create the conditions for private sectorled growth and development. Around the world, the institutions are promoting flnancial, legal and
regulatory reforms to bring the power and opportunity of the market to ordinary people.
Multilateral bank environmental policies are widely acknowledged as state-of-the-art, bringing
the most up to date practices to infrasuucture investments worldwide. Information policies based on the
presumption of disclosure, and the direct participation of affected people in project design and
execution, is giving a voice to millions of people who effectively have never had one.
Each of the banks has conducted a top-to-bottom review of its structure, operations and policies.
The result has been sweeping reorganization, budget and administrative reform, and major operational
changes. The overall picture is one of institutions that recognize that challenges and expectations have
changed dramatically and that are moving determinedly to change with them. Is the job finished? Far
from it. But has real progress been made? Absolutely.
It has been my privilege as Treasury Secretary to visit multilateral bank projects in India, the
Philippines, and Brazil.
I've seen these institutions working at the ground leveL In the Philippines, I spoke with a
woman who used a micro-enterprise loan through the Asian Bank to buy a taxi, enabling her to
dramatically improve the life of her family. In India I visited a village that had learned through a World
2
Bank program how to conserve water in a parched area, and, as a consequence, had dramatically
improved its standard of living. Efforts such as these are not only having an enormous effect on those
people. They are also enhancing political stability enonnously, which is in our national security interest.
We can replicate these successes across the developing and transitional world.
Africa, in particular, faces huge development challenges and must be the focus of intensified
efforts.
There are those who say that the institutional reforms I referred to were long overdue, and they
are right. But these reforms are now finnly in place, and they are directly shaping the institutions in
new and fundamentally constructive ways.
u.s. leadership will remain vitally important in the years ahead.
One priority, for example, is to
continue to clarify the proper role of the state in the development process.
In far too many cases the real obstacles to development and prosperity are legal and regulatory
barriers that permeate the economy and poor choices by governments that are not sufficiently
accountable for their actions.
Looking ahead, there are" other, even more fundamental ways for the institutions to contribute.
For developing countries, just as for developed countries or corporations, budgets are an expression of a
strategic vision. Fiscal choices give substance to strategic priorities:
When budgets provide three times more funding for loss making state enterprises than for
primary health care, a basic choice has been made. When unnecessary military spending dwarfs
spending for clean water or rural development, a basic choice has been made. And these choices are not
only about today, or this fiscal year; they are about the future.
I believe very strongly that these are issues on which the international financial institutions must
be directly engaged.
The International Monetary Fund and the World Bank must concern themselves with more than
the quantity of public spending, though that surely is important. They must work on the central issue of
the qualio/ of fiscal choices.
In all of these areas, continued U.S. leadership will be critical. But to exercise this leadership it
is vital that we meet our financial commitments to the institutions. We cannot continue as the only
major nation in the world with large scale arrears to the World Bank, the Asian Bank, the InterAmerican Bank and the Global Environment Facility.
The Clinton Administration, and I personally, are committed to working with the Congress to
obtain the resources necessary to fund these key programs and institutions, particularly IDA, within the
constraints of our balanced budget goals. I have spent an enormous amount of time personally going up
3
to the Hill, to work with Congress toward these ends.
But frankly, it won't be easy. There is a growing resistance in this country, and elsewhere, to
engagement in the global economy.
When we came fornrard with our Mexican support program, because it was in our economic and
national security interest to do so, we nevertheless encountered vigorous Congressional opposition.
There is great unease in the American public about A.merican engagement in the global economy There
is a large segment of the public -- maybe not a majority, hopefully not a majority, but nevertheless, a
large segment --that believes international fmancial institutions and trade agreements don't work in their
interest. I believe that simply is not so.
But the burden is on us to show this, to build the domestic constituency necessary to maintain
America's commitments to these programs. The imperative is the~e, the case for US leadership is clear,
and long-term U.S. interests are on the line. In my view, if we all work together -- we in the
Admmistration, you who understand these issues so well, and a new Congress -- it is doable.
We rose to the challenge before Mter World War II, even though the American public was
exhausted with international engagement, we did not tum inward -- and the result of that decision was
prosperity in the United States and growth in many countries in the developing world.
Let us rise to the occasion again. Let us renew our commitment to the institutions that have
served us, and the developing world so welL Let us remember one of the great lessons of the 20th
century withdrawal from international affairs cannot work. When we withdraw, we suffer; when we
engage, we prosper.
I thank you and I look forward to working with all of you in the months ahead.
-30-
4
UBLIe DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 13, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $11,553 million of 13-week bills to be issued
January 16, 1997 and to mature April 17, 1997 were
accepted today (CUSIP: 9127944F8)
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Rate
Low
High
Average
5.02%
Investment
Rate
5.04\'
5.16%
5.18%
S.OH
5.la%-
~
Irrice
,
9'8. "131
98.726
98.726
$1,500,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 34~.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Reg~iv~d
TOTALS
Accsa2t~d
$46,366,676
$11,552,676
$40,365,960
1,538, 35 2
$5,551,960
1,538,355
$41,904,315
$7,090,315
4,186,860
4,186,860
275,501
$46,366,676
275,501
$11,552,676
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
An additional $86,399 thousand of bills will be
issued to foreign official institutions for new cash.
5.00 - 98.736
RR-1447
5.03 - 98.729
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
January 13, 1997
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $11,568 million of 26-week bills to be issued
January 16, 1997 and to mature July 17, 1997 were
accepted today (CUSIP: 9127945EO).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
S.09%'
5.11%"
5.1l%"
Investment
Rate
S.30%'
5.32%"
5.32%"
Price
':!7.427
97.417
97.417
Tenders at the high discount rate were allotted 22%'.
The investment rate lS the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
competitive
Noncompetitive
subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.10
RR-144B
97.422
Received
$44,845,381
Accepted
$11,568,031
$36,970,730
1.430.351
$38,401,081
$3,693,380
1.430,351
$5,123,731
3,200,000
3,:1.00,000
3.244,300
$44,845,381
$11,568,031
3,244,300
UBLIC DEBT NEWS
Department of the Treasury - Bureau of the Public Debt - Washington. DC 20239
FOR IMMEDIATE ~ELEASE
January 13, 1997
CONTACT: Office of Financing
202/219-3350
AMENDED RESULTS OF TREASURY'S
13-WEEK BILL AUCTION
Because of an error in reporting noncompetitive bids,
the press release dated January 13,
1997~ announcing the 13-
week bill auction results improperly stated that there were
additional amounts issued to foreign official institutions
in the amount of $86,399 thousand.
In fact, there were no
additional amounts issued to foreign official institutions
for new cash.
The correct total received and accepted for foreign
official institutions is $361,900 thousand.
The total
amount received changed from $46,367 million to
$~6,4S3
million, and the total amount accepted changed from $11,553
million to $11,639 million.
All other particulars in the auction results press
release remain the same.
000
RR-1449
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of th~ Public Debt • Waahington, OC 20239
Contact: Office of Financing
(202) 219-3350
FOR IMMEDIATE RElrRA$E
January 14, 1997
TREASURY'S INFLATION-INDEXED NOTES
FEBRUARY REJi'ERENCE crl NUMBERS AND DAILY INDEX RATIOS
Public Debt aonoUJ'lCCd today the n:fcrc:nce Qmsumcr Price Index (CPI) numbers and the daily
index ratios for the month of February far the new 10-Year Tn:asury inflation-indexed notes. This
information is based on the non-seasonally adjusted U.S. City Average AU Items Consumer Price
IDdcx for All Urban Consumers (CPt-U) published by abe Bwam of Labor Statistics of the U.S.
Department of Labor. This announcement is made in anticipation of tile auction of the inflationindexed notes on January 29.1997.
In addition to the publication of the reference CPls (Ref CPt) and index rafi~ this release provides
the non-seasooa1ly adjusted CPI-U for the prior tbree-month period. Public Debt intends to
announce &he ICkrence CPl nwnbcrs and the rel~ index ratio montbly for at least one year.
This information is available through the Tl'e3811I'is Office of Public Affairs automated fax system
by calling 202-622·2040 and requesting document number 1450. The infonnation is also available
on the Internet at Public Debfs bome page: (http://www.publicdebt.treas.gov).
The information for March is cxpectal to be released on February 19, }997.
000
PA-24K
RR-1450
Contact: OffIce of Financing
202-219-3350
TREASURY 1~YEAR INFLATION-INDEXED NOTES
SERIES:
A·2007
CUSIP:
9128272M3
AUCTION DATE:
Jenuaty 29, 1997
ORIGINAL ISSUE DATED CATE:
January 15, 1997
ORIGINAL ISSUE DATE:
FebNary6, 1997
January 15. 2007
MATURITY DATE:
RefCPI on DATED DATE:
TABLE FOR MONTH OF:
NUMBER OF DAYS IN MONTH:
158.43548
February. 1997
28
CPI-U (NSA) Oct. '96
CPI-U (NSA) NOv. '96
CPI-U (NSA) Dec. '96
158.3
158.6
158.6
Ref CPt and Index RatJos for February 1997
I
Calendar day
February
February
1
2
3
February
FebnJal)'
February
February
February
February
5
6
7
8
February
9
February
10
February
11
February
February
February
February
February
February
February
February
February
February
February
12
13
14
February
FabNary
February
February
February
February
4
15
RefCPI
1997 158.60000
1997 158.eOooo
1997 158.60000
1997 158.BOOOO I
1997 156.80000
Index Ratio
1.00104
1.00104
1.00104
1.00104
1.001G4
1.00104
1997 158.60000
1997 158.60000
1997 158.60000
1997 158.60000
1997 158.60000
1J10104
1.00104
1.00104
1997 158.60000
1997 156.60000
1.00104
1.00104
1991 158.60000
1997 158.60000
1.00104
158.eoooo
158.60000
1.00104
17
18
19
1997
1997
1997
1997
1991
16
I
1.00104
1.00104
158.60000
158.60000
1.00104
1.00104
1.00104
158.aoooo
1.00104
20
1997 158.60000
1.00104
21
22
1997 158.60000
1997 158.60000
23
24
25
1991 158.60000
158.60000
1.00104
1.00104
1.00104
1.00104
158.80000
158.60000
158.60000
158.80000
1.00104
1Jl0104
1.00104
1.00104
26
27
28
1997
1997
1997
1997
1997
TOT~
P.03
G EPA i{
t
1\1 E N T
0 F
THE
1789
T REA S U H Y
NEWS
Oma:OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASHINGTON, D.C. - 20220. (202) 622·2960
EMBARGOED UNTIL 2:30 P.M.
January 14, 1997
CONTACT:
Ottice of F1nancing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $23,000 million, to be issued January 23,
1997. This offering will result in a paydown for the Treasury of
about $4,175 million, as the maturing weekly bills are Qutstanding
in the amount of $27,180 million.
Federal Reserve Banks hold $6,833 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average d~scount rate of accepted
competitive tenders.
Federal Reserve Banks hold $4,717 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. Additional amounts
may be issued for such accounts if the aggregate amount of new
bids exceeds the aggregate amount of maturing bills.
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, as amended) for the sale and
issue by the Treasury to the public of marketable Treasu~y bills,
notes, and bonds.
Details about each of the new securities are given in the
attached .offering highlights.
000
Attachment
RR-1451
Far press releases, sjJeeches~ public schedules and official biographies, call our 24-hour fax line at (202) 622·2040
HIGHLIGHTS OP TRBASURY OPPBRINGS OP WBBKLY
B~LLS
TO BS ZSSUBD JANUARY 23. 1997
January 14, 1997
Offering Amount .
.
.
.
.
.
.
.
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 . . . . . .
•
.
$11,500 million
$11,500 million
91-day bill
912794 4G 6
January 21, 1997
January 23, 1997
April 24, 1997
October 24, 1996
$13,137 million
$10,000
$ 1,000
182-day bill
912794 28 2
January 21, 1997
January 23, 1997
July 24, 1997
July 25, 1996
$20,185 million
$10,000
$ 1,000
The followind rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award . . . .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
CVb ftt./o.~,,~gi) f\.J~
-.---
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 t~e 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.
35% of public offering
35% of public offering
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
1500 PE~NSYLVANI:\ AVENlfJ-:. ~.\\. • WASHlNGTOK D.C.· 20220· (202) 622·2960
EMBARGOED UNTIL 2: 30 P. M .
CONTACT:
January 15, 1997
Office of Financing
202/219-3350
TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $30,000 MILLION
The Treasury will auction $17,500 million of 2-year notes
and $12,500 million of 5-year notes to refund $27,916 million of
publicly-held securities maturing January 31, 1997, and to raise
about $2,075 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $550 million of the maturing securities for their own
accounts, which may be refunded by issuing additional amounts
of the new 8ecurities.
The maturing securities held by the public include $1,704
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
Both the 2-year and S-year note auctions will be conducted
in the single·price auction format. All competitive and n~n
competitive 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,
amended) for the sale and issue by the Treasury to
the public of marketable Treasury bills, notes, and bonds.
a.
Details about each of the new securities are given in the
attachud offaring highli9h~8.
000
Attachment
RR-1452
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YBAR AND S-YEAR NOTES TO BE ISSUED JANUARY 31, 1997
January IS, 1997
~
a..
....
~....
~
Offering AmQunt . . . . .
Description of Offering:
Term and type of security
Series . . .
CUSIP number
Auction date
Issue date . . .
Dated date
Maturity date . .
Interest rate
$17,SOO 1I1illion
Yield . . . . . . .
Interest payment dates
Minimum bid amount
Multiplea . . . . . . . . . .
Accrued interest
payable by investor . . .
Premium or discount .
.
$12,500 million
2-year notes
5-year notes
AB-1999
912e27 2F e
January 22,
January 31,
January 31,
January 31,
C-2002
912e27 2G 6
January 23, 1997
1997
1997
1997
1999
Determined based on the
highest accepted bid
Determined at auction
July 31 and January 31
January 31, 1997
January 31, 1997
January 31, 2002
Determined based on the
highest accepted bid
Determined at auction
July 31 and January 31
$5,000
$1,000
$1,000
$1,000
None
Determined at auction
None
Determined at auction
lhe following rule. apply to all •• ouriti., . .ntlou94 aboY"
Submisgion of Bids:
Noncompetitive bids
· Accepted in full up to $5,000,000 at the highest accepted yield
Competitive bids
(1) Must be expressed as a yield with three decimals, e.g., 7.123'
(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 prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
· 35\ of public offering
Maximum Award . . . . . . · 35t of public offering
Receipt of Tenders:
Noncompetitive tenders · Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders . . · Prior to 1:00 p.m. Eastern Standard time on auction day
· Pull payment with tender or by charge to a funds account at a
Payment Terms
Federal Reserve Bank on issue date
From: TREASURY PUBLIC AFFAIRS
D EPA R T ;\ lEN T
0 F
THE
3-3-97 2:58pm
T
I~
p. 22 of 43
E A SUR Y
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20%20. (202) 622·2960
,january 17,1997
Statement of
Robert E. Rubin
Secretary of the Treasury
before the
Senate Judiciary Committee
Good morning. Chairman Hatch, Senator Leahy and other distinguished members
of the committee. I am grateful for this opportunity to testify regarding the
Balanced Budget Amendment.
I spent 26 years on Wall Street before joining the Administration four years ago,
and I have a deep and abiding belief in the profound importance of fiscal
responsibility to our national economy. I have now spent four more years of my
Ufe working to implement this conviction, and I know this is a vie.w that many
members of this committee deeply share.
I have an equally strong conviction that a balanced budget amendment is a threat
to our economic health, will expose our economy to unacceptable risks and should
not be adopted. I rtlso believe that such an amendment is not necessary to
achieve the critical objective of balancing our budget.
Throughout our history, with the exception of wartime, budget deficits .- when
they existed at all -- were generally small. In the 1970's and 1980's, they began
to rise and the federal debt grew ~harply. But after experiencing this period of
fiscal indiscipline. I believe the atmosphere in Washington has changed.
This process of change began in 1990 with the passage of the Omnibus Budget
Reconciliation Act signed into law by President Bush. We then took an enormous
step forward with the deficit reduction program enacted in 1993, which has led to
a reduction in the size of the deficit from 4.7% to 1.4% of GOP. Last year, both
the Administration and the Congress proposed budgets that would eliminate the
deficit by 2002 and both are expected to do so again this year.
Not only has the atmosphere in Washington changed, but there is also a new
enforcing factor at work which is the emergence of global markets that are highly
sensitive to a nation's degree of fiscal responsibility. A nation that does not
address fiscal matters will be severely punished by markets with high interest rates
that could impair or even severely impair its economy.
The sum total is that politically, hi5torically and economically, the forces are in
place to ba1c)r"lcc the bud?ct. Vve are not far apart. Now we need to get the job
done
From: TREASURY PUBLIC AFFAIRS
109
3-3-97 2:59pm
p. 23 of 43
-2However, there is a distinction between balancing the budget and passing a
constitutional amendment. When we contemplate an action as significant as
amending the Constitution to require a balanced budget, we owe it to the
American people to understand exactly what its consequences would be. And
those consequence are serious. I believe the balanced budget amendment
proposal would subject the nation to unacceptable economic risks in perpetuity.
•
•
•
•
•
First, a balanced budget amendment could turn slowdowns into recessions
and recessions into more severe recessions or even depressions.
Second, it could prevent us from dealing expeditiously with emergencies
such as natural disasters or military threats.
Third, it would seriously increase the risk of default on our national debt.
Fourth, the escape clauses it provides at best are likely to be far from fully
effective. Under the amendment, there would be a significant time lag from
when an economic problem developed until we reach a consensus on how
to solve it. The escape clauses would also enable a minority in either the
House or Senate to use its leverage to subject the nation to unacceptable
economic risks; and
Fifth, the amendment poses immense enforcement problems that might well
lead to the involvement of the courts tn budget decisions, unprecedented
impoundment powers for the President or the temporary cessatton of all
federal payments. Any of these options could disrupt Social Security and
Medicare payments. Alternatively, the balanced budget amendment might
be unenforceable and therefore have no effect at all, contributing to
cynicism about the process of government.
For these and other reasons, I would like to expand on why I believe a
balanced budget amendment would create unacceptable risks for our economy.
I. More Severe Recessions
As Secretary of the Treasury, I am deeply concerned that a balanced budget
amendment could turn slowdowns into recessions, mild recessions into worse
ones and bad recessions into depressions. A balanced budget requirement in the
Constitution would make recessions longer and more painful, first, by eliminating
automatic stabilizers that protect people during a downturn and, second, by
instead requiring measures to cut spending or increase taxes during slowdowns
and recessions when the economy is already suffering from lack of demand.
Since World War II, we have made immense progress in reducing the toll of
the boom and bust cycle through the introduction of automatic fiscal stabilizers
and effective use of counter-cyclical fiscal policy. Under current law, for example,
From: TREASURY PUBLIC AFFAIRS
0009
3-3-97 3:00pm
p. 24 of 43
if unemployment rises, unemployment insurance payments rise as well, moderating
the economic impact of recessions on companies, workers and their families.
Mr. Chairman, the extremes of the business cycle have declined sharply
over the post-war period compared with the pre-war era. A balanced budget
amendment would undo this progress by turning off these stabilizers and actually
require measures that could exacerbate a recession.
To take just one example, without automatic stabilizers, Treasury has
estimated that unemployment in 1992 might have hit 9 percent instead of 7.7
percent, in excess of one million more jobs lost. Even were a 3/5 vote to waive
the provisions of an amendment obtainable, slowdowns and recessions are hard to
anticipate, and congressional action would almost surely be at the very least
months late, by which time critical damage to the economy would already have
been done.
II. Inability to Cope with Crises
A balanced budget amendment would also prevent us from dealing qu.ickly
and effectively with crises, from a second S&l crisis to a second Hurricane Hugo
to an escalating military threat.
For example, in September of 1989, Hurricane Hugo struck the Carolinas,
causing billions of dollars of damage. After President Bush declared a major
disaster, Congress took action by appropriating $2.7 billion in emergency
supplemental assistance to help the area rebuild. Under the Balanced Budget
Amendment, if the budget were otherwise in balance, this could not be done until
after a vote of 60% in both houses.
III. Increased Risk of Default
As Secretary of the Treasury, I am also highly concerned that limits on our
flexibility would increase the risk of default on the federal debt. The possibility of
default should never be on the table. Our creditworthiness is an invaluable
national asset that should not be subject to question.
Default on payment of our debt would undermine our credibility with respect
to meeting financial commitments, and that in turn would have adverse effects for
decades to come, especially when our reputation is most important, that is, when
the national economy is not healthy. Moreover, a failure to pay interest on our
debt could raise the cost of borrowing not only for government, but for private
borrowers from companies to homeowners making payments on an adjustable
mortgage.
09
From: TREASURY PUBLIC AFFAIRS
3-3-97 3:01pm
p. 25 of 43
-4 It is also worth remembering that interest payments are only one type of
obligation. If we are not able· to meet our obligations, members of our armed
forces, retirees receiving Social Security, those who depend on Medicare and
many others, could suffer as well. The risk of this happening must not be
increased.
Finally, the history of debt limits shows that raising the statutory debt limit
is never an easy process. We all remember the enormous difficulties that
surrounded this issue in 1995 and 1996. A requirement for a supermajority vote
in both houses could make it far harder.
IV. Potential for Gridlock from the Supermajority Requirement
Proponents argue that the Constitutional amendment is needed to stiffen our
resolve to balance the budget. But they also assume that. when necessary,
Congress will waive its provisions by obtaining a three-fifths majority vote.
This is a risky assumption. In fact, the history of Congress shows that it
can be extremely difficult to obtain a three fifths majority. It will be especially
difficult to obtain a supermajority to waive the Constitution of the United States.
And it ought to be.
It is true that 60 votes are usually required for cloture in the Senate. Even
more fundamentally, the Senate has long honored the rights of a minority to
express its views and influence legislation. Nevertheless, recognizing that certain
essential matters should not be held up by a minority, Senate rules permit a
reconciliation bill which can be a vehicle for passing a budget or increasing the
debt limit, to be passed by a simple majority. In contrast, this amendment would
require a 3/5 majority to increase the debt limit or obtain a waiver from its
provisions and would extend this supermajority requirement to such votes in the
House.
Thus, for example, 41 Senators or 175 Congressmen could throw the
government into default; 41 Senators could stop Social Security checks from
going out or could advance a special agenda. In effect, a minority in either house
could put the economic health of our Nation at risk by refusing to waive the
balanced budget requirement or refusing to increase the debt limit unless that
minority's agenda -- which could be budget related or related to social policy or
any other matter -- was satisfied.
Let me add that a balanced budget amendment would also limit our ability to
deal with national economic downturns in which only some regions were suffering,
~rcm: T~EASURV
PUBLIC AFFAIRS
·5·
because most members would not be experiencing the economic problems making
a 60% waiver more difficult to obtain.
Finally, we cannot predict the pOlitical environment, ten, twenty or thirty
years from today, and we should not create enormous minority leverage in the
face of uncertainty about future political conditions.
V. Enforcement Difficulties
A balanced budget amendment may well be unenforceable. There Is no way
to compel Congress and the President to enact legislation to cut spending or raise
taxes to balance the budget. Yet there is also no way to compel enactment of
legislation to waive the provisions of the amendment. It is not hard to imagine a
situation in which a 2/5 minority of Congress. opposes tax increases, a different
2/5 minority opposes spending cuts, and another 2/6 minority opposes a waiver of
the balanced budget amendment to raise the debt limit. The amendment provides
no method for resolving such an impasse.
Some proponents have suggested that under these circumstances t the
President would stop issuing checks, including those for Social Security benefits.
Alternatively, judges might become deeply involved in determining whether Social
Security or Medicare checks would be stopped. The President might also impound
funds of his choosing. Or, the amendment might iust prove to be unenforceable
and therefore a nullity, reducing lespect for the Constitution. All of these potential
outcomes are extremely undesirable.
VI. Additional Problems
Let me mention, finally, two o-::her problems. First, by requiring that a
majority of the whole Congress approve a revenue increase, the amendment could
make it more difficult to close special interest loopholes and eliminate obsolescent
deductions and credits. Over time, this would reduce the fairness and efficacy of
our tax code.
Second, unforeseen events could lead to a large end-of-the-year shortfall
that could only be met in a very short period of time. Such shortfalls happen in
many years. In FY 1990, for example, CBO re-estimated the deficit upward by
$60 billion in the last nine months of the fiscal year. In such a case, huge cuts
would be needed in those programs that happen to have payments late In the
year, or where cuts can be made Quickly regardless of the conseQuences.
These are just two examples of why it would be a mistake to enshrine
economic policy In the Constitution, We have no Idea what economic conditions
-6 will be like in 10, 20, 30 or 40 years, and creating policy inflexibility is extremely
unwise.
Conclusion
As I said at the beginning of my testimony, I have a deep commitment to
the importance of deficit reduction and fiscal discipline to our nation's economic
health, and I believe that we can put in place balanced budget legislation this year.
But I have an equally strong conviction that a balanced budget amendment poses
real risks for our nation's economic future and, for this reason, must not be
adopted.
-30-
D EPA R T tv1 E N T
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THE
T REA SUR Y
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omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASHINGTON, D.C. - 20220 - (202) 622·2960
EMBARGOED until 12:30 p.m. EST
Remarks as Prepared for Delivery
January 17; 1997
Treasury Secretary Robert E. Rubin
Conference of Mayors
Capital Hilton Hotel
As I travel around the country speaking to business people and to the media, I am often
called upon to address a traditional portfolio of Treasury Secretary issues: the markets, the
dollar, financial institutions, trade. But I almost always include another issue: the fate of our
cities. I think an absolutely key domestic issue this country faces is how to revitalize our cities
and bring the residents of our inner cities into the economic mainstream. This is a subject that
I've cared an enonn,ous amount about for a long time.
As some of you know, I worked at a major investment banking firm for 26 years. I
developed the view a long time ago that until we bring the residents of the inner cities into the
economic mainstream, all of us -- no matter where we live or what our incomes may be -- will
remain powerfully disadvantaged; that we lose tremendously by virtue of the lost potential of
our economy and a worsening of our social conditions. Just think of the enormous costs that are
currently borne by taxpayers, in productivity, and in quality of life. Contrast that with the great
benefits that we could reap, if we could break the cycle of poverty and equip the urban poor to
join in the economic mainstream.
Being in the White House for two years, 'and now at Treasury for two years, has gIven
me an extraordinary and rare oppo'rtunity to act on these issues, but all of us in government and
the private sector, no matter where we are or what we are doing, can contribute in a
meaningfully way.
We need a true marshaling of national will and effort One of the things I have tried to
do to further that cause is to speak out on this issue. It is my hope that the example of a
Secretary of theTreasury discussing the cities as a critical aspect of the economic life of this
country will provide reinforcement for those who are already involved, and perhaps, spark an
interest in those who are not yet active.
There are programs that work, - federal, state and local -- contrary to some popular
conceptions. But in an era of tightly constrained budgetary resources, we must choose
rigorously and then once we've made our choices, we must sustain the will to bring these
programs to critical mass.
RR-14S4
For press releases, speeches, public schedules and. official biographies, call our 24-hour fax line at (202) 622-2040
I'd like to talk for a moment about welfare. As you well know, the President signed the
welfare bill this fall, but at the same time said the bill contains serious shortcomings,
shortcomings that he will do everything he can to fix. As you also know, the bill was not simply
a welfare reform bill. It was in addition a bill that dealt with legal immigrants and with food
stamps. It was primarily in those two areas that critical problems arose that we need to address.
And with the welfare bill now law, we must even more urgently ask and answer these
questions: Where will the jobs come from? How do you produce the economic conditions
necessary to create them? How do you equip the. poor to be job-ready, so that they have the
training and social skills necessary to work?
Solving the problem of our inner cities will require a great deal more than simply
addressing the shortcomings of the welfare bill. What we need to do is to put in place initiatives
that will have the effect of providing jobs for those who move from welfare to work. And that,
in tum, is part of the larger issue of economic development in Qur inner cities and the larger task
of moving the disadvantaged in our inner cities into the economic mainstream.
That is a challenge that you mayors face every day. We can help, and we will But the
additional tools we provide will only be a partial answer, and we must work together with you to
make sure that our limited resources are most affectively used.
And you'll need to work closely with the private sector and with nonprofits. The
President recently met with senior corporate executives who saw it as in their long-term business
self-interest to ensure that welfare recipients are trained and get jobs. And all around the
country, local community groups are working with the private sector and with government to
create environments in which businesses will choose to come back to the inner cities. These
CDCs are training inner city residents and placing them in productive jobs. I encourage you to
think about these community based efforts and the important role of private companies as you
work to move families from welfare to work and the businesses of the inner cities more
generally.
But to start with, success with our cities requires sustained economic growth that creates
jobs and increases standards of living. I think too often those focused on cities and in particular
on the conditions of the poor do not focus adequately on the imperative that we build a strong
economy to provide the economic underpinnings for development efforts. Conversely, I also
think that too often those who are focused on creating a good economy do not adequately
recognize the other components needed to overcome poverty.
That said, I believe the requisites for moving forward fall into three categories.
First, and probably most importantly, we must invest in people. That includes, for
example, education and training efforts such as Head Start, adult skills training and technical
training efforts. It includes providing decent housing, and it includes health care.
2
The second category is public safety, and the President has made this a high priority
through the Brady Bill, the assault weapons ban and the program to put police back on the
streets. Public safety is a precondition to economic activity
The third is access to private sector capital and other measures to create economic
activity in the inner cities. This has received relatively little public attention, but is critical to
revitalizing America's distressed cities.
The last two decades have witnessed enormous innovations in finance and in the
financial markets. Ideas that were once unknown on Wall Street have become commonplace.
Financial markets in the United States are today the most innovative, the broadest and deepest in
the world.
But, we still have a severe shortage of credit and of financial institutions willing to
provide credit to build housing and create jobs in the inner city. And this shortage, in some
ways, dwarfs the shortcomings of traditional Dublic efforts. Robert Kennedy once said, "To
ignore the potential contribution of private er terprise is to fight the war on poverty with a single
platoon, while great armies are left to stand aside.
II
The Treasury Department has been deeply and energetically involved in bringing its
broad-based experience in capital markets and financial services to bear on the inner city, and we
have pursued action, not rhetoric, on an eight point program which 1'd like to very briefly
describe ~oday.
Step one was to reform and thereby make more effective the Community Reinvestment
Act, which encourages banks to provide capital throughout the community to creditworthy
borrowers.
Step two was to make the Low Income Housing Tax Credit permanent.
The third step is to follow through on President Clinton's call in f 992 for a nationwide
network of community development banks.
The fourth step is to expand micro-enterprise loans.
The fifth step is a proposed new tax incentive to clean up abandoned industrial properties
in economically distressed areas -- so called brownfields. This is an issue you know very well,
and your efforts led us to introduce this proposal. We have proposed a $2 billion tax incentive.
We estimate this would give us $10 billion in private leverage enough resources to resurrect
30,000 brownfields sites around the country.
Sixth, welve introduced legislation for 100 new Empowerment Zones and Enterprise
3
Communities.
The seventh step, something that I am personally getting involved in, is to try to increase
the involvement of the private sector in mentaring private business.
Eighth and still a work in progress, is a joint Treasury and Commerce effO'ft to see if we
can create secondary markets for community and economic development loans to the inner cities
that are on thr. books of public and private institutions.
Let me also mention that we are engaged in a major effort to reach out to the 10 million
Americans who receive Social Security, veterans, or other government checks but donlt have
bank accounts. We are currently working on a means to integrate this group into the financial
system. If we can figure out a way to move them into the banking system for the first time, not
only will it give them a better way to access services, but it may also encourage them to save, to
plan financially, and thus, to improve their economic life over time.
Most of the programs I just discussed have been under attack by some in Congress.
Efforts were made to eviscerate eRA and to eliminate the low income housing tax credit as well
as the community development bank program. We have fought vigorously and, so far,
successfully against those efforts. My hope is that as we go forward now, we will see more of
an effort to find common ground, between the Administration and the Republican majority. If
we can move constructively toward consensus on a balanced budget and other areas, then, the
efforts to undermine these kinds of programs may well diminish. Iri any event, I believe we
must continue to do everything possible both to defend these programs, and to expand the
programs that work.
We have a new opportunity to work together with Congress in helping to revitalize our
Nationls capital. As you know, welve just announced a multi-faceted effort to restructure the
federal relationship with the District of Columbia and to take on a number of tasks that states
'play with respect to your cities. We are' also going to be COining up with some economic
development tools to me'et the unique needs of our Capital.
Let me say in regard to the budget more broadly, that we are going to work hard to get a
balanced budget, reached the right way -- with the investments we need for our future -- not the
wro'ng way'. And we are going to be fighting hard to prevent passage of a constitutional
Balanced Budget Amendment that would enshrine fiscal policy in the constitution and
straightjacket our economy
I testified in Congress earlier this morning against the Balanced Budget Amendment
because I strongly believe that the proposal would subject the nation to unacceptable economic
risks for perpetuity. It could turn slowdowns into recessions, prevent us from dealing with
emergencies such as natural disasters or military threats. It would seriously increase the risk of
default on our national debt. And it poses immense enforcement problems.
4
Let me conclude:
My hope is that we can all work together to invest in the people of the inner city, to
improve public safety, and to increase access to capital to create jobs. If you take all this together
and bring it to critical mass, I believe it is a strategy that gives us the opportunity to make a real
break from the past and bring America's distressed communities and the residents of these
communities into the economic mainstream.
These tasks are urgent. Today, at a moment when America is enjoying durable economic
growth, and when many cities are on the road to recovery, is the time to address them in a
vigorous way. The old adage -- fix the roofwhen the sun is shining -- applies. It wonlt be easy; it
won1t be quick; but it can be done, and it must be done for the benefit of all Americans.
Thank you.
·30-
From: TREASURY PUBLIC AFFAIRS
n F P \ R 'I \ I I \
I'
IREASURY
() I
r II I·
3-3-97 3:03pm
p. Z7 of 43
I R L \ S l H 't
NEWS
oma OFPVBUC AWAIRS • 1500 ~VANIAAVENtJE, N.W•• \!,ASRINGTON, D.C•• lOl!O. (201) 622.1t6O
EMBARGOED UNTIL NOON EST
Text as Prepared for Delivery
January 21. 1997
Treasury Secretary Robert E. Rubin
Press Conference
inflation-indexed Notes
Good morning. Today. Treasury carries through on a promise we made last year to
provide investors, both middle income savers and big institutions, with the opportunity to
purchase securities that provide protection from inflation
This is an extremely important development in the U.S. financial markets. For the fIrSt
time, the United States is offering investors protection from inflation. Inflation can erode
savings, whether the savings are those of a retiree, a person saving for .college or a big
institutional investor. This product offers advantages to middle-income savers which have not
been available before now.
We believe that over time it may well spawn significant changes in the financial markets,
it could encourage investors JO think about investments more in terms of real rates of return,
which in tum could lead to intermediaries, like mutual funds, to offer "purchasing power"
products such as indexed annuities.
Treasury is a conservative issuer, and appropriately so. We rarely introduce new
products. In fact, Treasury has been studying inflation-indexed securities since at least the
1940s. This is a big idea, and now it is a reality. This product offers new opportunities to savers
and, over time, will save the Treasury money.
I know from my years on Wall Street that the introduction of new financial instruments
is never an easy process, even for those market participants who do it frequently.
We have gone through a long process. We asked market participants for their advice on
how to design indexed securities so they would have the broadest possible market appeal. We
then met with more than 800 people to solicit their views. We learned a great deal from this
exchange of views, and many of the comments we received helped shape the product we are
selling today.
RR-1455
•
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
lREASURY
omCE OF PUBlic AFFAIRS • HiOO PENNSYLVANIAAVENUE. N.W.• WASHINGTON. D.C.• 20220 • (202) 622·2960
CONTACT:
EMBARGOED UNTIL 12:00 NOON
January 21, 1997
Office of Financing
202/219-3350
TREASURY TO AUCTION $7,000 MILLION OF
10-YEAR INFLATION-INDEXED ·NOTES
The Treasury will auction $7,000 million of lO-year
inflation-indexed notes to raise cash.
Amounts bid by Federal Reserve Banks for foreign and
international monetary authorities will be added to the offering.
The auction will be conducted in the single-price auction
format. All competitive and noncompetitive awards will be ~t 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 CPR
Part 356, as amended) for the sale and issue by the Treasury to
the public of marketable Treasury bills, notes, and bonds.
Because the issue date and the dated date are different in
this offering, Treasury wishes to clarify the formula which is
applicable to the price and accrued interest for the inflationindexed note. Therefore:
Index RatioD,te
Where Date
=
Ref CPI D• te
Ref CPlDaled Date
Valuation date
Bidders should understand that the settlement amount for
these securities In this auction may be greater than the par
amount.
Details about the new security are given In the attached
offering highlights.
000
RR-1456
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
------
<
BIGBI.IGB'lS OF mBASD.Rr 0FJ'.BRIlG m ~ POBLIC OF
lO-YEAR. INFLJm:Cti-INDEXm R)lES m BE ISStJBD FEbRUARY 6, 1997
JaJlUCllY 21, 1997
Offering AnQJnt • • • • • • $7,000 millioo.
S'lBIPS InfoPm.tion:
Pescriptioo of Offerim:
Tetm and type of security. 10-year inflatialindexed notes
Series . . .
A-2007
CU3IP I1t.II1'ber
912827 2M 3
Auction date
. . . . . J~ 29, 1997
Issue date . . • • • • • • February 6, 1997
rated date . .
• • JaIlllaZY 15, 1997
M:lturity date . . . . . . . J~ 15, 2007
Interest Rate .
• Datemdned based en the
highest accepted bid
Real yield . . .
~temdned at auctioo
Interest paynent dates . . July 15 arxi JarruaIy 15
Minimum bid amount . . . . $1,000
M.ll.tiples . . . . . . . . . $1, 000
Accrued interest
plyable by investor . . • Detemdne:i at auctial
Premium or disca.mt
.• Detemdned at auccioo
nE dates and aEIP lUIiJers
snups
InfOlJIBtion:
Minilrum anDJIlt required . . DeteImined at auctial
CorpJS alSIP IllJlri:)er • • • • 912820 TN 8
Sutmissian Qf Bids:
Noocatpetitive bids:
for additiooal
TlNl's:
912833
July 15, 1997
SA9
January IS, 1998
SB7
July 15, 1998
SCS
J~
15, 1999
July 15 1999
Januar-y 15, 2000
July 15, 2000
January 15, 2001
July 15, 2001
S03
SE 1
SF 8
I
J~
$6
SH 4
IDO
15, 2002
SK 7
July 15, 2002
J~
SL 5
15, 2003
~3
July 15, 2003
SNl
January 15, 2004
SP 6
July 15 I 2004
SQ4
JaIlUCUY 15, 2005
July 15, 2005
SR 2
January 15, 2006
July 15, 2006
J~ 1S, 2007
SS 0
sra
SUS
SV3
Will be accepted in full up to $5,000,000 at the highest
accepted yield.
CUqpetitive bids:
as a real yield with three deciInals, e.g., 3.123%.
for each bidder mJSt be reported when the sum of the total bid
anwnt, at all yields, am the net long position is $2 billioo or greater.
(3) Net long position RUSt be deteImined as of one half - hoo.r prior to the closing
t~ for receipt of competitive tenders.
(1) M.lSt be eJ<preSSed
(2) Net long position
M3XimJm Reccqpized Bid at a S!m'le Yield
~\ ~
'~ipt
............. .
35% of public offering
35% of ~ic offering
of Tenders:
NoncCJTpet i tive tenders: Prior to 12: 00 noon Eastem St:arxla.n:i t:i.rre an auction day.
Carpetitive tenders: Prior to 1:00 p.m. Eastan St:andan:l t:i.Ine on auction day.
Payment Te~: Ml payaent with tender or by chaJ:ge to a fun:is account at a
Federal Reserve Bank on issue date.
Indexing Infopratioo;
CPI Base Reference Period
. . . . . 1982-1984
Ref CPI 01/15/1997 . .
Ref CPI 02/06/1997 . . . .
Index Ratio 02/06/1997 . . .
158.43548
158.60000
. • 1.00104
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Deb! • Washington, DC 20239
CONTACT: Office of Financing
FOR IMMEDIATE RELEASE
January 21, 1997
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $11,616 million of 13-week bills to be issued
January 23, 1997 and to mature April 24, 1997 were
accepted today (CUSIP: 9127944G6).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Discount
Rate
5.00%"
S.03%-
Average
S.03%"
Investment
Rate
5.13%"
5.16%'
5.16%-
Price
98.736
98.729
92.729
Tenders at the high discount rate were allotted 50~.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Received
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.02 -- 98.731
RR-1451
Accepted
$44,074,186
$11,615,946
$38,941,755
$6,483,515
1,365.231
$40,306,986
1, 365,231
$7,848,746
3,357,500
409.700
$44,074,186
409,700
$11,615,946
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
January 21, 1997
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $11,519 million of 26-week bills to be issued
January 23, 1997 and to mature July 24, 1997 were
accepted today (CUSIP: 912794252).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Eate
S.ll%'
5.11%
5.11%
Investment
Rate
5.32%'
5.32%
5.32%
Price
97.417
97.417
97.417
Tenders at the high discount rate were allotted 69%.
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-1458
Receiveg
$53,062,519
Acce12ted
$11,518,710
$45,275,147
1,22 9 ,472
$46,534,619
$3,731,338
1,259,472
$4,990,810
3,475,000
3,475,000
3.Q5;a,~QQ
3.Q5;a.~OQ
$53,062,519
$11,518,710
DEPART1VIENT
OF
THE
TREA'SURY
"
.
NEWS
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
EMBARGOgD ~IL 2:30 P.M.
January 21, 1997
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $23,000 million, to be issued January 30 1
1997. This offering will result in a paydown for the Treasury of
about $4,400 million, as the maturing weekly bills are outstanding
in the amount of $27,401 million.
Federal Reserve Banks hold $6,958 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 $6,443 million as agents for
foreign and-, interna.tional monetary authorities, which may be
refunded within the offering amount at the weighted average
disoount rate of accepted competitive tenders_
Additional amounts
may be issued for such accounts if the agsregate amount of new
bids exceeds the aggregate amount of maturing bille.
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
io governed by the terms and conditions set forth in the Uniform
Offering Ciroular {31 CFR Part 35~, ae amended} for the sale and
issue by the Treasury to the public of m~rketable Treasury bills,
notes, and bonds.
Dotails about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-1459
HIGHLIGHTS OF TREASURY OFFRR~S OF WEKXLY BILLS
TO BE ISSUED JANUARY 30, 1997
January 21,
Offering Amount .
p.,criptiQQ 0: O!torinqt
Term and type of security
CUSIP nu~r
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
1997
$11,500 million
$11,500 million
91-day bill
912794 2P 8
January 27, 1997
January 30, 1997
May 1, 1997
May 2, 1996
$33,499 million
$10,000
.$ 1,000
182-day bill
912794 5G 5
January 27, 1997
January 30, 1997
July 31, 1997
January 30, 1997
$10,000
$ 1,000
The tollQWiDq rul •• apply to all •• curitl,. mentioned ahoyel
Submission of aids:
Noncompetitive bids
competitive bide
Maximum Recognized Bid
at a Single Yield
Maximum
A~ard
.
Receipt of Iender§:
Noncompetitive tenders
Competitive tenders .
Payment terms
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bide
(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.
35t of public offering
35\ of public offering
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Bastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
UBLle DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 22, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 2 -YEAR. NOTES
Tenders for $17,503 million of 2-year notes, Series AB-1999,
to be issued January 31, 1997 and to mature January 31, 1999
were accepted today (CUSIP: 912B272FB).
The interest rate on the notes will be 5 7/8%. All
competitive tenders at yields lower than 5.984% were accepted in
full. Tenders at 5.984% were allotted 16%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 5.984%, with an equivalent price of 99.797. The median yield
was 5.970%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 5.931%;
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
$42,691,593
Accepted
$17,503,168
The $17,503 million of accepted tenders includes $1,651
million of noncompetitive tenders and $15,852 million of
competitive tenders from the public.
In addition, $1,600 million of
high yield to Federal Reserve Banks
inter.national monetary .authorities.
of tenders was also ac~epted at the
Reserve Banks for their own account
securities.
RR-1460
tenders was awarded at the
as agents for foreign and
An additional $320 million
high yield from Federal
in exchange for maturing
DEPARTMENT
OF
THE
IREASURY
TREASURY
NEWS
ornCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. - 20220 - (202) 622·2960
Contact:
FOR IMMEDIATE RELEASE
January 22, 1997
Jon Murchinson
(202) 622-2960
RUBIN ANNOUNCES NOMINEE FOR OFFICE OF THRIFT SUPERVISION DIRECTOR
Treasury Secretary Robert E. Rubin announced today that President Clinton intends to
nominate Ellen S. Seidman to be director of the Treasury Department's Office of Thrift
Supervision.
"I am very pleased the President has selected Ellen Seidman to direct the Office of
Thrift Supervision," Secretary Rubin said. "She has made great contributions to the
Administration's economic achievements at the NEC and is well-suited to lead OTS at a time
when the financial services sector of the economy is undergoing rapid change."
Ms. Seidman is currently Special Assistant to the President for Economic Policy at the
White House National Economic Council. During her four years at the NEe, she has chaired
the interagency working group on pensions and been responsible for issues such as financial
institutions, natural disaster insurance, bankruptcy and homeownership. Prior to joining the
White House, Ms. Seidman was Senior Vice President for Regulation, Research and
Economics at Fannie Mae. Her office was responsible for the corporations's regulatory
policies and relationships, housing policy and finance research and economic research
forecasting and reporting.
Prior to joining Fannie Mae, Ms. Seidman was special assistant to the Treasury Under
Secretary for Finance. She also served as Deputy Assistant General Counsel for
Environmental, Civil'Rights and General Law at the Department of Transportation. Ms.
Seidman practiced law for three years with a Washington, D. C. firm specializing in tax,
securities and bankruptcy issues.
Ms. Seidman received an A.B. in government from Radcliffe College, an M.B.A. from
George WaShington University and a J.D. from Georgetown University Law Center.
The Office of Thrift Supervision charters Federal thrift institutions and regulates
approximately 1,400 Federal and state chartered thrifts belonging to the Savings Association
Insurance Fund .. lt~ .mission is to. re~ulate savings associations to maintain the safety,
soundness and ViabilIty of the thnft mdustry, and to support the industry's efforts to meet
housing and other financial services needs.
-30RR-1461
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 of the Public Debt • Washington. DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
January 23, 1997
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $12,503 million of 5-year notes, Series C-2002,
to be issued January 31, 1997 and to mature January 31, 2002
were accepted today (CUSIP: 9128272G6).
The interest rate 011 the notes will be 6 1/4%". All
competitive tenders at yields lower than 6.325~ were accepted in
full. Tenders at 6.325% were allotted 73%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 6.325~, with an equivalent price of 99.683. The median yield
was 6.307%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.273%";
that ie, 5~ of the amount of accepted competitive bide were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$30,305,070
Accepted
$12,502,564
The $12,503 million of accepted tenders includes $632
million of noncompetitive tenders and $11,871 million of
competitive tenders from the pUblic.
In addition, $700 million of tenders was awarded at the
high yield to Federal Reserve Banke as agents for foreign and
international monetary authorities. An additional $230 million
of tenders wae aleo accepted at the high yield from Federal
Reserve Banks for their own account in exchange for maturing
securities.
RR-1462
1009
From: TREASURY PUBLIC AFFAIRS
I) F P \ I{ 1 \ I I· '\ 1
() I·
1 I' L
3-3-97 3:11pm
I R F \ S t
p. 37 of 43
n\
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIAAVINUE, N.W. - WASIUNGTON, D.C.. ZOftO - (202) 622·!960
Contact:
FOR IMMEDIATE RELEASE
January 24. 1997
Jon Murchinson
(202) 622-2960
TREASURY DEPARTMENT RECEIVES 26 HAMMER AWARDS FROM NPR
The. Treasury Depanment and ten of its bureaus today received 26 Hammer Awards from
the National Performance Review in recognition of efforts to make government work better for
less by putting customers first, cutting red tape, empowering employees and getting back to
baSICS
"Reinventing government is not an abstract exercise," Treasury Secretary Robert E. Rubin
said. "It goes to the heart and soul of doing our mission more effectively at Treasury •• and it
goes to the heart and soul of using government to make a difference in people's lives, by
achieving results that get guns off our streets, catch drug smugglers and make our country and
our economy stronger."
Pres~nt
to honor awardees were Secretary Rubin, National Performance Review Director
Bob Stone and other senior Treasury and bureau officials. 26 reinvention teams representing the
efforts of more than 500 Treasury employees received Hammer awards. A description of each of
the award winning teams is attached.
-30-
RR-1463
l;'or jn'ess
relecues. <8/11111_"
Ii".'
fmHltll~~ and official biographies,
call our 24.nour fax line at (202) 622·2040
0009
From: TREASURY PUBLIC AFFAIRS
3-3-97 3:12pm
p. 38 of 43
DEPARTMENT OF THE TREASURY BUREAUS
RECEIVING HAMMER AWARDS
U.S. CUSTOMS SERVICE
What Customs, Treasury, and industry representatives
could not resolve over a three and one-half year period (since 1992) was accomplished in about
six months using interest-based problem-solving to reach a consensus on the reconunended
changes; their proposal has been presented to trade groups around the country to gain support for
the regulatory package.
Contact: Janine Jones, 202-927-0398, Washington, D.C.
DRAWBACK REGULATIONS TEAM -
This office has reinvented every aspect of the way it does business
over the past three years, resulting in arrests increasing by 26.3%, indictments by 18.8%,
convictions by 22.8%, overall seizures by 41.8%, narcotic seizures by 33.7%, and financial
seizures (money laundering) by an astounding 73.9% (totaling $586 million).
Contact: Janine Jones, 202-927-0398, Washington, D.C.
OFFICE OF INVESTIGATIONS -
INTERNAL REVENUE SERVICE
Identified ways to reduce taxpayer burden by eliminating
non-value-added notices. The team reconunended the elimination of 50 different notices that will
result in a direct cost savings of approximately $20.5 million when fully implemented.
Contact: Frank Keith. 202-622-4010, Washington, D.C.
NOTICES REENGINEERlNG TEAM -
Il\1)IANA DISTRICT'S RESOURCE CENTER FOR SMALL BUSINESS & NON-PROFIT ASSISTANCE-
IRS and the Quality for Indiana Taxpayers, Inc., established the Resource Center for Business and
Non-Profit Assistance. The Center is a public/private partnership that gives new business owners
a one-stop seIVice for answers and reterrals on business concerns. This idea is a model of
efficiency and cost savings that can be replicated nationwide.
Contact: Carolyn Stumps, 317-226-6034, Indianapolis, Indiana.
Six collection notices were redesigned into a
single page format which cut costs by $1.75 million, reduced taxpayer burden, and improved
customer seIVice.
Contact: Gerri Servalli. 215-516-2483, Philadelphia, Pennsylvania.
COLLECTION NOTICE REDESIGN PROJECT TEAM -
'(J09
From: TREASURY PUBLIC AFFAIRS
3-3-97 3:13pm
D. 39 of 43
FINANCIAL MANAGEMENT SERVICE
F.LlMINA TION OF IMPREST FuNDs IN THE FEDERAL GOVERNMENT THROUGH THE USE OF
ELECTRONIC COMMERCE - A Reinvention Lab was developed to "Eliminate lmprest Funds
through Electronic Commerce" in the Federal government. The recommendation of the lab was
~hat most Imprest Funds in the Federal Government could be closed, saving the government over
$300 million in operating cost while improving operations and reducing employee "hassle" in
getting reimbursed.
Contact: Sherman Eisner, 202-874-8354. Washington, D.C.
ASAP TEAM -This team provided the Federal government with an improved automated
technological process for collection of financial information. With few resources, the team forged
ahead to complete the project within its time frame and under budget.
Contact: Bill Lehmuth, 202-874-7115, Washington, D.C.
UTF L\1PLEMENT ATION TEAM· This team implemented the new lJHF accounting system on
schedule and within budget. Federal and state governments will be able to process data more
effectively with reduced resource levels, thereby realizing future savings.
Contact: Ken Semler, 202-874-9624, Washington. D.C.
The Federal government's delinquent, non-tax debt is over
$51 billion. The Department of the Treasury and Federal program agencies, the Debt
Management Services staff ed the effort to "reinvent" debt collection Government -wide. The end
result of their effort was legislation thaL 1) centralizes debt collection functions; 2) establishes
procedures to withhold Government payments to collect on delinquent debts; and 3) provides
agencies access to additional tools to make their debt collection efforts a success.
Contact: Vicki McDowell, 202-874-6660. Washington, D.C.
DEBT MANAGEMEl\7 SERVICES·
The U. S Treasury makes over 800 million
payments annually. Approximately 53% of these payments are made by electronic funds
transfer(EFT) while the remainder are made by check. With full conversion to EFT for all
payments, the Government would achieve over $450 million in savings and achieve better service
for its recipients.
Contact: Bettsy Lane, 202-874-6530, Washington. D.C.
MANDATORY ELECTRONIC FUNDS TRANSFER -
ARFC has moved towards an integrated approach to
business. The customer service, operations, and administrative functions are matrixed for a
complete solution to customers' needs.
Contact: Gordon Highams, 512-342-7200) Austin, Texas.
AUSTIN REGIONAL FINANCE CEl''TER -
"A" TEAM - Through reduction of work steps, transition to mainframe property management
systems. and innovative uses of electronic commerce, the "A" Team has tallied a total reduction in
staff of 19.6%. and over $66,000.00 in salary expenditures.
Contact: John Adams. 913-236-3305. Kansas City, Kansas.
ELECTRONIC DATA INTERCHANGE PROCt'REMEN'f PILOT TEAM -
The Financial Management Service developed and implemented pilot EC system for small
purchases. In addition, FMS personnel were trained to assist other agencies implementing EC
into their smalJ purchases process.
Contact: Frank Kesterman, 202-874-6650, Washington, D.C.
FACTS TEAM - The Federal Agencies' Centralized Trial Balance System (FACTS) team
developed and implemented a streamlined method for Federal agencies to submit their financial
data to Treasury electronically, which simplifies the fmancial reporting process while complying
with uniform reporting standards.
Contact: Holden Hogue, 202.874.8987, Washington, D.C.
U.S. MINT
OLYMPIC TASK FORCE - To date sales of U.S. Commemorative Coins have generated $103
million in revenues for the Treasury; $25 million of the monies generated at no cost to the
taxpayer will go to the United States Olympic Committee and the United States Olympic Team.
Contact: Lynn Parish, 202-874-6345, Washington, D.C.
U.S. MINT INTERNATIONAL DIVISION - Reinvented the process ofInternational distribution and
marketing of the U.S. Mint commemorative coins and other products, which increased sales by
200 percent over the previous international commemorative coin program in 1994.
Contact: Lynn Parish. 202-874-6345. Washington, D.C.
OF'FleE OF COMPTROLLER OF THE CURRENCY
OMBUDSMAN'S APPEAL PROCESS T.EAM - OCC appointed an Ombudsman to provide national
banks an additional approach to appeal OCC decisions, Since inception, the Ombudsman has
decided 51 formal appeals, upholding banks in 60 percent of the cases. Additionally, acc has
handled 146 inquiries through alternative dispute resolution. As a direct result of the OCC's
Ombudsman appeals process, Congress has mandated that all federal financial regulatory agencies
establish an Ombudsman function.
Samuel Golden. 713-650-0475, Houston, Texas.
BUREAU OF ALCOHOL. TOBACCO AND FIREARMS
CEASEFIRE PROGRAM TEAM - In concert with a national enforcement strategy to help state and
local law enforcement solve fIrearms related violent crimes, this program has signiticantly
improved the effectiveness of law enforcement without increasing the expense of personnel.
Robin Dessler, 202-927-8654, Washington, D.C.
From: TREASURY PUBLIC AFFAIRS
3-3-97 3:150m
o. 41 of 43
Converted 60 million paper documents to
microfilm records within 18 months at a cost of only $4.2 million after receiving estimates tram
private contractors that the work would take 28 years to complete at a cost of SSO million.
Contact: Robin Dessler. 202-927-8654. Washington, D.C.
OUT OF BUSINESS RECORDS MANAGEMENT TEAM -
PARTNERSIUP FOR-mILA APPROVAL PROCESS TEAM - A joint government/industry effort
developed procedures and software that significantly reduced costs and processing time for both
the government and industry. eliminating major and time-consuming steps from the ATF approval
process.
Contact: Robin Dessler. 202-927-8654, Washington, D.C.
In partnership with Northeastern University in Boston, Massachusetts,
developed a computer process to analyze traced gun crime data that identifies criminal firearm
traffickers and associates. In the first six months offield use, ATF recommended 977 defendants
for prosecution. The defendants were responsible for having trafficked more than 21,655
firearms, of which more than 1.800 had traced through the National Tracing Center and recovered
after use in a crime.
Contact: Robin Dessler. 202-927-8654, Washington, D.C.
PROJECT LEAD TEAM -
OFFICE OF THBIFf SUPERVISION
Reviewed, revised. and updated all OTS regulations governing
the thrift industry. The Team's work resulted in revisions that strike a balance between increasing
the flexibility of thrift institutions to compete in an ever-changing marketplace and maintaining
adequate safety and soundness guidance to protect deposItors and taxpayers.
Contact: John Price. 202-906-6000, Washington, D.C.
REGULATORY REVIEW TEAM -
Security First Network Bank, FSB notified the Office of
Thrift Supervision of its intent to file an application to offer comprehensive banking services via
the Internet. An OTS team of both Headquarters and Regional staff'worked diligently with
Security First's management to overcome the many new and unexplored regulatory, technical,
accounting, and legal obstacles. Their efforts resulted in the chartering of the first "on-Hne" bank
in the U.S.
Contact: Diana Gannus. 202-906-6000, Washington. D.C.
ApPLICATION PROCESSING TEAM -
UNITED STATES SECRET SERVICE
FORENSIC SERVICES DmSION - FSD established a partnership with the Center for Missing and
Exploited Children in 1995. This partnership has increased the arrests of or exoneration of many
individuals. created a state of the art pedophile handwriting database for investigative use, and
provided age progression drawings of missing children from as far away as Moscow, Russia.
Contact: Terry Samway. 202-435-5708, Washington, D.C.
From: TREASURY PUBLIC AFFAIRS
3-3-97 3:10pm
p. 42 of 43
BUREAU OF ENGRAVING AND PRINTING
MUTILATED CURRENCY TEAM
- In 1996 processed 20,000 cases of currency mutilated by
natural disasters. fire. water or other elements that resulted in redemption checks of more than
$70 million for U. S. citizens. A partnership with FEMA provided information to thousands of
natural disaster victims and let them know how they could redeem damaged currency.
Contact: Lorraine Robinson. 202-874-2532, Washington. D.C.
DEPARTMENT OF THE TREASURY & BUREAU OF PUBLIC DEBT
REENGlNEERING STATE AND LOCAL GOVERNMENT SERIES PROGRAM - The S100 billion
SLUGS investment program was reinvented. The redesign of the products and processes of this
major financing program affecting thousands of government entities, cut red tape, reduced costs,
and improved customer service.
Contact: Pete Hollenbach. 202-219-3302. Washington. D.C.
D EPA R T l\f E N T
0 F
T H' E
'IREASURY~'.)
T REA SUR Y
,
NEW S
1500 PENNSYLVANIA AVENUE. !';.W.· WASHINGTOl'\, D.C.. 20220. (202) 622-2960
CON'l'AC'I':
EMBARGOED UNTIL 2:30 F.M.
January 24, 1397
Office of Financing
202/219-3350
TREASURY'S 52 -WEEK BILL OFFERING
The Treasurr will auction approximately $19,250 million
of 52-week ~easury bille to be issued February 6, 1997. This
offering will provide about $350 million of new caah for the
Treasury, as the maturing 52-week bill is currently outstanding
in the amount of $18,900 million. In addition to the maturing
52-week bills, there are $27,320 million of maturing 13-week and
26-week bill•.
Federal Re8erve Banks hold $13,208 million of bills for
their own accounts in the maturing iS6ues. These may be refunded
ac che weighted average discount rate of accepted competitive
tenders.
Federal Reserve Banks hold $5,218 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.
Additional amounts may be issued for such accounts if the
aggregate amount of new bids exceeds the aggregate amount of
maturing bills. For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold none of the maturing 52-week issue.
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 termM and conditions eet forth in the Uniform
Offering Circular (31 CFR Part 356, as amended) for the sale and
issue by the Treaaury to the public of marketable Treasury bills,
notes, and bonda.
Detail. about the new security are given in the attached
offering highlights,
RR-1464 ,
Attachment
000
KI<mLIaBTS 0' '1'UA1roRY oP'PERINO OP 52-WIll BILLS
TO DB ISSUJD FlBRUARY 6, 199,
January 24, 1997
Q:f,ring Ampynt . . . . . .
po.crigtion Df Off.,ing.
$19,250 million
364-day bill
Term and type of security
CUSIP number
Auction date . . •
Issue date . . . .
Maturity date . . . . .
Original issue date
Maturing amount . . .
Minimum bid amount
Multiples . . . . .
912794 4R
:.2
January 30,
19'7
Pebruary 6, 1997
February 5, 1998
February 6, 1997
$18,900 million
$10,000
$1,000
Submi •• iQD qf B1411
Noncompetitive bids
Competitive bide
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 Bum 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
Recogniled aid
at • Sinal. Yl'ld
HP;iaym
A"..~4
. . . . .
Rocelgt of 1,04,r'l
Noncompetitive tenders
Competitive tenders
l§ymfnt Tera' . . . . . . .
35\ of public offering
3st of public offering
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 Deb! • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 27, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $11,558 million of 13-week bills to be issued
January 30, 1997 and to mature May 1, 1997 were
accepted today (CUSIP: 9127942P8).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Rate
Low
High
Average
Investment
Rate
5.05%
5.19%
5.0n·
5.21%"
5.20%-
5.06%-
Price
98.723
98.718
98.721
$1,275,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 5%".
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Forelgn Official
Institutions
TOTALS
5.03
RR-1465
98 .72 '3
Receiyed
$54,598,988
Accepted
$11,557,777
$47,383,892
1.392,981
$48,776,873
$4,342,681
4,142,815
4,142,815
1,679,300
1, 679,300
$11,557,777
$54,598,988
1,392,981
$5,735,662
.•..
~\
.... ....
~~t/
••
.Ii
-.
I
...
I'
i'
I
UBLIC DEBT NEWS
Dl'parlm(·nt ofrh(" Treasury • Bureau of the Public Debt • Washington. DC 20239
FOR IMMEDIATE RELEASE
January 27, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $11,606 million of 26-week bills to be issued
Jalluary 30, 1997 and to mature July 31, 1997 were
accepted today (CUSIP: 9127945G5).
RANGE
OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.10t
S.12\'
5.12%
Investment
Rate
5.31t
5.33\'
5.33%
Price
97.422
97.412
97.412
Tenders at the high discount rate were allotted lB\'.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Fed ... ral Reserve
Foreign Official
I nB.t it ut ions
TOTALS
,. 11 - 57.417
RR-l466
Received
$42,318,632
Accepted
$11,605,505
$3,115,098
1. 261. 407
$33,828,225
1.261.407
$35,089,632
$4,376,505
2,815,000
2,815,000
4·,414,000
4.414,000
$42,31S,~32
$11,605,505
D ~ PAR T MEN T
,
0 F
THE
IREASURY (')
ornCE OF PUBUC AFT. itS • 1500 PENNSYLVA,"ilA AVENUE. N.W, •
EMBARGOED UNTIL 2:30 P.M.
January 28, 1997
T REA S,'U R Y
r··.
.
NEW S
WASHINGTO~.
CONTACT:
D.C.. 20220. (202) 622.2960
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $25,000 million, to be issued February 6,
1997. This offering will result in a paydown for the Treasury of
about $2,325 million, as the maturing 13-week and 26-week bills
are outstanding in the amount of $27,320 million. In addition to
the maturing 13-week and 26-week bills, there are $18.900 million
of maturing 52-week bills. The disposition of this latter amount
was announced last week.
Federal Reserve Banks hold $13,208 million of bills for
their own accounts in the three maturing issues. These may be
'refunded at the weighted ~verage diacount rate of accepted
competitive tenders.
Federal Reserve Banks hold $5,213 million of the three
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. Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount
of maturing bills. For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold the entire $5,213 million of the original 13week and 26-week issues.
Tenders for the bills will be received at Federal Reserve
Bariks 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, as a~ended) 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-1467
,
RXcmLI<mTS OF TR&ASt1RY Opp.aXltGS
OF WBJDt.LY
TO BE ISSUED raaaUARY 6,
BXLLS
1997
January 28, 1997
Oee.rigg
AaouAt . . . . . .
R•• criptiOR
ot
$12,500 million
$12,500 million
!)l-day bill
lB2-day bill
912794 SH 3
February 3, 1997
February 6, 1997
August 7, 1997
February 6, 1997
Ofe.~tng,
Term and type of security
COSIP number . . . . . . .
Auction date
Issue date
Maturity date . . . .
Original issue date .
Currently outstanding
Minimum bid amount
MUltiples . . . . . . . . .
"'H
!H279'"
4
February 3, 1997
Pebruary 6, 1997
May 8, 1997
November 7, 1996
$14,288 million
$10,000
$ 1,000
S10,000
$ 1,000
%he Collgwinq rul •• apply to All •• quriti •• untioned abQVe I
aubmisaiQn of B1ds:
Noncompetitive bids . . . . . .
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
Competitive bids
(1) Mu.t 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 . . . . .
35t of public offering
Receipt of Tenders:
Noncompetitive tenders
Prior to l2:00 noon Bastern Standard time
on auction day
Competitive tenders
Prior to 1:00 p.m. Eastern Standard ti~
on auction day
Payment Tema .
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 Treuury • Bure.u 01 the Public Debt. Washington. DC 10239
FOR IMMEDIATE REL£ASE
January 29, 1997
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF
10-YEAR INFLATION-INDEXED NOTES
Tenders for $7,003 million" of 10-year inflation-indexed
notes, Series A-2007, to be issued February 6, 199'7,. and to
mature January 15, 2007, were accepted today (CUSIP: 9128272M3) .
The interest rate on the notes will be 3 3/8%. All
competitive tenders at yields lower than 3.449% were accepted
in full. Tenders at 3.449% were allotted 75t. All noncompetitive and successful competitive bidders were allotted securities
at the yield of 3.449\, with an equivalent adjusted price of
99.482. The median yield was 3.400\j that is, sot of the amount
of accepted competitive bide were tendered at or below that
yield. The low yield was 3.200%; that is, 5% of the amount of
accepted compet~tive bids were tendered at or below that yield.
Adjusted accrued interest of $2.05323 per $1,000 must be
paid for the period January 15, 1997, to February. 6, 1997.
An index ratio of 1.00104 has been applied to the unadjusted
price of 99.3'79 and the unadjusted accrued interest of $2.051l0
per $1,000.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Received"
TOTALS
$37,219,400
Accepted
$7,003,017
The $7,003 million of accepted tenders includes $15'7 million
of noncompetitive tenders and $6,846 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.
The minimum par amount required for STRIPS is $1,600,000.
Larger amounts must be in multiples of that amount.
RR-1468
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239
FOR IMMEDIATE RELEASE
January 30, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $19,349 million of 52-week bills to be issued
February 6, 1997 and to mature February 5, 1998 were
accepted today (CUSIP: 9127944R2).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.32%
5.35%
5.34%
Investment
Rate
5.62%
5.65%
5.64%
Price
94.621
94.591
94.601
Tenders at the high discount rate were allotted 2%.
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
Received
$52,000,534
Accepted
$19,348,644
$45,178,962
1. 211. 572
$46,390,534
$12,527,072
1. 211,572
$13,738,644
5,610,000
5,610,000
°
$52,000,534
o
$19,348,644
An additional $1,610,000 thousand of bills will be
issued to foreign official institutions for new cash.
5.33 -- 94.611
RR-1471
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR ThfMEDIATE RELEASE
January 31, 1997
CONTACT: Office of Financing
(202) 219-3350
CALCULATION OF SETTLEMENT Al\10UNT
FOR THE IO-YEAR l1'\TI.,ATION-INDEXED NOTE
The settlement amounts (including accrued interest) for various par amounts for the lO-year
inflation-indexed note (CUSIP No. 9128272M3) auctioned on January 29, 1997, to be issued
Febmary 6, 1997, and to mature January 15, 2007, are shown in the following table, based
on the announced adjusted price per 100 of 99.482 and the adjusted accrued interest per
thousand of 2.05323:
Adjusted
Adjusted
Price
Accrued
Settlement
Amount
Interes!
Amount
$1,000
$994.82
$10,000
S100,000
$1,000,000
$10,000,000
$100,000, 000
$9,948.20
$99,482.00
$994,820.00
$9,948,200.00
$99,482,000.00
$2.05323
$20.5323
$205.323
$2,053.23
$20,532.30
$205,323.00
$996.87
$9,968.73
$99,687.32
$996,873.23
$9,968,732.30
$99,687,323,00
Par
These calculations use the formulas (shown below) that are provided in Appendix B,
Section ill of amendments to the Unifoml Offering Circular (31 CFR Part 356) that were
published on January 6, 1997 (62 FR 846).
(Continued all next page)
RR-14'T2
Definitions:
c -
real annual coupon, payable semiannualJy = 3.375
-
real
n
=
number of full semiannual periods from issue date to marurity date = 19
r
-
number of days from settlement date to next coupon date = 159 (February 6,
1997.
-
s
yi~ld
(0
= 0.03449
July 15, 1997)
.
numbe.r of days in current semiannual period
July 1.), 1997)
= 181
(Jariuary IS, 1997. to
Ref CPIJ¥uo1l)' 15. 1997 l~l", dllC) = 158.43548
Ref CPIFcbnw)' 6. 1997 = 158.60000
= Settlement Amount
SA
Resolution:
Index RatiO F1bl'..u!3' 6.1997 = Ref CPIFcllrlW)' 6,1991/ Ref CPIJ:IIIII&I)' 1'.IW7
..
158.60000/158.43548 = 1.00104
= 1 I (1 + ii2)D = 1 1 (1 + 0.03449/2)1' = 0.72262717
= (l. ,;,11) I (il2) = (1·0.72262717) 1 (0.0344912) = 1(i.08424645
VII
ilgl
(C/2)
P =
+
(C/2)~,
+ lOOvD
1 + (rls) (iJ2)
(3.375/2)
p -
- [(s-r) ( 51 (e/2)
+ (3.375/2)(16.08424645) + 100 (0.72262717)
1 + (1591181)(0.03449/2)
[(181-159)/181J (3.375/2)
P = 99.378686
P
=
99.379
p~UJ
-
PallJ
;:
P x Index RatioPCbl'll:ar)' 6,1991
99.379 x 1.00104 ~ 99.482354
p.dJ
-
99.482
A
A~J.
=
(181-1591181) x 3.37S12 = 0.205110
= A
x Index
RatiOFcbrwty 6. 1997
AIIJj = 0.205110 x 1.00104 = 0.205323
SA
=
P;dj
+
A~dj
= 99.482 + 0.205323
SA;:; 99.687323
Note that, for the real price (P) and the inflation-adjusted price (Padj), Treasury has rounded
to three places. For accrued interest (A) and adjusted accrued ·interest (A..,j), Treasury has
rounded to s~ places .. These amounts are based on 100 par value.
PA-249
006
federal financing
WASHINGTON. D.C. 20220
January 31,1997
bankNEWS
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of December 1996.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $58.2 billion on December 31,
1996, posting a decrease of $749.5 million from the level on
November 30, 1996. This net change was the result of a decrease
in holdings of agency debt of $637.7 million, and in agency
guaranteed loans of $111.8 million. FFB made 14 disbursements.
during the month of December, and 104 RUS-guaranteed loans were
extended. FFB also received 18 prepayments in December.
Attached to this release are tables presenting FFB December
loan activity and FFB holdings as of December 31, 1996.
Page· 2 of 6
FEDERAL FINANCING BANK
DECEMBER 1996 ACTIVITY
ORROWER
GENCY
FINAL
INTEREST
DATE
AMOUNT
OF ADVANCE
12/2
$150,000,000.00
12/4/96
5.256% S/A
12/6
12/13
12/20
12/20
$673,687.87
$2,212.93
$109,931.00
$811,759.00
1/2/25
7/1/25
7/31/25
7/31/25
6.612%
6.760%
6.716%
6.716%
12/17
$9,140,064.67
11/2/26
6.747% S/A
12/18
12/23
12/23
12/24
12/24
12/26
12/27
12/3.0
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
$1,031,000.00
$10,545,000.00
1/2/24
6/30/97
6/30/97
6/30/97
12/31/29
12/31/20
6/30/97
6/30/97
12/31/97
12/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
6.719%
5.368%
5.368%
5.392%
6.646%
6.502%
5.370%
5.377%
5.437%
5.437%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
MATURITY
RATE
DEBT
cr.S. Postal Service
)VERNMENT - GUARANTEED LOANS
;ENERAL SERVICES ADMINISTRATION
~mphis
IRS Service Cent.
ICFA Headquarters
~oley Square Courthouse
'oley Square Office Bldg.
S/A
S/A
S/A
S/A
~SA/PADC
eTC Building
URAL
UTILITIES SERVICE
ineland Telephone #403
ri-state #439
ri-state #440
razos Electric #437
~lcano Tele.
#441
dz.ona Electric #427
::azos Electric #437
~azos Electric 1437
lleqheny Electric #908
llegheny Electric #908
:-azos Electric #917
~azos Electric #917
~zos Electric #917
~zos Electric #917
~zos Electric #917
~zos Electric #917
~zos Electric #917
azos"Electric #917
azos Electric #917
azos Electric #917
azos Electric #917
azos Electric #917
azos Electric #917
$13,501,000~00
$4,500,000.00
$1,000,000.00
$4,888,000.00
$4,500,000.00
$4,463,000.00
$2,968,394.13
$4,269,449.20
$3,393,576.34
$2,596,535.13
$2,116,406.99
$1,546,959.67
$2,047,408.21
$262,788.55
$2,351,410.04
$2,198,844.69
$550,308.09
$1,120,745.39
$17,744.55
$469,194.13
$440,120.40
\ is a Semi-annual rate: Qtr. is a Quarterly rate.
iturity extension or interest rate reset
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 3 ef 6
FEDERAL FINANCING BANK
DECEMBER 1996 ACTIVITY
)RROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
)VERNMENT - GUARANTEED LOANS
lURAL UTILITIES SERVICE
lrazes
Irazes
'razes
,razes
,razes
,razes
razes
razes
razes
razes
razes
razes
razes
razos
t'azos
razos
razes
::-azos
::-azes
::,azos
~azos
~azos
'azos
'azes
'azes
'azes
'azos
azos
azes
azos
azes
azes
azos
azes
:izes
!Zes
lzes
lzes
lzes
lzes
lzes
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
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
#917
#917
#917
#917
#917
#917
#917
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
$4,078,540.95
$3,810,860.64
$976,241.89
$1,071,515.64
$1,375,618.61
$1,692,623.58
$415,760.81
$958,977.68
$1,252,127.76
$833,838.32
$479,412.18
$458,935.72
$896,299.98
$283,988.56
$1,067,607.17
$2,101,577.53
$344,270.01
$102,052.87
$249,857.61
$2,305,716.78
$2,619,373.13
$952,658.98
$771,407.58
' $321,515.24
$3,425,235.72
$1,875,737.62
$1,095,119.22
$392,447.01
$59,781.67
$741,377.50
$914,911.46
$2,487,644.19
$497,261.23
$5,062,729.87
$1,163,445.26
$2,331,518.55
$23,410,981.73
$686,689.59
$469,793.20
$2,156,175.78
$1,260,460.50
is a Quarterly rate.
turity extension or interest rate reset
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
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.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 4 of 6
FEDERAL FINANCING BANK
DECEMBER 1996 ACTIVITY
:>RROWER
DATE
OF ADVANCE
AMOUNT
FINAL
MATURITY
$1,637,751.65
$2,692,546.73
$2,882,076.05
$567,380.58
$18,358.60
$1,879,121.95
$967,967.73
$2,605,995.70
$827,927.12
$3,171,194.91
$2,481,078.76
$195,701.38
$3,547,000.00
$7,337,503.11
$5,871,299.28
$9,832,075.98
$7,090,848.42
$7,214,570.92
$5,752,670.68
$2,988,938.41
$892,708.91
$1,608,788.72
$571,255.40
$6,180.;931.40
$1,583,765.40
$2' ,.562,049.8'0
$7,593,367.54
$2,081,042.07
$3,867,196.32
$7,881,549.39
$1,989,709.48
$9,802,507.05
$10,292,747.04
$1,207,709.68
$432,327.99
$95,463.59
$899,240.92
$10,790,890.12
$3,488,983.41
$2,939,885.51
$3,490,053.71
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
6/30/97
1/2/07
6/30/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
12/31/25
12/31/97
1/2/07
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
INTEREST
RATE
)VERNMENT - GUARANTEED LOANS
tURAL UTILITIES SERVICE
Srazos Electric #917
Srazos Electric #917
'razos Electric #917
~razos Electric #917
~razos Electric /917
Irazos Electric #917
Irazos Electric #917
,razos Electric #917
,razos Electric #917
razos Electric #917
razos Electric #917
ead Laker Electric #372
ohnson County Elec. #428
orthwest Iowa Power #907
lains Elec. #918
lains Elec. #918
lains Elec. #918
lains Elec. #918
Lains Elec. #918
Lains Elec. #918
Lains Elec. #918
Lains Elec. #918
Lains Elec. /918
lluda River Elec. #903
lluda River Elec. #903
lluda River Eiec., #903
Lluda River Elec. #903
lluda River Elec. 1903
.luda River Elec. #903
.luda River Elec. #903
luda River Elec. #903
n Miguel Electric #919
n Miguel Electric #919
o-Me Power #382
o-Me Power #913
ited Farmers Tele. #392
ited Power Assoc. #911
ited Power Assoc. #911
ited Power Assoc. #911
ited Power Assoc. #911
ited Power Assoc. #911
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
12/31
is' a'Quarter~y rate.
lturitv extension or interest rate reset
~.
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.383%
6.368%
5.383%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
6.605%
5.436%
6.349%
5.207%
5.207%
5.207%
5.207%
5.207%
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.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
FEDERAL FINANCING BANK
DECEMBER 1996 ACTIVITY
BORROWER
DATE
OF ADVANCE
AMOUNT
FINAL
MATURITY
$3,715,520.25
$4,118,234.46
$1,154,823.73
$878,891.42
$544,414.95
$1,099,578.58
$731,733.36
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
3/31/97
12/31/24
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
RURAL UTILITIES SER.'ICE
United Power Assoc. #911 12/31
United Power Assoc. #911 . 12/31
United Power Assoc. #911 12/31
United Power Assoc. #911 12/31
united Power Assoc. #911 12/31
United Power Assoc. #911 12/31
Vol verine Po~er #349
12/31
tr. is a Quarterly rate.
maturity extension or interest rate reset
5.207%
5.207%
5.207%
5.207%
5.207%
5.207%
6.603%
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 6 of 6
FEDERAL FINANCING BANK
(in millions)
December 31. 1996
November 30. 1996
Net Change
12/1/96-12/31/96
$ 1,431.5
4,557.0
0.0
5,988.5
$ 1,821.8
4,804.2
0.0
6,626.2
$ -390.3
-247.4
0.0
-637.7
Agency Assets:
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural utilities Service-CBO
Small Business Administration
sub-total*
3,675.0
18,325.0
5.5
18.8
4,598.9
0.1
26,623.3
3,675.0
18,325.0
5.5
18.8
4,598.9
0.1
26,623.3
0.0
0.0
0.0
0.0
0.0
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DoEd-HBCU
DRUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural utilities Service
SBA-State/Local Development Cos.
DOT-Section 511
sub-total*
3,200.4
0.2
37.7
1,561.4
2,335.3
19.9
1,382.8
16,702.0
J08.3
12.3
25,560.2
3,231.8
0.2
37.8
1,561.4
2,341.6
19.9
1,382.8
16,772.2
312.0
12.3
25,672.0
program
Agency Debt:
Export-Import Bank
Resolution Trust Corporation
U.S. Postal Service
sub-total*
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
=========
-===:::=====
$ 58,172.0
$ 58,921.5
~
0.0
-31. 4
0.0
-0.1
0.0
-6.3
0.0
0.0
-70.2
-].7
$
-390.3
-1,439.1
-1,500.0
-3,329.4
0.0
-375.0
0.0
0.0
0.0
0.0
-375.0
-46.8
0.0
-1.4
-65.4
3.0
0.0
0.0
-48.7
-10.0
Q,Q
-Od
-111.8=-
-169.8
_ _ _ a:z:;. _ _ _
$
FY '97 Net Change
10/1/96-12/31/96
-149.5
=========
$ -3,874.2
D R P A R/ MEN T
TREASURY
0 F
THE
T REA S
RY
NEWS
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.· 20220. (202) 622-2960
SUl\1MARY OF
TAX CUTS IN THE PRESIDENT'S
FISCAL YEAR 1998 BUDGET·
The President's 1998 budget provides about $100 billion of tax cuts ($99.88 billion) through
FY 2002: a child credit for middle-income families, tax cuts to encourage education and
training, expanded !RAs, exclusion of gain on the sale of a home, and taX incentives to boost
investment in distressed areas and promote hiring of the economically disadvantaged.
I.
MIDDLE-CLASS TAX CUTS
These proposals will help middle-class families pay the bills, raise their children, send them to
college, upgrade their skills, and save for retirement.
•
Tax Credit for Dependent Children ($46,7 bjlJion)
Provide a phased-in $500 tax credit for dependent children, phased out for taxpayers
with adjusted gross income between $60,000 and $75,000.
•
Education and Trainjne Tax Incentiye ($38,6 billion)
•
Provide HOPE Scholarsbip tax credits of up to $1,500 per year, available for
the fIrst two years of post-secondary education, phased out for taxpayers with
adjusted gross incomes between $50,000 and $70,000 ($80,000 and $100,000
joint). ($18.6 billion)
•
Provide a phased-in $10,000 tax deduction for post-secondary education and
training, available to all families for tuition and fees for any college, graduate
school or qualified lifelong learning, with the same phase-out ranges as for
HOPE Scholarships. ($17.6 billion)
•
Provide income exclusion for forgiveness of certain student loans, including
loans extended by educational institutions to their students where loan
forgiveness is contingent on the ·student's working for a certain period of time in
certain professions or for a broad class of employers. ($.03 billion)
•
Extend the exclusion for employer-provided educational assistance through
Decem~r 31,2000 (currently expires mid-1997), reinstate exclusion for
. graduate courses, and provide small businesses a ten percent income tax
credit for payments for education of employees. ($2.4 billion)
•
Expand Individual Retirement Accounts aR.As) ($5,5 billion)
Double, over time, the income limits on deductible !RAs, increasing them to $70,000
($100,000 joint); expand penalty-free withdrawals to cover post-secondary education,
unemployment expenses, and first-time home purchases; and add new "special" backloaded !RAs.
•
Exclusion of Gain on Sale of a Home ($1.5 bjIJjon)
Allow exclusion of $500,000 ($250,000 singles) of capital gains from selling a
principal residence. The exclusion could be used every two years and would replace
the current-law one-time exclusion of $125,000 and the deferral of capital gains when
buying a more expensive home. This change would exempt over 99 percent of home
sales from capital gains taxes and would dramatically simplify taxes and record-keeping
for over 60 million homeowners.
,
2
INCENTIVES FOR DISTRESSED AREAS
ll.
TAX
($2.4 billion)
•
"BrownfieJds" Initiative
Allow immediate expensing of qualified environmental remediation costs, to encourage
companies to clean up abandoned, contaminated industrial properties, known as
"brownfields," in economically distressed rural and urban areas.
•
Incentjyt:t to Empower Communjtit:t
To help stimulate revitalization of economically distressed urban and rural
communities, authorize the designation of 20 additional Empowerment Zones and 80
additional Enterprise Communities, with new tax incentives, including the brownfields
initiative, additional small business expensing, and new private activity bonds.
•
Community Development Enanciallnstjtution {CDED Tax Credit
Provide $100 million of credits to be allocated among equity investors in community
development banks. The credit can be as much as 25 percent of the amount invested.
m.
WELFt\RFrTO-WORK INITIATIVE (SO,S billion>
To encourage hiring of long-term welfare recipients, provide a new welfare-to-work credit
through September 30, 2000. It would allow employers a 50 percent credit on the ilrst
$10,000 of annual wages that they pay to long-term welfare recipients for up to two years.
Also expand the Work Opportunity Tax Credit to include able-bodied adults, ages 18-50, who
are subject to the time limits for Food Stamps under the Administration's legislative proposal
to amend last year's welfare reform law.
IV.
SMALL BUSINESS
AND FARM ESTATE TAX RELIEF (SO,7 billion)
To address cash-flow problems that may arise upon the death of a farmer or small business
owner, increase the amount of property eligible for a favorable interest rate on deferred estate
tax from $1 million to $2.5 million, and eliminate distinctions based on form of ownership.
v.
OTHFR INITIATIVES
•
Extend for one year expiring tax provisions (R&E credit, Work Opportunity· Tax
Credit, contributions of appreciated stock to private foundations, and orphan drug tax.
credit) ($2.7 billion)
Ensure that disabled persons are fairly treated when flling for tax refunds by modifying
the statutes of limitations ($0.05 billion)
Provide District of Columbia tax incentives to encourage employment of D.C. residents
and to revitalize distressed areas ($0.26 billion)
Provide a more efficient and effective tax incentive for the economic development of
Puerto Rico ($0.417 billion)
Allow FSC software benefits for computer software licenses ($0.560 billion)
•
•
•
•
*All estimates are OMB estimates for the period FY 1997-2002.
February 1, 1997
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL 10 A.M. EST
Text as Prepared for Delivery
February 3,1997
ST ATEMENT OF ROBERT E. RUBIN
SECRETARY OF THE TREASURY
HOUSE roDI CIAR Y COMMITTEE
Good morning .. Chaimtan Hyde, Congressman Conyers and other distinguished memhers ofthe
committee. I am grateful for this opportw:ny to testify regarding the Balanced Budget Amendment.
r
spent '26 years on Wall Street before joining the Administration four years ago and, during that time, J
developed a deep and abiding belief in the profound importance of fiscal responsibility to our nationai
economy. 1 have now spent four more years ofm) life working to implement this conviction, .'lnd !
know this is a conviction that many members of [ilis commIttee deeply share.
I hDve an equally strong conviction that a baJanced budget amendment is a threat to
OUT
economic health, will expose our economy to unacceptable risks and should not be adopted.
Like the eleven Nobel prize winning economists and 1000 other economists who signed a letter last
Thursday saying they "condemn" the amendment, I believe it is strongly against our national interest.
also believe that such an amendment is not necessary to achieve the critical objective of balancing our
. budget.
Throughout our history, with the exception of wartime, budget deficits -- when they existed at all
-- were generally small. In the \970's and 1980's, they began to rise and the federal debt grew sharply,
quadrupling between 1980 and 1992. But after experiencing this period of fiscal indiscipline, I believe
the atmosphere in Washington has changed.
RR-1475
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2This process of change began in 1990 with the passage of the Omnibus Budget Reconciliation
Act signed into law by President Bush. We then took an enormous step forward with the deficit
reduction program enacted in 1993, which has led to a reduction in the size of the deficit from 4.7% to
1.4% of GDP. Last year, both the Administration and the Congress proposed budgets that would
eliminate the deficit by 2002 and both are expected to do so again this year. Not only has the
atmosphere in Washington changed, but there is also a new enforcing factor at work which is the
emergence of global markets that are highly sensitive to a nation's degree of fiscal responsibility. A
nation that does not address fiscal matters will be severely punished by markets with high interest rates
that could impair or even severely impair its economy.
The sum total is that politically, historically and economically, the forces are in place to balance
the budget. We are not far apart. Now we need to get the job done.
However, there is a distinction between balancing the budget and passing a constitutional
amendment. When we contemplate an action as significant as amending the Constitution to require a
balanced budget, we owe it to the American people to understand exactly what the consequences would
be. And those consequence are serious. I believe the balanced budget amendment proposal would
subject the nation to unacceptable economic risks in perpetuity.
•
First, a balanced budget amendment could turn slowdowns into recessions and recessions into
more severe recessions or even depressions.
•
Second, it could prevent us from dealing expeditiously with emergencies such as natural disasters
or military threats.
•
Third, it would seriously increase the risk of default on our national debt.
•
Fourth, the escape clauses it provides at best are likely to be far from fully effective. Under the
amendment, the unpredictability of economic conditions means that, at best, there would often be
a significant time lag from when an economic problem developed until we recognized it and
reached a consensus on how to solve it. The escape clauses would also enable a minority in
either the House or Senate to use its leverage to subject the nation to unacceptable economic
risks; and
•
Fifth, the amendment poses immense enforcement problems that might well lead to the
involvement of the courts in budget decisions, unprecedented impoundment powers for the
-3President or the temporary cessation of all federal payments. Any of these options could disrupt
Social Security and Medicare payments. Alternatively, the balanced budget amendment might
be unenforceable and therefore have no effect at all, contributing to cynicism about the process
of government.
For these and other reasons, I would like to expand on why I believe a balanced budget
amendment would create unacceptable risks for our economy.
I. More Severe Recessions
As Secretary of the Treasury, I am deeply concerned that a balanced budget amendment could
tum slowdowns into recessions, mild recessions into worse ones and bad recessions into depressions. A
balanced budget requirement in the Constitution would make recessions longer and more painful, first,
by eliminating automatic stabilizers that operate during a downturn and, second, by instead requiring
measures to increase taxes or cut spending during slowdowns and recessions when the economy is
already suffering from lack of demand.
Since World War II, we have made immense progress in reducing the toll of the boom and bust
cycle through the introduction of automatic fiscal stabilizers and effective use of counter-cyclical fiscal
policy. Under current law, for example, if unemployment rises, unemployment insurance payments rise
as well, moderating the slowdown or recession.
Mr. Chairman, the extremes of the business cycle have declined sharply over the post-war period
compared with the pre-war era. A balanced budget amendment in some fair measure would undo this
progress by turning off these stabilizers and requiring measures that would exacerbate a recession.
To take just one example, without automatic stabilizers, Treasury has estimated that
unemployment in 1992 resulting from the 1991 recession, might have hit 9 percent instead of 7.7
percent, in excess of one million more jobs lost. Even were a 3/5 vote to waive the provisions of an
amendment obtainable, slowdowns and recessions are hard to recognize or anticipate, and congressional
action would almost surely be at the very least months late, by which time critical damage to the
economy would already have been done.
-4-
II. Inability to Cope with Crises
A balanced budget amendment would also prevent us from dealing quickly and effectively with
crises, from a second S&L crisis to a second Hurricane Hugo to an escalating military threat.
For example, in September of 1989, Hurricane Hugo struck the Carolinas, causing billions of
dollars of damage. After President Bush declared a major disaster, Congress took action by
appropriating $2.7 billion in emergency supplemental assistance to help the area rebuild. Under the
Balanced Budget Amendment, if the budget were otherwise in balance, none of these could have been
dealt with until after a vote of 60% in both houses if agreement could be reached on offsets.
III. Increased Risk of Default
As Secretary of the Treasury, I am also highly concerned that the balanced budget amendment
would increase the risk of default on the federal debt. Our creditworthiness is an invaluable national
asset that should not be subject to question. Default on payment of our debt would undermine our
credibility with respect to meeting financial commitments, and that in turn would have adverse effects
for decades to come, especially when our reputation is most important, that is, when the national
economy is not healthy. Moreover, a failure to pay interest on our debt could raise the cost of borrowing
not only for government, but for private borrowers from companies to homeowners making payments on
an adjustable mortgage.
Furthermore, if we are not able to meet our obligations, members of our armed forces, retirees
receiving Social Security, those who depend on Medicare and many others, could suffer as well. The
risk of this happening must not be increased.
The history of debt limits shows that raising the statutory debt limit is never an easy process. We
all remember the enormous difficulties that surrounded this issue in 1995 and 1996. A requirement for a
supermajority vote in both houses could make it far harder.
IV. Potential for Gridlock from the Supermajority Requirement
Proponents of the balanced budget amendment argue that, when necessary, Congress will waive
the balanced budget amendment's provisions by obtaining a three-fifths majority vote.
-5This is a risky assumption. In fact, the history of Congress shows that it can be extremely
difficult to obtain a three fifths majority. I believe it will be especially difficult to obtain a supermajority
to waive the Constitution of the United States which is an awesome act.
It is true that 60 votes are usually required in the Senate because of its special rules and that, even
more fundamentally, the Senate has long honored the rights of a minority to express its views and
Influence legislation. Nevertheless, recognizing that certain essential matters should not he held up by a
minority, Senate rules permit what is known as a reconciliation to adopt a budget or increase the debt
limit, to be passed by a simple majority. In contrast, this amendment would require a 3/5 majority to
increase the debt limit or obtain a waiver from balanced budget provisions and would extend this
supermajority requirement to both houses.
Thus, for example, 41 Senators or 175 Congressmen could throw the government into default; 41
Senators could stop Social Security checks from going out or could advance a special agenda. In effect, a
minority in either house could put the economic health of our Nation at risk by refusing to waive the
balanced budget requirement or refusing to increase the debt limit unless that minority's agenda was
satisfied, and that agenda could be budget related or related to social policy or any other matter.
Let me add that a balanced budget amendment would also limit our ability to deal with national
economic downturns in which only some regions were suffering, because many members would not be
experiencing the economic problems making a 60% waiver more difficult to obtain.
Finally, we cannot predict the political environment, ten, twenty or thirty years from today, and
we should not create enormous minority leverage -in the face of uncertainty about future political
conditions.
v. Enforcement Difficulties
A balanced budget amendment may well be unenforceable. There is no way to compel Congress
and the President to enact legislation to balance the budget. Yet there is also no way to compel
enactment oflegislation to waive the provisions of the amendment. It is not hard to imagine a situation
in which a 2/5 minority of Congress opposes tax increases, a different 2/5 minority opposes spending
cuts, and another 2/5 minority opposes a waiver of the balanced budget amendment to raise the debt
limit. The amendment provides n() method for resolving such an impasse.
-6Some proponents have suggested that under these circumstances, the President would stop
issuing all checks, including those for Social Security benefits. Alternatively, judges might become
deeply involved in determining whether Social Security or Medicare checks would be stopped. The
President might also impound funds of his choosing. Or, the amendment might just prove to be
unenforceable and therefore a nullitY. reducing respect for the Constitution. All of these potential
outcomes are extremely undesirable.
VI. Additional Problems
Let me mention, finally, two other problems. First, by requiring that a majority of the whole
Congress approve a revenue increase as opposed to just those voting, the amendment would make it
'more difficult to close special interest loophol,es arid eliminate obsolescent deductions and credits. Over
time, this would reduce the fairness and efficacy of our tax code.
Second, unforeseen events could lead to a large end-of-the-year shortfall that could only be met
in a very short period oftime. Such shortfalls happen in many years. In FY 1990, for example, CBO
re-estimated the deficit upward by $60 billion in the last nine months of the fiscal year. In such a case,
huge cuts would be needed in those programs that happen to have payments late in the year, or where
cuts can be made quickly regardless of the consequences.
Conclusion
Let me conclude by saying that we have-no idea what economic conditions will be like in 10, 20,
30 or 40 years, and creating policy inflexibility in the face of that uncertainty is extremely unwise.
For example, there has been a great deal of debate about whether the Federal government should
move to a capital budget. The 35 states that have balanced budget constitutional requirements all have
separate capital and operating budgets or count the proceeds from borrowing as receipts. Proponents of
a capital budget argue that the absence of a capital budget has reduced investments in infrastructure and
other capital improvements that would add to future growth. I don't believe we should move to a capital
budget but under different circumstances in the future, others might want to do so. The balanced budget
amendment before you now would prevent us from moving to a separate capital budget, even if we
wanted to.
-7Mr. Chairman, as I said at the beginning of my testimony, I have a deep commitment to the
importance of deficit reduction and fiscal discipline to our nation's economic health, and I believe that
we can put in place balanced budget legislation this year. But I have an equally strong conviction that a
balanced budget amendment poses real risks and dangers for our nation's economic future and, for this
reason, must not be adopted.
-30-
DEPARTl\'IENT
OF
THE
TREASURY
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASlllNGTON, D.C.• 20220. (202) 622.2960
FOR RELEASE AT 3:00PM
FEBRUARY 3, 19.97
CONTACT: Jon Murchirtson
(202) 622 -2 960
TREASURY ANNOUNCES MARKET BORROWING ESTIMATES
The Treasury Department announced on Monday. that its net
market borrowing for the January - .March 1997 quarter is estimated
to be $50 billion, with a cash balance of $20 billion on March'31.
The Treasury also announced that its net market borrowing for the
April - June 1997 quarter is estimated to be a pay down in the
range of $10 billion to $15 billion, with a cash balance of $35
billion on June 30, 1997.
In the quarterly announcement of its borrowing needs on
October 28, 1996, the Treasury estimated net market borrowing for
the January - March quarter ~o be in a range Qf $50 billion to $55
billion, assuming' a $20 billion cash balance on March 31.
Actual net market borrowing in the October - December 1996
quarter was $41.3 billion, while the end-of-quarter cash balance
was $'32.8 billion.
On October 28, the Treasury estimated net
market borrowing for the October - December quarter to be $48
billion, with a $30 billion cash balance on December 31.
The
combined $9.5 billion improvement was the result of higher than
es~~~ated receipts and lower tharr estimated outlays.
The regular quarterly Press Conference will be held at 1:00PM
on Wednesday, February 5, 1997.
RR-14T7
For press releases. speeches. public schedules and official biographies. call our 24-hour fax line at (202) 622-2040,
09
From: TREASURY PUBLIC AFFAIRS
3-4-97 3:49pm
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Publit Debt • Washington. DC 20239
FOR IMMEDIATE RELEASE
February 3, 199'7
CONTACT: Office of Financing
202-219-3350
RESULTS OF· TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $12,Sl~ million of 13-week bills to be issued
February 6, 1997 and to mature May 8, 1997 were.
aooepted today (CUSIP: 9127944H4).
RANGE OF ACCEPTED
COMPETITIVE 8IDS:
Disoount
Rate
Low
High
5.00%
~ver.ge
S.oo~
s.oo~
Investment
Rate
5.13'1:
S.13\
5.13\
Price
98.736
~8.736
98.736
Tenders at the high disoount rate were allotted 67t.
The investment rate is the equivalent ooupon-i.s~e yield.
TENDERS RECEIVED AND ACCEPTED (in
Blge1ver;i
thouBan~e)
~Qgl:lteg
TOTALS
$6~,686,2;Z5
$12,519,480
Type
Competitive
$58,:;95,752
$6,S2~,OO7
Noncompetitive
Subtota.l, . Public
Federal Reserve
Foreign Offioial
Inetitut:.ione
TOTALS
RR-2478
1. Sal, 8~3
11~§1,a2l
S6C,577,615
$8,410,870
3,603,010
3,.603,010
~OS,600
$~4,~a':;,225
.
~Q~.6QQ
$12,519,480
p. 1 of 11
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
CONTACT: Office of Financing
202-219-3350
February I , 1997
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $12,536" million of 26 -week bills to "be issued
February 6, 1997 and to mature August 7, 1997 were
accepted today (CUSIP: 9127945H3).
RANGE OF ACCEPTED
COMPETITIVE BrDS:
Discount
Rate
Low
High
Average
S.06%
5.08%
S.Da\-
Investment
Rate
Price
5.26%
5.29%
5.29\-
97.442
97.432
97.432
Tenders at the high discount rate were allotted 66%.
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
5.07 - 97.437
RR-1479
Received
$42,433,766
Accepted
$12,536,274
$34,514,695
1.350.271
$35,864,966
$4,617,203
$5,967,474
3,645,000
3,645,000
1.350.271
2.923.800
2.923.800
$~2,433,766
$12,536,274
DEPARTMENT
OF
1REASURY
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C.• 20220. (202) 622.2960
For Release Upon Deliyezy
Expected at 9:45 a.m.
Febru8(Y 4. 1997
STATEMENT OF DONALD C. LUBICK
ACTING ASSISTANT SECRETARY (TAX POLICy)
DEPARTMENT OF THE TREASURY
BEFORE mE SENATE FINANCE COMMITTEE
Mr. Chairman and Members of the Committee:
I am pleased to present the views of the Treasury Department on the measures necessary
to assure the continued solvency of the Airport and Airway Trust Fund (Trust Fund). Your
invitation asked us to focus our testimony on the Trust Fund excise taxes, including their
structure, the revenue raised from the taxes, the administrative problems with the taxes, and
proposals to modify the domestic passenger ticket tax or substitute an alternative funding system.
I will address these matters, but first I would like to bring to your attention a much more pressing
issue.
As you know. when Congress extended the aviation excise taxes through December 31,
1996, it similarly extended our authority to transfer to the Trust Fund only those taxes that were
actually received by the IRS by the end of 1996. Thus, we are not permitted to transfer to the
Trust Fund taxes that are received in 1997, even if those taxes relate to air transportation that
occurred in 1996.
This lack of extended authority is greatly exacerbated by the recent revelation that the
airlines did not deposit until 1997 the vast majority of the taxes imposed in 1996. As a
consequence, we have concluded that approximately $1.2 billion transferred to the Trust Fund
based on initial estimates should have remained in the General Fund and thus must be withdrawn.
Given that the level of funding for the Trust Fund was already of serious concern, this adjustment
to the Trust Fund forces us to focus immediately on ways to ensure the continued high standards
for aviation safety. For the reasons I will discuss briefly below, the Administration urges an
immediate extension of the Treasury Department's authority to transfer to the Trust Fund all of
the revenues collected from these taxes, regardless of when they are received, together with an
immediate reinstatement, through late September 1997, of the taxes dedicated to the Trust Fund.
The excess transfers to the Trust Fund occurred because the Treasury office responsible
for authorizing transfers to the Trust Fund did not know that the airlines (relying on IRS advice)
RR. 1480
Fur press releases, speeches, public schedules and official biographies, call our 24 ..hour fax line at (202) 622..2040
-2were not making anticipated deposits. 1 Thus, our estimates, and our transfers to the Trust Fund,
were much higher than actual deposits.
We have concluded that it is necessary to correct this error by transferring the S1.2 billion
excess back to the General Fund. But now that the actual tax payments by the airlines have been
or are about to be made, we lack authority to transfer the monies from the General Fund to the
Trust Fund.
Parenthetically, you may wonder why the airlines did not make full deposits in 1996 of
taxes coUected in that year. In large part it was because of reliance on the administrative
procedure set up in the regulation governing deposits, which allowed payment under a safe harbor
measured by the taxpayer's liabilities in the second previous quarter. IRS attorneys in the excise
tax branch agreed with the airline industry's position that the regulation should be construed to
pennit current deposits based upon zero actua1liability for the second previous quarter when the
tax had lapsed. They were not aware of the inability to transfer post year-end receipts to the
Trust Fund, since that was not an IRS function. Had top officials of the IRS and the Treasury
been advised that the airlines were largely deferring payment of tax coDections, we might have
been able to alter that outcome, including, if necessaty, by revising the deposit regulation quickly
to require earlier deposit of much, but not all, of the 1996 tax liabilities.1
The second aspect of the problem is the urgency of extension of the lapsed taxes. Even
with.the renewal of authority to transfer after-collected taxes, some Federal aviation capital
programs will, absent a reinstatement of these aviation excise taxes, run out of money in the near
future. Such programs include the replacement of antiquated radar systems and airport grants.
Although the ability to continue such programs will end in March 1997, or a few months later if
the technical correction described above is made, earlier notices to contractors, in many cases
almost immediately, will be necessary to avoid liability on projects where funds will run out
without extension of the lapsed taxes. The FAA will be able to explain to you their exact financial
situation.
llnitial information regarding excise tax collections is available only in aggregate fonn. No
infonnation is available with respect to liability or collections for a particular excise tax source
until quarterly returns are filed and completely processed by IRS. usually 6 to 9 months after a
taxable quarter has closed. During October-November 1996. total excise tax collections, whiclt
were in excess of S13 billion, were below forecast level by an amount that was well within the
range of normal and acceptable forecasting error. It would appear that, in aggregate, deposits of
all other excise taxes exceeded Treasury estimates, thus offsetting and masking the S1.2 billion
shortfall in Airport and Airway Trust Fund taxes.
2The Treasury Department intends to modify the regulatory safe-harbor provision on
which the airlines relied to provide that when a new tax is imposed, or an expired tax is reinstated,
taxpayers must deposit liabilities attributable to the new or reinstated tax on a current basis.
-3We therefore urge, in addition to the technical modification to the Treasury Department's
authority to make transfers of aviation excise taxes to the Trust Fund, the immediate short-term
reinstatement of those taxes through late September of this year, while the Administration works
with Congress to devise a long-term solution.
Structure of Taxes
The Airport and Airway Trust Fund was created in 1970 to finance Federal aviation
programs, including services provided by the FAA and grants for airport improvement. Since its
creation, the Trust Fund has been supported, in large part, by Federal excise taxes on commercial
air passenger and air freight transportation and on noncommercial aviation fuel. These taxes
expired on December 31, 1995. The Small Business Job Protection Act of 1996 reinstated the
taxes beginning on August 27, 1996, but the taxes expired again on December 31, 1996.
Before the expiration of these taxes at the end of last year, the tax on domestic air
passenger transportation was 10 percent of the amount paid for the transportation, the tax on
international air passenger departures was $6 per person, and the tax on domestic air freight
transportation was 6.25 percent ofthe amount paid for the transportation. The tax on
noncommercial aviation fuel, to the extent dedicated to the Trust Fund, was 15 cents per gallon in
the case of gasoline and 17.5 cents per gallon in the case of fuel other than gasoline. 3
Revenues from Taxes
The table below shows total liabilities and the composition of those liabilities for the taxes
that fund the Airport and Airway Trust Fund for FY 1993 through FY 1996. 4 The table shows
that liabilities from the aviation excise taxes increased from $4.9 billion in FY 1993 to $5.7 billion
in FY 1995, and then decreased to $1.8 billion in FY 1996. The reduction in liabilities reflects the
lapse in the aviation excise taxes from January 1, 1996 through August 26, 1996.
The table also shows that the tax on domestic air transportation accounts for most of the
liabilities from the aviation excise taxes (87.5 percent). The other aviation excise taxes account
for 12.5 percent of total liabilities, as follows: the tax on domestic air freight transportation (5.8
3The Omnibus Budget Reconciliation Act of 1993 imposed an additional tax of 4.3 cents per
gallon on both commercial and noncommercial aviation fuel. Revenues from this tax, which
remains in effect and is not scheduled to expire, are retained in the General Fund.
4Liabilities incurred for a given year may differ from net receipts to the Trust Fund, due to
adjustments made during that year which relate to prior periods.
-4percent), international air passenger departures (4.5 percent), aviation fuels other than gasoline
(2.0 percent), and gasoline (0.2 percent).'
Liabilities from excise taxes that finance the Airport and Airways Trust Fund: FY 1993-1996
($ millions)
FY 1996
FY 1995
FY 1994
FY 1993
4,316
4,747
4,928
1,557
Domestic air freight
238
330
335
126
International air passenger
departures
224
225
256
87
Aviation fuels (other than gasoline)'
101
118
139
5
6
21
S
1
4,885
5,441
5,666
1,776
Domestic air transportation
Gasoline7
Total
Administrative Problems with Taxes
The IRS has identified various administrative problems with the current tax. Some of
these problems are attributable to the fact that the taxes on air transportation are imposed on the
person purchasing the transportation rather than the transportation provider. Although the
transportation provider is required to coUect the tax and remit the amounts collected to the
Treasury, the IRS may have no effective remedy when the transportation provider does not
collect and remit the tax. In those cases, the IRS must either establish that the transportation
provider's fiilure was willful or attempt to collect a small amount of tax from each of the persons
to whom transportation was provided. Additional difficulties arise when the tax expires or is
reinstated. For example, the expiration of the tax at the end of 1995 resulted in numerous small
refund claims from individual passengers who purchased tickets in 1995 for travel during 1996.
'Net receipts from the additiona14.3-cents-per-gallon tax on commercial and
noncommercial aviation fuels were $28 million in FY 1993, $38 million in FY 1994, $41 million in
FY 1995, and $568 million in FY 1996. Deposits received relating to these taxes remain in the
General Fund. The application of the 4.3-cents-per-gallon rate to fuel used in commercial
aviation began in FY 1996.
&'7These liabilities are ~et of refunds for exempt uses and certain adjustments.
-5The differing tax treatment of commercial and noncommercial aviation is also a source of
difficulty. When the same aircraft is used to transport passengers or property for hire and to
transport employees or property of the owner (or the affiliated group to which the owner
belongs), the tax that applies is determined on a tlight-by-tlight basis. In the case oftlights that
transport passengers or property for hire, tax is imposed on the amount paid for the
transportation, but the fuel used is exempt from tax (other than the 4.3 cent general fund tax).
Dual-use aircraft, however, are likely to use fuel that has already been taxed at the full rate,
necessitating a claim for refund. In addition to the administrative burden of tiling and processing
refund claims, the rules relating to dual-use aircraft can result in inappropriate revenue losses
because a flight is treated as commercial aviation (and not subject to the Trust Fund fuel tax) if it
carries a single fare-paying passenger. In other words, a substantial fuel tax can be avoided by
paying a relatively small tax on a single passenger's fare.
The administrative problems discussed above do not result in significant revenue losses.
We WOUld, nevertheless, be pleased to work with Congress to develop legislation that would
address the IRS concerns.
We also note that the air transportation taxes may lead to allocation disputes. This occurs
because express delivery services generally involve a combination of air transportation and ground
services. In such cases, only the amount paid for the air transportation is subject to tax, and it is
therefore necessary to determine the extent to which the total amount paid is allocable to air
transportation. The IRS believes that some taxpayers are taking advantage of these rules by
allocating an inflated amount to ground services to avoid the tax. This problem is inherent in a
tax imposed on amounts paid for taxable services that are commonly bundled with other services.
The IRS believes, however, that its concerns can be minimized by appropriate changes to its
regulations and is currently studying this issue.
Proposals to Modify Taxes or Substitute
an Alternatiye Fundin~ System
The Administration is also represented at this hearing by Louise Frankel Stoll of the
Department of Transportation. Her testimony will discuss in greater detail the allocation and
funding issues as they affect the FAA's programs and operations. As you know, Congress has
directed further study of the issues relating to FAA financing. The F ederal Aviation
Reauthorization Act of 1996 (p.L. 104-264) requires an assessment by an independent contractor
ofFAA's funding needs and the costs imposed by each segment of the aviation industry on the
airport and airway system. This assessment, which is due later this month, should provide a useful
starting point for efforts to develop a secure funding source for Federal aviation programs. The
Reauthorization Act also creates a National Civil Aviation Review Commission to study how best
to finance the FAA in light of this assessment of funding needs and system costs. The
Commission is scheduled to report its findings and conclusions to the Secretary of Transportation
by August 1997. In addition, by October 1997, the Secretary of Transportation, after
consultation with the Treasury Department, is required to provide Congress with the
Administration's recommendations for funding the needs of the aviation system through 2002.
-6-
We believe it would be inappropriate to propose a specific system of new fees or taxes
without the benefit of the Commission's recommendations. The Administration will, of course, be
pleased to work with this Committee to develop a long-term financing solution when the study is
complete and the Secretary of Transportation has reported his recommendations to Congress.
Mr. .chairman, this concludes my written testimony. I will be pleased to answer any
questions you or other members of the Committee may have.
-30-
DEPARTMENT
OF
THE
TREASURY
~/78~9~. . . . . . . . . . . . . . . . . ..
....................
ornCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202)622-2960
For Immediate Release
Text as Prepared for Delivery
February 4, 1997
REMARKS TO THE TREASURY BORROWING ADVISORY COMMITTEE
OF THE PUBLICI SECURITIES ASSOCIA TrON
BY DIRECTOR OF THE OFFICE OF FINANCIAL ANAL ysrs
JOHN H. AUTEN
The current picture, as we see it, is one of an economy moving along a path of moderate
growth with inflation well under control. The cyclical imbalances and inflationary distortions that
might have been expected after nearly six years of economic expansion are notable by their absence.
At the present time, there are virtually no signs of demand inflation in product markets and only
scattered indications of rising cost pressures, despite labor markets that are freq uently characterized
as tight
Real growth has recently provided some surprises and there has been a change of pace since
you were here three months ago.
Three months ago, the economy was coming off a 2 percent third quarter and most
of that growth had been due to inventory accumulation. Consumer spending, which
had been growing strongly, flattened out rather abruptly. Economists, some of whom
are always looking for trouble, began to feel that they had located it on the downside
Now, three months later, the economy has moved up temporarily near a 4-3/4 percent
annual rate of growth with no help from inventories. Consumer spending has resumed
a healthy rate of advance, consumer confidence is high and warnings of downside risk
haven't been heard much recently Inventory-sales ratios are low, production is rising
and the economy seems pOIsed for further growth
-MORERR-1482
Far press reie(JSes, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
That has been the pattern during the current expansion. The economy has averaged
about 2-112 percent real growth per year for nearly six years, never stringing together enough
strong or weak quarters in a row so as to get very far off path. In turn, that sustained
expansion at cruising speed has carried the economy close to capacity operation without
generating much inflationary pressure. The chain-type price index for Gross Domestic
Product --our broadest measure of inflation --has also averaged about a 2-112 percent annual
rate of advance for nearly six years and has been running closer to 2 percent recently
--actually under in the fourth quarter. Other measures of inflation, particularly in the
consumer area, are of course somewhat higher.
Our statistics tell us where we have been --and then not always very
accurately --certainly not where we are going. But two key reports released last week, the
emplo~ent cost index and ~he advance estimate of fourth quarter GDP, seemed to carry a
fairly clear message. No marked departure from the six-year, self-stabilizing pattern of the
current expansion seems likely in the near future. That may not be a very exciting conclusion
but it certainly would be a very desirable outcome.
Let us take the inflation side of the equation first. The employment cost index,
prepared by the Bureau of Labor Statistics, is the preferred measure of the change in the cost
oflabor. Total compensation includes wages and salaries plus employer costs for benefits.
Unfortunately, the index is only available at three-month intervals and its quarterly changes
are sometimes volatile, thereby reducing its value somewhat. But it is the best such measure
that we have and the latest reading, released last week, showed little increase in cost
pressures.
Wages and salaries rose 3 3 percent in nominal terms last year while benefit costs rose
only 2.0 percent, yielding a total compensation increase of2.9 percent. During 1995,
total compensation rose by 2.7 percent. The employment cost index appears to have
bottomed out and it is drifting up a little, but still in terms of just a few decimal points.
•
Increases in total compensation have been held down by slow growth in benefit costs
in recent years. This reflects the containment of medical costs by employers through
a shift to managed-care plans There is some question whether benefit costs will
behave as favorably in the future
•
Increases in total compensation costs do not map directly into prices but are offset in
part by increases in productivity Over time, output prices tend
to grow at about the same rate as unit labor costs (compensation per unit of
output). Assuming in round numbers. that productivity were to grow at its twodecade trend of about I percent a year, a 3 percent rate of increase in total
compensation would translate into about a 2 percent increase in unit labor costs
That is, in fact, near the current rate of advance in the GOP chain-weighted price
index Whether or not such a moving equilibium with trend productivity gains
and stable inflation can be maintained is an open question. But clearly there is
that possibility and last week' s employment cost results did little to rule it out
The other major statistical release last week was the advance estimate of
fourth-quarter GDP with its 4.7 percent annual rate of real growth and amazingly low rates
of inflation: near 1-1/2 percent for the implicit price deflator and below 2 percent on the
chain-weighted measure. For those who follow the data closely, it had been clear for quite
a while that something like a doubling of the third quarter's 2.1 percent real growth was in
prospect. But, very few would have coupled that with such low rates of inflation.
Fourth quarter real growth was boosted statistically by a sizable swing in the
net export component, apparently reflecting difficulties of seasonal adjustment, and by special
factors elsewhere in the national accounts. There is very little in the fourth-quarter results
which suggests to us that safe speed limits are being exceeded. Gross domestic purchases
(total U.S. spending on goods and services) rose in real terms at only a 2.6 percent annual
rate in the fourth quarter, the lowest quarterly advance of the year, and less than the average
advance in the entire expansion, while inflation has remained stable. On balance, there was
little indication from last week's two key releases that either demand or cost presssures had
intensified meaningfully by the end of the year.
That is a summary of how we see the domestic economic situation at the present time.
-30-
D E P \ R T \1 E
~
T
0 F
TilE
T REA SUR Y
178J
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE. N.W. • WASIDNGTON, D.C.• 20220. (202) 622·2960
EMBARGoED UNTIL 2;30 P.M.
February 4, 1997
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 February 13,
~997.
This offering will result in a paydown for the Treasury ot
about $600 million, as the maturing weekly bills are outstanding
in the amount of $26,592 million.
Federal Reserve Banks hold $6,825 million of the maturing
bills for their own aecounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted.
competitive tenders.
Federal Reserve Banks hold $4,840 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of aceepted compeeitive tenders. Additional ~unt8
may be issued for such accounts if the aggregate amount of new
bide exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banka 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 Pare 356, as amended) 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 highlighes.
000
Attachment
RR-1484
8%ClBLZCi11ft'8
or
".I"aJIUuaY CW. . .DfClB 0..
20 •• %••aBD
~uaRY
..ma.~
13. 1 •• 7
IDLL8
February 4, 1"7
O!!vtaq ApOUJlt
•
•
P"CEtp,iqp of OertEI»gl
Term and type of security . • •
COSIP number • . • . • . . • •
Auction date . . • . . . • • .
Issue date • . • • • • . . . •
Maturity date • • •
... .
Original issue date • • . . • .
CUrrently ou~standing .
I
..
'R"
III
J
a.'"
::I
I
•
•
Minimum bid amount • • . . . .
Multiples .. :. . . . . . . . • .
,ia
$14,094'm111ion
$10,000
$ 1,000
submission ot Bids:
Noncompetitive bids
Competitive bids
rate
(2)
..
~
(3)
ft)
..
::I
~
0\
..
Maximum Recognized Bid
at a Single yield
Maximum Award .
Receipt of Tender.:
Noncompetitive tender.
Competitive tenders .
I
PaYment Tams . . .
I
III
11.1
'"
$ 1,000
discoun~
of accepted competitive bids
(i) Must be e~ressed
a discount rate with
twO dec~mals. e.g;, 7.10t.
.
\&I
1&1
$10,000
Accepted in full up to $1,000,000 at the average
«
I'll
182-day bill
91279. SJ 9
February 10, 1997
February 13, 1'97
August 14, 1997
February 13, 1997
912794 4J 0
Pebruary 10, 1997
Pebruary 13, 1997
May 15, 1997
November 14, 1996
the follqwing rul •• ARPly to all "PUEtt!•• mentioped ab0YWI
\
N
$13,000 million
'i-day bill
'I
(II
•.
000 mlilion
C21V~ .J.nt ~'" "l'\ ~
.e
Net long po.ition for each bidder mu.t be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
Net long position must be determined as of
one half-hour prior to the closing ti~e for
receipt of competitive tenders.
l5t of public offering
35t of public offering
Prior to 12:00 neon Bastern Standard time
on auction day
Prior to 1 :00 p.m. ·Baatern Standard time
on auction day
Full payment with tender or by charge to a fund.
account at a Federal Reserve Bank on issue date
DEPARTl\lENT
OF
THE
lREASURY ~'J
TREASURY
NEW S
OffiCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE. N.W.• WASIDNGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
February 5, 1997
REMARKS BY ROGER L. ANDERSON
DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE
FEBRUARY 1997 TREASURY QUARTERLY REFUNDING
PRESS CONFERENCE
Good afternoon. I will begin with today's refunding announcement and the terms of the
regular Treasury February quarterly refunding. I will also discuss Treasury financing requirements
for the balance of the current calendar quarter and our estimated cash needs for the April-June 1997
quarter. I will then discuss certain other debt management issues.
1.
We are offering $39.75 billion of notes and bonds to refund $18.0 billion of privately
held notes maturing on February 15 and to raise approximately $21. 75 billion of cash.
The three securities are:
First, a 3-year note in the amount of $17.75 billion, maturing on February 15, 2000.
This note is scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern time on
February 11
Second, a 10-year note in the amount of $12.0 billion, maturing on February 15,
2007 This note is scheduled to be auctioned on a yi"eld basis at I :00 p.m. Eastern
time on Wednesday, February 12
Third, a 30-year bond in the amount of $1 0.0 billion, maturing on February 15, 2027.
This bond is scheduled to be auctioned on a yield basis at 1 :00 p.rn. Eastern time on
Thursday, February 13
-MORE-
RR-1485
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2.
As announced on Monday, February 3, we estimate a net market
borrowing need of $50.0 billion for the January-March quarter. The estimate assumes a
$20 billion cash balance at the end of March. Including the securities in this refunding, we
have raised $9.7 billion of cash from sales of marketable securities. See the attachment for
details.
The Treasury will need to raise $40.3 billion in market borrowing during
the rest of the January-Match quarter. This financing can be accomplished through
regular sales of 13-, 26-, and 52-week bills in February and March and 2-and 5-year notes
in February and March. Cash management bills may be needed to cover the low points in
the cash balance in March.
The tentative auction calendars for February, March and April are included
in the chart package which was distributed today.
3.
4.
We estimate Treasury market borrowing to result in a pay down in the
range of$10 to $15 billion for the April-June quarter, assuming a $35 billion cash balance
on June 30.
5.
On January 29, Treasury successfully auctioned its first inflation-indexed
notes. We are very pleased with the reception of this new form of financing. This is a
good start to what will become a substantial part of Treasury's issuance program. The
next auction will be in April.
6.
At last quarter's press conference, we described the major changes we had
made to the SLGS program. On January 24, the Vice President's office recognized the
efforts of our staff, along with staff from Public Debt, Tax Policy, and General Counsel's
office with a Hammer Award for redesigning the SLGS program to make SLGS more
attractive and easier for state and local government entities to use.
7.
Last quarter, we announced that we intend to change the way Treasury bill
auctions are announced. The change will exclude from the announced offering amount of
each bIII auction ~ny amounts that will be purchased by the Federal Reserve's System
Open Market Account. The amount announced will be awarded to the public and to
foreign official accounts to replace maturing bills. Awards to the Federal Reserve for the
System Open Market Account to replace maturing bills will be treated as additions to the
announced size of the auctions. We will be making this change in order to provide more
complete information to market participants. We are currently completing the testing of
modifications to one of our computer systems to incorporate this change, and we expect
to announce the effective date of this change within the next few weeks.
8.
In February 1995, Treasury began requiring bids in note and bond auctions
to be expressed in three decimal places. At the time, Treasury did not extend three
decimal bidding to bill auctions because three-decimal bidding with .00 I percent minimum
increments provides unique prices only for bills with maturities greater than 360 days. We
asked the Borrowing Advisory Committee yesterday for their views on instituting three
decimal bidding with minimum increments of .005 percent, in effect half-decimal bidding,
for regular Treasury bill auctions. The Committee unanimously recommended that we
make such a change. AccordIngly, we anticipate seeking public comment on this
suggestion shortly.
9.
We also asked the Borrowing Advisory Committee for their views on
recent bilJ auctions that have been· somewhat smaller in size than has been the case
in the past years. The Committee did not feel that such small sizes had caused problems
for the market, but did express some concern for Treasury's ability to enforce the 35%
rule in such auctions. Accordingly, the Committee recommended that we reduce the $2
billion net long position reporting limit to $1 billion for bill auctions only. We anticipate
seeking public comment on this suggestion shortly also.
cert~
10.
The May quarterly refunding press conference is scheduled to be held on
Wednesday, Apri130.
-30-
ATTACHMENT
CASH RAISED
Including the securities announc.ed in this refunding, we have raised $9.7 billion of
cash from sales of marketable securities.
This was accomplished
~
follows:
raised $0.5 billion from the 2-year notes issued JanuaI)' 31;
raised $3.9 billion from the 5-year notes issued JanuaI)' 31;
raised $3.8 billion from the 52-week bills;
paid down $7.9 in the 7-year notes maturing January 15;
raised $7.0 billion from the sale of the new 10-year indexed note to be
issued tomorrow, February 6 and dated January 15;
paid down $19.4 billion iil cash in the regular weeldy bills, including
those announced yesterday;
raised $21.75 billion from the notes and bonds announced today.
MINUTES OF THE MEETING OF THE
TREASURY BORROWING ADVISORY COMMITTEE
OF THE PUBLIC SECURlTIES ASSOC~TION
February 4 and S, 1997
February 4
The Committee convened at 11:30 a.m. at the Treasury
Department for the portion of the me'eting that was open to 'the
public. All members were present, except Ms. Kenworthy and
Messrs. DeRegt, Kessenich, Lodge, Lyski, Napoli, and Wardlaw.
The Federal Register announcement of the meeting and a list of
Committee members are attached.
Deputy Assistant Secretary for Federal Finance Roger
Anderson welcomed the Committee and- the public to the meeting.
John Auten, Director, Office of Financial Analysis, summarized
the current state of the U.S. economy. Deputy Assistant
Secretary Anderson presented the chart show, which had been
released to the public on February 3, updating Treasury borrowing
estimates and providing statistical information on recent
Treasury borrowing and market interest rates.
The public meeting ended at 11:55 a.m.
February refundIng
The Committee reconvened in closed session at the Madison
Hotel at 2:15 p.m. The members were present who had attended the
public briefing. Deputy Assista~t Secretary Anderson gave the
Committee its Charge, which is also attached.
The Committee .began by considering the att~ched proforma
financing plan for the January-March quarter that had been
prepared in -:idvance by one of the members',. using the market
borrowing estimates that were released by the Treasury on
February 3. The committee voted to recommend that the Treasury
issue $17.75 billion 3-year notes, $12.0 billion 10-year notes,
and $10.0 billion 30-year bonds. This recommendation represents
a $0.75 billion reduction in the 3-year note size and a $2.0
billion increase in the 10-year note size relative to the
November refunding. In the Committee's view, a slightly larger
lO-year note may add needed liquidity to this sector since an
additional conventional la-year note will not be offered until
May. The reduction in the size of the 3-year note offering would
partially offset the increase in the la-year offering and the new
cash raised by the recent la-year inflation-indexed note auction.
2
The Committee also voted to recommend that Treasury reopen
the November 30-year bond to add to the strippable supply of the
security. Although the Committee did not see a need to issue a
cash management bill (CMB) as part of the February refunding, it
does foresee a need for a CMB in early March, with a maturity
shortly after the April 15 tax,date.
The Committee consensus was that the current sizes of the 2and 5-year note auctions, 'as ,well as the recoitunended sizes of the.
re'funding issues, should be maintained in the April-June period.
However, taking into account the April offering of inflationindexed securities, and due to the anticipated net paydown in the
April-June period, the Treasury should maintain flexibility in
the size of coupon issues, with modest downward adjustments
possible.
Half-basis point auction bidding for Treasury bills
The Committee saw no disadvantages to the Treasury requiring
auction bidding in minimum increments of one-half basis point for
Treasury bills and voted unanimously to recommend that Treasury
implement the proposal. The Committee believes that half-basis
point bidding will promote more efficient and aggressive bidding
and is likely to lead to matginally higher auction revenues for
the Treasury. In addition, the Committee believes that market
participants would need very little lead time to begin half-basis
point auction bidding since most market participants already
trade the securities in minimum increments of one-half or even
one-quarter basis points.
Net long position reporting threshold
The, relatively small amount' of Treasury bills available for
th-e public in certain recent weekly bill auctions has decreased
the Treasury's ability to enforce the 35 percent bidding rule
when bidders' net long positions are less than the $2 billion
reporting threshold. The Committee voted to recommend that the
Treasury reduce the net long position reporting threshold to $1
billion for Treasury bill auctions, while maintaining the $2
billion threshold for note and bond auctions.
The meeting adjourned at 3:45 p.m.
3
February 5
The Committee reconvened at 8:30 a.m. at the Treasury in
closed session .. All members were present, except Ms. Kenworthy
and Messrs. DeRegt, Kessenich, Lodge, Lyski, Napoli, Pike, and
Wardlaw. The Chairman presented the Committee report (copy
attached) to Under Secretary Hawke and Deputy. Assis.tant 'Secretary
Anderson·.' 'A brief discussion ensued concerning' the net long.,
position reporting threshold..
.
The meeting adjourned at 8:50 a.m.
s~~~
Financial Economist
Office of Market Finance
Domestic Finance
February 5, 1997
Attachments
Certified by:
&/ I -c
Lc '
- ( ) h.. /( - )
~ichard Kelly, Chair~an
Treasury Borrowing Advisory Committee
of the Publit Securities Association
February 5, :1997 .
Federal Register / Vol. 62. No.5 I Wednesday. January 8. 1997 I Notices
-
surface Transportatlon Board
[STB Ex Parte No. 619)
Petition of Fleldston Co., Inc. To
Establish Procedures Regarding Ex
Parte Communications In RaJlroad
Merger Proceedings
AGENCY:
ACTION:
Surface TransportatlOn Board.
Statement of policy.
The ICC TerminatIOn Act of
1995. Public Law 104-88. 109 Stat. 803
(ICCfA). at 49 USc. 11324(0. permits.
but does not require. ex parte
communications in certain
circumstances involving the
consolidation. merger. or acquisition of
control of railroads in a transaction that
involves at least one Class I railroad.
The Board announces that it will not
entertain ex parte communications in
railroad merger proceedings.
EFFECTIVE DATE: January 8. 1997.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Joseph H. Dettmar. (202) 927-5660.
[TDD for the hearing impaired: (202)
927-5721.J
In
response to a petition filed by Fieldston
Co., Inc., the Board has announced that
it will not entertaIn ex parte
communications in railroad merger
proceedings. While a change in the law
permits ex parte communications in
railroad merger proceedings under
certain conditions, the Board has
decided not to entertain ex parte
communications in these proceedings
because entertainment of ex parte
communications would impede
effiCiency, fairness, and public
confidence in the Board's railroad
merger review procedures.
Additional information is contained
in the Board's decision. To purchase a
copy of the fuU decision. write to, call.
or pid up in person from: DC News &
Data. Inc .. Room 2229.1201
SUPPLEMENTARY INFORMATION:
ConstitutlOn Ave .. N.W., Washington.
DC 20423. Telephone: (202) 289---4357/
4359. [Assistance for the heanng
Impaired is available through TDD
services (202) 927-5721.1
Decided: December 31. 1996.
Bv the Board. Ch;lIrman Morgel:. VIce
Chairman Simmons. and ComrmsslOner
Owen.
Vernon A. Williams,
Secretary
(FR Doc. 97--410 Filed 1-7--97; 8:45 am}
IULUNG CXlOE 48'5-OO--P
DEPARTMENT OF THE TREASURY
Departmental Offices, Debt
Management Advisory Committee;
Meeting
Notice is hereby given, pursuant to 5
U.s.c. App. section 10(8)(2), that a
meeting will be held at the U.S.
Treasury Department, 15th and
Pennsylvania Avenue. N.W ..
Washington. D.C.. on February 4 and 5,
1997, of the following debt management
adviSOry committee: Public Securities
Association, Treasury Borrowing
Advisory Committee.
The agenda for the meeting provides
for a techn.ical background briefing by
Treasury staff on February 4, followed
by 8 charge by the Secretary of the
Treasury or his designate that the
committee d\scuss particular issues, and
a working session. On February 5. the
committee will present a written report
of its recommendations.
The background btlefing by Treasury
staff will be held at 11 :30 a.m. Eastern
ti.mtl on February 4 and will be open to
the public. The remaining sessions on
February 4 and the committee's
reporting session .on February 5 will be
closed to the public. pursuant to 5
U.S.c. App. section lord).
This notice shall constitute my
detemnnation. pursuant to the authority
placed in heads of departments bv 5
USc. App. seclion lOrd) and ve;ted ill
me bv Treasury Department Urder No
101--D5. that the closed portIOns of the
meeting are concerned with InformatJOn
that IS exempt from dlsclosure under :,
U.SC 55Zb(c)(9)(A) The puhlIc wteresl
reqUlres that such meetmgs be closed to
the publIc because the Treas un
Department requires frank and'full
advice from representatl ves of the
financial community prior to making its
final decision on maJor finanCIng
operations. Historically. thIS ad\'lce has
been offered by.debt management
advisory committees established bv the
several 'maJor segments of the fin~clal
community. When so utilJzed. such a
committee is recognIzed to be an
adViSOry committee W1der 5 U.Sc. App
section 3.
Although the Treasury's final
announcement of financlDg plans may
not reflect the recommendations
provided in reports of the adVISOry
committee, premature rusclosure of the
committee's deliberations and reports
would be lilc.ely to lead to Significant
financial speculation in the securities
market. Thus. these meetings fall within
the exemption covered by 5 U .S.c.
55Zb(c)(9)(A}.
The Office of the Under Secretarv for
Domestic Finance is responsible ror
maintaining records of debt
management advisory committee
meetings and for providing annual
reports setting forth a summary of
committee activities and such other
matters as may be informative to the
public consistent with the policy of 5
U.S.C. 552b.
Dated: January 2.1997.
John D. Hawke, Jr .•
UnderSecretorylDomestic Finance).
IFR Doc. 97-364 Filed 1-7-97; 8:45 ami
BILlING
cooe
4ItO-3-M
Treasury Borrowing Advisory Committee
of the
Public Securities Association
Cbainnap
Richard Kelly
Chairman of the Board
Aubrey G. Lanston & Co., Inc.·
One Chase Manhattan Plaza, 53rd FI
New York, NY 10005
Vice Chainnap
Stephen Thieke
Chairman, Market Risk Committee
lP Morgan & Company, Inc.
60 Wall Street,· 20th Floor
New York, NY 10260
.
DanielS. Ahearn
President
Capital Markets Strategies Co.
50 Congress Street, Ste. 816
Boston; MA 02109
Stephen C. Francis
Managing Director
Fischer, Francis, Trees & Watts, Inc.
200 Park A venue
New York, NY 10 166
James R. Capra
President
Capra Asset Management, Inc.
555 Theodore Fr.emd Avenue Ste C-204
Rye, NY 10580
Geda1e B. Horowitz
Senior Managing Director
Salomon Brothers, Inc.
7 World Trade Center
39th Floor
New York, NY 10048
Kenneth M. DeRegt
Managing Director
Morgan Stanley & CQ., Incorporated
1585 Broadway
New York, NY 10036
Timothy W. Jay
Managing Director
Lehman Government Securities, Inc.
3 World Financial Center
New
NY. 10285-0900
. York,
.
, .
2
Barbara Kenworthy
Managing Director
of Mutual Funds - Taxable.
Prudential Insurance
McCarter Highway
2 Gateway Center, 7th Floor
Newark, NJ07102-5029
Daniel T. Napoli
Senior Vice President
Merrill Lynch & Company
250 Vesey Street, North Tower
World Financial Ctr, 8th Fl.
New York, NY 10281
Mark F. Kessenich, Jr.
Managing Director
Eastbridge Capital, Inc.
308 Royal Poinciana Plaza
Palm Beach, FL 33480
William" H. Pike
Managing Director
Chase Securities Inc.
270 Park Avenue
New York, NY 10017
Richard D. Lodge
President
Bane One Funds Management Company
100 East Broad Street, 17 Flo
Columbus, OH 43271-0133
Richard B. Roberts
Executive Vice President
Wachovia Bank & Trust Co., NA
P.O. Box 3099
Winston-Salem, NC 27150
Wayne D. Lyski
Chairman & Chief Investment· Officer
Alliance Fixed Income Investors
Alliance Capital
Management Corporation
1345 A venue of the Americas
New York, NY 10105
Joseph Rosenberg
President
Lawton General Corporation
667 Madison Avenue
New York, NY 10021-8087
Robert D. McKnew
Executive Vke'President
Bank of America
55~ California Street, 10th Fi.
San Francisco, CA 94104
Morgan B. Stark
Principal
Ramius Capital Group
40 West 57th Street, 15th Fl.
New York, NY 10019
Michael P. Mortara
Partner, Co-head Fixed Income Division
Goldman-Sachs & Co.
85 Broad Street, 26th Floor
New York, NY 10004
Craig M. Wardlaw
Executive Vice President
Nations Bank Corporation
Nations Bank Corporate Center
Mail Code NCI 007-0606
Charlotte, NC 28255-0001
February 4, 1997
COMMITTEE CHARGE
The Treasury would like the Committee's specific advice on the
following:
T'reasury financing
the composition of a financing to refund $1B.0 billion of
privately held notes maturing on February 15 and to .ra'i~e
approximately $19.75 billion to $21.75 billion of cash ~n 3-,
10-, and 30-year notes and bonds;
reopening the October lO-year note in the refunding;
the composition of Treasury marketable financing for the
remainder of the January-March quarter and the April-June
quarter.
Three-decimal auction bidding for Treasury bills
In February 1995, Treasury began requiring bids in note and
bond auctions to be expressed in three decimal places. At the
time, Treasury did not extend three decimal bidding to bill
auctions because three-decimal bidding with .001 percent minimum
increments for Treasury securities provides unique prices only for
bills with maturities greater than 360 days. It has been suggested
that Treasury institute three decimal bidding with minimum
increments of .005 percent, in effect half-decimal bidding, for 1326- and 52-week bill auctions. Half-decimal bidding provides
unique prices for bills with maturities of more than 72 days.
We would like the Committee's views on half-decimal auction
bidding for 13,-, 26- and 52-week Treasury bills.
Net long position reporting threshold
In certain recent auctions of weekly Treasury bills, the
amount of bills available for purchase by the public has been
somewhat smaller than has been the case in the past few years.
We would like the Committee's views on the sizes of such
auctions.
Other topics
We would welcome any comments that the Committee might wish to
make on related matters.
SUMMARY Of JANUARY-MAACH 1997
ESTIMATED NET TREASURY MARKETABLE 10MOWlNG
Ii,. billion. of dol.,.,
moM,
nlw
,.ked or announced ,.. of Fetlruary 3,19971
Rlgular weekly billa
S2-welk bills
NIl
-18.9
3.6
0.0
0.5
CI.h mgt. billa
2-YI,r notlS rlllc!ude.
biI. foreign add-oNl
S·y.,' nota. flllCludo. '0.7 bU. foreign edd-ons)
".1
3.9
7-Y.1f notes
10-v••r note. TIl'S
Subtotal
·7.9
7.0
-n.7
Net new money to be rli.ad:
R.funding (includa. U.5 biI foreign add-on.)
Regular wllkly billa
52,w.lk billa
Cash mgt. bill
2· Ind 5-.,a., nota. ,
Subtotal
81.8
Totll nat markatable borrowing In quarter.
50.0
22.5
10.0
0.5
20.0
8.6
Notl: A•• umes In.nd of QUirter ~sh lllianea of flO billion.
SUMMARY OF APRIL.JUNE 1997
ESTIMATED NET TREASURY MARKETABLE BORROWING
(In billionl of dolan'
Regular weekly b~1s
52·waek bills
Cash mgt. bills • •
2 and S'yaar notes I I
Rehmding.II,I
7·year notl$ red.mption
. Inflalion-indlJl.d notes
-6.9
-0.3
-20.0
10.3
2.4
·7.1
7.0
" •. 5
To,aI nl' martolubll borrowing In quanlr:
Note: Assumes an .nd of quane' cuh balance of *30 billion.
• Th~ cash mgt. bill to be islued Mlrch 3 to mature 0" April 24.
, Ineludes antiCIpated foreign add-ons 01 $5.0 bil.
" Inclueles .ntic:iplted foreign add-on. lotilling '5.2 bit .
•• IntT'Qullie, ClSh mlnlg.ment bills will be required to cever CISI'! lew pOfnlS dUring the quarter.
The 1 st eMB will bl " 0 bil. .•ettle on 5115 Ind mature on 6/19, and the 2nd will be $ 20 bil., settle
on 613. Ind mlture on 6/17.
II, Includes Intlcipated roreign .dd-on. totliling $2.3 bil.
Plge 1
ESTIMATED TREASURY MARKET ABLE BORROWING
/In billions of dol"r.'
Totll .stimat.d mlrle.tlb.. bonowing
Totll net marle.t.blt borowing is.ue~ or .nnounc.d through F,bru'ry 3. 1997
Totll rtmlining n.t m.rle.t.b.. borrowing
50.0
-11.7
61.7
Casn bllince It .nd of Qu.t.r
20.C
Amount
T"I'u~
bin.
mIIturing
Amount
off.r,d
3& 6 mo billa
Jan. 2
Jan. 9
Jln.16
Jln.23
Jln.30
Feb. 6
F'b.13
Fib. 20
Fib. 27
Mar. 8
Ma,.13
Mar. 20
M.f.27
27.8
27.6
27.2
27.4
27.3
26.6
27.2
28.1
26.2
24.2
24.1
24.'
25.1
27.0
27.0
27.0
27.0
27.0
27.0
27.0
52·week bills
Jan. 9
Fell. 6
Ma,.6
18.'
18.'
18.8
19.3
19.3
19.3
28.'
Cas" mgt. bib
Mlr.3 IAprii 24 mlturityl
Total bII.
Fortlgn
,dd-on,
27.1
25.2
23.3
23.2
·1.5
-1.3
-1.0
-4.2
23.2
413.8
Cumul.tlv.
e.." ,.i..d
·2.8
-2.3
0.4
-0.2
0.9
0.8
2.8
1.3
1.8
20.0
~1..
Cllh
' ....d
2.9
2.'
2.4
·8.9
0.3
0.4
0.5
1.2
20.0
20.0
12.4
, 5.3
eOUeO",
Jan.7·Yllr
7.9
Infl.tlon 1C'Yllt
Jan. 2·ye.,
S·YI.r
Jan.
F.b.3-y••,
Feb. 10-'1""
Feb. 30-'1""
Subtotal
·7.9
7.0
18.6
7.0
.• 1.1
0.6
3.2
4.1
1.6
0.9
0.0
2.5
20.0
22.5
3.9
9.3
17.5
12.5
1.7
0.9
18.0
18.0
10.0
10.0
38.0
LO
Feb. 2-'1""
F.b. 5-y•• ,
1 •• 2
9.5
17.5
12.5
1.7
0.9
-0.7
3.0
Mar. 2.'1""
Mar.5·Yllr
18.3
10.8
17.5
12.5
1.7
-OS
0.9
17
0.9
2.6
Total couDons
110.6
135.0
10.3
24.4
34.7
Tot.1 borrowln;
512.0
548.8
13.2
36 B
50.0
P.ge 2
ESTIMATED TREASURY MARKET ABLE BORROWING
"n bill,on. of cloUlr,'
.14.5
·10.0 to ·15.0
-14.5
Tota' estimated me,ketlble bOtrowine
TO'I' nit marketlbll borowiftg iuu.d or IMounced through Februlry 3,1997
Tote' r.ml.n,ng n.t mlrketlble bonoWinv
35.0
Clsh balln'l I' ancl Of QUI..r
Tr.e.u~
bll.
3& 6 mo biUs
Apr. 3
Apr. to
Apr.n
Apt.24
MIV 1
MavS
MI., 15
Ma., 22
M.V 29
Jun. 5
Juft.12
J,,"."
J,,".2'
52·wltk bills
ADr.3
M.y 1
May 29
Jun. 26
Amount
meturing
Amount
off....d
27.2
25.S
24.7
24.8
25.6
27.S
27.6
27.6
26.6
26.5
28.S
27.0
27.0
23.0
22.0
27.0
29.0
29.0
27.0
27.0
27.0
27.0
23.0
23.0
".8
1•• 5
".3
18.3
19.6
t9.3
19.3
26.8
17.6
foreign
edd-on.
Ceeh
rai.ed
CUmuledve
ca,h rai.Md·
.cu
1.2
·1.7
·2.8
1.'
2.2
t.4
-G.6
-G.6
.a.&
D.•
".3
-3.5
·3.6
".9
0.3
.a.2
-0.1
-0.3
-<1.3
·20.0
10.0
20.0
·10.0
·20.0
·20.0
·27.3
·27.3
Cuh mot. bills
Apr. 24 mlturity
Mav 1 5 IJune 1 9 maturity'
Jun. 3 IJuftl 17 mlturityl
JUII. 19
Jun. 17
Tote' billa
Coul!0n.
Apr. "yllr
20.0
10.0
20.0
10.0
20.0
"72.3
.7.1
I,,'latioft lO-v.lr
Apr. 2·'1'"
Apr.5-yelr
Mav
~y
445.0
·7.1
7.0
18.0
10.5
3·.,."
100Yelr
7.0
17.5
12.5
1.6
-<1.5
1.1
0.7
2.0
2.7
17.5
10.0
1."
0.9
0.1
2.'
27.4
27.5
MI.,
Mav 5,,,"
18.2
10.6
17.5
12.S
1.6
-0.7
0.7
1.9
0.9
2.6
Jun. 2·ya.,
Jun.5·Y.lt
lS.6
10.6
17.5
12.5
1.6
0.7
·1.1
1.9
0.5
2.6
Tot,l COupons
121.0
124.5
9.2
3.5
12.7
T0111 bo,rovlnllg
593.2
569.5
•. 2
·23.7
·14.5
S"lItotll
2,.,.1'
P.g.3
REPORT TO THE SECRETARY OF THE TREASURY
FROM THE
TREASIJRY BORROWING ADVISORY COMMITfEE
OF THE
PUBUC SECURITIES AS SOCIA nON
February 5,1997
Dear Mr. Secretary:
Since the Committee's last meeting on October 30, 1996, the pace of economic activity
has been brisk. The mid-year slowdown in consumer spending proved temporary, as robust gains
in employment and income led to renewed vigor. Significant improvement in net exports,
although somewhat exaggerated, also contributed to the fourth quarter rebound. Despite abovetrend growth, and aside from energy prices, inflation has remained remarkably well behaved. On
a more cautious note, wage and salary gains are trending higher and may well rise further amid
persistent labor market tightness.
Interest rates on Treasury securities are currently little changed from the levels which prevailed
at our last meeting. _Monetary policy has remained unchanged sin~ January oflast year, while market
expectations presently seem: tilted in the direction of somewhat tighter credit·in the coming months.
Foreign demand for Treasury securities continues to be supportive of the market, reflecting strength in
the dollar as well as relatively attractive U.S. yield levels.
WIthin this context, to refund the $18.0 billion of privately-held notes maturing on February 15,
1997 and to raise $2175 billion of cash, the Committee recommends that the Treasury auction $39.75
billion of the following securities:
$17.75 billion 3-year notes due February 15, 2000~
$12.0 billion lO-year notes due February 15,2007;
$10.0 billion re-opened 6 112 percent bonds due November 15,2026.
The Committee unanimously supported a modest reduction in the size of the 3-year note to
$17.75 billion from the $18. 5 billion level in the prior refunding. This recommendation is consistent
with the Treasury's recent tendency to modestly reduce offering amounts of shorter-tenn coupon
issues, in connection with more frequent offerings oflonger-tenn securities. The Committee also took
into account the new cash raised through the Treasury's initial offering of inflation-indexed securities.
In that context, this recommendation further contributes to recent efforts to reduce reliance on shortterm financing
Eleven of the thirteen members present voted to recommend that the Treasury issue $12.0
billion 10-year notes, up from the $10.0 billion level in the prior refunding. Two of the members
favored a size of $14 0 billion. consistent with lO-year issue sizes before the shift to more frequent
offerings. In formulating this recommendation., the Committee was mindful of the need for large, liquid
issues in this important benchmark maturity The Committee also considered the interval between this
auction and the next 10-year note auction in the May refunding It was felt that the larger sized
offering would reduce the potential for an undue scarcity to develop in the repurchase agreement
market. It is also consistent with the Committee's recommendation in its report of May 1, 1996 that it
would be preferable to target a minimum size of$12.0 billion for the lO-year note auctions in February
and May.
Another factor in the Committee's consideration of the size of the 100year note was its
unanimous vote not to re-open the 61/2 percent notes due October 15,2006. This security, first issued
on October 15, 1996, was re-opened in last year's November refunding. An additional re-opening
would result in a particularly large issue which, on the margin, would be somewhat more difficult for
the Treasury to efficiently refund upon maturity. Also, there was no evidence of a shortage of this
issue in the repurchase agreement market, and it was feh that the market was likely to place a premium
on a new large 100year benchmark issue.
In terms of the bond in its refunding recommendation, the Committee unanimously supported
$10.0 billion as the appropriate size. The Committee also voted by 11-2 to recommend a re-opening of
the 6 1/2 percent bonds due November 15, 2026. The majority feh that a further increase in the
strippable product with May 15 and November 15 maturities was desirable. It was also noted that a
large issue would reduce the potential for a shortage to develop in the repurchase agreement market
during the six-month period before the issuance of the next 30-year bond.
With the aim of achieving a cash balance of $20 billion on March 31, the Committee
unapimously recommends that, for the remainder of the quarter, the Treasury meet its borrowing
requirement in the following manner:
Two 5-year notes totaling $12.5 billion each, to raise $4.7 billion of new cash;
Two 2-year notes totaling $17.5 billion each, to pay down $1.5 billion of cash;
One I-year bill totaling $19.25 billion, to raise $0.5 billion of new cash;
Weeldy issuance of 3- and 6-month bills through the remainder of the quarter, to raise
$9.1 billion of new cash; and
A cash management bill totaling $20 0 billion to mature on April 24 to meet the
seasonal cash need in early March
2
Including the $21.75 billion raised in the mid-quarter refunding, as welJ as anticipated foreign
add-ons of $70 billion, the proposed financing schedule will raise a net amount of $616 billion This
amount after subtracting the net paydown of $11.6 billion to date in the quaner, will accomplish the
total net market borrowing requirement of$50.0 billion.
For the April·June quarter, the Treasury estimates a net paydown in the range of $1 0-15 billion
with a cash balance of$35 billion at the end of June. To accomplish the anticipated net paydown, the
Committee recommends the provisional financing schedule attached to this report
In its deliberations concerning this financing schedule, the Committee assumed that the next
offering of inflation-indexed securities in April would be maintained at $7. 0 billion Given this
assumption, and in view of the size of the planned net paydown, the Committee recognizes the
Treasury's need for flexibility in tenns of possible modest reductions in the size of coupon auctions.
In response to the Treasury's request for its views, the Conunittee considered the question of
whether to introduce half--decirnal bidding for 13-, 26- and 52-week bill auctions. As noted by
Treasury sta.f( half--decimal bidding would provide unique prices for bills with maturities of more than
72 days. The Committee's view on half--decima1 bidding was unanimous in favor of this change.
As noted in its report of August 3, 1994, when the committee considered the question of 3decimal yield bidding for note and bond auctions, the Committee feels that smaller bidding increments
would, on the margin, induce some market participants to bid somewhat more aggressively, with
potential for mod~ savings to the Treasury. The Committee also feels that such a change would be
relatively easy to introduce, -as it is consistent with existing secondary market practices and generally in
line with the changes introduced by the Treasury in February 1995 for note and bond auction bidding.
The Committee also considered possible complications which might arise, in tenns of
monitoring Treasury's auction bidding rules, as a result of reductions in the amount of certain bill
offerings available for purchase by the public In particular, it was noted that, after taking account of
auction allotments to central banks and other official institutions, the remaining size of some bill
offerings was such that a potential maximum 35 percent award could be smaller than the Treasury's
current $2 billion net long position auction reporting threshold. Such reporting requirement is used to
facilitate enforcement of the Treasury's policy concerning maximum amounts of securities awarded to
anyone bidder in all auctions of Treasury securities
In order to help avoid inadvertent violations of that policy in cases involving auctions of small
sizes of Treasury bills, the Committee considered a number of possible reporting practice changes.
This included adjusting the size of the reporting threshold on an auction-by·auction basis, when
Treasury is aware that the available size of a bill offering would entail a maximum potential single
bidder award below $2 billion. Alternatively, the Comminee considered a reduction in the reporting
threshold for auctions of Treasury bills to $1 billion - an amount judged sufficient to ensure proper
monitoring of the single bidder award policy
With one abstention, the Committee members strongly preferred lowering the current net long
position reporting threshold for Treasury bill auctions to $1 billion, while retaining the current $2
3
billion threshold for note and bond auctions The Committee felt this approach would lessen the risks
of unintended errors which might arise from frequent .auction-ta-auction changes in reporting
thresholds. It would also limit the additional complexities, and related compliance costs, associated
with adhering to the Treasury's rules and procedures for auction bidding. In this regard. it was noted
that those complexities inevitably add costs to participants in the process, and particularly for those
investors who are only occasional direct participants in Treasury auctions.
Mr Secretary, that concludes the Committee's report.
We welcome any comments or
questions
Respectfiilly submitted,
Richard M. Kelly
Chainnan
Estimated Treasury Marketable Borrowing
(billions of doUars)
April - June, 1997
Amount
Maturing
Amount
Offered
Foreign
Add-ons
Casb
Raised
Treasun: bills·
Regular weekly bills
$344.5
$337.3
$-72
18'-.9
19.5
19.3
19.6
19.25
19.25
19.25
19.25
0.35
-0.25
-0.05
-0.35
52-week bills
April 3
May 1
May 29
June 26
Cash management bills·
Total bills
20.0
441.8
-20.0
-27.5
414.3
Treasun: coupons
April 7-year
Inflation-indexed notes
April 2-year
AprilS-year
7.1
18.0
10.5
-7.1
7.0
17.5
12.5
1.6
0.7
7.0
1.1
2.7
,.
17.75
12.0
27.4
29.75
2.3
4.65
May 2-year
May 5-year
18.2
10.6
17.5
12.5
1.6
0.7
0.9
2.6
June 2-year
June 5-year
186
10.6
17.5
12.5
1.6
0.7
05
2.6
,tal coupons
121.0
126.75
9.2
15.0
,tal borrowing
5628
541.1
9.2
-12.5
May 3-year
May 10-year
Refunding subtotal
ssumes·that $20 billion of cash management bills will be issued in early March and mature in
April. Also, intra-quarter cash management bills will be needed to cover cash low points
ing the quarter.
DEPARTMENT
OF
THE
TREASURY !~~)
TREASURY
NEW S
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 2U220. (202) 622-2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
February 5, 1997
CONTACT: Office of Financing
202/219-3350
TREASURY FEBRUARY QUARTERLY FINANCING
The Treasury will auction $17,750 million of 3-year notes,
$12,000 million of 10-year notes, and $10,000 million of 30-year
bonds to refund $18,037 million of publicly-held securities
maturing February 15, 1997, and to raise about $21,725 million
new cash.
In addition to =he public holdings, Federal Reserve Banks
hold $1,795 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 $1,654
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities.
Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
The lO-year note and the 30-year bond being offered today
are eligible for the STRIPS program.
Tenders will be received at Federal Reserve Banks and
Branches and at ~he Bureau o~ 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, as amended) for the sale and issue by the Treasury to
the public of marketable Treasury bills. notes. and bonds.
Details about the notes a:ld bond are given in the attached
offer:ng highlights.
000
Attachment
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax lh,e at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC
FEBRUARY 1997 QUARTERLY FINANCING
February 5, 1997
Offering Amount
517,750 million
SI2,DOO mill i on
510,000 million
3-year notes
U-20DO
912827 2H 4
February II, 1997
February 18, 1997
February lB, 1997
February 15, 2000
Determined based on the average
of accepted competitive bids
Determined at auction
August 15 and. February 15
10-year notes
8-2007
912827 2J 0
February 12, 1997
February 18, 1997
February IS, 1997
February 15, 2007
Determined based on the average
of accepted competitive bids
Determined at auction
August 15 and February 15
3D-year bonds
Bonds of February 2027
912810 El 7
February 13, 1997
February 18, 1997
February 15, 1997
February 15, 2027
Determined based on the average
of accepted competitive bids
Determined st auction
August 15 and February 15
$5,000
$1,000
None
S1,OOO
51,000
Determined at auction
51,000
51,000
Determined at auction
Determined at auction
Determined at auction
Determined at auction
Not appl icabl.e
Not appl icable
Not applicable
Determined at auction
Determined at auction
912803 BK 8
February 15, 2027 --- 912833 PC 8
Description of Offering:
Term and type of security
Series
CUS IP nunbe r
Auc t i on date
Issue date
Dated date
Maturity date
Interc!;t rate
Yield
Interest payment dates
Minimum bid amount
Multiples
Accrued interest payable
by investor
Premium or discount
STRIPS Information:
Minimum amount required
Corpus CUSIP number
Due dates and CUSIP numbers
for additional TINTs
912820 BW 6
Not appl i cable
The following rul~s_apply to all securities mentioned above:
SubmlSSlon of Bids:
Noncompetitive bids
competitive bids
Accepted in full up to S5,000,000 at the average yield of accepted competitive bids.
(1) Must be expressed as a yield with three decimals, e_g., 7_123X.
(2) Net long position for each bidder must be reported when the sum of the totsl bid amount,
at all yields, and the net long position is S2 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 Recornized Bid
at a Sing e yield
Maximum Award _ • . • •
35% of public offering
35% of public offering
Noncompetitive tenders
Competitive tenders
Payment Terms • • _. . •
Prior to 12:00 noon Eastern Standard time on euction 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
Receipt of Tenders:
?" issue date
DEPARTMENT
OF
THE
TREASURY
NEWS
'IREASURY
~178~9~. . . . . . . . . . . . . . . . . . . ..
..............................
OrnCE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE. N.W.• WASIllNGTON. D.C .• 20220. (202) 622-2960
T ext as Prepared for Delivery
February 5, 1997
America's Role in Global Economic Integration
Lawrence H. Summers
Deputy Secretary of the Treasury
Banker's Association for Foreign Trade
Washington, D. C.
Good evening. It is a pleasure to be here tonight among a group that has done so much
to expand trade and further the cause of global economic integration. As President Clinton said
last night, American leadership in expanding trade and economic integration has been central to
our prosperity.
It is, in many ways, a critical moment in our nations' history. Americans are weary after
a long period of conflict. Increasingly, they are preoccupied by problems at home, not abroad,
and wish to withdraw from foreign entanglements.
Our elected leaders vow to shrink government. Companies are increasingly successful,
but workers 'are fearful for security Tariffs are thrown up. Concerns rise about immigration.
There is talk in some quarters of keeping America "pure" Quotas and new laws reduce the flow
of immigrants. It is the b'est of times for some, and the worst of times for others.
I suppose I could be describing 1997 I am actually describing 1927. America is on the
brink of a series of catastrophic economic and foreign policy errors that will send the shuttling
toward what are perhaps the darkest years In human history
History does not repeat itself Any historical analogy between the world of today and the
world of the 1920s is surely imperfect
Nevertheless, the experience of the 1920s offers important lessons--about the perils of
international retreat and the need to internationally engage President Clinton has made his
commitment clear. But a growing chorus of voices would renounce our international
commitments and withdraw from the global stage
RR-1487
-MORE_For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2In many ways, this debate echoes one we have been having in America since the signing
of the Constitution. During the early part of the 19th Century as America began to look outward,
President Monroe proposed the Monroe Doctrine. President Wilson proposed the League of
Nations after World War I, but Congress then refused to permit the United States to join.
No one can say whether Mussolini's aggressions could have been reversed by a US
decision to join the League of Nations, whether Hitler's rise to power could have been averted by
a less onerous reparations package for Germany or whether the Great Depression would have
been less severe without passage of the Smoot Hawley Tariff. Nevertheless, it is clear that the
policies of the 1920s must bear some responsibility for the 1930s.
In stark contrast to the isolation that followed World War I, after World War II,
American leaders shaped the global vision of an America committed to create an ever-widening
circle of ever more prosperous, ever more international economies as the centerpiece of
America's foreign and economic policy.
Then as now there was opposition to spending money on overseas countries. However
then as now, America had a President committed to leading internationally. And then as now,
some courageous legislators put principle ahead of party to help rebuild countries in need and
strengthen the economies of our trading partners.
•
Through the courage of legislators such as Senator Arthur Vandenberg, Congress passed
the Marshall Plan, for example.
•
In due course, the United States helped established the United Nations, the World Bank
and the IMF.
This idea of growth at home through prosperity abroad was central to America's post-war
prosperity Today, it lies at the center of President Clinton's economic policy.
After World War II, the primary concern was with the economic development of a warravaged Europe and Japan. Today our challenge is to integr~te the 5 billion people of the
developing world into a truly global economy. But the stakes--future peace and security--are the
same.
The Argument of Separatists
And yet despite the force of these arguments and the convictions of probably most of you
here tonight, American internationalism is under siege
The critics of the internationalist vision I have described form a wide and growing school
of what might be called separatists. I choose this term because it conveys their desire to have
America go-it-alone, separately from others.
The Separatists' argument has three principle elements.
-3First, Separatists suggest that economic integration impoverishes most Americans who
must compete with low wage labor for the benefit of a small number of international businesses.
In a nutshell, this is the thesis of Bill Greider's recent book and is manifest in much of the
opposition to NAFTA and other trade agreements.
It is a serious argument that needs to be taken seriously. But it is a wrong one.
First, American trade barriers are already· very small. We give up very little when we
enter into trade agreements and others give up much more. NAFT A, for example, brought trade
barriers in Mexico down by five times as much as it reduced American trade barriers. Second,
countries' wage rates reflect their productivity.
Moreover, while imports replace jobs, exports create them. And jobs in the export sector
have been found to pay 15% higher than jobs on average.
The second argument that Separatists make is that market-oriented policies abroad will
work only for a few, not the many.
While it is our view that abroad as in America, growth must be inclusive if it is to be
enduring, the historical record refutes this argument.
•
Income equality in the newly industrialized countries such as Japan, Korea and Singapore
is significantly lower than in earlier feudal societies or, indeed, in many countries that
have not pursued serious reforms.
•
Moreover, the very organizations working to promote international integration such as
the UN and the World Bank also promote education and fight against poverty.
The third main argument of those who oppose the Bretton Woods Washington consensus
that they are something we can no longer afford. I strongly disagree.
George Bush was never more wrong than when he said we have more will than wallet.
In fact, the real question is if we can afford not to engage in the defense of our interests by
promoting prosperity and integration around the world
One variant of this argument now rings particularly hollow, namely that America can no
longer bear the burden of leadership since Germany and Japan won the Cold War. In fact,
America's economy has never been stronger .
A policy of engagement has led to export growth of 7.2 percent yearly since 1992, three
times GOP growth
•
U.S. firms now export more than $800 billion in nominal terms, enough to support more
than 10 million U.S. jobs.
-4 Indeed, the experience of the 1990s has shown that the four decades-old story of
convergence has ended. The United States began the 1990s as the richest country in the world
and is pulling away.
D. The US Agenda
In the second portion of my remarks, I would like to address the principal elements of
our agenda of international engagement. There are three crucial priorities for the US in the
international economic sphere:
•
first, promoting open markets
•
second, fostering global economic growth; and
•
third, strengthening financial markets.
All are needed. Let me address each in turn.
Promoting Open Markets
This is not the forum for a detailed articulation of our trade strategy. But our approach to
opening markets has two main pillars.
First, we must continue efforts to sustain progress towards further economic integration.
I don't have to tell this audience how since taking office, President Clinton has signed
over 200 trade agreements from NAFTA to the GATT to the Framework with Japan.
•
These agreements have paid off in more exports and more jobs.
In the case of the Framework with Japan, for example, since the beginning of 1993,
growth in all US exports to Japan has been ·nearlythree times that of growth in exports to
other. industrial economies. To pick just one sector, US exports of medical instruments
. to Japan have grown over 40%~
Of particular interest to this group, however, may be our progress in the area of financial
servIces.
•
The U.S.-Japan Agreement on Financial Services, for example, has opened markets in
the areas of asset management, securities sales and underwriting and cross-border
provision of financial services.
•
US fund management companies may now participate in the management of the
$200 billion public pension fund market, the $260 billion mutual aid association market
and the $360 billion private pension fund market.
•
As of 1999, this will give US firms access to markets totaling some $660
billion.
-5 Japan is not the only market where we are making progress. Korea, for example. has
stepped up financial services liberalization. as part of the OECD accession process.
Perhaps the Administration's most significant trade liberalizing achievement is the
creation of the WTO. Having created it. we are now working to bring in as many countries as
possible, including China and Russia, if they can meet its conditions.
•
And we will deepen the WTD's effectiveness by expanding its reach as we take up such
issues such as financial services.
•
Last month. our negotiators returned to the table to hammer out a final agreement
on country liberalization of telecommunications services which currently
accounts for $2.8 billion in US exports; and, in April, we will resume talks on
financial services where we export $7.5 bi11ion annually.
•
In the multilateral sphere, we will also work with the DECO to continue to reduce tied
aid as we have already to reach a multilateral investment agreement.
•
We have also laid the groundwork through APEC, in the aftermath of the Summit of the
Americas and in the transatlantic dialog for regional trade agreements.
The second pillar of our strategy to further integration is to continue working to level the
playing field for American firms. Before his tragic death, former Secretary of Commerce, Ron
Brown worked tirelessly on behalf of US firms and against unfair foreign official assistance and
that work continues. The Commerce Department is also eliminating-outdated regulations that
had restricted US exports.
In this context., let me add that it is vitally important that we continue funding the ExportImport Bank as well as the Overseas Private Investment Corporation. While the Clinton
Administration takes a back seat to no one in its drive to eliminate wasteful or market distorting
programs. we must not unilaterally disarm.
Pr.omoting GI.obal Growth
The second crucial priority of our international strategy is to promote global growth.
When .other countries grow more rapidly. they buy more of our products, produce better goods
for 4S to buy and cooperate on global objectives. Promoting growth is also important because it
creates the conditions for peace and political stabilit~:.
We promote growth around the world in a whole range of way!\.
An important but rarely discussed means is through our example and knowledge. U.S.
foreign technical assistance efforts have made an enormous difference in promoting financial
stability and privatization through the formerly Communist world.
•
In Poland, for example. the US provided $200 million to the $415 million Polish Bank
Privatization Fund. Three Treasury advisors on the ground are making sure that progress
is working smoothly.
-6
The International Financial Institutions including. the World Bank and the 11\·1F also play
a vital role in promoting growth and stahility.
Through these multilateral means, the US can bring far more resources to bear on a
problem than it could by acting alone. In strict numerical terms, MOB resources dwarf US
bilateral programs. Overall MOB lending is over $45 billion per year. But it costs the US onl\'
about $I.:! billion per year in scheduled payments. In contrast, US bilateral development
lending, where we bear the entire cost, is about $7 billion.
~
~
Since we en.ioy influence over the IFIs which support our values and policy goals, they
proyide a powerful way for us to leverage our resources.
To provide only a few examples ...
•
Nearly $:! billion in average annual World Bank and IDA support for India since 1991
has fostered a revolution in economic policy, bringing tariffs down from 87% to 27%,.
That'S more tariff reduction than we won in the GATT.
•
Some 75 countries received $35 billion in World Bank loans between 1981 and 1993
conditioned on trade and investment liberalization. US exports to those countries rose an
average of 11.8% yearly, creating an extra 850.000 jobs for Americans. These are jobs
we would never have seen had these countries not taken a path of market reform.
Moreover, the growth that the IFIs promote also addresses the scourges of poverty, drug
trafficking and disease around the world, problems that can be contagious. Addressing these
prohlems serves a humanitarian goal. But it also reduces the chance that these problems and the
instability they often cause will spread to other countries.
Strengthening Financial Markets
Our third crucial priority is to strengthen global financial markets. As Secretary Rubin
has said, we need a global financial infrastructure as modern at as the marketplace. Beginning in
Naples and continuing on through Halifax to Denver and beyond. Vle have been working with
our G-7 partners to improve our financial architecture.
•
•
•
That's what improving disclosure and supervisory standards is all about.
That's what the New Arrangements to Borrow are all about; and
That's what the efforts of the IMF. the World Bank and others to create a broad set of
supervisory standards are all about
Here as with fostering gro,",,1h the International Financial Institutions, lie at the heart of
our efforts As we move forv.rard on all of these goals. there are three principles that must
govern our approach to the IFls'
•
First. we must recognize that ureat countries honor their commitments.
•
Second. we must deliver meaningful reform as a condition for assistance.
-
~
- 7 •
And third, we must recognize that, ultimately we must pay to play
Let me say a word about each.
\Ve can and must honor our commitments to the IFIs. It is unconscionable for the
wealthiest and most powerful country on earth to fail to meet its commitments. We should move
quickly to payoff arrearages and restore our good name
Yet in a world of shrinking resources, we must also insure that US taxpayers receive
value for their commitments. Accordingly, we have led a process of reform
•
Over the last two years, the World Bank has cut its administrative budget 10% and has
eliminated first class traveL Headquarters staff will be cut 6% between 1995 and 1999.
•
At the IDB, the administrative budget has declined 5% in real terms since 1995. And
staffing is down 12% from its peak in 1988.
•
To fight corruption, the African Development Bank has subjected senior officials to term
limits. Staff has been cut by 15~io and 70% of managers have been replaced.
•
At the EBRD, net cumulative commitments have grown 150% over the last 3 years with
no real growth in administrative expenses.
Are these reforms sufficient" No
that the process of reform continues.
Are the real yes. And we are working hard to insure
Finally, while we are negotiating our commitment to the IFIs downwards to obtain
greater value for the US taxpayers, ultimately we must stay engaged financially in these
institutions if we are to stay engaged in their management.
\Vhile we must continue to search for ways to cut costs, we must also be ready to meet
the commitments that remain if we are to playa role in shaping policy.
Conclusion
In conclusion, the United State:;' economIC policy 15 and will be based on the idea that
promoting integration and prospenty around the world is enormously in our national interest
The great challenge we face is to maintain hroad support for·this idea. As the President
said last night, our greatest enemy is 1OactlOn Let me be clear: the stakes are huge: an ever
widening circle of prosperity and securtty If \\ie continue to engage, the serious risk of
retrenchment diminished trade and reduced security if we give into the ideas of the Separatists.
All Americans have a stake In global engagement. You in the business community may
have the greatest stake of all in our forell.!n assistance efforts But to win we must resist efforts
to dismantle our agenda piece by plece Ultimately, all of us have a bigger stake in the whole
than in the parts and more strength together, than we can ever have acting alone
-30~
~
PUBLIC DEBT NEWS
Depanment ofthe.Treasury·· Bureau of the Public Debt • \\'ashington, DC 20239
FOR RELEASE AT 3:00PM
February 6, 1997
Contact: Peter Hollenbach
(202)219-3302
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGR-\..'I FOR JA.:'iUARY i997
Treasury's Bureau of the Public Debt announced activity figures for the month of January 1997, of
securities within the Separate Trading of Registered Interest and Principal of Securities program
(STRIPS),
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
5928,139,654
Held in UnstrippedFonn
.5703,845,646
Held in Stripped Form
S::!24.?94,008
S9,196,982
Reconstituted in January
T~e
accompan}ing table gives a breakdown of STRIPS activity by individual loan description, The
balances in this table are subject to audit and subsequent revision. These monthly figures are included
In Table VI of ¢e Monri1(v Statement of the Public.Deb{~ entitled "Holdings of Treasury Securities in
Stripped Fonn."
Information about "Holdings. of Treasury Securities in Stripped Fonn" is now available on the
Department of Commerce's Economic Bulletin Boru:d (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-250
RR-1488
TABLE VI- HOLDINGS OF TREASURY SE~:JP.Ii';::: .1'4 STRIPP:J FCRM. JIoNO'AA't" :tltl
(In thousanlSlJ
PIIr'.c::a. ,L."..ounIOUIStanCllftg
1-112'!'. Nete 401997 ... .
1-5il% NOli p,. I 997 ... .
8-7/8% No:. C-1997 .....
1-1/8% NOle A·1998 .. .
9% Nete p,.,99B ......... .
&-1/4% NOli C.199S .... .
1-7/8'110 NOlI t).1998 ..... .
8-7/8% Nelle .4-1999.... ..
&-1111'110 NOlI 8-1999......
8% Neta C-1999 ........ ..
1.718% NGII t).1999 .... ..
8-112'110 Note .4-2000......
8-718'1'0 NGII 8-2000 .... ..
8-314'1'0 Nota C-2DDD .... ..
8-112% NOIe 0.2000......
7·314'110 NOle .....2001 ......
8'1'0 Nll'le 8-Z001.. ...... .
7·718% NC118 C-ZOOI .... ..
7·112% NOIt [).Z!101.... ..
1·112'1'0 NOlI A-2002......
8-3le% Note 8-2002......
6-114'1'0 Note .....2003 ......
5-314% Note 8-2003 .... ..
5-7/1'M1 NoN A-2004 .... ..
7·1/4% Note ....20004......
7·tl4% NC118 C-2DCU._ ...
7·7/8% NGII 0.2004 ......
7·112% NGII M005 ......
50 112% NOli 8-2D05......
6-112% Note C-2D05 .... ..
5-118% Note [).2005 ......
5-518% Note 402006 .... ..
6-7/8% Nota 8-2001.... ..
7% Note C-2006... ...
6-112% Nate t).20D6 .... ..
11·511% Band 2004.......
12% eOllCl 2005 ...........
10-3/4% lond 2005.......
9-318% Bond 2006 ....... .
11·314% Band 2009-'4 .. ..
11·114% BCIIICI2015.......
10-518% Bond 2015 .......
9-1/8% Bond 2015 ....... .
9-114% Bond 2016 ........
7·'/4% Sand 2016...... ..
7·'12% 50nd 2016 ...... ..
8-314% Sand 2017 ...... ..
8-7/8% Sand 2017...... ..
9-1/B% Bond 2018....... .
9% Bond 2018 ............
1-7/1% Bond 2019 ....... .
8-118% Eond 2019...... ..
8-112'110 Bond 2020...... ..
&-314'110 Bond 2020 ....:.. .
8-314% Sand 2020...... .
7·718'110 Sand 2021...... ..
8-1/1~!end 2021........ ·
&- I 18% Eone! 2021....... .
8% Bene 2021 ........... .
7.114% Eonl! 2022 ...... ..
7·5iB'IIo Sond 2022........
7·118 .... s:n1l2023 ..... ..
6-1/4Q", E:nd202l .... ..
i·lI2'!\! cond20;;:' ...... .
7·5;8% Sond 2025 ..... ..
S.7/8% E:na 2025 ..... ..
S'\' ec~= 2025 .... ..
6-3.4% S:nCl 20~5 .
6-1,'2:1., =~nC2 2C':5 ....
T0II1 .............
I 05/15197.... ..
I 08"5i97 .... ..
I 1,"5197.... ..
1
I
I
I
I
I
I
I
I
.I
I
f
I
I
I
I
I
I
I
I
I
I
02115198 ......
05115198 .... .
08115ISB ......
',115198 ......
02l151S9 ..... .
05/15199......
0B/15199 ......
111'5199......
02I151DD ..... .
05/15100 ..... .
08115100 ......
11/15100.....
02115/01.. ...:
05/,.5101 ..... .
08115101 ......
11115101 ..... .
05115102......
08115102......
021'5103......
C8115103 ......
021'5104......
05/15/04 ......
C8I15104......
11115104.... ..
02115105 ......
05115105 ......
0B/15/0S ..... .
11115105......
I
I
I
I
I
I
! 02115106 ......
05115106 ......
07/15106 ......
101'S/06..... .
11/15104 .... ..
05115105 ......
0B/15105 ......
02115106 .... ..
11115114 ..... .
02115115_ ....
01/15115 ......
11115115 .....
02115/16 ..... .
05115116 .... .
11/15116 ......
05115117 .... ..
OSl15/17 .... ..
05115118......
11/15118 .... ..
02115119 .... ..
08115119.... ..
02115120.... ..
• C5/15120 ..... .
08115/20 ..... .
02115"21 ..... .
05115121...·.. .
08115121 ......
11/15,.21 .... ..
08115122 ......
l1J15"22......
02115/23 ......
08/15/23 ..... .
11115124 .... ..
02l15l25 ..... .
08115i25 ..... .
02115;25 .... .
08/15,'26 ..... .
,",5.26 ..... .
i
--------------i
"I
,n
PortiOn Held in
Unstnppec! Form
Total
MI:UtllY Dlle
I
I
I
I
I
I
I
I
9.921.237 I
9.362.136 I
9 BOI.;J29 I
9.159.068 I
9.165.3B7 I
, I .342.645 I
9.902.875 I
9.719.&23 I
10.047,103 I
fO.163.644 I
lD.n3.9BO I'
10.673.033 I
10.496.230 I
11 ,080.646 I
11.519.682 I
".312.802 I
12.391.083 I
12.339,185 I
24.226.102 I
11.714.397 I
23.859.015
23.562.691
1.378.136
6.096.329
1,742.748
6.573.187
"'05.Me
6.365.275
7,960.0423
6.877.503
7.29.289
7,236.360
8.075.433
5.73'.430
7,151.188
7.2~.182
I
1
I
7.256.854
18.823.551
18.864.448
18.194.169
14.016.858
8.708.639
9.032.870
'9.2S0.798
2O.213.B32
10.228.B68
10.158.883
21.041S.60S
11.113.373
lUSa.B88
12.163.482
32.;98.394
10352.790
10.6;;9.626
18374.361
22.909.044
11.'69.662
1U25. 170
12.502.007
12 ;004.91S
lD e;3.81B
I
11 .• 93.1n
928 13!1.654
703.845.646
28.011.028
12.955.0n
!
I
I
I
14.440.372
13.346.4&7
14.373.7&0
13.834.754
14.739.504
15.002.580
15.209.920·
15.513.587
16.015.475
22.740.446
22.459.675
8.301.806
4.280.758
US9.713
4.755.116
6.D05.5114
12.667.799
7.149.916
I
I
I
1
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
5.8S9.859
1------- I
..............·......... I
=====:======:=====::::=================== ================s===·_=.==-=:..~a==========:==
II
o
o
o
o
o
4.193.600
2.588.550
1.910.400
26,752
4.104.800
2,093.280
2.194,880
1.9B1,600
511.200
248.800
675.200
6.848.160
5.760.000
5.257.600
5.125.BOO
13.819.200
2.100.480
4.145.600
6.694,240
lU39.360
'. '.8.800
6.42B.800
6.984.960
26.558.900
1.907,200
7.755.200
4.558.400
2.810.880
7.478.240
6.484.BOO
I.•
o
••
2UID
I1.2ID
24.aao
G
s.aao
".IID
17Uaa
I .....
21.120
13.2ID
a
a
53.1l1li
27.2111
27,1MD
moao
a
3I.2aO
35.2DO
a
a
••
••o
a
D
D
8.1l1li
,83.0IIII
181,%l1li
D
lUll
I
II
II
II
II
II
II
II
II
II
II
II
rI
II
II
II
II
II
II
II
II
II
II
383,360
98.600 II
71.200 II
12.BOO II
I
..... ,-
D
o
o
o
o
311.•
'497.
320.0IIII
478J1111
..4l1li
202.1.
••
11."
3.Z1111
55,GIII
873.l1lI
23I.IID
:sauDI
,.1....
3ft2QO
334.4DD
3OU2II
'51.
5I2AII
97/11
7IAI
:s••
.....
-7UI
1n....
,s,a
•
I
II
t.l"
11========-==.==~==-~== =_____,..._____
_
II E'!e:::ve "'I~ I. 19!':". se~r:".'eS he!II,n stnp~eCI form were eligible for rtc::1ISlr'MiDn tc Ir.er :lnSlnppeCI form.
~ole C~ ~tI! ,:., .. cnu:ay cf ea;., man:/! Table VI Will be availallie after 3 DO ~ 1:1. els:em ~r.-:e :n lIIe Commerce Oepartmenfs
E:;:;:c:~,c :.:!e:.n 10:::1-::: (:==1 The teie:hone number tc:r more Informa:;c.. I~oul E3S IS ::;:'21 482-1ge6. The balances .
,n ~ .5 :lI:.e aooe sut',K: :0 i.C.t and sLt'5eQuenlldjustments
"
2.538.800 II
2.984.000 I I
3.712.000 II
2.416.320 f I
2.592.200 II
3.236.800 II
3.537.600 1I
, .731.200 I I
3.169.600 II
2.904.375 I
3.5n.600 I
2.597.100 I
4.764.800 I
3,928.960 I
4.234.800.1
3.285.800 I
3.751.1751
3.&22.400 I
3.474.800 I
1.878.880 I
1.224,000 I
364,258 II
261.600
4,800
5.&00
44.000
7,382.437
8.027.202
U46,101
8.718.785
20,751.302
10.035,517
22.635.015
23.198.435
27,749.421
12.950.277
14,434.n2
13,302.0467
14,373.780
13.834.754
14,739.504
15,002.580
15.209.920
15.513.587
UI.015.475
22.740.446
22.459.1575
4,108.206
1,872.208
7,359.313
4.729.184
1,800.784
10.574,519
4,955.038
4.938.259
8.755.6504
18.574.751
'1.'89.248
11.348.009
1.2511.858
3.451.039
3,307,270
5.&3U9.
18.1'3,352
6:083,281
3.464.643
5.879.246
IU64.573
5.530.088
5.178.522
6.239.494
8.445.590
2.944.43
13.815.861
20.29B.164
3.991.422
5.240.370
12.218.647
12.806.316
10.822.618
11,480.377
I
PCItIICIn Held
Stnpped Form
224294 008
DEPARTMENT
lREASURY
OF
THE
TREASURY
NEWS
omCE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASffiNGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
February 4, 1997
Contact: Chris Peacock
(202) 622-2960
TREASURY DIRTY-MONEY CRACKDOWN NETS $30 MILLION
Treasury Under Secretary for Enforcement Raymond W. Kelly said Thursday the
Treasury has renewed an anti-money laundering initiative in the New York metropolitan area that
already has resulted in $30 million in currency seizures, 15 search warrants, three arrests and one
conviction.
Kelly said the geographical targeting order, known as a GTO, aimed at certain money
remitters has been renewed for 60 more days. It had been scheduled to expire on February 2.
The anti-money laundering initiative was instituted in August 1996 against money
remitters involved in specified transactions with Colombia and has disrupted movement of illicit
proceeds to that country. About 3,500 money remitter agents in the New York metropolitan area
have been subject to reporting requirements under the GTO.
Investigative activity indicates that structuring of transactions by certain agents of the
targeted remitters is continuing, in an apparent effort to avoid reporting suspect transactions.
(Structuring involves breaking down a large transaction into several smaller transactions which
then fall below the reporting requirement.) Investigations of this structuring are ongoing and are
a reason for the extension of the order. Additional search warrants are also expected shortly.
Issued under the authority of the Bank Secrecy Act (BSA), a key anti-money laundering
law, a GTO is used to impose stricter reporting and record keeping requirements on specified
financial service providers in a certain geographical area for a limited time period. The New
York GTO requires the remitters in question to obtain and report identifying information about
the parties to all remittances of cash to Colombia of $750 or more. The renewal means the order
will remain in place until April 3, 1997.
The GTO was requested by U.S. Attorneys for the Eastern District of New York, the
Southern District of New York and the District of New Jersey, along with senior enforcement
officials of the U.S. Customs Service and Internal Revenue Service. It is designed to assist the
EI Dorado Task Force, a multi-agency anti-money laundering task force comprising federal, state
and local law enforcement authorities. The request for the GTO was made to the Treasury's
Financial Crimes Enforcement Network (FinCEN), which administers the BSA.
RR-1489
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'The New York GTO continues to have a devastating effect on the ability of money
remitters to launder drug proceeds," Kelly said. "The GTO has made it much more risky for
criminals to structure remittances to Colombia without being detected."
Remitters are businesses which receive money from customers and remit these funds to
designated recipients, often located overseas. Evidence gathered by law enforcement identified
the state-licensed money remittance companies and their agents in the New York metropolitan
area that were partiCUlarly vulnerable to abuse by cartel money launderers.
Much of the foundation to justify the GTO was laid during investigations of several
money remitters and their agents in New York. On July 24, 1996, Vigo Remittance Corp.
pleaded guilty to structuring financial transactions to avoid standard BSA reporting
requirements. Earlier this month, Remesas America Oriental was indicted for activities related to
money laundering. Numerous other agents and their employees have been successfully
prosecuted for money laundering over the past few years.
The GTO has dramatically reduced the flow of narcotics proceeds through money
remitters in New York City to Colombia. For example:
•
Several of the transmitters targeted under the GTO have stopped sending funds to Colombia.
•
Many others are sending significantly lower amounts than they were before the GTO.
•
Currency seizures have dramatically increased. Seizures from JFK Airport during the first
half of the GTO period were nine times higher than they were during the same period in
1995, and seizures have continued at rates approximately 400% higher than they were during
comparable periods in past years.
"The GTO is a powerful tool that could be used in similar situations to combat money
laundering," said Stanley E. Morris, Director of FinCEN. "Based on the success of the GTO and
the analysis that FinCEN is conducting in cooperation with other law enforcement agencies, we
are considering broader, more permanent regulatory steps to address vulnerabilities in the money
remitter industry."
- 30 -
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlllNGTON, D.C.• 20220. (202) 622-2960
February 7,
1997
Monthly Release of U. S. Reserve Assets
The Treasury Department today released U.S. reserve assets data for the month of January
1997.
As indicated in this table, U.S. reserve assets amounted to $68,200 million at the end
of January 1997, down from $75,089 million in December 1996.
End
of
Month
Total
Reserve
Assets
Gold
Stock II
Special
Drawing
Rights
2/31
Foreign
Currencies 4/
ESF
System
Reserve
Position
in IMF
21
December
75,089
11,048
10,312
19,112
19,182
15,435
January
68,200p
11 ,048p
9,793
14,826
18,161
14,372
II Valued at $42.2222 per fine troy ounce.
l/ 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.
3./ Includes allocations of SDRs by the IMF plus transactions in SDRs .
.41
Holdings of Treasury Exchange Stabilization Fund (ESF) and Federal Reserve System.
Beginning November 1978, these holdings 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.
p
Preliminary
RR-1490
DEPARTMENT
OF
THE
TREASURY
NEWS
IREASURY
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlllNGTON, D.C .• 20220 • (202) 622-2960
Contact: Michelle Smith
(202) 622-2960
FOR IMMEDIATE RELEASE
February 7, 1997
U.S.lRUSSIA SIGN BILATERAL DEBT ACCORD
Treasury Deputy Secretary Lawrence H. Summers and Russian Deputy Minister of
Finance Michael M. Kasyanov on Thursday signed a $2.3 billion debt rescheduling agreement.
This comprehensive agreement follows a series of yearly rescheduling agreements since 1993.
The agreement formally implements for the United States a debt rescheduling accord
reached last April between the Paris Club of official creditors and Russia. That accord, the
largest rescheduling in the Paris Club's 40 year history, removes the need for repeated
reschedulings, and helps Russia achieve a sustainable debt service profile that will allow it to
meet all of its external debt obligations.
"Once again, this agreement underlines our support for Russia's economic reform. It was
made possible by Russia's continued commitment to stabilization under the International
Monetary Fund's $10 billion medium-term Extended Fund Facility program, which was signed
in early 1996." Deputy Secretary Summers said.
Deputy Secretary Summers reiterated the importance of Russia's pursuing economic
reform vigorously. "If Russia is to achieve its full economic potentiaL it must move ahead with
structural reforms in key areas, such as tax and legal reform, and in the fight against crime and
corruption," he said.
This agreement stretches out Russia's payment period for up to 25 years on certain
principal and interest payments falling due from 1996-99 and on certain loans due after 1999.
Since 1993, the United States, acting in concert with other creditor governments in support of
Russia's move to a market economy. has rescheduled a total of $4.3 billion of debt payments on
Soviet-era debt.
-30-
RR-1491
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DEPARTMENT
OF
THE
TREASURY
NEWS
lREASURY
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlllNGTON, D.C .• 20220. (202) 622-2960
Post G-7 Press Statement
by
Treasury Secretary Robert E. Rubin
Let me start by thanking Theo Waigel and Hans Tietmeyer for hosting us in this great
city.
Let me give you a quick summary of the highlights of our meeting this afternoon.
First, on the economic outlook, we agreed that the crucial challenge for the G-7 in the
year ahead is to achieve sustained balanced expansion in the G-7 economies. It is clear that we
each face different policy requirements for sustaining and strengthening expansion.
We heard an interesting presentation from our European colleagues about how they are
addressing the challenges of strengthening growth, placing fiscal deficits on a sustainable path,
and implementing structural reforms to reduce unemployment. We also reviewed recent
developments toward European Monetary Union.
The Japanese continue to face an important challenge in maintaining the supportive
macroeconomic policy stance necessary to promote a strong domestic-demand led recovery.
implementing structural reforms to open the Japanese economy, and policies to strengthen the
banking system. I think it's fair to say that these concerns merit a fair amount of attention going
forward.
In our discussion, we briefed our G-7 colleagues about the balanced budget proposal
President Clinton submitted to Congress on Thursday. This budget builds on the progress we
have made thus far in reducing the federal deficit by 60 percent while focusing public and private
investments on programs, like education and aiding America's inner cities. \vhich will increase
our productivity long-term. It is our belief that the President and Congress have not been this
close to reaching agreement on a budget leading to a balance in nearly 30 years. We will work
diligently to reach this objective.
RR-1492
(more)
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*
-2-
On the exchange markets, let me read a statement that reflects our common view:
"The Ministers and Governors discussed developments in exchange
and financial markets. We believe that major misalignments in exchange markets
noted in our April 1995 communique have been corrected. We reaffirmed our
views that exchange rates should reflect economic fundamentals and that excess
volatility is undesirable. We agreed to monitor developments in exchange markets
and to cooperate as appropriate."
And let me add what I said yesterday. A strong dollar is in the United States interest. We
have had a strong dollar for some time now.
Finally, we reviewed progress on a number of initiatives now underway to strengthen the
world financial system and reform the international financial institutions. In this context, I
reaffirmed the President's pledge to meet our past commitments to these institutions and to
provide our share of future programs. These institutions playa critical role in advancing our
interest in a strong and secure global economy, and they also generate jobs and exports for the
American people. Supporting these institutions is profoundly in the U.S. security and economic
interests.
The next time we meet, I will be welcoming my G-7 counterparts to Washington, D.C.,
where we will continue our preparations for Denver. It will be our honor to see them there.
I would be happy to respond to your questions.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE UPON DELIVERY
Expected at 9:30 a.m. EDT
February 11, 1997
STATEMENT OF
J.MARKIWRY
BENEFITS TAX COUNSEL
DEPARTMENT OF THE TREASURY
BEFORE THE
COMMITTEE ON LABOR AND HUMAN RESOURCES
UNITED STATES SENATE
Mr. Chairman and Members of the Committee:
I am pleased to present the views of the Department of the Treasury on the
implementation of the portability, access, and renewability provisions of the Health Insurance
Portability and Accountability Act of 1996 (HIP AA). This legislation, enacted on a bipartisan
basis with the strong support of the Administration, provides important insurance reform that
enhances health care coverage for American families. We commend this Committee for its critical
efforts in achieving passage of this law. We are committed to working to implement the law in
ways that protect the ability of workers and their families to maintain their health insurance when
they change jobs, without imposing undue burdens on employers, plans, insurance carriers, and
others providing coverage.
In the spirit of the shared responsibility for the HIP AA group market portability provisions
among the Departments of the Treasury, Labor, and Health and Human Services, the three
Departments have taken a coordinated approach to implementation. Consistent with this
approach, portions of the testimony presented to the Committee today by the three Departments
are very similar or identical.
My testimony will focus on the process of promulgating regulations relating to the HIP AA
provisions that promote portability of health care coverage. At the outset, however, it is helpful
to understand the legislative context and statutory structure within which the regulatory process is
RR 1493
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2
proceeding. Accordingly, we will first provide background on the pre-HIPAA laws relating to
group health plans, including COBRA, and on the new HIP AA legislation.
BACKGROUND
Laws Relating to Group Health Plans
In General.
The States generally have the primary regulatory authority over the sale of
insurance. Policies offered in connection with group health plans, as well as policies sold in the
individual health insurance market, are generally regulated under State insurance Jaw. In addition,
even before enactment of HIP AA, group health plans were subject to certain federal requirements
under the Internal Revenue Code of 1986, as amended (the Internal Revenue Code) and the
Employee Retirement Income Security Act of 1974, as amended (ERISA).
The Internal Revenue Code provides substantial tax benefits with respect to group health
plans. For example, the value of employer-provided health insurance coverage and
reimbursements under self-insured accident and health plans are generally excluded from income
and employment taxes.
ERISA includes requirements concerning the disclosure of information to participants and
beneficiaries under group health plans and other employee welfare benefit plans, reporting of
information to the Federal government, and fiduciary responsibilities regarding the management of
these plans. The Department of Labor interprets and enforces these ERISA provisions.
COBRA. The health care continuation coverage rules (commonly known as COBRA)
were enacted under the Consolidated Omnibus Budget Reconciliation Act of 1985 and have been
subsequently amended (most recently by HIPAA). Under COBRA, a group health plan generally
is required to offer employees and their dependents an opportunity to elect to continue coverage
under the plan at the time of a qualifying event (such as tennination of employment). The plan
must pennit coverage to continue for a specified period, such as 18 months in the case of
termination of employment, and the coverage provided must be the same as coverage provided to
similarly situated beneficiaries. A plan is permitted to charge up to 102 percent of the "applicable
premium" for COBRA continuation coverage. The continuation coverage can cease upon certain
events, such as nonpayment of premiums, termination of all of the group health plans of the
employer, or coverage by another group health plan that does not include a preexisting condition
exclusion with respect to the qualified beneficiary.
The COBRA continuation coverage provisions are part of the Internal Revenue Code,
ERISA, and the Public Health Service Act Under the Internal Revenue Code provisions, which
are administered by the Internal Revenue Service, failure to meet these COBRA requirements can
result in imposition of an excise tax on employers. The parallel continuation coverage
requirements contained in Title I of ERISA are administered by the Department of Labor. The
parallel continuation coverage requirements contained in the Public Health Service Act apply to
3
State and local governmental group health plans and are administered by the Department of
Health and Human Services.
COBRA includes overlapping regulatory jurisdictions that may be compared with the
IllP AA portability regulatory jurisdictions. However, the legislative history of COBRA allocated
certain responsibilities among the Departments. Specifically, under the legislative history, the
Department of the Treasury has authority to issue guidance regarding the continuation coverage
that is required under COBRA, and the Department of Labor has authority to issue guidance
implementing the COBRA disclosure and reporting requirements and the authority to enforce
COBRA under ERISA. The Department of Health and Human Services administers the COBRA
requirements imposed on governmental plans under rules conforming to those issued by the
Treasury and Labor Departments.
HIPAA Portability Provisions
In General. IllP AA sets forth Federal requirements relating to portability, access, and
renewability of group health plan and group health insurance coverage. (These IllPAA provisions
are referred to below as the "portability" provisions.)
The IllP AA portability provisions relating to group health plans are set forth under a new
subtitle K of the Internal Revenue Code (sections 9801 - 9806), a new part 7 of Subtitle B of Title
I of ERISA, and a new Title XXVII, Part A of the Public Health Service Act. (These portability
provisions are referred to below as the "group market" provisions.) HIP AA also added
provisions governing insurance in the individual market l which are contained only in the Public
Health Service Act, and thus are not within the regulatory jurisdiction of the Department of the
Treasury (or the Department of Labor). (These portability provisions are referred to below as the
"individual market" provisions.)
In general, the group market provisions create concurrent jurisdiction for the Secretaries
of the Treasury, Labor, and Health and Human Services. The statute provides for the three
Departments to share regulatory responsibility for most of the group market provisions, although
some of these provisions are within the regulatory jurisdiction of only one Department, 2 and
1 These provisions are being addressed in the testimony of Dr. Bruce Vladeck, Administrator
of the Health Care Financing Administration, Department of Health and Human Services.
2For example, IllP AA includes new provisions requiring that participants and beneficiaries
receive a summary description of certain material reductions under a group health plan that are
solely within the jurisdiction of the Department of Labor, and certain provisions relating to the
availability and renewability of health insurance for employers that are solely within the
jurisdiction of the Department ofHeakh and Ihunaft Services.
4
others are within the regulatory jurisdiction of only two of the three Departments. 3 None of the
group market portability requirements are solely within the regulatory jurisdiction of the Treasury
Department. 4
Limitations on Preexisting Condition Exclusions. HIP AA's portability provisions limit
the ability of group health plans and group health insurance issuers to impose preexisting
condition exclusions. The statute defines a preexisting condition exclusion as a limitation or
exclusion of benefits relating to a condition that is based on the fact that the condition was present
before the date of enrollment. Under HIP AA., a preexisting condition exclusion may be imposed
only if it relates to a condition for which medical advice, diagnosis, care, or treatment was
received or recommended within six months prior to the individual's "enrollment date." In
addition, a preexisting condition exclusion may not be applied for more than 12 months (or 18
months in the case oflate enrollment) after the enrollment date.
If the individual has previous "creditable coverage," including coverage under another
group health plan, the maximum preexisting condition exclusion period must be reduced by the
aggregate of the individual's periods of creditable coverage. Coverage may be disregarded ifit
precedes a 63-day break in coverage (unless State rules require that there have been a break that
is longer than 63 days in order for coverage to be disregarded with respect to insurance issued in
the State) or if the coverage consists solely of certain "excepted" benefits. In addition, special
protections apply for pregnancy, and for newborn children, adopted children, and children placed
for adoption.
Certification of Creditable Coverage. To enable individuals to provide evidence of, and
thus receive credit for, previous coverage, lllP AA generally requires that group health plans and
health insurance issuers provide certifications of the period of creditable coverage. Certifications
must be provided when an individual ceases plan coverage or otherwise becomes covered under
COBRA, when an individual ceases COBRA coverage, and in certain cases where a request is
made. Because this certification process applies broadly to nearly all group health plans and
health insurance issuers, it has been a major focus of our efforts to develop regulations, described
in greater detail below.
Special Enrollment Rights. We believe that a fundamental underpinning of the
portability provisions is that employees and dependents should have the ability to maintain health
coverage even when they change jobs or leave the group market. To that end, HIP AA allows an
employee or dependent to elect to enroll in a group health plan under certain conditions involving
3For example, HIP AA includes new preemption provisions within the jurisdiction of the
Departments of Labor and Health and Human Services that allow certain more stringent State
insurance provisions to apply to insured plans.
4There are other provisions of IllP AA, outside of the portability provisions, that are within the
principal jurisdiction of the Department of the Treasury.
5
either the loss of coverage from another group health plan or the addition of a new family
dependent by marriage, birth, adoption, or placement for adoption. One of the practical
implementation issues that will arise under the new law is the coordination of an individual's
existing health insurance continuation and conversion rights with the new special enrollment rules.
In certain cases, an individual must exhaust his or her continuation rights (which may involve the
payment of premiums for extended periods oftime, e.g., 18 months) in order to be eligible for
special enrollment. This will present new options that can complicate the health care continuation
decisions of a family with an ill member. These new enrollment rights, especially in conjunction
with the new limits on preexisting condition exclusions and existing COBRA rules, will enable
employees and dependents to enroll when they need coverage, provided they can afford the
coverage and understand their rights.
Prohibiting Discrimination Based on Health Status. The IllP AA group market rules
prohibit a group health plan or health insurance issuer in the group market from establishing rules
for an individual's eligibility to enroll in a plan based on an individual's medical history, evidence
of insurability, or other health status-related factors. The legislative history indicates that these
include factors relating to personal activities, such as skiing or riding horses. Similarly, a group
health plan or health insurance issuer in the group market cannot require an individual to pay
greater premiums or contributions based on any health status-related factor. An exception is
provided for discounts, rebates, or modifications to copayments or deductibles in return for
adherence to "programs of health promotion and disease prevention" (sometimes referred to as
"wellness" programs). The need to interpret and apply these new legal concepts (health statusrelated factors and wellness programs) will be among the issues making implementation of
HIP AA more challenging.
Effective Dates. IllP AA includes a number of effective date provisions.
•
The substantive requirements of the IllP AA group market rules, such as the
limitations on preexisting condition exclusions and the prohibitions on
discrimination based on health status-related factors, are generally effective for
plan years beginning after June 30,1997. For example, in the case of any plan that
is maintained on the basis of a calendar plan year, these provisions generally will be
effective on January 1, 1998.
•
Special effective date rules require individuals to receive a certification of their
coverage in certain cases before the general effective date of the substantive
IllP AA group market rules. Specifically, the requirement that a group health plan
and a health insurance issuer in the group market deliver to individuals
certifications of their creditable coverage upon certain events (e.g., loss of
coverage) applies to events occurring after June 30, 1996. However, no
certification is required to be provided before June 1, 1997. Certifications are not
required to reflect coverage before July 1, 1996, and certifications for events
before October 1, 1996 need be provided only upon written request.
6
Under IllP AA, the Departments are instructed to "first issue by not later than April 1,
1997, such regulations as may be necessary to carry out" the group market portability provisions.
At the same time, HIP AA provides that no enforcement action may be taken, pursuant to the
group market portability provisions, against a group health plan or health insurance issuer with
respect to a violation of a requirement imposed by those provisions before January 1, 1998 (or in
the unexpected event that regulations are delayed, the date of issuance of the regulations), if the
plan or issuer has sought to comply in good faith with those requirements.
These effective date provisions delineate a coordinated implementation time line: April 1,
1997 (for issuance of the regulations); June 1, 1997 (for issuance of certain certifications); July 1,
1997 (earliest effective date for non-calendar year plans); and January 1, 1998 (general effective
date for calendar year plans and expected end of the good faith period).
IMPLEMENTATION OF HIP AA PORTABILITY PROVISIONS
The three Departments have been working in concert, as described below, to implement
the HIP AA portability rules, including our continuing efforts to take into account comments from
the public.
Regulation Process
A guiding principle in the process of developing regulations has been to implement
HIP AA' s provisions in a manner that is faithful to the protections provided for workers and their
families, while remaining sensitive to the burdens imposed on employers, plans, insurance carriers,
and others. During this process we have taken into account, and will continue to take into
account, the comments we receive concerning the portability guidance.
Interagency Meetings and Drafting of Regulations. In enacting IllP AA, Congress
established a compressed timetable to govern implementation of the portability provisions. As
indicated above, the portability rules generally apply with respect to plan years beginning after
June 30, 1997, and IllP AA directs the three Departments to first issue, by April 1, 1997, such
regulations as may be necessary to carry out these rules. Further, in adding very similar group
market provisions in three separate statutes, Congress created a structure under which the
Departments must coordinate their efforts. Accordingly, HIP AA provides that the Departments
are to execute an interagency memorandum of understanding (MOD) under which departmental
regulations, rulings, and interpretations relating to the shared provisions are to be administered so
as to have the same effect at all times and enforcement policies are to be coordinated in a manner
that avoids duplication of efforts and assigns enforcement priorities.
Personnel from the three Departments met directly after HIP AA's enactment and quickly
developed a working arrangement for the development of regulations to be issued by the statutory
goal of April 1, 1997. Under this working arrangement, staff from each Department have been
assigned to a number of interagency working groups that take responsibility for relevant portions
7
of the regulations. After collective analysis of the issues, personnel were designated to develop an
initial draft for each relevant provision. Following circulation of the initial drafts, members of the
working groups have been working collaboratively to resolve outstanding issues. The working
groups meet on an almost daily basis. In addition, a larger interagency group will be involved in
reviewing the drafts produced by the working groups and is coordinating the overall regulatory
project. The draft regulations will be reviewed by each Department and submitted to the Office of
Management and Budget (OMB) for Exec. Order (EO) No. 12866 review before publication.
The development ofl·1IP AA regulations by three Departments on a collaborative basis is
neither an easy nor a simple task. The process has led us to appreciate better the difficult
challenge that your Committee, and the other Congressional committees of jurisdiction,
confronted in crafting the legislation. However, we believe that this process of developing the
regulations is proceeding well. The interagency teams are working in a spirit of cooperation and
open mindedness, and are actively taking into account the information and views received from
the public. We have made substantial progress in developing regulations on the shared provisions,
and believe that we are on track to meet the April 1 goal.
At the same time, we have initiated a process for development of an MOU. As the first
component, the operational understanding among the Departments is to have personnel from all
three Departments work together to draft group market regulations dealing with the shared
provisions. However, we believe that the most critical aspects of any MOU will be those that
create a framework for the future administration of the HIP AA rules after the regulations are
issued, i.e., for how the Departments will interpret and enforce the law after it goes into effect.
The regulatory process is providing us with insights as to the most appropriate roles for each
agency and potential methods for allocation of interpretative authority and enforcement priority .
Consequently, after the process of drafting the regulations has been completed, the Departments
will be in a better position to develop a formal MOU specifying the allocation of future
administrative guidance and enforcement responsibilities. Accordingly, the Departments intend to
complete and execute the MOU after promulgation of the initial regulations.
Comments From Interested Parties. Personnel from the Treasury Department have
held meetings regarding the portability provisions with representatives of the National Association
ofInsurance Commissioners (NAIC) and with plan administrators. The Departments of Labor
and Health and Human Services have also been meeting with outside groups and, as indicated in
Dr. Vladeck's testimony, the Health Care Financing Administration has been working closely with
the States as part of its unique role in the process. Personnel from all three Departments,
including the Internal Revenue Service, have attended and spoken at conferences, both to educate
others about HIP AA and to be educated about concerns and issues raised by those affected by the
new requirements. We, of course, also have received and responded to correspondence and
telephone inquiries from the public regarding HIP AA.
In addition, last December, the Departments published in the Federal Register a public
solicitation of comments on the HIP AA portability provisions. The Departments indicated that
8
they had received comments from the public on a number of issues arising under these provisions.
They announced that further comments from the public on all issues under the portability
provisions were welcome in order that comments could be taken into account, to the extent
practicable, for purposes of developing the regulations before April 1, 1997. We believe that
consideration of public comments, both on behalf of employees, dependents, and others seeking
health care coverage, and on behalf of employers, plan administrators, and insurance issuers, is,
and will continue to be, an essential component of our implementation efforts.
The solicitation of comments also noted that, in response to questions already received,
the Departments were considering whether to include in the regulations a model certification that
could be used to certify an individual's period of creditable coverage. The Departments indicated
that such a model certification might include information identifying the parties involved, whether
the individual had at least 18 months of coverage under the plan without a 63-day break, and, if
not, the start and end dates of coverage periods (and any related waiting period), but not
infonnation concerning the particular benefits provided under the plan. Under this possible
approach, information concerning the particular benefits provided under a plan would be required
to be furnished only if another plan or issuer, after receiving the model certification, requested
additional infonnation in accordance with the statute.
The solicitation of comments specifically requested input on whether a model certification
would be useful. The Departments are considering whether a model certification could
significantly reduce the potential burdens on employers and insurance carriers, while also making
the certification process more effective for employees and dependents. The Departments are
considering whether and how a model could facilitate the transmission of coverage information by
standardizing the infonnation that employees and dependents receive and deliver to their next
group health plan or use to evidence their eligibility for coverage in the individual market. Such a
model certification approach could minimize the information collection burden and could become
the commonly-used standard. Thus far, the idea of a model certification has been well received,
and some suggestions have been submitted regarding appropriate fonnats for a model.
This open comment process has provided the Departments with valuable information to
consider during our work implementing the HIP AA provisions. Public comments will also be
received and taken into account as part of the review of the implementation ofHIPAA's
provisions that will be made by OMB under EO 12866. We also intend, of course, to make the
public record of this hearing a part of the record of our rulemaking process.
Other Interim Guidance with Respect to Group Market Provisions
As noted, the Treasury Department has been collaborating with the Departments of Labor
and Health and Human Services to implement the statutory provisions. For example, HIPAA
required that each group health plan notify, by November 1, 1996, every one of its qualified
beneficiaries in the United States who was on COBRA continuation coverage about certain
changes to COBRA that were enacted under HIPAA. To that end, all three Departments were
9
actively involved in developing a technical bulletin, issued by the Department of Labor in October
of 1996, that not only described the new COBRA provisions, but also functioned as a model
notice that could be used to satisfy the notification requirement. We have received favorable
comments on the usefulness of this bulletin, and are pleased that it has facilitated the
implementation of HIP AA.
CONCLUSION
The HIP AA portability reforms will help employees move more freely from job to job,
which should benefit the economy. People will have new health insurance rights that will enable
them to obtain coverage even if they have preexisting conditions, to enroll promptly when they
lose other coverage or have new dependents, and to participate in group health plans without
discrimination based on factors relating to their individual health status.
These are important reforms that we are working hard to implement in a way that will
balance the protections they provide to individuals with the burdens on entities that offer health
care coverage. Our goal is to issue the necessary regulations by the April 1, 1997 statutory date.
After the regulations have been issued, we will continue to take into account public comments as
we consider whether changes should be made to the regulations or whether additional guidance
should be issued.
Until the regulations are issued, and thereafter, we will continue our efforts to listen to
what the public and other affected parties are telling us, both with respect to the need for health
insurance portability and with respect to the administrative burdens and requirements imposed on
employers, insurance carriers, and plans. Moreover, we hope that Congress will continue the
bipartisan effort to improve the availability of health care in the United States, including further
steps toward the goal of health insurance coverage for all Americans.
The Treasury Department appreciates the opportunity to testify before this Committee
concerning the implementation ofHIPAA's portability provisions.
Mr. Chairman, this concludes my formal statement. I will be pleased to answer any
questions you or other Members may wish to ask.
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
February 10, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,087 million of 13-week bills to be issued
February 13, 1997 and to mature May 15, 1997 were
accepted today (CUSIP: 9127944JO).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.99%'
5.02%'
5.02%-
Investment
Rate
5.12%'
5.16%'
5.16%-
Price
98.739
98.731
98.731
Tenders at the high discount rate were allotted 23%'.
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
5.00 -- 98.736
RR-1494
Received
$60,487,775
Accepted
$13,087,295
$55,192,317
1.423,573
$56,615,890
$7,791,837
1. 423,573
$9,215,410
3,445,485
3,445,485
426,400
$60,487,775
426,400
$13,087,295
5.01 -- 98.734
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
February 10, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,204 million of 26-week bills to be issued
February 13, 1997 and to mature August 14, 1997 were
accepted today (CUSIP: 9127945J9).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.06%'
S.08%'
5.07%·
Investment
Rate
5.26%'
5.29%'
5.28%-
Price
97.442
97.432
97.437
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
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
RR-1495
Received
$50,378,027
Acce:gted
$13,204,489
$42,071,822
1,289,505
$43,361,327
$4,898,284
1,289,505
$6,187,789
3,380,000
3,380,000
~,2~21:Z0Q
~,2~6,:ZQO
$50,378,027
$13,204,489
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
TESTIMONY OF
ROGER L. ANDERSON
DEPUTY ASSISTANT SECRETARY for FEDERAL FINANCE
DEPARTMENT OF THE TREASURY
before the
SENA TE COMMITTEE on AGRICULTURE, NUTRITION, and FORESTRY
on the
TREASURY AMENDMENT
to the
COMMODITY EXCHANGE ACT
Tuesday. Februan 11. 1997
I welcome this opportunity to speak to you today about the Treasury Amendment to the
Commodity Exchange Act (CEA). This is an important issue for many different kinds of financial
firms, their customers, and the government entities that regulate them.
The Treasury Amendment provides an exemption from the CEA for off-exchange
transactions in foreign currency, government securities and certain other financial instruments.
The language of the Treasury Amendment was proposed, as its name implies, by the Treasury
Department. Congress incorporated this language virtually unchanged into the CEA in 1974.
Treasury's goal in proposing the amendment was to protect the immense and important
foreign exchange and government securities markets from potentially burdensome or overlapping
regulation.
In a letter to the Chairman of the Senate Agriculture Committee in 1974, Treasury noted
that the foreign currency market in the United States consisted primarily of sophisticated players,
such as banks and dealers, and that many of the participants in this market were already regulated.
Therefore, Treasury argued, it would be inappropriate to impose an additional layer of CFTC
regulation on what was a highly complex, and highly successful, function. Treasury noted in its
letter that the foreign currency market "has proved highly efficient in serving the needs of
international business in hedging the risks that stem from foreign exchange rate movements." (S.
Rep. No. 1131, 93rd Cong., 2d Sess. 50,1974)
Treasury believes that the argument for protecting the foreign currency and government
securities markets from unnecessary regulation and uncertainty is, if anything, more compelling
today than it was in 1974. According to the most recent triennial survey conducted by the Bank
for International Settlements (BIS), the average daily turnover in the global foreign exchange
markets was $1.2 trillion in April, 1995. And, I would note, these survey results include only the
"traditional" foreign exchange instruments (spots, forwards and swaps), and therefore do not
include data on a wide range of over-the-counter and exchange-traded derivatives in financial
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2
products. In recent years, the global market for just "traditional" foreign exchange instruments
expanded at the rate of about 30% percent during the three-year period which ended in April,
1995.
According to the same HIS survey, United States financial centers enjoyed a 16% share of
the business in these global markets for spots, outright forwards and foreign exchange swaps.
This can be compared to Britain's 30% share, and Japan's 10010 share. The trend in recent years
has been for Britain's share to increase (up from 27% in 1989), while that of the U.S. has
remained stable.
These foreign currency and government securities markets have proved extremely useful
to U.S. businesses, including small and large importers and exporters.
However, the Treasury Amendment has been the focus of extensive argument in recent
court cases, including matters currently before the Supreme Court in the Dlmn case. The
resulting legal uncertainty over the scope of the Treasury Amendment may have had the effect of
inhibiting the development of new hedging products for use by small businesses.
We are not here to restate the legal arguments about the current Treasury Amendment
language. Our focus is to resolve the uncertainty in a manner that addresses the extant
enforcement problem -- providing the CFTC with explicit authority to prosecute those who
defraud unsophisticated retail customers in foreign currency derivatives transactions -- without
burdening successful, efficient markets.
The CFTC has long expressed its concern with our interpretation of the Treasury
Amendment on its ability to prosecute foreign exchange bucket shops. Treasury has also long
acknowledged that it may be appropriate to ensure that the CFTC has enforcement authority to
prosecute bucket shops or boiler rooms in foreign currency derivative transactions. The stated
goal behind the CFTC's recent enforcement cases is one Treasury endorses.
However, Treasury does not believe it is good public policy to pursue discrete
enforcement actions in a way that creates new uncertainty for broad groups of market
participants.
Treasury does believe that it is important to maintain the original goals ofthe Treasury
Amendment. Treasury also believes that the scope of the changes currently being sought by the
CFTC go beyond what is necessary to prosecute those who perpetrate fraud against small
investors. These changes would create unnecessary and overlapping layers of regulation in
segments of the financial markets where large institutional investors are the only participants, and
in market segments where no fraud has been proven.
Treasury and the CFTC began negotiating in December 1995, to try to reach agreement
on what the Treasury Amendment should cover. As the basis of our negotiations, we put aside
3
our disagreements over how to interpret the existing language of the Treasury Amendment,
including matters currently before the Supreme Court in the Dwm case.
We appreciate the efforts of fonner CFTC Chair Mary Shapiro, for starting the
discussions, and of Commissioner John Tull, who, when he was Acting Chair of the CFTC,
pushed the discussions. Current CFTC Chair Brooksley Born has also been very supportive in
continuing the discussions.
While our discussions with the CFTC did not result in a legislative package on which both
agencies can agree, the process was very useful. Treasury and the CFTC learned a great deal
about each other's concerns.
Treasury and the CFTC staff also managed to reach agreement on several issues, some of
which are reflected in the legislative proposals prepared by Treasury and the CFTC. The areas of
common ground are the following:
o
Futures and options should be treated the same for Treasury Amendment
purposes.
o
The when-issued market for government securities is not subject to CFTC
jurisdiction.
o
The OTC foreign exchange derivatives market is a valuable asset to this country
and contributes to its economic health. Its presence in this country should not be discouraged.
o
Foreign currency bucket shops should not be allowed to escape federal anti-fraud
enforcement.
o
There should be federal recourse for retail customers defrauded in foreign
exchange derivatives transactions.
o
In the foreign exchange derivatives area, the CFTC is an appropriate entity to
pursue retail fraud committed by entities that are not otherwise subject to federal regulation.
o
Other problems or uncertainties shouldn't be created in the course of fixing
existing problems.
But while there is some common ground between Treasury and the CFTC, there are still
many areas of disagreement. As the discussions between Treasury and the CFTC progressed,
some basic differences in approach and philosophy concerning the Treasury Amendment became
clear. In particular, two basic differences made it very difficult to reach agreement on a
comprehensive legislative package.
First, Treasury and the CFTC came to the discussions with different starting points, based
on our different interpretations of the current language of the Treasury Amendment. Treasury
interprets the Treasury Amendment as a broad exemption from CFTC regulation of all
transactions in the financial instruments listed in the Amendment (including futures and options),
regardless of the nature or identities of the parties engaged in the transactions. Given this starting
point, Treasury views its legislative proposal as granting explicit authority to the CFTC in a way
4
which wilJ enable it to pursue fraud actions against those who prey on retail customers in foreign
exchange derivatives transactions. By contrast, the CFTC views the current Treasury
Amendment as inapplicable to transactions involving retail customers. It therefore views the very
specific language contained in the Treasury proposal as a limitation on existing CFTC authority.
As a result, when Treasury and the CFTC came together to discuss the scope ofthe CFTC's
authority, the CFTC asked why what it perceives as its existing authority should be cut back, and
the Treasury questioned why the CFTC needs more authority than necessary to address the
problems of fraud in the retail market for foreign currency derivative instruments.
Second, the CFTC approaches Treasury Amendment issues as a regulatory and
enforcement agency responsible for protecting "retail investors," whereas Treasury approaches
these same issues from the standpoint of a policy agency focussed on promoting market
efficiency, liquidity, depth and economic growth. Thus, the CFTC has sought varying degrees of
enforcement authority in broad market segments, even where no problems have been
demonstrated to exist. The Treasury looks at the issues from the perspective of the market
participants, which to date are largely institutions that have abided by, and want to keep abiding
by, the rules offair play. Treasury is trying to ensure that participants in U.S. financial markets
aren't adversely affected by unclear, overlapping or duplicative regulation.
The Treasury is sympathetic to the CFTC's enforcement concerns. That is why we have
made our proposaL Nevertheless, Treasury does not see a need for overbroad legislation.
In the past few weeks, the CFTC and Treasury have delivered to this Committee separate
legislative proposals to amend the Treasury Amendment. Chairman Lugar and Senators Harkin
and Leahy have introduced S. 257 to amend portions of the Commodity Exchange Act, including
the Treasury Amendment. I understand that various trade associations may also present
legislative proposals.
The proposal submitted by the Treasury Department addresses the problem of retail fraud
in the foreign exchange derivatives markets in a clear and direct manner, without creating new
ambiguities, imposing burdens on markets where no problems have been shown to exist, or
unnecessarily increasing the regulatory burden of entities that are already subject to Federal
regulation. Treasury believes that the CFTC's legislative proposal would increase, not reduce,
the current environment oflegal uncertainty that surrounds derivatives transactions in foreign
currency and government securities.
I will not go into the details of Treasury's proposal, but I would like to highlight the major
concerns Treasury has with the eFTC's proposal. There are four.
First, Treasury sees no need whatsoever for the CFTC to regulate government securities
transactions other than on organized futures exchanges. This market is already adequately
regulated under the securities laws by the SEC and Treasury. Increased regulation or increased
legal uncertainty could increase market participants' costs, which would result in higher interest
costs for the government and the taxpayers. Indeed, when it enacted the Government Securities
Act of 1986, Congress recognized that unnecessary or inflexible regulation could increase the
government's borrowing costs, and it acknowledged the need to preserve both the efficiency and
the integrity of that market.
The second key difference between Treasury and the CFTC concerns the treatment of the
over-the-counter institutional market for foreign exchange derivatives. In principle, the CFTC has
acknowledged that it agrees with Treasury that the "interbank market [should] remain exempt
from regulation under the CEA." These markets function well; no problems have been shown to
exist; and the participants are well equipped to assert their own rights if wronged. Under the
current Treasury Amendment, this market is entirely exempt from the CEA.
However, the CFTC's draft legislation does not provide an unambiguous exemption for
this market. Rather, the CFTC's exemption depends on ajudgment call, presumably to be made
by the CFTC, that other Federal regulatory schemes do not adequately address fraud and price
manipulation. The CFTC' s proposed legislation, if enacted, would likely result in continued
uncertainty concerning the scope of exempted activities, and in more litigation. Such uncertainty
could harm these important markets and could cause an increasing share to move overseas.
Treasury's proposal specifically gives the CFTC the authority to pursue those who commit
fraud on retail customers in foreign currency futures and options transactions, if they are not
otherwise federally regulated. By contrast, the CFTC's proposal would allow it to prohibit all
off-exchange foreign currency transactions conducted with retail customers, even if sold by a
bank.
Our third major concern is that we see no need for the CFTC to prohibit all these
transactions. There are legitimate reasons for such over-the-counter transactions. For example, a
small cheese importer that wants to hedge its exposure to Danish kroner cannot find that
protection in an exchange-traded instrument, because currently there are no Danish kroner
contracts.
Our fourth major concern is that we see no need for the CFTC to have jurisdiction over
the retail activities of banks, broker-dealers, and investment companies. There is no evidence that
the existing federal regulation of such institutions is inadequate.
The CFTC's proposal strongly favors exchange trading. Undoubtedly, various financial
futures and options have thrived in that environment. A significant share of the business of the
Chicago Board of Trade is represented by government securities contracts, and Eurodollar
contracts represent a significant share of business on the Chicago Mercantile Exchange.
However, there is a fundamental question as to whether exchange trading is appropriate for all
transactions involving financial instruments that, in the view of the CFTC, may constitute futures
contracts or options. One answer to this question can be found in the actions of the financial
markets themselves: the notional amount of foreign exchange transactions traded over-the-
6
counter is several orders of magnitude greater than that traded on exchanges. There are
competitive reasons why that business is done off the exchanges. Similarly, there are competitive
reasons why the business that is done on the exchanges is done there.
Our discussions with the CFTC continue, notwithstanding our recent legislative proposaJs.
We look forward to working with this Committee, as welJ as with the CFTC, the banking
agencies, the SEC, and market participants on these issues.
The CFTC has stated that its principal concern over our interpretation of the Treasury
Amendment is with retail fraud. Retail fraud in foreign exchange derivatives has been the basis
for several enforcement actions that the CFTC has recently brought. The Treasury Department
has long acknowledged that the CFTC should have enforcement authority over those who are not
otherwise adequately regulated and who defraud unsophisticated investors in foreign exchange
transactions. We should remain focussed on that concern. There are those who have questioned
whether Treasury's proposal covers all potential wrongdoings. Retail fraud in foreign exchange
derivative transactions is the only enforcement problem that has been shown to exist. Treasury
believes that a narrowly crafted solution to that problem is appropriate.
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EMBARGOED UNTil., 1 PM EST
Text as Prepared for Delivery
February 11. 1997
Treasury Secretary Robert E. Rubin
Statement before the
House Ways and Means Committee
Mr. Chairman, I appreciate this opportunity to appear today to discuss the President's
budget proposal for fiscal year 1998.
This weekend I was in Berlin for a meeting of our G-7 economic partners. It wasn't so
long ago when the other industrial nations roundly criticized the Gnited States at G-7 meetings
for not attending to its economic affairs and we were viewed as yesterday's economy. That
situation is now exactly the opposite. The United States is once again viewed as the world's
economic leader.
They understand that the primary source of U.S. economic strength today results from
having squarely faced our challenges -- in both the private and public sectors-- including
dramatic progress in restoring fiscal order. In Berlin, we also discussed the issues which the
President emphasized in his State of the Union: how the globalization of the economy and the
information revolution has made it more important than ever to have an educated workforce;
how we must initiate policies which will bring more people into the economic mainstream; and
how essential it is for all nations to remain engaged in the world. Yieeting these challenges will
further advance U. S. economic strength going forward, and that is the right path for the rest of
the world as well.
It is in this context that I want to talk about the President's budget this morning
We are in strong economic shape today and within striking distance of balancing the
budget. This would not have happened without the deficit reduction program enacted in 1993,
which has reduced the size of the deficit from 4.7% to 1.4% of GDP. That deficit reduction., in
tum, inspired broad business confidence and drove down interest rates, which then drove and
sustained the economic recovery. In fact, the united States now has the best economic
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conditions among all of the developed major industrial nations. Our economy has created over
exports are booming; and we've
experienced record levels of investment, which is critical to future productivity. And just as
deficit reduction has been the critical factor in these economic conditions, so is it critical to a
strong economy over the long-tenn.
11 million new jobs since 1993; inflation has remained low:
We have an historic opportunity to work together and finish the job. There is strong
support among the public for balancing the budget and there is, I believe, a change of attitude in
Washington about the importance of fiscal responsibility. Moreover, the global capital markets
have created a powerful new incentive for fiscal order, by punishing fIscal laxity with high
interest rates that are inimical to economic health. We can, should and must work together to
capitalize on this moment and get the job done.
The President's budget will get us to balance by
2002. It does so using real numbers and
no gimmicks while protecting our priorities and investing in our people. In prior
Administrations, budgets were too often based on rosy economic scenarios-- and, when the
actual deficits came in much higher than projected, the result was not only a higher deficit but
increased public cynicism about the ability of the government to get its fiscal house in order.
Under President Clinton, we have used prudent and realistic economic assumptions. As a result,
actual deficits have come in lower than either OI\1B or CBO have proj ected in each of the last
four years, which, I believe, is unprecedented. Our 1998 budget is done in the same spirit of
sound policies and prudent, realistic economic and technical assumptions.
Our budget makes tough choices. It eliminates 254 programs outright for $2.9 billion in
savings, combs discretionary spending, auctions broadcast spectrum, and contains a number of
proposals to close corporate loopholes and improve compliance. Our proposal cuts Medicare
spending by $100 billion over five years, but without adversely affecting the quality of care for
beneficiaries or the amount they must pay out-of-pocket. In the absence of change, the Part A
Hospital Trust Fund will become insolvent in 2001. The President's proposal extends the
solvency of the Part A trust fund to 2007. At the same time, we recognize that there are
obviously long term entitlement problems due to demographic trends such as the aging of the
baby boomers, which we must address through a bipartisan process.
Mr. Chairman, as the President said in his State of the Union Address, balancing the
budget requires votes by Congress, and the President's signature. It does not require a balanced
budget amendment. Indeed, as strongly committed as the President is to a balanced budget, he
has an equally strong conviction, which I fumly share, that a balanced budget amendment is a
threat to our economic health and should not be adopted. Such an amendment will not make for
us the tough policy choices that we ourselves must make to balance the budget, and it will
subject our economy to unacceptable risks.
Within the context of moving toward a balanced budget it is extremely important that we
invest in areas critical to future productivity and U.S. global leadership. There are, obviously,
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many specific initiatives in the budget worth mentioning, and most of them were mentioned last
week by OMB Director Raines in his testimony before the Senate Budget Committee, but today
I would like to focus on just a few significant ones -- the President's proposals aimed at giving
middle class people the opportunity to obtain the skills they need to prosper in this economy, as
well as proposals to move the residents of our inner cities and distressed rural areas into the
economiC mainstream.
First, the President's tax program provides targeted tax cuts for the middle class.
The Administration's program would make it easier for middle class families to raise
children, save for retirement, and pay for post-secondary education. In addition, the
Administration is proposing to eliminate capital gains taxes for nearly all homeowners when
they sell their home
The President is proposing tax cuts that total S100 billion over five years. I believe that
amount strikes the correct balance between advancing the goals of a balanced budget, and
providing tax relief. Tax cuts that are much higher than the Presidents' proposals would require
us to make program reductions that would unduly harm our economy and our society. In many
areas, the Congressional budget and the Presidential budget are close: not on tax cuts. I hope we
can close this gap. What we should not do is engage in a "bidding war" over tax cuts.
Second, the President's budget bolsters areas critical to future productivity. The surest
way to enhance productivity, and maintain our country's competitive edge in the future, is by
investing ill areas that have long term payoffs. To that end, the Administration proposes
extending the R&D tax credit for another year; substantial additional spending on education and
training; a new effort to ensure health care for children; and new initiatives to encourage
businesses to hire former welfare r~cipients and to help states and cities locate jobs to move
families from welfare to work. I mention moving families from welfare to work in the context of
enhancing productivity because I believe that bringing welfare recipients into the economic
mainstream and eliminating the social costs associated with welfare is critical to the future
economic growth of the country and affects everyone. Welfare reform is an economic issue, as
well as a social issue. Revitalizing our cities and moving welfare recipients to work is part of a
much broader effort to bring the economically disenfranchised, many of whom are not welfare
recipients, into the economic mainstream. The budget contains tax incentives to clean up
environmentally contaminated land in distressed areas, known as brownfields; new
empowerment zones; and increased investments in Treasury's CDFI fund. This is the right time
to implement these leaner, private-sector oriented approaches toward fostering growth in the
inner cities as we move to balance the budget.
The final area I wish to mention regards the importance of providing adequate resources
to maintain U.S. leadership in the global economy.
The budget seeks a significant increase in overall funding to sustain our international
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engagement, and our role, as the President says, as the world's indispensable nation To shape
world events to advance our security and economic self-interest, we must meet our international
obligations and support and lead in the United Nations and in the international financial
institutions, such as the World Bank, the International Development Association and the
International Monetary Fund. We should do so not for charitable reasons, but because it is in the
economic self-interest and national security self-interest of the United States and our citizens.
Bringing developing countries into the economic mainstream raises living standards, promotes
political stability -- and it increases markets for u.S. exports.
Mr. Chairman, as I said earlier, I believe we have an historic opportunity to complete the
Job we started in 1993 and balance the budget; and to do so in a way that protects our priorities,
both for now and the future. Let me conclude by thanking you again for this opportunity to
discuss the President's budget proposal. I look forward to working with all of you this year.
-.10-
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Expanded Tax-Free Treatmentfor Forgiveness of Student Loans. The
Budget eliminates the tax liability that normally arises when debt is forgiven, if the
lender is a charitable or educational institution that lends money to a student to pay
for education and then forgives the loan after the student fulfills a commitment to
perfonn community or public service at low pay for a certain period of time. The
same tax-free treatment would also apply when the Federal government forgives a
loan made through the direct student loan program for a student who has been
making income-contingent repayments for an extended period.
Tax-Free Employer-Provided Educational Assistance. Currently, up to
$5,250 of tuition paid by an employer pursuant to a qualified educational
assistance program need not be included in the income of the employee. However,
the exclusion for undergraduate education expires in mid-1997, and the exclusion
ceased to apply to graduate-level courses after mid-1996. The budget would
reinstate the exclusion for graduate-level assistance retroactive to its prior
expiration, and would extend both undergraduate- and graduate-level assistance
through December 31,2000.
Ten Percent Tax Credit to Small Businesses that Provide Educational
Assistance to Employees. For taxable years beginning after December 31, 1997,
and before January 1,2001, small businesses (employers with average annual gross
receipts of $ 10 million or less for the prior three years) would be allowed a 10
percent income tax credit for payments for education of employees by third parties
under an employer-provided educational assistance program.
Expansion of Individual Retirement Accounts. The Budget expands the
availability of deductible individual retirement accounts (mAs) by doubling, over time, the
current income limits for deductible contributions. In 1997 through 1999, eligibility would
be phased out for couples filing joint returns with AGI between $70,000 and $90,000
($45,000 and $65,000 for single filers). Beginning in 2000, eligibility would be phased out
for couples filing joint returns with AGI between $80,000 and $100,000 ($50,000 and
$70,000 for single filers). The income phaseout, as well as the $2,000 annual contribution
limit, would be indexed for inflation beginning in 2001. As under current law, any
individual who is not an active participant and whose spouse is not an active participant in
an employer-sponsored plan would be eligible for deductible IRAs without regard to their
Income.
In addition, beginning in 1997, taxpayers would have the option of either
deducting the amount deposited in an IRA account, or foregoing an immediate deduction
and be free of tax and penalties when the funds are withdrawn from a new Special IRA,
provided the funds remain in the Special IRA for at least five years.
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APPENDIX: SUMMARY OF TAX PROVISIONS
The President's FY 1998 budget provides much-needed tax relief for middle-income
families, and tax incentives to boost investment in distressed areas and promote hiring of the
economically disadvantaged. It also eliminates unwarranted corporate tax subsidies, closes tax
loopholes, and improves tax compliance, and it reinstates the expired excise and other taxes that
are dedicated to various trust funds.
Middle Class Bill of Ri&bu
These tax cuts will help middle-class families pay their bills, raise their children and send
them to college, upgrade their own skills, and plan for retirement.
$500 Child Tax Credit. Taxpayers would receive a $500 nonrefundable credit ($300 in
1997, 1998 and 1999) for each dependent child under the age of 13. The credit would be phasedout for taxpayers with adjusted gross income (AGI) between $60,000 and $75,000. Beginning in
2001, both the amount of the credit and the phase-out range would be indexed for inflation.
Education and Training Incentives. The Budget provides carefully targeted education
and training incentives to make postsecondary education more accessible for middle-income
Americans and to make 14 years of education the nonn.
HOPE Scholarship Tax Credits. Taxpayers would be able to claim a
nonrefundable tax credit of up to $1,500 per year (indexed for inflation beginning
in 1998) for two years, to cover tuition and fees for themselves, their spouses, or
their dependents while enrolled at least half-time in the first two academic years of
a degree program. To take the credit in the second year, the student must have
attained the equivalent of at least a B minus grade point average in course work
completed before that year. No credit is available if the student is convicted of a
drug-related felony. Federal grants (but not loans or work-study payments) reduce
the allowable credit The credit is phased out for families filing a joint return with
modified AGI between $80,000 and $100,000 (between $50,000 and $70,000 for
single filers), indexed for inflation beginning in 2001. The credit would apply to
course work beginning after June 1997.
Education and Job Training Tax Deduction. As an alternative to the
HOPE scholarship, taxpayers could elect to deduct up to $10,000 per year ($5,000
in 1997 and 1998) of tuition and fees for students enrolled at least half-time in a
degree program or for courses to improve job skills. The deduction is taken in
determining AGI, so it is available to all taxpayers whether or not they itemize.
Unlike the HOPE Scholarship credit, which is calculated per-student, the
deduction does not vary with the number of students in a family. The deduction is
phased out at the same income levels as the HOPE Scholarship credit and would
apply to course work beginning after June 1997.
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Finally, penalty-free early withdrawals from either type of IRA would be expanded
to include withdrawals to pay for higher education costs, first-home purchases, long-term
unemployment, and catastrophic medical costs of certain family members not covered
under current law.
Exclusion of Gain on Sale of a Principal Residence. The Budget provides
substantial simplification and tax relief for millions of Americans by replacing the currentlaw tax treatment of capital gains on home sales with an exclusion of up to $500,000 of
gain for married taxpayers filing joint returns ($250,000 for other taxpayers). The
exclusion is available every two years, so long as the taxpayer used the house as a
principal residence for at least two of the five years prior to the sale. The exclusion
generally applies to sales on or after January 1, 1997.
Empowering Communities and the Economjcally DjsadyantaKed
The Budget will spur private-sector participation in revitalizing distressed
communities and generate job opportunities for long-term welfare recipients.
Tax Incentives to Clean Up Blighted tlBrownfields" in Distressed Areas. To
encourage companies to clean up abandoned, contaminated industrial properties located in
distressed communities, remediation costs incurred in connection with the abatement or
control of certain environmental contaminants would be immediately deductible if incurred
for a qualified site. Qualified sites include business or income-producing properties
located in specified high-poverty areas where it has been certified that hazardous
substances are present or potentially present in the property. The deduction would be
subject to recapture as ordinary income upon a subsequent disposition of the property at a
gam. The proposal would apply to expenses incurred after the date of enactment.
Additional Empowerment Zones and Enterprise Communities. The Secretary
of Housing and Urban Development would be authorized to designate two urban
empowerment zones in addition to the six urban and three rural zones designated on
December 21, 1994. This would have the effect of extending the current empowerment
zone tax incentives to these additional areas, with technical modifications. In addition, 20
additional empowerment zones and 80 additional enterprise communities, which will be
subject to modified eligibility criteria, would be authorized. These additional zones would
have available a different combination of tax incentives than those available to existing
zones. Among the 20 zones, 15 would be in urban areas and 5 would be in rural areas.
The 80 communities would be divided between 50 urban areas and 30 rural areas. Areas
within Indian reservations would be eligible for designation.
Tax Credits for Community-Oriented Equity Investments. The Community
Development Banking and Financial Institutions Act of 1994 created the Community
Development Financial Institutions (CDFI) Fund to provide equity investments, grants,
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loans, and technical assistance to financial institutions that have community development
as their primary mission. The Budget would make $100 million in nonrefundable tax
credits available to the CDFI Fund to allocate among equity investors between 1997 and
2006. The allocation of credits is capped at 2S percent of the amount invested in any
project and would be determined by the CDFI Fund using a competitive process.
Tax Credits to Facilitate the Transition from Welfare to Work. The goal of
the Welfare Reform Act of 1996 (the Welfare Act) is to move individuals from welfare to
work. To help achieve this goal, the Budget includes a new welfare-to-work credit that
would enable employers to claim a 50-percent credit on the first $10,000 of annual wages
paid to certain long-tenn public assistance recipients for up to two years. In addition, the
Budget would expand the existing Work Opportunity Tax Credit to include able-bodied
adults, ages 18-50, who have met their responsibilities under the law but are subject to the
time limits for food stamps under the Administration's proposal to amend the Welfare Act.
These proposals would be effective from the date of enactment through September 30,
2000.
Estate Tax Relief for Small Businesses and Farms
Under current law, estate tax attributable to certain closely held businesses may be
paid in installments (interest-only for four years, followed by up to ten annual installments
of principal and interest). A special four-percent interest rate is provided for the tax
deferred on the first $1 million of value. Only certain types of business arrangements are
eligible for the installment payment provision, and a special estate tax lien applies to
property on which the tax is deferred during the installment payment period. The Budget
increases the value cap on the special low interest rate from $1 million to $2.5 million,
expands the availability of these rules to other comparable business arrangements, and
authorizes the Secretary to accept security arrangements in lieu of the special estate tax
lien. These proposals would be effective for decedents dying after 1997.
Other Tax Relief Provisions
Extension of Expiring Tax Provisions. The Budget would extend each of the
following provisions for one year from their current expiration date:
•
The 20-percent credit for research and experimentation expenditures
(expiring May 31, 1997);
•
The 35-percent Work Opportunity Tax Credit for employment of targeted
hard-to-employ groups (expiring September 30, 1997);
•
The 50-percent credit for qualified clinical testing of certain drugs for rare
diseases or conditions (known as "orphan drugs") (expiring May 31, 1997);
4
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From: TREASURY PUBLIC AFFAIRS
100g
3-4-97
3:55pm
p. 10 of 11
and
•
The fair-market-value deduction allowed for contributions of appreciated
stock to private foundations (expiring May 31, 1997).
Eq uitable Tolling of the Statute of Limitations. To ensure that disabled
persons are fairly treated when filing for tax refunds, the statute of limitations for refunds
from the Internal Revenue Service would be delayed when the individual is under a
sufficient medically determined disability and no other person has been authorized to act
on the taxpayer's behalfin financial matters. The proposal would be effective for taxable
years ending after the date of enactment.
Tax Incentives (or Economic Development o( the District of Columbia. To
encourage employment of disadvantaged residents and to revitalize those D.C. areas
where development has been inadequate, tax incentives are proposed.
Tax Credit (or Economic Development of Puerto Rico. To provide a more
efficient and effective tax incentive for the economic development of Puerto Rico, the
Budget modifies the economic-activity credit for Puerto Rico by extending it indefinitely,
opening it to newly established business operations, and removing the income cap.
Foreign Sales Corporation (FSC) Benefits for Computer Software Licenses.
To reflect technological advancements. the Budget extends the current FSC export benefit
to include computer software licensed for reproduction abroad, effective for licenses
granted after the date of enactment
Closjm~
Corporate Tax LoophQles and Other Reyenye Measyres
The Budget includes proposals previously proposed by the Administration to
eliminate unwarranted corporate tax subsidies. close tax loopholes, and improve tax
compliance. Such measures include:
Proposals focused on financial products, to maintain the distinction between debt
and equity, curtail arbitrage opportunities, prevent avoidance of gain recognition
on functional sales, and properly measure income;
Proposals focused on corporate transactions, to prevent tax-free disguised sales of
businesses, prevent the manipulation of the stock redemption rules to distort
income, eliminate the use of inventory methods that mismeasure income, and
reduce corporate subsidies such as percentage depletion on lands received from the
Federal government at a bargain price;
•
Proposals focused on the international tax rules, to measure export income more
5
From: TREASURY PUBLIC AFFAIRS
]009
3-4-97 3:57pm
accurately, prevent manipulation of the foreign tax credit rules through artificial
labels, and eliminate distortions resulting from the use of derivative financial
instruments; and
•
Proposals focused on increasing tax compliance, for example by tighteQing the
substantial understatement penalty for very large corporations, expanding
withholding on gambling winnings, and streamlining debt collection procedures for
non-means tested, recurring Federal payments.
Extension of Expired Excise and Other Trust Fund Taxes. The Budget also
proposes reinstatement of the excise and other trust fund taxes that have expired: the
Airport and Airways Trust Fund excise taxes; the Hazardous Substance Superfund Trust
Fund excise and income taxes; the Oilspill Liability Trust Fund excise taxes; and the
Leaking Underground Storage Tank Trust Fund excise tax. These are not new taxes: they
have been applied for years to finance specific programs, such as the provision of air
traffic control services and the cleanup of certain hazardous waste sites. Each of these
taxes would be extended through 2007
Tax Simplification and Taxpayers' Ri2hts
The Administration continues to support revenue-neutral initiatives designed to promote
sensible and equ;table administration of the tax laws, including simplification, technical
corrections, complia,;.ice, and taxpayers' rights measures. In the near future, the
Administration wili propose to Congress a package of such measures.
6
p. 11 of 11
'MIoMM
I,ealal&
'lillI'
t I.S. Government Statement on Microenterprin Development lind Microfinancc
For the Microcredit Summit, "'ebruary 2-4, 1997
nlis SICllf.mwnl ()utlines the ,ationClle behind the Climon Administr,lIion 's slron~ supportfor
microt!nterprise development. II lays {Jut a vision./iJr the role oIthe puhlic .'·t!I..·for in supporlinK
microl!tJI(!Iprisf.' de\,'(~/oJ)me"t m'lti outlines actions that this Administration plans 10 wk(!
Th~
basis for any long ternl solution to poverty rests in the capacity of people to raise their own
incomes. In the United States and in other countries, microenterprise development has been
recognized as a promising approach for helping poor people to better their lives. The Clinton
Administration seesmicroell~erprise development, and concomitant efforts to provide tinaneial
services to micrm.:ntrcpre.neurs, as important components of its community ecunomic
development str3t\!gy here at home and a priority in its foreign assistance strategy abroad. I
Th\! basic premise of microenterprise development is that the best and most. plcnt.itlJI resource for
fighting poverty is th~ energy (If low-income people themselves. In the past. social policy has
sometimes disregarded, and thus failed to harness, this energy; all too often, rulli-poverty
programs havt! lrt!att!d recipients as passive, thus reintorcing dependency. This Administratiun
believes that giving people the touls and opportunities th~y need to incr~ase their income!i
themsd ves is the strongest approach, an approach that affirms the values of hard work and free
ent~rrrise while also helping to develop local communities.
The simple idea or hringing poor p~uple's capacities tu hear on oven.:oming poverty. which
mic.:rocnlcrprisc demonstrates so clearly, resonates through many of President Clinton's policies:
in education, training, social services, and in foreign assistance. This idea underlies the
President' s (~xpilnsion of Head Start, his education initiatives, and expansion of the earnedincome tax credil- to help families choose work over wel1art!, and to make work p"y. By
enabling poor people in the U.S. to enter the economic mainstream, we reduce the soci,ll cost of
poveny, increase national productivity, and improve social conditions for all of liS.
In our foreign assistallce program, this idea wlderlies an increasing focus on incorporating the
vast majority of the world's poor intoecunornic growlh strategies. By cm:ouraging inclusive
t.:cunomi~, growth abroad, we create new markets for American exporters and investors and
increase stability. thereby enhancing our national security. This simple, powerful idea, applied
widely. is not only in the interest of the poor, it is in th~ interest of all Americans, no matter
where;;: they" live or what their economic status may be.
Micruenterpri$cs are very Sinall businesses, often owned and operated hy luw-income
t~ullilie5. The tel'lll '"microenterprise development'· refers to policies and institutions that support
the emergence and growth of such enterprises through a variety of means, ranging from tinance,
to training, to creating an enahling policy environment. "Microtinam:c" involves the provision
of credit, savings and other financial products eUld st!rvices to low-income: families, often in
SUppOl1 of microenterprises, but also to meet other needs, such as housing or emergencies.
RR-1498
Microlinancc is an area in which harnessing th~ energies of till.! poor has aln.-ady horne fhlit.
During lhl~ past dCl·.adt: - in countries as divcrse as Uangl.Klesh, Indonesia, and B(diviu
linandal inl1ovatiollS have cm~rgl~d thill allow lini.l11l:ial services to be cxll~ndc:d to people.
parliclilurl), w()ml..~n, i.lI1d enterprises previously regarJ~d as hunhankahk ,. With tltC:Sl'
tcchniques. il has bc\'~ome possibk~ to lend to vcry pOOl' people on a businl~sslikc. eVell pl'ofit'lhk.
basis. In lk~vl;.~l()ping countries. the potentiallk~m"IIIJ lill' mi<:rotinan<.:e is 1..~Il()nllOUS and virllJally
lIntapllcd . .lust us thc creutio)) of the 30·YCfll' m(lrlgi.lg~ tnmsrormt:!d home-ownership in OUl'
country carlkl' in this c\'~nlury. so microfinance tedmiqucs havc the poknlial to transform Ihl.!
financial systcms in many developing countries - from systems that serve primarily <l sn'lall elite.
to systems that serve thc V~\st Im~iority or ordinary people.
It i$ important to note the key assllmptions umh:rlying the Administration's domes! ic and
international policies loward~ l11icJ'()cnlt:rpris~ development. In all arenas, they hllild UpOIl th\'~
same key inf.rcdi-:nts: thc n\'~cd to access capital. markets. new ()I' apprl)priatr...: tl..:d1l1olllgil:s .md
training. in hasil: busim:ss Hnd lile skills. Throughoul the world. thl~n.:: is all ov~rardlillp, nCl:d to
promote those policy and regulatory reforms that (~xpand and democrati:l.1.! lin\.:ag.l~s t(1 tlte l(lrIll:.tl
linanl:ial sysh.~Jll. Such d'((ms will help microi:lltcrprisc development bl..~Cllllll.: all i:fiecliVr...' means
or improving thl~ lives of the poor on a signitic.mt sl~ak.
Mic.'utiluancc in the nevelOI)ing World
The chalkngc l~u,;ing microcntcrprise deve\opllll.!llt gk,bally is to le.trn J'rom past SUC':l~SSl:~ ilnd to
bring micl'ofill:IIK~~ to <l sllstainabk scale. To Im:clthis challengc. micronllan\':l~ praditiom:rs will
haw to usc past successes as the hasis fot' flllthcr transformation lll' the field.
'
To date, llloSI innovatio'n in developing microlinance has occurred outside thl~ truditional
financial systelll with non-government org<.mii'~ltions (NGOs). crcdit unions. and slwrializ\'~d
linancial inslitul ion:o:. Much of this innovation has been financed by g\)Vcrllllll:nt and
illtl~rnatiolltll donors sllch as USA J D, thc World Bank ami other lllultilateral devdl)plll\'~lIt hunks
(MDBs). as wdl as private foundations. The promise or microfinance in the futuTl;. however.
d(~pl:nds ()11 its ink'gration with the formal financial system. Fortunately, microlinance has th~
p(ltl~ntiallo 1Il<lkc this trans/(Jrlnallon because micl'Ofinancc services can be provided on u
profilahle l,"lasis. Pmtitable llliaolinance institutions will attract privi.llc iIlVl~stmcnt, qualify to
raise lkpllsils from lhi: publk. and opcrate into the future without subsidic:". In short, only
protitable institutiolls will h.,lVe the access to funds to cnahlc them colle(,:tivcly to rcaeh many
millions orclkJlt~.
r minolinann.: is to make i.1 di J'icrencc to the milliolls l)f people around the world
who currcntly
lack al~CCSS to financial services. it will haw to move heyond the limited hounds or pllhlir
funding, 10 1'1111 illtl~g.nation within th~ private tinancial markct system. Thrl.!e major d'1(lrts ar\'~
needed 10 nw,~t this dwllcngc:
J
•
N(iOs and othl~(' specializcd financial instillltion~ should nHlV~ inl:rei.lsingly away li'om
donor dl..~lx·ndcl1ce and onto commercial sourccs
funds. whet.her thr(,ugh lillking to tlw
or
2
lin'llIl~inl sysll~rn
•
or. if and where qualilied. through mobilizing savings.
COIllIlH.!rcial linam.:ial institutions slIch ,IS hanks and Jinallcc cOlllpanies should h ...·gill
snvillg IllilTo·h.~vl.~1 clil.!llts directly. Th~se institutions have r.he funds :lI1d th~
inrrastnlctllr~ til rcach millions
clients. but until now haw ladi.cd thc t(: . ~llIIiqll~s
.
i.lIld
thl.: illtl~rl~st. Th~('~ arc signs that thb; is changing. as banks in plact!s as div ...~rsc as Chile
i.\Ild Sri l.i.lnku arc c.kvduping their OWl! microtinancl~ s. .~rvices.
or
•
NfiOs and spl:cializcd institutions should continue efforts to n:ach thc poorcs( c1il'nts.
lhose ill rl~lllOtc. rural areas. and those in nced of extra social or econolll ic s~,.vic\.~s.
Addilional d'forLS are lleL~dcd to dt'vclop innovative methods I(lr n.:aching lhcSl' groups
i.1 sustaillabk basis.
(Jii
Pnilitahility is key lo lhc i'ulurc of lllicrofimUlcl~. Thl~ rolc of the public sedor g(lvcn\ll1l..~lll,'i
and illl~~rnatj(lllal dllilor agencies - b 10 initiate and catalyze, through seed l:apitaL tcdll1kal
assistance and polit.:y chang. .~s, those changes lhal willllltlk(~ profiwhility possihk. Publil:
invcstml~nt IllU:-:1 hl..~ ~-:r(\ftcd to support the transition to commercial sourec:o; of lill1ds. Several
important tasks felr donors emd government Jl)llow from this cunccption of llll~ir wk.
Governmenls. lill· the mosl parL, should f()cus on providing the cnahling cnvirorllnclIl Illr
microlinal1n\ throllgh lirm hUl supportive hUllking reguhltiol1 and supcrvisioll alld ()L1Il.~r kgal
and regulatory rd()J'Jlls. slidl as lhoSl~ lO prot . ~rt
. privatc property rights. whidl stlppn"t thl.· pl'ivat~
sector. ()n lh~ policy level. dl!vdopm~nl of a Inicl"ofinancc industry is parlor"l eontilluulll lit'
limml~ial Scdlll" rdi.ll'lllS inlend~d to facilitate economic growth - of micl'o- and small hll~incsscs,
as well as mediul11- and largcr-scak cntcrprisl~s. The gmtl of gO\'crnmcnls should he III cr. . ~al(:
financial systems thal work and that an: tlceessihle. To th~ exlenllhat gov . .~rnll1cnls do muke
dir. .~ct invcstrnenls. it should b~ in the development of microfinancc institutions rather than
through dirl..~clly pfl)viding funds for microcredit.
Donors ... hould leverage their limiled funds hy invcsting in the mosl promisinj! microfinanl:c
illstilliliolls: thOSl~ with greatest potential to reach l<lrg\'~ numbcrs pl'Otitably. (II' tIHjs(~ pushing
hanJc..;( to rcadl di."iildvantagcd pOI)ulations. This support should bi.! IXlsed on dear performance
'l<lrgcts that pn:par...' rnil:rolinan . .~c institutions Ii)!' incfl;as~d rdiancc UpOIl COll\llll:ITial SourCl:S or
funds. DOllor <.Igl~lIeil:s must pC:lrtintlarly avoid using lheir funds to plJstpOlIl~ th.lt linll' whcli
instil.lltiolls hc<.:oml.! financially indt..'rend~IlL Togdh~r, donors and govcrnmen(~ have an
imporlant function in promoting adh~rcncc lo sOllnd linallcial practiccs cnll.~rgillg in the
int~~J'Ilational Jllil.~l\lliml!lcc industry. Jncre(l:)ingly. these practices will heel.lIlle the slandal'd:-; that
will serve as th\'~ /{llIndation I{)r lhc . .~mcrgcnce of a larger. more malure limull.:ii.ll syslem lhat
serves lhe pliOI'.
The U.S. linand,d system is highly developed. Il serves the nu~jorilY llf' Amcrkans who ilrc
~~lIIploYl:d i II hll~'l1al jobs. Sci
remployment h:l~ g.rowil as 1\ IllCriCCllls sl.:ck 1.0 r(:pla~~~~ lost
e..~orpl>rah..'
johs. sllpplement incol1l~s gcncrntt.:d from minimlllll und low wage..' j()hs <.Illd to crl.'ale
flexihll.! and rc"varding work environments, Hut CWIl hl,~rt.:, wc an: confronll.'d willl Ih(.; need tll
contillually CXlI.'nd the houndaries of the financial system to reach those who arlO IIlorL' di f"li Cll It ttl
s~rvl,~. In(kl~d. lIlicrolinance is just onc example llfthis Administration's COmllliIJllc..~llt hI
im;rl~asi ng thl.' 111)w 0 r privatI.! capital and other lillalleial services to CCOlll'tll i,all y d i=,tn:ssl~d
an:"s,
•
TIK Clinton Administration h<ls reduccd regulations and papl.'l"wllrk til nwk\..' tilL'
('()Jl)Ill11llity ReinvcstIll\..~llt Act (eRA) more cni:ctive for borrowers and less hlll'(knSllIlH':
Ii II' hallks.
•
IL launched Ihe Trcasury Departmcnt's (\nnmunity Development I:inancial Illstitutions
(( 'I)FI) Fund to provide seed and expansion c..:apitaJ to community-hased banks.
(:llllllllllllily 10HII funds, community devt!iopmcnt credit unions. <lnd milToll.'nders,
•
II
il:l~
•
II
pion~~rcd
ItlllllCil\..'d
Empowcrnll~nt Zon~s
and I':ntcrprisc Commllniti~s around Lhl' collntry.
the lise of the Unernploymclll Trust Fund as the
SOlIrl:l~ 0
I' sd 1'-1..'111 ployll1L'nl
allow:llll:r.: ..; for individuals establishing tlh;ir own husinesscs (as an alllTllaliVl' til drawill!;!
1I1l\"~IIlPI\'Ylllcnt henelits while searching li)f' employment),
MicmL'IlLl'rprisL' dL'vclopmcnt is a critical dcment of this picture. Micl'()e/lterprisl~ I.k\'dopnlL'lll
programs in Ihl.~ 1JJljt~~d Statcs are a grassroots rt:!sponse to the rel~ognition that low-incomc
peopk h~IVl~ thl' pOLl'lltiallo build Sllccl!ssfulcntcrpriscs. It is a young. diversl.' field Ihal opcral\..~s
wilh diwrs\..~typl~S ll/~ clients ~ho lack '.lCcess to linancc 01' bllsiness·rclal~J skills, indllding rural
L'lltreprencurs, welfare recipients. dislocated or Jownsi,-,cd workers, pc()pk with darnagl'll crl~dil
histories. stl'ug.g.ling. eJltr(:prl~lwllrs in dislrL'sscd comnllmitie~, and recent iJlllllignmts, Some need
mainly acccss tp credit. while olhers need help with basil~ cJucation. technology. or business and
lire skills.
These dWntcll'ristics orthc microenterprise Held·, its YOllth, its Jiv~rsc mix ofclknls ulld
services, it~ pl;lc..:l~mcllt within a wdl-ucveloped financial sector and. above all, its gras~roots
ong.lIIs should be thc factors that shape go vc I'll 1llC nt' s rcsponst:', As in th~ i nternat illllal rcalrn.
the rol~ of tlw l~dl.~r;1I gov\..~rnml:nt is that or a catalyst. helping to movc till' lidd forward lowards
still unl(:Slcd frolltil'rs,
Th\..~
klkral gOVL'rnmcnt has an important rok tc..) play in ddining how microt.:lltl~J'pJ'isc lilS into
till' nalional c..~~:onl)my. and ill ensuring thulthe policy cl)viJ'olllncnt is conducivl..' to self~mploymClll. In shaping support for l1lil:rocntcrpJ'is(~ devc\opl'ncnl. the Administmtil.lll
rn~ognizcs tilat initiative in this cn1(~rging field has and will contilllic to (:~lllll' fnllll pr"lditiol)ers.
Thlls. support IIH.:dl<lllislnS should he as l1exihlc as possible to allow I.~olltilltlcd mcthodolllL.!ical
innnvalilln, k~lding ultimately to a hetter uncil:rst<lllding ~)r what models at'l' most erkctivc.
Creative partlll.!rships between gowrrllllcnt and private entities will be IlClxkd,
4
OVllr the next Jiw y(:ars. as thc tic1c1 of microclltcl'pl'isc dcvelopml!nt matun:s, gnwrnm!:nt can
assisl ill promoting and disseminating information ahout cncclivc mt.:lhoJs - "hest pradiccs"
and in supporting tht! emcrgcm:c of perf(mnmu;e sll.lndards. FMtunatcly. l:()lllJlll~reiuJ hanks and
thrihs in the lJ.~., wilh the cneourngemcnt of the federal finunciul rcgulah)ry ~lgcneics and the
Community Reinveslment Act, have hcgun lo show a willingness to provid(~ hxm eapitul for
microenlcrprisl.: knding. 1·low(;vcr. government and privatc foundations continue 10 remain tIll'
chief sources of funding for institlltiomll devdopmcnl amI the ongoing o"l~ratillg (:(lsls l.,r
training. bllsine..~ss and sociul development sl~rvic(;s th~lt these programs provi(k.
l'hm of Adiorl in Support of Uomcstic Micrm.'nlcrprise Development
The l J.S. (iovernmcnl is involved ill s(;vcral initiati ves to SUppOl1 microentcrprisl.! devdopmellt
ill the United Sr~ltcs. Implcmcnted hy the Treasury's Community Development Fillal\l.:~,:
Institutions (C'J)F1) Fund. these initiatives incllllk:
•
J)irect funding of miem(;llkrprisc loan tlmds through the CI.)Io'1 hllld progralll. Thl.:
CDrl hllld recently made financial awards to two miemcl11crprisi.: programs i\( :C10N
Tl~~W:'; and I,'INCA 1lSA - ,mJ also m,\de investmcnts in several othl~r (,(WI=, that indlldl.!
microk.lllling ~IS part of their 11nancing programs. The Fund is laulH:hing a signilil~,U1l
training and tc;x:hnical assistance iniliativl: thal will cnha[\~e the e,lpal:ity of ('I )Fls.
indudin~). microloan ('unds.
•
/\dminlstration
or the Prcsidemial Awards li:n Excellence in Micro(:ntl~rprisl~
J)~VdOrllll:Jll.
President Clinton recently announced the lirsl winners of the Presidential
/\ wards I()r Fxccllcm:c in Microcntcrprise Development. Each award will1}(~r
exempli lics. i11 a distinct manner, the dimensions of excellence in the 1l.S.
lIIicrol:llt(;rprisl~ development field.
•
Coor<.iill<.ltioll oi'lhc Fcd(~ral Micl'ocntcrprisc Initiative. an cffOl1.lo promote collaboration
a1110n~! thl.! various federal agcncic.:s l:nguged in supporting microCllllTprisl~ developmcnt.
Curn,:~;lIly, federal programs housed in agcncil.:s sllch as the Treasury. the Small Busilll~SS'
Administration, ~llId the Dcpnrtlllcntsof Iknlth and Human Sel'vic(~s. Iiolising and Urhan
IkvdllPllll:1I1. Llb()I'. and Agriculture ~LJPporl microcntcrprisc development efforts.
Int...~rag.cncy collaboration affords" l:Olu.:l:rlcd umlli.)l:us~d li.:dcral eni)rt to mlvHlll:l: the..:
I..kwk)PIllCllt of the microclltcrprise I1cld.
1'1<1" of A\~tion in SUPllort of Intcrmltinnal Mic:rntinanc:c
The U.S. (iOVI..T1I11lCnt SlIpp11l1S international micro1inancc through three principal mechanisms:
the dcv'doplllenl assistancc programs carried out hy l JSAID; our support f(lr and guidance to thl.!
lllulrilater:11 devdnpmcnt hanks (M [)Bs); and Ollr inlernational policy dialogue with other
g()Vcrnllll~nls through bilnlel'i.11 dWllUds and ill nll1ltilatl..~n11 fom. The ClinllHl Administration is
committed to utilizing all thre~ or th~Sl~ channds to support mil.:wt:!lllerprisl: devdopmclll and lhe
e..~xpul1sion
Illinonnance services around the world.
or
5
USAID has been one of the recognized leaders among international donor agencies in its level of
support for and expertise in microfinance. In 1994, t H';AID launched a Microentcrprisc Initiative
designed to make microfinance a more prominent part of its economic growth strategy. r.ast
year, AdministratOl: Atwood renewed this initiative, under which USAID will continue to support
microenterprisc elt annual levels similar to those in recent years, primarily through its overseas
missions. It will deepen microenterprise strategies within each regional bureau and in many
mission progrdms. lJSAID will also maintain a strong central program responsible for funding
microcnterprise programs of U.S. private voluntary organizations. carrying out research,
development and information exchange. and trainin~ USAID and partner organization staff. As
it works towards the goals of the Microcredit Summit, USAID will:
•
Select institutions that show a high potential for reaching the poor while achieving
financial viability in its funding decisions about microenterprise;
•
Stress linkages to the formal financial system and explore ways to involve
financial institutions in microfinance~
•
Pla<.:e sped"l emphasis on poverty lending, and ensure that more than half of all clients
served will be women and that more than three-fourths of clients receiving microfinam:e
servkes from US AID-supported institutions will be poverty-lending clients; and
•
Apply per/()rmancc targeting in its grants, and support the development of international
financial performance standards for microtinance.
commer~ial
In coordination with USAID and other U.S. Government agencies, the Treasury Department
promotes U.S. development policy through the multilateral development banks (MOBs),
including the World Dank and the various regional development banks. The Treasury does this
through the Secretary of the Treasury's role on the boards of governors as well as through the
U.S. Executive Directors at each of these institutions. Treasury will continue to encourage the
MDAs to improve mechanisms for the support of micro finance by:
•
Em;ouraging the MDBs to work directly with governments, as part of individual eountry
lending strategies, to devise the policy and regulatory frameworks supportive of
microenterprise and microfinance, including reforms of property rights and labor and
capital markets;
•
Promoting microfinance institution-building, helping to expand financial intermediation
by up-grading the capacities ofNGO-sponsored financial institutions and developing new
technologies to promote competition for micro finance business among regulated financial
i Ilsti tutions;
•
Developing sustainable, demand-driven training programs to provide the technical
services (~llch as accounting and bookkeeping, regulatory compliance and marketing
support) that can assist microenterprises to grow into businesses within the ··formal"
6
economy;
•
Developing innovative programs to channel funds, as appropriate. to entities engaged in
microtinance; and
•
With USAID. continuing to support the Consultative Group to Assist the Poorest (CGAP)
- 8 multi-donor organization focused on microfinance housed in the World Rank -, in its
efforts to raise the quality of donor involvement in microfinam;e operations. mainstream
microfinance programs within the Bank, exchange best practices, and develop industry
standards.
Tht U.S. will also pursuc its microenterprise dcvelopment agenda in a variety of bilateral and
multilateral I(ml. For example, at the December 1994 Summit of the Americas, President
Clinton along with the He~ds of State from 33 other democratic nations in this hemisphere,
agreed that ~trengthcned support for microente1l'rise and small business is a key component or
sustainable and equitable development. This agreement laid the foundation for the lnterAmerican Development Bank's MICRO 2001 program which will build on the past successes
with its global microcredit program lind the small projects windows of the Inter-American Bank
and the Multilateral Investment Fund.
At last year's meeting of the hemisphere's Finance Ministers, this commitment to microenterprisc
development was reiterated. The Ministers, led by Secretary Rubin, recognized that programs to
improve the infrastructure and operations of financial markets are central to expanding small
scale entrepreneurs' access to capital, and that microfinance institutions can facilitate the
mobilization or savings to fund investment and broaden economic participation. They directed
the Committee on Hemispheric Financial Issues, co-chaired by the Treasury Department, to
address issues of lllicroenterprise development as parlOr its broader financial market
development agenda.
Through variolls multilateral efforts - such as the G7/G 10 Emerging Markets Initiative on bank
supervisory and regulatory reforms - as well as ongoing bilateral policy dialogues. the U.S. will
continue to promote microenlerprisc development and the need to create suppMtive policy
environments for microenterprises and microfinance.
7
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
February 11, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 3-YEAR NOTES
Tenders for $17,754 million of 3-year notes, Series U-2000,
to be issued February 18,1997 and to mature February 15, 2000
were accepted today (CUSIP: 9128272H4).
The.interest rate on the notes will be 5 7/8~. The range
of accepted bids and corresponding prices are as follows:
Low
High
Average
Yield
5.990%"
6.005%"
5.997~
Price
99.689
99.649
99.670
Tenders at the high yield were allotted
23~.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$39,418,126
Accepted
$17,753,926
The $17,754 million of accepted tenders includes $713
million of noncompetitive tenders and $17,041 million of
competitive tenders from the public.
In addition, $1,837 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $805 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.
RR-1499
NEWS
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 202%0 - (202) 622·2960
CONTACT:
EMBARGOED tmTIL 2: 30 P. M.
Pebruary 11, 1997
Office of Financing
202/219-3350
TRIASCRY'S WEBltLY BILL OFFERING
Tbe Treasury will auction two series of Treasury bills
totaling approximately $26,000 million, to be issued February 20,
1997. This offering will result in a paydown for the Trea8ury of
about $1,175 million, as the maturing weekly bills are outstanding
in the amount of $27,180 million.
F.dera~ Reserve Banks hold $6,829 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 Re.erve Bank. hold $3,621 million a8 agent. for
foreign and ~ternational monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of acoepted competitive tenders. Additional amount8
may be issued for such accounts if the aggregate amount of new
bids exceeds the aggregate amount of maturing bills.
Tender~ 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, as amended) for the sale and
issue by the Treasury to the public of marketable Treasury bills,
notes, and bonda.
Details about each of the new securities are given in the
attached off~ring highlights.
000
Attachment
RR-1500
B1cmLIQB"l'S <W
~y
TO BB ISSDKD
01'I'D1I109 or WBDLY BILLS
20, 1997
1'.8.~Y
February 11, 1997
Offering
Amouat . . . . . .
Re.oription of Ofteringl
Term and type of security
CUSIP number
Auction date
I.aue date . . . .
Maturity date
. . .
Original issue date .
CUrrently outstanding . .
Minimum bid amount . . .
Multiplea . . . . . . . •
.
. . .
. . . . .
. .
. .
$13,000 million
$13,000 million
91-day bill
912794 4K 7
18~-day
February 18, 1997
February 20, 1997
May 22, 1997
November 21, 1996
$14.139 million
$10,000
$ 1,000
bill
912794 4T 0
February 18, 1997
February 20, 1997
August 21, 1997
August 22, 1996
$20,572 million
$10,000
$ 1,000
Ibe following rull' Apply to all •• guri~ie. MaDtiOQe4 &boye.
Submission of Bldst
Accepted in full up to $1,000,000 at the average
Noncompetitive bids
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate wi th
Competitive bids
two decimals, e.g., 7.l0t.
(2) ",Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rate., and the net
long position i8 $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
4t I Single Yield
HAximum Awa{d . . . . . . .
Receipt of Tenders:
Noncompetitive tenders
Co~patitive
• -,"",pl;
tender. . •
Torm-
35' of public offering
35' of public offering
Prior to 12:00 noon Ba8ter.n Standard time
on auction day
Prior to 1100 p.m. Ea8tern Standard time
011 auctioll day
Fu11 payaMtDt: w:lth tender or by charge to a ~und •
accOUDt at • Pederal ae•• rve aank on i ••ue date
DEPARTMENT
'IREASURY
FOR IMMEDIATE RELEASE
February 13, 1997
OF
THE
TREASURY
NEWS
Contact: Michelle Smith
(202) 622-2960
RUBIN, ALBRIGHT TO BRIEF ON INTERNATIONAL AFFAIRS BUDGET
Treasury Secretary Robert E. Rubin will join Secretary of State Madeleine Albright in a
briefing on the fiscal year 1998 foreign affairs budget at 1 p.m. Friday, February 14 in the Loy
Henderson Conference Room at the State Department.
The briefing is open to the press.
Several hundred business and non-governmental organization leaders interested in
international affairs funding are expected to attend. Following Secretaries Rubin and Albright,
Ambassador Craig Johnstone, Office of Resources, Plans and Policy Director, will provide
further details on the President's budget request.
Press interested in attending should contact the State Department Bureau of Public
Affairs at (202) 647-8948 for clearance.
-30-
RR-1501
ror press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBlJC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 - (202) 622-2960
CONTACT: Office of Financ~ng
202-219-3350
FOR IMMEDIATE RELEASE
February 13, 1997
RESULTS OF TREASURY'S AUCTION OF 30-YEAR BONDS
Tenders for $10,004 million of 30-year bonds to be issued
February 18, 1997 and to mature February 15, 2027 were
accepted today (CUSIP: 912810EZ7).
The interest rate on the bonds will be 6 SIB%".
The range
of accepted bids and corresponding prices are as follows:
Low
High
Average
Yield
6.625%6.660%"
6.640%-
Price
99.998
99.546
99.804
Tenders at the high yield were allotted 35%".
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$24,211,939
Accepted
$10,003,879
The $10,004 million of accepted tenders includes $318
million of noncompetitive tenders and $9,686 million of
competitive tenders from the public.
In addition, $450 million of tenders was also accepted
at the average price from Federal Reserve Banks for their own
account in exchange for maturing securities.
The minimum par amount required for STRIPS 1S $1,600,000.
Larger amounts must be in multiples of that amount.
Also, accrued interest of $0.54903 per $1,000 of par must
be paid for the period February 15, 1997 to February 18, 1997.
RR-1502
For press releases, speeches, public schedules and official biographies, call our 24~our fax line at (202) 622-2040
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
February 18. 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,143 million of 13-week bills to be issued
February 20, 1997 and to mature May 22, 1997 were
accepted today (CUSIP: 9127944K7).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.97%4.99%4.98%"
Investment
Rate
5.10%S.12%5.11%"
Price
98.744
98.739
98.741
Tenders at the high discount rate were allotted 16~.
The investment rate lS the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$55,689,045
Acce12ted
$13,143,002
$50,182,160
1,417,390
$51,599,550
$7,636,117
1,417,390
$9,053,507
3,443,664
3,443,664
645,831
$55,689,045
645,831
$13,143,002
An additional $57,169 thousand of bills will be
issued to foreign official institutions for new cash.
RR-1503
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
February 18, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,102 million of 26-week bills to be issued
February 20, 1997 and to mature August 21, 1997 were
accepted today (CUSIP: 9127942TO).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.01%'
S.03%'
S.03%-
Investment
Rate
5.21%'
S.23%'
5.23%-
Price
97.467
97.457
97.457
Tenders at the high discount rate were allotted 50%'.
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
Received
$46,483,863
Accepted
$13,102,169
$39,021,741
1.226,303
$40,248,044
$5,640,047
1.226,303
$6,866,350
3,385,000
3,385,000
2,850,819
$46,483,8'63
2,850,819
$13,102,169
An additional $251,381 thousand of bills will be
issued to foreign official institutions for new cash.
5.02 - 97.462
RR-1504
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220. (202) 622-2960
EMBARGOED UNTil., 10:00 A.M. EST
Text as Prepared for Delivery
February 12, 1997
Treasury Secretary Robert E. Rubin
Statement before the
Senate Finance Committee
Mr. Chairman, I appreciate this opportunity to appear today to discuss the President's
budget proposal for fiscal year 1998.
This weekend I was in Berlin for a meeting of our G-7 economic partners. It wasn't so
long ago when the other industrial nations roundly criticized the United States at G-7 meetings
for not attending to its economic affairs and we were viewed as yesterday's economy. That
situation is now exactly the opposite. The United States is once again viewed as the world's
economic leader.
They understand that the primary source of US economic strength today results from
having squarely faced our challenges -- in both the private and public sectors-- including
dramatic progress in restoring fiscal order In Berlin, we also discussed the issues which the
President emphasized in his State of the Union how the globalization of the economy and the
information revolution has made it more important than ever to have an educated workforce;
how we must initiate policies which will bring more people into the economic mainstream; and
how essential it is for all nations to remain engaged in the world. Meeting these challenges will
further advance U.S. economic strength going forward, and that is the right path for the rest of
the world as well.
It is in this context that I want to talk about the President's budget this morning.
We are in strong economic shape today and within striking distance of balancing the
budget. This would not have happened without the deficit reduction program enacted in 1993,
which has reduced the size of the deficit from 4 7% to 14% of GOP. That deficit reduction, in
tum, inspired broad business confidence and drove down interest rates, which then drove and
sustained the economic recovery In fact, the United States now has the best economic
RR-1S0S
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
conditions among all of the developed major industrial nations. Our economy has created over
II million new jobs since 1993: inflation has remained low: exports are booming: and we've
experienced record levels of investment, which is critical to future productivity And just as
deficit reduction has been the critical factor in these economic conditions, so is it critical to a
strom~ economy
- over the long-term
~
~
We have an historic opportunity to work together and finish the job. There is strong
support among the public for balancing the budget and there is, I believe, a change of attitude in
Washington about the importance of fiscal responsibility l\10reover, the global capital markets
have created a powerful new incentive for fiscal order, by punishing fiscal laxity with high
interest rates that are inimical to economic health. We can, should and must work together to
capitalize on this moment and get the job done.
The President's budget will get us to balance by 2002. It does so using real numbers and
no gimmicks while protecting our priorities and investing in our people. In prior
Administrations, budgets were too often based on rosy economic scenarios-- and, when the
actual deficits came in much higher than projected, the result was not only a higher deficit but
increased public cynicism about the ability of the government to get its fiscal house in order.
Under President Clinton, we have used prudent and realistic economic assumptions. As a result,
actual deficits have come in lower than either OMB or CBO have projected in each of the last
four years, which, I believe, is unprecedented. Our 1998 budget is done in the same spirit of
sound policies and prudent, realistic economic and technical assumptions.
Our budget makes tough choices It eliminates 254 programs outright for $2.9 billion in
savings, combs discretionary spending, auctions broadcast spectrum, and contains a number of
proposals to close corporate loopholes and improve compliance. Our proposal cuts Medicare
spending by $100 billion over five years, but without adversely affecting the quality of care for
beneficiaries or the amount they must pay out-of-pocket In the absence of change, the Part A
Hospital Trust Fund will become insolvent in 2001. The President's proposal extends the
solvency of the Part A trust fund to 2007 At the same time, we recognize that there are
obviously long term entitlement problems due to demographic trends such as the aging of the
baby boomers, which we must address through a bipartisan process
1\1r. Chairman, as the President said in his State of the Union Address, balancing the
budget requires votes by Congress, and the President's signature It does not require a balanced
budget amendment Indeed, as strongly committed as the President is to a balanced budget, he
has an equally strong conviction, which I firmly share, that a balanced budget amendment is a
threat to our economic health and should not be adopted Such an amendment will not make for
us the tough policy choices that we ourselves must make to balance the budget, and it will
subject our economy to unacceptable risks
Within the context of mm'ing tmvard a balanced budget it is extremely important that we
invest in areas cmical to future productivity and US global leadership There are, obviously,
many specific initiatives in the budget worth mentioning, and most of them were mentioned last
week by OMB Director Raines in his testimony before the Senate Budget Committee, but today
I would like to focus on just a few significant ones -- the President's proposals aimed at giving
middle class people the opportunity to obtain the skills they need to prosper in this economy, as
well as proposals to move the residents of our inner cities and distressed rural areas into the
economic mainstream.
First, the President's tax program provides targeted tax cuts for the middle class ..
The Administration's program would make it easier for middle class families to raise
children, save for retirement, and pay for post-secondary education. In addition, the
Administration is proposing to eliminate capital gains taxes for nearly all homeowners when
they sell their home.
The President is proposing tax cuts that total $100 billion over five years. I believe that
amount strikes the correct balance between advancing the goals of a balanced budget, and
providing tax relief. Tax cuts that are much higher than the Presidents' proposals would require
us to make program reductions that would unduly harm our economy and our society. In many
areas, the Congressional budget and the Presidential budget are close: not on tax cuts. I hope we
can close this gap. What we should not do is engage in a "bidding war" over tax cuts.
Second, the President's budget bolsters areas critical to future productivity. The surest
way to enhance productivity, and maintain our country's competitive edge in the future, is by
investing in areas that have long term payoffs. To that end, the Administration proposes
extending the R&D tax credit for another year; substantial additional spending on education and
training; a new effort to ensure health care for children; and new initiatives to encourage
businesses to hire former welfare recipients and to help states and cities locate jobs to move
families from welfare to work. I mention moving families from welfare to work in the context of
enhancing productivity because I believe that bringing welfare recipients into the economic
mainstream and eliminating the social costs associated with welfare is critical to the future
economic growth of the country and affects everyone. Welfare reform is an economic issue, as
well as a social issue. Revitalizing our cities and moving welfare recipients to work is part of a
much broader effort to bring the economically disenfranchised, many of whom are not welfare
recipients, into the economic mainstream. The budget contains tax incentives to clean up
environmentally contaminated land in distressed areas, known as brownfields; new
empowerment zones; and increased investments in Treasury's CDFI fund. This is the right time
to implement these leaner, private-sector oriented approaches toward fostering growth in the
inner cities as we move to balance the budget.
The final area I wish to mention regards the importance of providing adequate resources
to maintain U. S. leadership in the global economy.
The budget seeks a significant increase in overall funding to sustain our international
3
engagement. and our role, as the President says, as the world's indispensable nation. To shape
world events to advance our security and economic self-interest, we must meet our international
obligations and support and lead in the United Nations and in the international financial
instItutions, such as the World Bank, the International Development Association and the
International Monetary Fund. We should do so not for charitable reasons, but because it is in the
economic self-interest and national security self-interest of the United States and our citizens.
Bringing developing countries into the economic mainstream raises living standards, promotes
political stability -- and it increases markets for U. S. exports
Mr. Chairman, as I said earlier, I believe we have an historic opportunity to complete the
Job we started in 1993 and balance the budget; and to do so in a way that protects our priorities,
both for now and the future. Let me conclude by thanking you again for this opportunity to
discuss the President's budget proposal I look forward to working with all of you this year.
-30-
4
APPENDIX: SUMMARY OF TAX PROVISIONS
The President's FY 1998 budget provides much-needed tax relief for middle-income
families, and tax incentives to boost investment in distressed areas and promote hiring of the
economically disadvantaged. It also eliminates unwarranted corporate tax subsidies, .closes tax
loopholes, and improves tax compliance, and it reinstates the expired excise and other taxes that
are dedicated to various trust funds.
Middle Class Bill of Rights
These tax cuts will help middle-class families pay their bills, raise their children and send
them to college, upgrade their own skills, and plan for retirement.
$500 Child Tax Credit. Taxpayers would receive a $500 nonrefundable credit ($300 in
1997, 1998 and 1999) for each dependent child under the age of 13. The credit would be phasedout for taxpayers with adjusted gross income (AGI) between $60,000 and $75,000. Beginning in
2001, both the amount of the credit and the phase-out range would be indexed for inflation.
Education and Training Incentives. The Budget provides carefully targeted education
and training incentives to make postsecondary education more accessible for middle-income
Americans and to make 14 years of education the norm.
HOPE Scholarship Tax Credits. Taxpayers would be able to claim a
nonrefundable tax credit of up to $1,500 per year (indexed for inflation beginning
in 1998) for two years, to cover tuition and fees for themselves, their spouses, or
their dependents while enrolled at least half-time in the first two academic years of
a degree program. To take the credit in the second year, the student must have
attained the equivalent of at least a B minus grade point average in course work
completed before that year. No credit is available if the student is convicted of a
drug-related felony. Federal grants (but not loans or work-study payments) reduce
the allowable credit. . The credit is phased out for families filing a joint return with
modified AGI between $80,000 and $100,000 (between $50,000 and $70,000 for
single filers), indexed for inflation beginning in 2001. The credit would apply to
course work beginning after June 1997.
Education and Job Training Tax Deduction. As an alternative to the
HOPE scholarship, taxpayers could elect to deduct up to $10,000 per year ($5,000
in 1997 and 1998) of tuition and fees for students enrolled at least half-time in a
degree program or for courses to improve job skills. The deduction is taken in
determining AGI, so it is available to all taxpayers whether or not they itemize.
Unlike the HOPE Scholarship credit, which is calculated per-student, the
deduction does not vary with the number of students in a family. The deduction is
phased out at the same income levels as the HOPE Scholarship credit and would
apply to course work beginning after June 1997.
Expanded Tax-Free Treatment/or Forgiveness of Student Loans. The
Budget eliminates the tax liability that normally arises when debt is forgiven, if the
lender is a charitable or educational institution that lends money to a student to pay
for education and then forgives the loan after the student fulfills a commitment to
perform community or public service at low pay for a certain period of time. The
same tax-free treatment would also apply when the Federal government forgives a
loan made through the direct student loan program for a student who has been
making income-contingent repayments for an extended period.
Tax-Free Employer-Provided Educational Assistance. Currently, up to
$5,250 of tuition paid by an employer pursuant to a qualified educational
assistance program need not be included in the income of the employee. However,
the exclusion for undergraduate education expires in mid-1997, and the exclusion
ceased to apply to graduate-level courses after mid-1996. The budget would
reinstate the exclusion for graduate-level assistance retroactive to its prior
expiration, and would extend both undergraduate- and graduate-level assistance
through December 31, 2000.
Ten Percent Tax Credit to Small Businesses that Provide Educational
Assistance to Employees. For taxable years beginning after December 3 1, 1997,
and before January 1, 2001, small businesses (employers with average annual gross
receipts of $1 0 million or less for the prior three years) would be allowed a 10
percent income tax credit for payments for education of employees by third parties
under an employer-provided educational assistance program.
Expansion of Individual Retirement Accounts. The Budget expands the
availability of deductible individual retirement accounts (1RAs) by doubling, over time, the
current income limits for deductible contributions. In 1997 through 1999, eligibility would
be phased out for couples filing joint returns with AGI between $70,000 and $90,000
($45,000 and $65,000 for single filers) Beginning in 2000, eligibility would be phased out
for couples filing joint returns with AGI between $80,000 and $100,000 ($50,000 and
$70,000 for single filers) The income phaseout, as well as the $2,000 annual contribution
limit, would be indexed for inflation beginning in 2001. As under current law, any
individual who is not an active participant and whose spouse is not an active participant in
~n employer-sponsored plan would be eligible for deductible IRAs without regard to their
Income.
In addition, beginning in 1997, taxpayers would have the option of either
deducting the amount deposited in an IRA account, or foregoing an immediate deduction
and be free of tax and penalties when the funds are withdrawn from a new Special IRA,
provided the funds remain in the Special IRA for at least five years.
2
Finally, penalty-free early withdrawals from either type of IRA would be expanded
to include withdrawals to pay for higher education costs, first-home purchases, long-tenn
unemployment, and catastrophic medical costs of certain family members not covered
under current law.
Exclusion of Gain on Sale of a Principal Residence. The Budget provides
substantial simplification and tax relief for millions of Americans by replacing the currentlaw tax treatment of capital gains on home sales with an exclusion of up to $500,000 of
gain for married taxpayers filing joint returns ($250,000 for other taxpayers). The
exclusion is available every two years, so long as the taxpayer used the house as a
principal residence for at least two of the five years prior to the sale. The exclusion
generally applies to sales on or after January 1, 1997.
Empowering Communities and the Economically Disadyantaged
The Budget will spur private-sector participation in revitalizing distressed
communities and generate job opportunities for long-tenn welfare recipients.
Tax Incentives to Clean Up Blighted "Brownfields" in Distressed Areas. To
encourage companies to clean up abandoned, contaminated industrial properties located in
distressed communities, remediation costs incurred in connection with the abatement or
control of certain environmental contaminants would be immediately deductible if incurred
for a qualified site. Qualified sites include business or income-producing properties
located in specified high-poverty areas where it has been certified that hazardous
substances are present or potentially present in the property. The deduction would be
subject to recapture as ordinary income upon a subsequent disposition of the property at a
gain. The proposal would apply to expenses incurred after the date of enactment.
Additional Empowerment Zones and Enterprise Communities. The Secretary
of Housing and Urban Development would be authorized to designate two urban
empowennent zones in addition to the six urban and three rural zones designated on
December 21, 1994. This would have the effect of extending the current empowennent
zone tax incentives to these additional areas, with technical modifications. In addition, 20
additional empowennent zones and 80 additional enterprise communities, which will be
subject to modified eligibility criteria, would be authorized. These additional zones would
have available a different combination of tax incentives than those available to existing
zones. Among the 20 zones, 15 would be in urban areas and 5 would be in rural areas.
The 80 communities would be divided between 50 urban areas and 30 rural areas. Areas
within Indian reservations would be eligible for designation.
Tax Credits for Community-Oriented Equity Investments. The Community
Development Banking and Financial Institutions Act of 1994 created the Community
Development Financial Institutions (CDFI) Fund to provide equity investments, grants,
3
loans, and technical assistance to financial institutions that have community development
as their primary mission. The Budget would make $100 million in nonrefundable tax
credits available to the COFI Fund to allocate among equity investors between 1997 and
2006 The allocation of credits is capped at 25 percent of the amount invested in any
project and would be determined by the CDFI Fund using a competitive process.
Tax Credits to Facilitate the Transition from Welfare to Work. The goal of
the Welfare Reform Act of 1996 (the W elfare Act) is to move individuals from welfare to
work. To help achieve this goal, the Budget includes a new welfare-to-work credit that
would enable employers to claim a 50-percent credit on the first $10,000 of annual wages
paid to certain long-term public assistance recipients for up to two years. In addition, the
Budget would expand the existing Work Opportunity Tax Credit to include able-bodied
adults, ages 18-50, who have met their responsibilities under the law but are subject to the
time limits for food stamps under the Administration's proposal to amend the Welfare Act.
These proposals would be effective from the date of enactment through September 30,
2000.
Estate Tax Relief for Small Businesses and Farms
Under current law, estate tax attributable to certain closely held businesses may be
paid in installments (interest-only for four years, followed by up to ten annual installments
of principal and interest). A special four-percent interest rate is provided for the tax
deferred on the first $1 million of value. Only certain types of business arrangements are
eligible for the installment payment provision, and a special estate tax lien applies to
property on which the tax is deferred during the installment payment period. The Budget
increases the value cap on the special low interest rate from $1 million to $2.5 million,
expands the availability of these rules to other comparable business arrangements, and
authorizes the Secretary to accept security arrangements in lieu of the special estate tax
lien. These proposals would be effective for decedents dying after 1997.
Other Tax Relief Provisions
Extension of Expiring Tax Provisions. The Budget would extend each of the
following provisions for one year from their current expiration date:
•
The 20-percent credit for research and experimentation expenditures
(expiring May 31, 1997);
•
The 35-percent Work Opportunity Tax Credit for employment of targeted
hard-to-employ groups (expiring September 30, 1997);
•
The 50-percent credit for qualified clinical testing of certain drugs for rare
diseases or conditions (known as "orphan drugs") (expiring May 31, 1997);
4
and
•
The fair-market-value deduction allowed for contributions of appreciated
stock to private foundations (expiring May 31, 1997).
Equitable Tolling of the Statute of Limitations. To ensure that disabled
persons are fairly treated when filing for tax refunds, the statute of limitations for refunds
from the Internal Revenue Service would be delayed when the individual is under a
sufficient medically determined disability and no other person has been authorized to act
on the taxpayer's behalf in financial matters. The proposal would be effective for taxable
years ending after the date of enactment.
Tax Incentives for Economic Development of the District of Columbia. To
encourage employment of disadvantaged residents and to revitalize those D.C. areas
where development has been inadequate, tax incentives are proposed.
Tax Credit for Economic Development of Puerto Rico. To provide a more
efficient and effective tax incentive for the economic development of Puerto Rico, the
Budget modifies the economic-activity credit for Puerto Rico by extending it indefinitely,
opening it to newly established business operations, and removing the income cap.
Foreign Sales Corporation (FSC) Benefits for Computer Software Licenses.
To reflect technological advancements, the Budget extends the current FSC export benefit
to include computer software licensed for reproduction abroad, effective for licenses
granted after the date of enactment.
Closing Corporate Tax Loopholes and Other Reyenue Measures
The Budget includes proposals previously proposed by the Administration to
eliminate unwarranted corporate tax subsidies, close tax loopholes, and improve tax
compliance. Such measures include:
•
Proposals focused on financial products, to maintain the distinction between debt
and equity, curtail arbitrage opportunities, prevent avoidance of gain recognition
on functional sales, and properly measure income;
•
Proposals focused on corporate transactions, to prevent tax-free disguised sales of
businesses, prevent the manipulation of the stock redemption rules to distort
income, eliminate the use of inventory methods that mismeasure income, and
reduce corporate subsidies such as percentage depletion on lands received from the
Federal government at a bargain price;
•
Proposals focused on the international tax rules, to measure export income more
5
accurately, prevent manipulation of the foreign tax credit rules through artificial
labels, and eliminate distortions resulting from the use of derivative financial
instruments; and
Proposals focused on increasing tax compliance, for example by tightening the
substantial understatement penalty for very large corporations, expanding
withholding on gambling winnings, and streamlining debt collection procedures for
non-means tested, recurring Federal payments.
Extension of Expired Excise and Other Trust Fund Taxes. The Budget also
proposes reinstatement of the excise and other trust fund taxes that have expired: the
Airport and Airways Trust Fund excise taxes; the Hazardous Substance Superfund Trust
Fund excise and income taxes; the Oilspill Liability Trust Fund excise taxes; and the
Leaking Underground Storage Tank Trust Fund excise tax. These are not new taxes: they
have been applied for years to finance specific programs, such as the provision of air
traffic control services and the cleanup of certain hazardous waste sites. Each of these
taxes would be extended through 2007.
Tax Simplification and Taxpayers' Rights
The Administration continues to support revenue-neutral initiatives designed to promote
sensible and equitable administration of the tax laws, including simplification, technical
corrections, compliance, and taxpayers' rights measures. In the near future, the
Administration will propose to Congress a package of such measures.
6
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
February 12, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 10-YEAR NOTES
Tenders for $12,005 million of 10-year notes, Series B-2007,
to be issued February 18, 1997 and to mature February 15, 2007
were accepted today (CUSIP: 9128272JO).
The interest rate on the notes will be 6 1/4%". The range
of accepted bids and corresponding prices are as follows:
Low
High
Average
Yield
6.354%'
6.399%6.374%"
Price
99.238
98.911
99.092
Tenders at the high yield were allotted 60%-.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$22,764,266
Accepted
$12,005,226
The $12,005 million of accepted tenders includes $424
million of noncompetitive tenders and $11,581 million of
competitive tenders from the pUblic.
In addition, $550 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $540 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.
The minimum par amount required for STRIPS is $32,000.
Larger amounts must be in multiples of that amount.
Also, accrued interest of $0.51796 per $1,000 of par must
be paid for the period February 15, 1997 to February 18, 1997.
RR-1506
'IREASURY
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AvtN'UE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
February 14, 1997
Text As Prepared For Delivery
Treasury Secretary Robert Rubin
Remarks on the 150 Account
It is a pleasure to be here today to discuss the President's budget for international
programs. This is, I believe, the first time that both the Secretaries of State and Treasury have
appeared together to discuss the importance of these programs for maintaining U.S. leadership in
the world.
Our budget calls for spending a total of $1.6 billion on international programs, of which
about $300 million will be used to partially pay down arrears that last year totaled well over $1
billion. The remainder will go to our regularly scheduled payments for this year. Every day that
we delay making our payments in full hurts our ability to lead and gives our allies and partners
reason to raise questions about America's role in the world.
As the President has said, our foreign affairs budget request is essential to our role as the
world's indispensable nation. Our engagement in -- and support for -- the United Nations, the
World Bank, the regional development banks, and the International Monetary Fund -- are vital to
the economic self-interest and national security self-interest of the United States and our citizens.
Bringing developing nations into the economic mainstream promotes political stability,
raises living standards, increases markets for U.S. exports and create jobs here at home. For the
past 50 years, the World Bank, the IMF and other multilateral development banks have been
absolutely central to that effort. In 1995, for example, U.S. firms exported more than $25 billion
worth of goods and services to the 79 very poor countries eligible for International Development
Association funds and roughly $60 billion worth to IDA graduates. The IMF has played a critical
role in creating the economic foundation for stability in countries where the United States has
major strategic interests, such as Russia. With assistance fr0111 the IMF and the multilateral
banks, more countries are now assuming their fair share of the responsibility for maintaining
RR-1507
Forpress releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
global economic growth and the financial stability. To further these efforts, our proposal seeks
authorization to strengthen the IMF's capacity to deal with financial emergencies.
Can these multilateral institutions become more efficient? Absolutely. Indeed, this
Administration has aggressively promoted reform and it is paying off: Largely because of
refoIDls pushed by this Administration and the Congress, these institutions have become very
effective promoters of growth, free markets, and private sector development. There is more to do,
and we continue to pursue vigorously a refoIDl agenda, but our leverage in these institutions will
be reduced if we keep failing to meet our commitments. We cannot lead with other people's
money.
These are good investments for the United States. They help us create jobs and promote
good economic conditions in this country. I look forward to working with Congress to pass the
President's budget, maintain our leadership in these institutions and make the American people
more prosperous.
-30-
NEWS
OFFiCEOF PUBUC AFFAIRs
e
1500 PENNSYLVANIA AVENUE, N.w.
e· WASIflNGTON,
CONTACT:
EMBARGOED UNTIL 2:30 P.M.
February 18, 1997
D.C.
e
20220
e
(202) 622.2960
Office of FinanciI"g
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approiimately $26,000 million; to be issued Pebruary 27,
1997. This offering will result in a paydown for the Treasury of
about $150 million, as the maturing weekly bi~ls are cutstandlng
in the amount of $26,141 million.
Federal Reserve Banks hold $7,135 million of the ma~uring
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discQunt rate of accepted
competitive tenders.
Federal Reserve Banks hold $5,098 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. Additional amounts
may be issued for such accounts if the aggregate amount of new
bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Dept, 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, as amended) 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
Attachmcr,~
RR-1508
HIGHLIGHTS OF TREASURY OFFBRINGS OF WEEKLY BILLS
TO BE ISSUED FEBRUARY 27, 1997
February 18,
1997
Offering Amount .
$13,000 million
$13,000 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity dat~
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 2Q 6
February 24, 1997
February 27, 1997
May 29, 1997
May 30, 1996
$]3,409 million
$10,000
$ 1,000
182-day bill
912794 5K 6
February 24, 1997
February 27, 1997
August 28, 1997
February 27, 1997
$10,000
$ 1,000
rbe following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum A.ward .
Receipt of Tenders:
Noncompetitive tenders
competitive tenders
Payment Terms
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.
35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard tim~
on auction day
Full payment with tender or by charge to a funds
account at a
Federal
Reserve Bank on
~ssue
date
DEPARTMENT
OF
THE
TREASURY
NEWS
~178~q~. . . . . . . . . . . . . . . . . .. .
....................
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
February 18, 1997
VICE PRESIDENT GORE SIGNS U.S.-SOUTH AFRICAN TAX CONVENTION
The Treasury Department today announced that Vice President Gore and South African Deputy
President Mbeki signed an income tax convention in Cape Town. This Convention replaces the
previous convention that was terminated in 1987 pursuant to the u.S. Anti-Apartheid Act, and
represents and important step in Treasury's goal of expanding the u.S. tax treaty network with
important trading partners. The Convention will enter into force after the countries have
exchanged the instruments of ratification.
The proposed income tax Convention with South Africa generally follows the pattern of the u.S.
Model treaty and the Model treaty issued by the Organization for Economic Cooperation and
Development (OECD), although a major portion of the negotiations pre-dated publication of the
U.S. Model. There are, however, as with all bilateral tax Conventions, some variations from
these norms. In the proposed Convention, these differences reflect particular aspects of South
African law and treaty policy, the interaction of U.S. and South African law, and U.S.-South
African economic relations.
Taxation of Investment Income
The proposed Convention establishes maximum rates of withholding at source on investment
income that are the same as those in the U.S. Model. Dividends are subject to a maximum rate of
tax at source of 15 percent, except that the rate is limited to 5 percent for dividends paid by a 10percent or more subsidiary in one country to its parent in the other. In general, interest and
royalties are both exempt from tax at source, and are, therefore, subject to tax exclusively in the
country of residence of the beneficial owner of the income.
The standard U.S. anti-abuse rules are provided for certain classes of investment income.
Dividends paid by non-taxable conduit entities, such as U.s. RlCs and REITs, are subject to
RR-lS09
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
special rules to prevent the use of these entities to transform what is otherwise high-taxed income
into lower-taxed income. Excess inclusions with respect to residual interests in REMICs are
denied the benefits of the reduced rate of tax at source on interest, and contingent interest is
subject to source tax at the 15 percent rate applied to portfolio dividends.
The taxation of capital gains under the proposed Convention follows the pattern ofthe u.s.
Model. It provides that gains from real property (including a U.S. real property interest) are
taxable in the situs State. Gains from the alienation of personal property that is part of a
permanent establishment or fixed base may be taxed in the State where the permanent
establishment or fixed base is located. All other gains, including gains from the alienation of
ships, aircraft and containers operated or used in international traffic, are taxable exclusively in
the State of residence of the alienator.
Taxation of Business Income
As with recent u.S. treaties and the u.S. and OECD Models, the proposed Convention provides
generally for the taxation by one State of the business profits of a resident of the other only when
such profits are attributable to a permanent establishment located in that other State. The
proposed Convention, however, grants rights to tax business profits that are somewhat broader in
one respect than those found in the U.S. and OECD Models. Under the proposed Convention, an
enterprise will have a permanent establishment in a Contracting State if its employees or other
personnel provide services within that State for 183 days or more within a 12-month period in
connection with the same or a connected project.
The proposed Convention preserves the right of both States to impose a branch tax on local
branches of corporations of the other State. The proposed Convention will also accommodate a
provision of the 1986 Tax Reform Act that attributes to a permanent establishment income that is
earned during the life of the permanent establishment, but is deferred, and not received until after
the permanent establishment no longer exists.
The proposed Convention, consistent with current U.S. treaty policy, provides exclusive
residence-country taxation of profits from international carriage by ship or aircraft. This
reciprocal exemption also extends to income from the rental of ships, aircraft and containers.
Taxation of Personal Services Income
As with the treatment of business profits, personal service income, for both dependent and
independent services, is subject to rules that essentially follow the U.S. Model rules. The 183day personal service rule in the definition of permanent establishment is, appropriately, also
present in the definition of fixed base. In the proposed Convention, the dollar threshold for hostcountry taxation of income of entertainers and sportsmen is currently $7,500, rather than
$20,000. The proposed Convention, however, contains a rule allowing the Contracting States to
increase the amount through an exchange of diplomatic notes. This provision requires
3
diplomatic notes to be exchanged to increase the threshold, rather than the competent authority
agreement found in many U.S. treaties. The treatment of directors, social security recipients,
Government employees and students follows the pattern of the U.S. Model. The treatment of
pensions differs from that in the U.S. Model. Pensions will be subject to limited source-country
tax. The residence country may also tax, subject to a foreign tax credit, if the source country has
taxed. Like the U.S. Model, an individual employed in one country who belongs to a pension
plan in the other, may, subject to certain conditions, be allowed in his country of employment to
deduct contributions to his plan in the other country.
As in the U.S. Model, the proposed Convention provides that income of a resident of a
Contracting State not dealt with in the other articles of the Convention is taxable only in the
country of residence ofthe·recipient.
Anti-Treaty-Shopping Provisions
The proposed Convention contains significant rules designed to restrict the benefits of the
Convention to persons that are not engaged in "treaty shopping." The provisions are similar to
those found in the U.S. Model and in all recent U.S. treaties.
Exchange of Information
The information exchange provisions make clear that South Africa is obligated to provide U.S.
tax officials such information, including bank information, as is necessary to carry out the
provisions of the Convention. Consistent with U.S. policy, South African information will be
available to U.S. authorities whether or not South Africa has a tax interest in the information.
The proposed Convention allows the General Accounting Office and the tax writing Committees
of Congress to obtain access to certain tax information exchanged under the Convention for use
in their oversight of the administration of U.S. tax laws and treaties.
General Provisions
The proposed Convention provides a U.S. foreign tax credit for the South African income taxes
covered by the Convention, including the normal tax and the secondary tax on companies, and
for a South African foreign tax credit for the U.S. income taxes covered by the Convention. The
U.S. foreign tax credit is subject to normal limitations of U.S . law, including limitations relating
to the amount of foreign source income of the U.S. taxpayer and denial of the credit for noncompulsory payments.
In addition, the proposed Convention provides for non-discriminatory treatment (i.e., national
treatment) by one country to residents and nationals of the other. Also included in the proposed
Convention are rules necessary for administering the Convention, including rules for the
resolution of disputes under the Convention.
4
Entry Into Force
The proposed Convention is subject to ratification. It will enter into force 30 days after each
State has notified the other that its ratification procedures have been completed. It will have
effect, with respect to taxes withheld at the source, for amounts paid or credited on or after the
first day of January following entry into force. In other cases the Convention will have effect
with respect to taxable periods beginning on or after the first day of January following the date
on which the Convention enters into force.
The Convention will remain in force indefinitely unless terminated by one of the Contracting
States. Either State will be able to terminate the Convention after 5 years from the date on which
the Convention enters into force by giving prior notice of at least six months through diplomatic
channels.
Copies of the new Convention are available from the Office of Public Affairs, Treasury
Department, Room 2315, Washington, D.C. 20220. For additional information regarding the
treaty please call 622-2960.
-30-
UBLIC DEBT NEWS
Dcpartmcnt of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
Contact: Office of Financing
FOR lMMEDIATE RELEASE
(202) 219-31 SO
February 19, }997
TREASURY'S fNFLA nON-INDEXED NOTES
MARCH REFERENCE crl NlJMBERSAND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price index (CPI) numbers and the daily index
ratios for the month of March for the 10- Year Treasury inflation-indexed notes issued February 6.
1997 This infonnation is based on the non-seasonally adjusted U.S. City Average All Items Consumer
Price Index for All Urban Consumers (CPI-V) published by the Bureau of Labor Statistics of the U.S
Department of Labor.
In addition to the publication of the reference CPIs (RefCPJ) and index ratios, this release provides the
non-seasonally adjusted CPI-U for the prior three-month period. Public Debt intends to announce the
reference CPI numbers and the related index ratio monthly for at least one year.
This infonnation is available through the Treasury's Office of Public Affairs automated fax system by
calling 202-622-2040 and requesting document number 1510 The infonnation is also available on the
lntemct at Public Debr's home page: (http://w\Vw.publicdeburcas.gov).
The infonnation for April is expected to be released on March 19, 1997
000
PA-250
RR-1510
F C 10' -
1 ~ -
~ -;-
,., £ D
1:2::2 0
T P. £
Q
S ./ P U:I;! L
D EO: :I;! T
999
0 'r
C;
202-219-33sn
Contact Office of Fmancing
1 HEASURY 10-YEAR INFLATION-INDEXED NOTES
SERIES,
A-200?
CUSIF':
9128272M3
AUCTION DATE:
Janumy 29, 1997
ORIGINAL ISSUE DATED DATE
January 1S, 19Y7
ORIGINAL ISSUE DATE:
Fp.bruary 6. '1997
MATURITY DATE:
January 15.2007
r-ef CP! on DATED DA TF'
158.43548
TA8LE FOR M()N IH OF:
M3rch, 1997
NUM8~k OF DAYS IN MONTH:
;$1
158.6
CPI·U (NSA) Nov. '96
Crl-U (NSA) Dec. '96
CPI-U (NSA) J::m ''':J7
159.6
159.1
Ref CPI am.! lnde)l; Ratios for March 1997
-
-- - - - - - - ' , - - -
,
~a!endar deL-
'March
jMarch
,March
iMarch
iMarCh
IMarch
iMarch
iMarch
'Mart"h
1
2
;5
4
5
6
7
8
9
;MarCh
10
'March
'March
'March
March
:Marcn
,March
'March
March
11
1f'
13
14
15
16
17
18
19
_ _ I_RefC~
1997' 158,60000
158.6101:1
1997
150.63226
1997
1997 158.64839
1997 1 15R R64~L:
1q~r :
158.68005
1997! 158.09077
1997i 158.71290
1907 1 158,72903
1997, 1587~51b
19~71
158.70'129
1997;, 158.77742
1997, 158.79355
1997; 158,80968
1997: 158R?~~1
1QQi'·
158.84194
199T'
1()::l7
158.85006
15897419
1 S8.89032
'March
20
21
1997,
19::t7 '
15B ~oti45
158,92258
'MElrch
'March
27
23
1991'
1997,
M~rr.h
24
1007.
1589:3071
15805484
15897097
MarCh
2S
Marc.h
,M::Hcn
26
2/
1997
Fl9/
1SR ~~710
159.00323
1997
'Mafr:-.h
Maret;
25
2:J
19Q7
1997
1S901935
159.035li8
1SQ O~161
'MdlC.11
30
31
1 qg ('
15906774
1997
159.08387
,M;m~h
,March
I
·March
---
I
1997.
----~---
Index Ratio
-'.00104
1.00114
1.00124
1.00134
1.0014!J
1,00155
1.00165
1.001 IS
1.00"185
10019~
1.00206
1.00216
1.007/.0
100236
100246
1.00257
1.00267
100L 17
1.00287
1.00297
1.00307
1,00318
100~2!j
1.00338
1.00340
1,00358
1,00369
1.00379
1.00309
1.00399
' " -1,OO~O9
----
I
From:
T~EASURY
() EPA R T 'I E 1\ T
3-28-97 4:05pm
PUBLIC AFFAIRS
0 F
TilE
T
I~
E AS
r
p. 1 of 27
R Y
NEWS
ornCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
CONTACT:
EMBARGOED UNTIL 2:30 P.M.
February 19, 1997
Office of Financing
202/219-;350
TREASURY TO AUCTION 2-YEAR AND S-YEAR NOTES
TOTALING $30,000 MILLION
The Treasury will auction $17,500 million of 2-year notes
and $12,500 million of 5-year notes to refund $27,695 million of
publicly-held securities maturing February 28, 1997, and to raise
about S~,300 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $1,069 million of the maturing securities for their own
account$, which may be refunded by issuing additional amounts
of the new securities.
The maturing securities held by the public incluae $1,573
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for chese
accounts by Federal Reserve Banks will be added to the offering.
Both the 2-year and S-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.
Te~ders 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, as amended) 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.
Attachment
000
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
February 19, 1997
Qffering Amount .
pescription of Offering:
Term and type of security
Series
CUSIP number
Auct.ion date
Issue date
Dated date
Mat.urit.y date
Interest rate
Yield .
Interest payment dates
Minimum bid amount
Multiples .
A.ccrued interest
payable by investor
Premium or discount .
$17,500l1lillion
$12,500 million
2-year notes
AC-1999
912827 21< 7
February 25, 1997
February 28, 1997
February 28, 1997
February 28. 1999
Detenmined based on the
highest accept.ed bid
Determined at auction
The last calendar day of
August and February through
February 28, 1999
$5,000
$1,000
5-year note6
0-2002
912827 2L 5
February 26, 1997
Pebruary 28, 1997
February 28, 1997
February 28, 2002
Determined based on the
highest accepted bid
Determined at auction
The last calendar day of
August and February through
Pebruary 28
2002
$1.000
$1,000
lSI
~
.....
~
.....
~
""
~
A
W
I\.)
"-,
o
3
-<
;0
I"T1
~
1
v)
C
AI
-<
-u
c
CD
None
Determined at auction
None
Determined at auction
>-<
"
~
""
>-<
~
The following rules apply to all securities mentioped above:
Submission of Bids:
. Accepted in full up to $5.000.000 at the highest accepted yield
NOncompetitive bids .
(1) Must be expressed as a yield with three decimals, e.g., 7.12)\
Competitive bids
(2) Net long position for each bidder must be report.ed when the
~uu. of the t.otal bid aRtOUnt. at all yield:.., arlO t.he net. lCJny
position is $2 billion or greater.
()) Net long poSition must be detevmined as of one half-hour prior
to the closing titae for receipt of competitive tenders.
Maximu.,} 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 tine on auction day
Noncompetitive tenders
Prior to 1;00 p.m. Eastern Standard time on auction day
competitive tenders . .
FUll payment wi th tender or by charge to a funds· account at a
payment Terms . . . • • .
Federal Reserve Bank on issue date
AI
L·~
I\.J
lSI
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From: TREASURY PUBLIC AFFAIRS
1009
3-14-97
4: 15~m
p.
1 of 8
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 4 P.M.
February 21, 1997
Contact: Michelle Smith
(202) 622-2960
TREASURY RELEASES ANNUAL FOREIGN EXCHANGE RATE REPORT
The Treasury Department on Friday released the ninth Annual Report to Congress on
International Economic and Exchange Rate Policy, which reviews developments in the major
economies and exchange markets, and assesses the foreign exchange systems of a number of our
major trading partners.
The report, which is provided under the Omnibus Trade and Competitiveness Act of
1988, covers the period from April 1, 1996, through October 31, 1996. It does not cover events
since then.
While the report does not address the current exchange rate environment, Treasury
Secretary Robert Rubin said February 8, "A strong dollar is in the United States' interest. We
have had a strong dollar for some time now."
The report notes that the world economic expansion has continued at a moderate pace
during the period covered, with inflation generally low. In the major industrial countries, growth
is expected to average 2.2% for 1997, with somewhat stronger growth in continental Europe and
some deceleration of growth in Japan, along with continued strength in the United States and
Canada. Growth is expected to continue at a strong pace in the maior emerging market countries,
although there has been some recent moderation of that pace in Asia and the transition
economies. There are a number of countries with macroeconomic and financial challenges that
'A-ill continue to require careful monitoring.
The dollar appreciated moderately in the six-month period ending October 1996, rising
1.9% in real trade-weighted effective terms. On balance, this was a period of welcome stability
in the exchange rates of the major currencies.
The report presents an updated assessment of whether countries have manipulated
exchange rates between their currencies and the dollar to prevent balance of payments adjustment
or gain an unfair competitive advantage in international trade (as defined in the Omnibus Trade
and Competitiveness Act), and concludes that none of our major trading partners is manipUlating
its exchange rate under the terms of the Act.
RR-1512
Forpress releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
From: TREASURY PUBLIC
AFFAIR~
'J-14-Q")
4: :c,pm
Treasury will continue to monitor closely the exchange rate policies of these countries.
We will also continue to encourage progress toward the liberalization of capital controls, and,
where appropriate. steps to provide for greater flexibility in the exchange rate regime. This will
be particularly important in countries where conditions may suggest the need for further
appreciation in real exchange rates, both against the dollar and in the trade-weighted indices.
-30-
p. 2 nf
e
1789
NEWS
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANlAAVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 2:30 P.M.
February 21, 1997
CONTACT:
Office of Financing
202/219-3350
TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $19,250 million
of 52-week Treasury bills to be issued March 6, 1997. This
offering will provide about $450 million of ne~ cash for the
Treasury, as the maturing 52-week bill is currently outstanding
in the amount of $~8,795 million. In addition to the maturing
52-week bills, there are $26,202 million of maturing 13-week and
26-week bills.
Federal Reserve Banks hold $11,996 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 $4,183 million of the maturinq
issues as agents for foreign and international monetary authori
ties. These may be refunded within the offering amount at the
weighted average discount rate of accepted competitive tenders_
Additional amounts may be issued for such accounts if the
aggregate amount of new bids exceeds the aggregate amount of
maturing bills. For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold none of the maturing 52-week iSBue.
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, as amended) for the sale and
issue by the Treasury to the public of marketable Treasury bille,
notes, and bonds.
Details about the new security are given in the attached
offering highlights.
000
Attachment
RR-1513
HIGHLIGHTS OF TREASURY OFF£RING OF 52 -WEElI: BILLS
TO BE ISSUED MARCH 6, 1997
February 21, 1997
Offering Amount .
.
.
.
$19,250 million
.
pescription of Offering:
364-day bill
912794 45 0
February 27 I 1997
March 6, 1997
March 5. 1998
March 6, 1997
$18,795 million
Term and type of security
COSIP number
Auction date
Issue date
Maturity date . . . .
Original issue date
Maturing amount . . .
Hinimum bid amount
Multiples . . . . .
$10,000
$1,000
Submieaion of 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 Bum 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.
Noncompetitive bids
Competitive bids
HaxLmum
Reeognized Bid
at , Single Yield
Maximum Award .
.
35\ of public offering
.
35% of public offering
Receint 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
Termn
.
.
.
.
.
.
.
Full payment with tender or by charge
to a funds account at a Federal
Reserve bank on iSBue date
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
February 24, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,047 million of 26-week bills to be issued
February 27, 1997 and to mature August 28, 1997 were
accepted today (CUSIP: 9127945K6).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.03%'
5.03%5.0390
Investment
Rate
5.23%'
5.23%5.23%"
Price
97.457
97.457
97.457
$1,500,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 74%".
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
Received
$56,944,303
Accepted
$13,046,928
$48,169,566
1,187,529
$4S1,357,OSl5
$4,272,191
1.187,529
$5,45S1,720
3,510,000
3,510,000
4,077,208
$56,944,303
4,077.208
$13,046,928
An additional $377,092 thousand of bills will be
issued to foreign official institutions for new cash.
5.00
RR-1514
97.472
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
February 24, 1997
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,161 million of 13-week bills to be issued
February 27, 1997 and to mature May 29, 1997 were
accepted today (CUSIP: 9127942Q6).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.99%5.01%5.01%-
Investment
Rate
5.12%5.14%5.14%-
Price
98.739
98.734
98.734
Tenders at the high discount rate were allotted 39%-.
The investment rate lS the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$54,935,686
Acc e 2 ted
$13,161,271
$48,951,494
1,352,420
$50/303,914
$7,177,079
1,352,420
$8/529,499
3/625,180
3,625,180
5:22
1.QQ~.5~2
$54,935,686
$13,161,271
1.
QQ~.
An additional $92/908 thousand of bills will be
issued to foreign official institutions for new cash.
5.00 -- 98.736
RR-151S
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
February 25, 1997
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Tenders for $17,507 million of 2-year notes, Series AC-1999,
to be issued February 28, 1997 and to mature February 28, 1999
were accepted today (CUSIP: 9128272K7).
The interest rate on the notes will be 5 7/8%-. All
competitive tenders at yields lower than 5.885~ were accepted in
full.
Tenders at 5.885% were allotted 94%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 5.885~, with an equivalent price of 99.981. The median yield
was 5.865%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 5.820%-;
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
$38,698,647
Accepted
$17,506,847
The $17,507 million of accepted tenders includes $1,321
million of noncompetitive tenders and $16,186 million of
competitive tenders from the public.
In addition, $1,750 million of
high yield to Federal Reserve Banks
international monetary authorities,
of tenders was also accepted at the
Reserve Banks for their own account
s'ecurities,
RR-1516
tenders was awarded at the
as agents for foreign and
An additional $624 million
high yield from Federal
in exchange for maturing
..1I..........1I..1I....1I............~/789
NEWS
~
,
.
..
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 - (202) 622.2960
EMBARGOED UNTIL 2:30 P.M.
February 25, 1997
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 March 6,
1997. This offering will result in a paydown for the Treasury of
about $200 million, as the maturing 13-week and 26-week bills are
outstanding in the amount of $26,202 million. In addition to the
maturing 13-week and 26-week bills, there are $18/'95 million of
maturing 52-week bills. The disposition of this latter amount
was announced last week.
Federal Reserve Banks hold $11,996 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 $4,048 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. Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount
of maturing bills. For purposes of determining such additional
amounts, foreign and international monetary .uthorities are
considered to hold the entire $4,048 million of the original 13week and 26-week issues.
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, as amended) 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-1517
~
.
RIGBLIQBTS OF TREASURY OFFERINGS 07 WEBKLY BILLS
TO BB ISSUED MAKCH 6. 1997
February 25, 1997
Offering Amount . . . . .
Delcription of Offeringl
Term and type of security
CUSIP number . . . . . .
Auction date
Issue date
Maturity date
...
Original issue date . . .
CUrrently outstanding . .
Minimum bid amount
.
Multiples . . . . . . . .
.
.
. . .
. . . . .
. . .
$13,000 million
$13,000 million
91-day bill
162-day bill
912794 4L 5
March 3, 1997
March 6, 1997
June 5, 1997
December 5, 1996
March 3, 1997
March 6, 1997
September 4, :997
March 6, 1997
$14,136 million
$10,000
$ 1,000
$10.000
$ 1,000
912794 SL 4
The following rul •• apply to all securities mentioned abQy§1
SybmiasiQn of Bids:
Noncompetitive bids . . . .
Accepted in full up to $1,000.000 at the average
discount rate of accepted competitive bids
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 nct
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
re"eeipt 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
Noncompetitive tenders
on auction day
Prior to 1:00 p.m. Eastern Standard time
Competitive tenders
on auction day
Full payment with tender or by charge to a funds
Payment Terms . . .
account at a Federal Reserve Bank on issue date
~-i4-g:
4: ISprn
p. 3 of 8
ornCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 2Oi20 _ (202) 6%2.2960
EMBARGOED UNTIL 2:30 P.M.
CONTACT:
Pebruary 2S, 1997
Office of Financing
202/219-3350
TREASURY TO AUCTION CASS MANAGEMENT BILLS
The Treasury will auction approximately $~3,OOO
million of 45-day Treasury cash management bills to be
issued March 3, 1997.
Competitive and noncompetitive tenders will be
received at all Federal Ralerva Banks and 8ranches.
Tender! will ~ be accepted for bills to be maintained on
the book-entry records of the Department of tbe Trealury
(TRZASORY DIRECT). Tender. will DQt be received at the
Bureau of the' Public Cebt, Washington, D.C.
Additional amounts of the bills may be issued to
Federal Reserve Sanke a~ agents for foreign and
international monetary authorities at the average price of
accepted competitive tender •.
This offering of Treasury securitiee is governed by
the terms and condition~ sat forth in the Uniform Offerin9
Circular (31 CPR Part 356, as amended) fer 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
Attaohment
Report of the Secretary of the Treasury
Administration Efforts to Lift the Procurement Restrictions on the
International Development Association's Interim Trust Fund
Submitted to the House Appropriations Foreign Operations Subcommittee
February 26, 1997
Executive Summary
Treasury's efforts to secure procurement rights for U.S. firms on projects funded by the IDA
Interim Trust Fund (ITF) began in the IDA-II negotiations in early 1996. During these
negotiations, the U.S. argued forcefully for allowing U.S. firms to participate in bidding on all
IDA-related projects, both because it would benefit borrowing countries and because it would
provide the best atmosphere for obtaining Congressional support for IDA appropriations.
However, a majority of donors felt that the principle of restricting procurement to Fund
borrowers and donors, which applies in all concessional loan funds, should apply to the ITF.
Congressional reaction to the IDA board's decision to create the ITF and to include procurement
restrictions was strongly negative and the issue was an important factor in Congressional
deliberations on the FY97 IDA appropriation. As part of the final compromise on the $700
million appropriation, funding was withheld until after March 1st, 1997. Release of the funds was
made contingent on the Secretary of the Treasury submitting a report on Administration efforts to
lift the procurement restrictions.
The Administration campaign to have the ITF procurement rules changed began prior to the
World BankIIMF Annual Meetings in October 1996. Treasury Secretary Rubin contacted his
counterparts in advance of the meetings and made U. S. opposition to the procurement
restrictions a focus of his public and private statements. In his speech at the BankiFund meeting,
he asked for reconsideration of the restrictions by the ITF donors. The U.S. requested a special
meeting of the IDA Deputies to discuss the ITF procurement issue where Deputy Secretary
Summers made the U.S. case against restrictions and called for their removal. Treasury officials
also raised the issue in a series of bilateral meetings with ITF donor officials.
In the ensuing months (October-January), the Administration continued to raise the issue at every
possible level and in a variety of fora. U.S. embassy personnel in both donor and borrower
countries were engaged to press the issue. The Secretary of the Treasury, Deputy Secretary of the
Treasury, Under Secretaries of State and Treasury, and numerous other U.S. officials all made
repeated contacts with officials in ITF donor countries. While certain donors, particularly Japan,
Canada and Korea, were sympathetic to the U.S. position, many other ITF donors expressed
RR-1519
2
strong opposition to any changes.
Administration efforts faced numerous legal difficulties. Changing the ITF agreement required a
double majority donor vote - both members and contributions and approval of the IDA board of
Executive Directors. This meant that a group of small countries, or a few large ones, could veto
any action. The desire of many donors for consensus also made achieving a compromise difficult.
The procurement process for ITF projects required a long lead time with bidding companies
committing early to the bidding process. The requirements of this process meant that as rime went
on it became increasingly difficult to change the procurement rules on ITF projects already in the
pipeline. Finally, since the parliaments of many donor countries had approved the Fund on the
basis of procurement restrictions, major changes would likely involve a long and complicated
parliamentary approval process in donor countries.
Although the U. S. had encouraged earlier action by the ITF donors, it became clear that any steps
to change the procurement rules would have to be made at the February IDA Deputies meeting.
Bank staff were helpful in working with Treasury officials to define options for a possible
compromise. After intensive negotiations at the meeting, where the U.S. overcame strong
opposition to any change in the procurement restrictions, the ITF donors issued a
recommendation to set aside $1 billion, or about 113 fund, for potential opening to u.s.
procurement. The final decision on whether fold these funds into IDA-II -- thus freeing them for
U. S. procurement -- will be made before the end of 1997.
While this result is not everything we wanted, we put enormous effort into this issue and, given
the obstacles, I do believe this was the best we could achieve.
Negotiating the ITF agreement
Negotiations on the IDA-II replenishment, which led to the creation of the ITF, began in late
1995 after it became clear that FY96 appropriations would leave the U.S. with $934.5 million of
arrears
IDA-IO. Because of these large arrears, the U.S. could not realistically commit to
funding a new replenishment beginning in FY97 while at the same time paying down arrears to the
prior replenishment. Furthermore, U.S. negotiators were firm in their opposition to any new
replenishment commitment which would not have a good chance of gaining Congressional
support.
to
The IDA-II negotiations initially began to coalesce around a proposal that assumed a major U.S.
commitment ($970 million per year) but tacitly acknowledged that the U.S. would not pay its
share in the first year. This proposal would have tied procurement to the level of contribution
meaning that any failure to pay on time or in full would trigger a loss of procurement rights. The
U.S. rejected this proposal, first because it assumed an unrealistically high commitment level
(albeit a significant reduction from the existing level), and second because it implied that our
procurement could be limited in a fund in which we participated.
3
In light of the U.S. 's strong negative reaction to their first proposal, the IDA donors shifted their
focus to creating a single year funding mechanism for FY97 that would bridge the gap to a more
normal IDA replenishment, beginning in FY98, in which the U.S. would be a full participant. The
options proposed for this one year mechanism were to fund projects out of countries' bilateral aid
accounts, out of regional multilateral funds such as that of the European Community, or out of a
special fund to be administered by ID A.
To provide the maximum amount of continuity to IDA borrowers, the donors decided to create
the Interim Trust Fund (ITF) to which they agreed to contribute a total of $3.3 billion. The vote
on creating this fund was limited to contributors, so the U.S. could not veto it.
The traditional rules of such funds, and indeed of all of the multilateral concessional windows, are
that procurement is limited to fund d'onors and borrowers. In two prior special funds in 1982 and
1985, procurement was limited in this way. In the first, the $570 million 1982 Special Fund, the
U.S. did not participate and was not allowed procurement. In the second, the $1.84 billion
Special Facility for Sub-Saharan Africa, the U.S. participated and had procurement rights while
non-contributors were excluded.
Despite these precedents, the U.S. argued vigorously against the ITF proposal, emphasizing
traditional U.S. support for IDA and the potentially damaging effect that procurement restrictions
would have on future U.S. funding, not only for IDA but for the other MDB windows. Ultimately
our views did not prevail as the majority of donors felt that the traditional principle of "pay to
play" should apply.
Though we did not have a vote on the ITF, the U.S. did ultimately support the final separate IDA11 agreement which contained a 36% cut in the U.S. commitment, no procurement restrictions
on the $18.5 billion in non-ITF IDA-II funding, and language committing the institution to a
package of reforms. This decision did not endorse either a special fund or procurement
restrictions.
Congressional reaction to the ITF
During the course of the ID A-II negotiations, one of the arguments made by IDA donors in favor
of retaining the procurement restrictions was that this would provide the U. S. with a greater
"incentive" to fully fund its arrears and new commitments. The U.S. negotiators frequently made
the point that the exact opposite was likely to be true and that Congress would be less inclined to
provide IDA appropriations if the procurement restrictions were in place.
The Congressional debate over FY97 IDA funding clearly showed our prediction to be correct.
Many Members felt strongly that they could not support a higher funding level for IDA when the
ITF donors refused to allow US. firms to compete on ITF funded projects. While several
proposals were considered to link U.S. contributions to the removal of procurement restrictions,
the final compromise was to hold back FY97 IDA funding of $700 million until after March 1st,
4
1997. The money would be released after the Secretary of the Treasury had delivered a report
detailing the Administration's efforts to have the procurement restrictions removed. The March
1st date was designed to allow the Administration to press the ITF issue through the IDA
Deputies meeting on February 6th, 1997.
The FY97 IDA legislation was a strong statement from Congress on the importance of the ITF
procurement issue and one which the Administration took to heart. Even before the legislation
passed, Administration officials had begun their efforts to get the procurement restrictions lifted.
Administration efforts to lift ITF procurement restrictions at the World Bank! IMF annual
meeting.
On September 25th, 1996, Secretary Rubin sent a letter (Appendix A) to all Development
Committee Finance Ministers who were meeting immediately prior to the World Ban0rMF
meetings on October 2nd and 3rd. The letter laid out the U.S. position that procurement
restrictions were inappropriate given our historical support for IDA, were a disservice to
borrowers, and could have a detrimental effect on the U. S. ' s ability to provide future ID A
funding. It requested that the Ministers consider changing the ITF rules to allow U.S. firms to
participate in bidding for ITF projects. Copies of the letter also were circulated to all IDA
Deputies.
At the Development Committee meeting on September 30th, the Secretary reiterated U.S.
opposition to the restrictions (Appendix B), making the point that the procurement issue was one
which merited ministerial attention since it could ultimately affect future U.S. participation in
IDA. Since most Ministers had not focussed on this issue prior to receiving the Secretary's letter,
the meeting served to raise the profile of the rTF problem and to engage foreign governments at
the highest level. The Secretary also spoke privately with key Finance Ministers on the subject.
The BankfFund meeting provided a forum to push the rTF procurement issue both publicly and
with the IDA Deputies. The Secretary's speech at the annual meeting (Appendix C) included a
section on the procurement restrictions which made a direct appeal that the restrictions be lifted.
To capitalize on the attendance of the IDA Deputies at the BankJFund meeting, the U.S.
requested a special session of the Deputies specifically to discuss the procurement restrictions
issue. To emphasize the importance of the issue to the U.S. Administration, Deputy Treasury
Secretary Summers made the U.S. presentation. In his remarks to the Deputies, the Deputy
Secretary emphasized the importance of the procurement issue to the U. S. Congress and the
difficulties that the Administration's FY98 IDA request was likely to face if no adjustment to the
ITF were made. He pointed out that because of the nature of IDA's projects, the U.S. share of
procurement has traditionally been considerably less than its share of contributions and thus to tie
procurement to contributions at this point made little sense. He urged that for the sake of IDA's
future and for the sake of the borrowers who rely on IDA loans, the IDA Deputies should take
5
action to lift the restrictions.
This special session provided the first major opportunity to gauge the attitudes of the ITF donors
to the U.S. appeal. As Deputies reacted to the U.S. presentation, it was clear that while a few
donors were sympathetic to the U.S. problem and were willing to consider ways to accommodate
us, the vast majority strongly opposed any changes to the ITF agreement. European countries in
particular insisted that the ITF agreement could not be reopened, that procurement restrictions on
the ITF had been critical to making the IDA-II agreement acceptable to their parliaments, and
that the principle of burden sharing was one-which could not be sacrificed. Nearly every country
emphasized that it had its own problems in securing multilateral funding from parliament and that
returning with a proposal to change the ITF so soon after it had received parliamentary approval
would risk the entire IDA-II compromise.
The U.S. followed up Secretary's Summers presentation with a similar message by Acting Deputy
Assistant Secretary Schuerch at the OECD Development Assistance Committee (DAC) meeting
in Paris on November 5th-7th. U. S. arguments elicited similar reactions from representatives of
ITF donor countries to those expressed at the special IDA Deputies meeting.
ITF donor statements at the IDA Deputies special session and the DAC meeting, which were
confirmed in private conversations with Treasury officials, made clear the uphill battle the
Administration faced in achieving any change in the ITF agreement. A positive outcome would
require that the U.S. overcome a united block of European countries who opposed any changes to
the Fund. Furthermore we faced an ITF legal structure and tradition of consensus in the IDA
board that made it easy for individual countries to thwart a U.S. brokered compromise.
Administration efforts leading up to the February IDA Deputies meeting.
In light of these challenges, Treasury developed a four pronged strategy: first, engage key
European donors, on a variety of levels, looking for a possible compromise that their parliaments
could accept; second, further explore the views of countries such as Japan and Canada who had
been sympathetic to our position and encourage them to actively work with the Europeans on
achieving a solution; third, bring major IDA borrowers into the debate to emphasize that IDA's
future was at stake; and fourth, work with the World Bank staff to establish the legal basis for
modifying the ITF.
With this strategy in place, a demarche (Appendix D) went out to U.S. embassies in all key IDA
donor and borrower countries instructing embassy staff to contact appropriate foreign and finance
ministry officials. Borrowing country officials were asked to contact European ministries and
urge them to seek a compromise with the United States. India and Bangladesh in particular were
encouraged to press the British to move toward the U. S. position.
Simultaneously, Treasury and State Department officials began a series of contacts with their
European and Japanese counterparts at all levels. Under Secretary of the Treasury Shafer
6
addressed the issue with his colleagues in European and Asian capitals. Under Secretary of State
Spero pressed for the removal of restrictions with the British Overseas Development Agency.
Assistant Secretary Lipton and Acting Deputy Assistant Secretary Schuerch made repeated calls
to their counterparts. Secretary Rubin continued his discussion of the ITF issue with German and
Japanese Finance Ministers during bilateral meetings.
Progress was very slow. While certain European countries privately expressed some willingness
to be flexible, they were unwilling to break the "European consensus" and publicly disagree with
more hard line European countries. The issue of European solidarity in fact became a recurring
theme in the discussions. In the larger context of European monetary and political integration,
there was a reluctance to make any move that risked objection from another European donors.
Since at this stage the U.S. was dealing separately with each donor country, circumstances made
it logistically difficult to broker any ~ort of concerted action.
It also took time for the U.S. to truly get the message across that the procurement issue was an
important Administration priority that was not going to go away. Many donors, having read the
language of the FY97 appropriations bill, assumed that the Administration was simply performing
its congressionally mandated duty to try to lift the restrictions. They assumed that, once rebuffed,
the Administration would give up. It took numerous contacts over several months to convince
these countries that the Administration was determined to see the process through.
Several countries assisted the U.S. in emphasizing the need for compromise, particularly Canada
and Japan. While they were not willing to publicly come out in full support of the U.S. position in
advance of a wider consensus, they were nonetheless extremely helpful in calling for flexibility and
creating an atmosphere where compromise eventually became possible.
Separately our efforts on the ITF had a significant impact on our ability to avoid problems with
procurement restrictions in the African Development Fund (AfDF) and Asian Development Fund
(ADF) replenishment negotiations. In both cases, the U.S. was behind on its payments and other
donors were pressing for a solution similar to what was done in the IDA-II negotiations with the
ITF. U.S. negotiators, citing our arguments against the ITF restrictions, successfully insisted that
the ITF arrangement was not an acceptable model and that no procurement restrictions should be
incorporated into either agreement. The positive outcome of these two negotiations, where the
U. S. significantly reduced its future commitments, was thus to some extent a by-product of the
Administration's efforts on the ITF issue.
The original intent of the Administration was to obtain a solution to the ITF procurement issue
early in the fall before the ITF was activated and before funds had been designated for projects
and the procurement process begun. As the positions of the ITF donors emerged, it became clear
that this scenario was not realistic. Action by the ITF donors would require a meeting and, given
the still widespread opposition to changing the Fund rules, there was not sufficient support to call
for a special session prior to the scheduled IDA Deputies meeting in Paris on February 6th and
7th. The FY97 legislation specified that the Administration's efforts to lift the procurement
7
restrictions should include the February meeting. This correctly anticipated that the February
meeting represented the best chance to achieve a compromise on the procurement issue.
With our strategy increasingly focussed on the Paris meeting, Administration efforts shifted to
two main goals: ensuring that IDA Deputies had the authority to negotiate a recommendation on
changing the ITF procurement rules at the meeting, and making sure that the World Bank staff
provided an agenda and legal guidance that would make a deal possible.
Generating the maximum amount of flexibility among the European Deputies required intensifying
our contacts to make sure that a sense of urgency was clearly communicated. The other half of
the Administration's strategy involved making sure that the World Bank was in a position to
facilitate a positive solution. Treasury worked with Bank staff on establishing how various
scenarios for modifying the ITF wou'd work and what the legal implications would be. Bank staff
helped identify mechanisms to avoid formally amending the agreement thus avoiding the problem
of parliamentary review. This proved to be very important in the final negotiations.
Legal barriers to changing the ITF
Our work with the Bank was the culmination of several months of discussions on the legal
implications of changing the ITF and the practical barriers to changing procurement rules once the
Fund began to be implemented. From the beginning, we faced the problem of an ITF voting
structure which made it very difficult to change the rules even if we convinced some major donors
that the restrictions should be relaxed. According to the original ITF agreement, any attempt to
change the rules, even to free up only part of the Fund, required a double majority of both Fund
donors and contributions as well as approval by the IDA board. Practically, the problem was even
worse since the IDA board generally has acted by consensus and European donors in particular
were sensitive to any split among members. This gave significant influence to smaller countries,
many of whom vigorously opposed any change. The reality was that the u.s. needed to provide a
solution that could be accepted even by countries who were most opposed to any change.
Another problem we faced was that the ITF continued to approve projects and solicit
procurement even as we pressed our case against the restrictions. The procurement process for
IDA projects is a multi-step one which requires commitments by companies at an early stage. At
the time of the February 6th meeting, funds had been obligated for FY97 projects representing
close to 2/3 of the ITF funds (about $2.2 billion). In a large number of cases at least the first
steps of the procurement process had been initiated and in some cases contracts had already been
formally awarded. What this meant was that our hopes of achieving a full reversal of the
restrictions had become impossible and we faced the difficult legal problem of establishing at what
stage it became impossible for the bidding process on a project to be altered. While we argued
that the bidding rules could reasonably be modified up until the final bids were in, many other
countries were very concerned about the fairness of changing the rules once the process had
begun.
8
Several major donors were adamant that their legislatures would not approve changes to the ITF
agreement and that any parliamentary review would imperil their IDA-II commitment. One
avenue, which eventually proved critical to the final compromise, was the treatment of funds for
projects which fell outside the fiscal year for which ITF f\Jnding was intended. While it was clear
that the aim of the donors was to have all ITF funds, regardless of their dispersal date, be subject
to the ITF procurement rules, there was no language in the original agreement specifically
addressing this issue. The legal interpretation -- that funds remaining to be obligated after .the end
the of the World Bank fiscal year ending June 30, 1997 could eventually be rolled into IDA-II
without technically violating the ITF agreement -- opened the possibility of a compromise which
avoided major problems with other donor parliaments.
February 6-7th IDA Deputies Meeting in Paris
The U.S. delegation was led by Assistant Secretary of the Treasury David Lipton who had been
actively pressing the procurement issue with his counterparts since September and had been a
central player in the Administration's overall effort.
While the final set of contacts prior to the Paris meeting indicated some softening in the position
of certain European countries, it was not clear whether any sort of solution would be possible. In
fact, meetings on the day before the IDA Deputies meeting were disappointing. French Finance
Ministry officials, for example, expressed some sympathy for the U.S. position, but indicated there
was still stubborn resistance from other Europeans and that no step could be taken without a full
consensus.
The Bank staff began the February 6th meeting by explaining the current status of the ITF and
discussing some of the options for making changes to the Fund. Staff explained that while 2/3 of
the Fund had already been assigned to projects scheduled for FY97, a total of SDR 700 million
(about $1 billion) either remained unobligated orwas obligated for projects scheduled for FY98.
Assistant Secretary Lipton began the discussion of the procurement restrictions by making the
following points: (1) action by the Deputies at the meeting is critical even if the decision
subsequently had to be ratified by donor governments; (2) the Administration is committed to
obtaining full funding for the U. S. commitment to IDA as demonstrated by our budget request
and the President's statement in his State of the Union Address; (3) although we cannot predict
Congress's ultimate decision, failure to act will produce a strong reaction in Congress and greatly
impair the chances of a significant IDA appropriation; (4) we recommend that the ITF be
immediately suspended and the remainder of the funds be rolled into IDA-II.
The U.S. statement was followed by Japan and Canada whose IDA Deputies both spoke in favor
of flexibility on the part of the donors. Following these positive statements, however, came a
series of interventions by smaller European countries generally opposing any change to the ITF
rules. Statements by France and Germany indicated greater flexibility but still no Willingness to
9
break from a common European position. While most of the statements repeated previously
expressed positions -- countries have their own budget difficulties, "burden sharing" is a basic
principle that has been traditionally supported by the U.S., changing agreements undennines
IDA's decision process -- two important points emerged. First, donors would resist anything
that would require them to return to their parliaments; and second, because the U.S. had
previously proposed to fund its IDA arrears in FY97, donors would not act without some
assurance that the U.S. would take positive action on funding its IDA commitments in FY98.
The possibility of setting aside some portion of the funds that were not currently on track for
FY97 projects was raised and it was clear that this option held the greatest possibility for a
compromise, although several countries had opposed it during their statements. A large group of
ITF donors -- including Japan, Canada, major European donors, and smaller European donors
who had been the most vocal in opposition to change -- met separately to discuss a possible
recommendation. These discussions ended up lasting five hours, with the U.S. delegation
periodically called in to negotiate certain points. Japan and Canada were instrumental in pushing
the group toward its ultimate recommendation for action.
The recommendation of the IDA Deputies (Appendix F) was to set aside (or freeze) $1 billion or
about 1/3 of the trust fund. This was the maximum amount which was available without
necessitating amendment to the ITF agreement and parliamentary review by the ITF donors. The
final decision on whether to fold these funds into IDA -- thereby opening them for U.S.
procurement -- will be made sometime before December 31, 1997. While the final decision on
these funds undoubtedly could be linked to Congress's IDA appropriation, the recommendation
does not specify a particular number that Congress must reach to open the funds to U.S.
procurement. This recommendation was subject to approval by the ITF member governments
which was achieved on February 20th, 1997.
While this outcome is not everything we wanted when we began, it was not easily won and
required a vigorous effort by the Administration. Given the obstacles we faced when we began
our efforts, I believe that this is the best result we could achieve.
Appendix
A. Secretary Rubin letter to Finance Ministers
B. Secretary Rubin remarks to the Development Committee
C. Secretary Rubin speech at the World Bank!Th1F Meeting
D. Demarche to U. S. Embassies
E. Secretary Rubin talking points for calls to European Finance Ministers
F. February 6th IDA Deputies Recommendation
APPENDIX A
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
;ECRETARY OF THE TREASURY
September 25,
1996
Dear Colleague:
I am writing to update you on the status of United States contributions to the International
Development Association (IDA) and request your assistance in removing the procurement
restrictions contained in IDA's Interim Trust Fund
,0
We all agree on the critical role IDA plays in the poorest countries and on the need to ensure
adequate funding in the years ahead. At last April's meeting of the Development Committee, I
advised members that the procurement restrictions of the Interim Trust Fund were making the
already difficult task of securing Congressional approval of U.S. funding vastly more difficult.
My view and the strong view in Congress is that the procurement restrictions are unfair given the
long history of consistent U.S support for IDA and the multilateral system as a whole. As you
know, cumulative U.S. contributions to IDA now total $22 billion Moreover, the US share of
IDA procurement has been extremely modest relative to our share of contributions
Congress now appears set to approve a contribution of $700 million to IDA for FY 1997 which
we would use to reduce unfunded U.S. coinmitments substantially However, as a direct
consequence of the Interim Trust Fund's procurement restrictions, this funding cannot be used
until March 1997 Congress has also directed the Administration to seek the removal of the
restrictions and we are mandated to provide a report on these efforts prior to the release of any
IDA funds
It is very clear that the existence of procurement restrictions wIll continue to place at risk the
United States ability both to complete clearance of our IDA- 10 arrears and to gain Congressional
authorization and appropriation of resources with which to meet our new commitments to IDA11. I therefore request your assistance in working with other Trust Fund donors to consider
removing these restrictions as a matter of urgency
- 2-
In making this request, I understand the importance you attach to "equitable burden sh:u-ing." But,
frankly, the restrictions are counterproductive and a disservice to IDA borrowers. They are a
disincentive for U.S. funding and participation in IDA. They have poisoned the atmosphere in
Congress and around the country as we work to broaden support for continued U.S. participation
and leadership in IDA. They also confer minimal commercial advantage on Trust Fund donors.
I hope we can advance progress on this important issue during the upcoming Annual Meetings.
Sincerely,
Robert E. Rubin
APPENDIX B
September 30, 1996
STATEMENT OF TREASURY SECRETARY ROBERT E. RUBIN
ATTHEDEVELOP~NTCO~EOFTHE
WORLD BANK AND THE INTERNATIONAL MONETARY FUND
WASHINGTON, D.C.
We meet today in an environment of relative economic stability, with generally low interest rates,
steady economic expansion in most developed countries and strong growth in many dynamic
developing markets. All of this provides enormous opportunities to help reduce global poverty
and encourage sustained growth. Increased global interdependence, through liberalized trade and
investment policies, also can contribute to accelerated growth.
Yet, while some general conditions are favorable, fundamental development cballenges remain. In
particular, we must focus increased attention to working with countries and regions where growth
has lagged and where millions remain trapped in poverty. Sound financial and economic policies,
including development of human resources, are critical to creating an 'environment conducive to
private sector growth and environmental sustainability. In addition, great challenges exist in
reconstruction in areas such as Bosnia, Haiti and West Bank and Gaza, where we need to support
efforts to foster the stable, broad-based economic opportunities that will cement 'lasting peace.
The International Financial Institutions are uniquely placed to promote the sound policy
environment needed to build a durable and equitable prosperity. The Development Committee
should reinforce these efforts by supporting actions that address constraints to progress in poor
countries committed to economic adjustment -- such as the HIPC initiative -- and by challenging
the institutions to continually improve their development effectiveness
Replenishment of IDA Resources
The International Development Association is a critical element in integrating the poorest and
least creditworthy countries into the global economy. IDA's traditional role provides the
underpinnings of sustainable development through essential health, education, and basic
infrastructure programs, In recent years, IDA has become the lead agency for promoting marketoriented policy reform, including trade liberalization, privatization and financial sector reform, in
these countries
2
The United States has strongly supported IDA for more than 35 years. This Administration is
committed to continuing this support and is making every effort to obtain funding to meet our
financial commitments. As you know, the President's FY 1997 budget request included $934.5
million to clear fully outstanding U.S. commitments to IDA 10. While this Adminstration has
worked to broaden U.S. support for the critical work of the :MDB's, obtaining funding for
international programs has been increasingly difficult. At our meeting last Spring, I indicated that
the procurement restrictions contained in IDA's Interim Trust Fund made obtaining funding even
more difficult this year. This has proven more true than I had expected.
Despite our efforts, the funding that Congress now seems likely to approve -- $700 million in F Y
1997 -- will not come unconditionally. These funds will not be available until March 1997 and
our Congress has indicated that if the Interim Trust Fund remains as currently structured, future
U.S funding for IDA 11 will be at risk.
We therefore llrt.!e donors to the Interim Trust Fund to remove the procurement restnctious.
These resmctions do not serve the interests ofIDA's borrowers, nor do they provide an incentive
for continued U.S. participation. We fully understand the importance other donors attach to
"equitable burden sharing"; but they need to understand that these restrictions have been
counterproductive and they seriously jeopardize our ongoing ability to contribute to IDA I hope
that this issue can be resolved so we can focus exclusively on how best to address the pressing
development needs of IDA borrowers
The serious development challenges faced by IDA countnes make it all the more important that
IDA sharpen its focus on achieving results on the ground and on adapting to lessons learned from
development experience. IDA resources must concentrate on the poorest and least creditworthy
countries and increasingly direct scarce resources to countries that demonstrate a real
commitment to sound policies, private sector development and sustainable grov..rth
Heavily Indebted Poorest Countries (HIPCs) Initiative
We strongly support the significant progress that has been made over the past two years in
examining the problems of the heavily indebted poorest countries It has been clear for some time
that even after undertaking appropriate adjustment and reform measures and receiving bilateral
debt relief, a few countries continue to have debt burdens that are not sustainable and that
jeopardize their long-term economic prospects We now have the comprehensive framework
required to address the debt problems of these countries by reducing on a case-by-case basis debt
burdens to manageable levels, reinforcing the development efforts of good performers and
strengthening incentives for appropriate macroeconomic policies
APPENDIX C
STATE:MENT BY THE HON. ROBERT E. RUBIN,
GOVERNOR OF THE FUND AND THE BANK FOR THE UNITED STATES
GOVERNOR FOR THE UNITED STATES:
Good morning. It is a pleasur~, once again, as I did yesterday introducing the Vice
President of the United States, to welcome all of you to the Annual Meetings of the IMP and
the World Bank.
Before I present the remarks that I had intended to present, I would like to comment
on something that I saw in the newspaper this morning.
Over the past two years I have been the Secretary of the Treasury and, in my many
years when I was in the private sector, I met with large numbers of Finance Ministers, of
business people, heads of state. I developed a very strong feeling or view that one of the
principal impediments to development in the developing world was the issue of corruption.
I would like to vel}' much identify with and support the comments of Michel
Camdessus and Jim Wolfensohn yesterday with respect to lifting the fight against corruption
to the top of their agendas, and also express the full support of the United States to this very
important initiative.
Secondly, I would like to recognize that this is the first meeting at which there has
been a united delegation from Bosnia and Herzegovina, and I think that is something that we
should all note with satisfaction and good feeling.
Last year when the IMF and World Bank met, it marked the Fiftieth Anniversary of
the Bretton Woods Conference. It was an historic occasion; it was also an opportunity to
review the successes and challenges for these institutions and to focus on the Vision going
forward.
As President Clinton has said many times, it is vitally important that these institutions
adapt and renew themselves in the face of new challenges and new opportunities.
Last year he called for a number of initiatives to do exactly that. To advance the
goals of long-term growth for all, we meet this week with three clear objectives: first, to
work together to promote strong and durable global growth; second, to advance a sound
development agenda; and third, to strengthen safeguards to the international financial system.
Let me deal with each of these briefly.
-2-
There has been an emerging consensus over the last decade with respect to how best
to promote growth, and it struck me, even in the last couple of days, as I have met with
Finance Ministers from the G-7, from developing nations and from transition economies,
how widespread that consensus is.
In a word, that consensus is to open markets, not close them; free businesses to
compete, not restrain them; reduce deficits, not sustain them; and invest publicly in people,
infrastructure and the other areas critical to future productivity, not blindly ignore a wise and
appropriate role for government.
With so many economies now basi~y following this approach, the fundamentals of
the global economy are more solii than they have been in a long, long time.
Here in the United States we have had solid growth and low inflation. While many
factors have contributed, I believe the key and indispensable factor was the deficit reduction
program of 1993, which changed the fiscal direction of this country.
In addition, the President has focussed on investments in education, training, the other
areas critical to future productivity and on opening markets around the world, including
opening our own markets.
I believe that if we continue to follow the right policy path in this country, we can
have solid growth and low inflation on balance over the long term. That is good for us and it
is good for the rest of the world.
As I mentioned, I believe that OUI approach to promoting economic growth is in line
with the emerging consensus around the world. But we well recognize that taking actions
such as cutting budgets, while absolutely essential to economic health, is also difficult, and
that too often the burdens fall on the least well off in our societies.
That does not mean that we shouldn't act, but it does mean that we should act with
fairness, compassion, understanding and a commitment to equip the least well off with the
tools that they need to be successful in the mainstream economy.
Our second objective this week, which to some extent I have already touched on, is
development and promoting growth in poorer nations and raising living standards for all
people.
This should be a priority for all of US, no matter what our stage of development. For
one thing, it is the right thing to do. Secondly, it is overwhelmingly in the self interest of the
developed nations, both to promote stability and to create bigger markets for all of us.
-3-
I have had the opportunity to visit the work of the multilateral development
institutions in a number of countries--India, Indonesia, the Philippines, Argentina and Brazil.
I was struck by the effectiveness of the programs that I saw. One of the conclhsions I
reached was that it was enormously important for us to try to get members of our Congress to
visit these kinds of programs and these kinds of projects and to see what these institutions are
doing on the ground.
I was also struck by the major challenges these countries face in growing their
economIes.
Multilateral development banks h~ve a unique role-to play in fostering growth around
the world, by building the underpiItnings of a private seytor economy and by meeting the
needs that free markets by their nature will not meet. This means focusing more selectively
on the poorest developing countries, on education and health care and on the environment.
This means encouraging these institutions to be more innovative with respect to
financing mechanisms in order to catalyze private investment.
Moreover, in order for these initiatives to work, they must be part of a joint venture
between the institutions and between receiving countries that are committed to reform.
One clear obstacle to growth has been unsustainable levels of debt in some of the
poorest countries. The World Bank, the IMF and the Paris Club have now reached
agreement with a program that will be a comprehensive approach to reducing the excess of
debt of several of the poorest countries to sustainable levels. We now need to work to bring
together the rest of the international financial institutions into this effort.
As the Vice President said yesterday, and the President said at this same meeting a
year ago, the United States is committed to its leadership role in the global economy and to
meeting its financial responsibilities to these international financial institutions.
The Administration has been making and will continue to make the fullest and utmost
effort to work with our Congress to achieve those ends.
In that regard, let me touch on a sensitive subject. I well understand why the IDA-II
Interim Trust Fund has procurement restrictions, but I can tell you from working with the
members of Congress, as we think now about getting funding, going forward for IDA-II,
that these restrictions have created enonnous resentment, even amongst those who are most
supportive of IDA-II and who feel the United States has played a leadership role over many
decades in the global economy.
-4-
L
I believe that these restrictions are counterproductive with respect to future funding
and would urge that they be removed.
The World Bank has made great progress for making itself more effective. A&. the
Vice President said yesterday, President Wolfensohn deserves a great deal of credit for his
good work. But we need to continue in encouraging good governance, and that very much
includes the issue of conuption that Michel Camdessus and Jim Wolfensobn raised
yesterday, increasing transparency, measuring results, expanding micro-enterprise lending,
strengthening our capacity to deal with the national crises, as well as the issues I discussed a
few moments ago.
The third objective for the week is to carry forward the progress we have made in
strengthening safeguards of the international financial system against risk.
At Halifax and again at Lyon, G-7 leaders agreed to am ambitious program of
initiatives to safeguard financial stability in the global markets. Virtually, all of the
initiatives that were brought forth have now been brought either to completion or almost to
completion, including strong IMF disclosure standards to prevent future crises, the new
arrangements for borrowing to expand the resources available to the IMF and financial
emergencies and recommendations to facilitate market-based solutions to sovereign financial
crises to reduce the expectation of official finance and encouraging private investors to focus
more attention to risk.
Just as with the debt reduction program, which I mentioned a moment ago, which was
also a Halifax initiative, these accomplishments show that we can achieve major objectives
when we work together.
Over the coming year, we strongly urge that the IMF and the World B~ in
cooperation with international financial supervisory bodies, take up the G-7 call for following
through on the Lyon communique to promote soundness in the financing systems of
emerging countries.
Too often banking problems and capital market problems have undermined economic
growth and progress in these developing nations.
Let me conclude by expressing the President's strong conviction that the economic
futures 6f all nations are inexorably linked. Here in the United States our jobs and living
standards are increasingly and substantially affected by whether our global partners,
including the developing nations, are prosperous and growing.
The same is true for all the nations of the world. It is a strong conviction of the
President and this Administration that the only effective path towards future prosperity for all
of us is to work together and that, by working together, we can promote a strong and growing
globaL economy for all of us.
UNCLASSIFIED
DEPT TREASURY COMCEN
PH 622 - 2222 RM 1121/MT
PAGE Bl OF B3
HIO=1996296B2483
CAVEAT (S) =
HANDLE VI A
ACTION = rTRS1BOI (l),EPD(l),GI (l)dBR" (l),!.Q!!l)
IHB II) ,IMF (I) .INA (I).ITF 11), ITN II). ITT (lJ. ~.Mf
CRC : 86CC
BI5766
"~lI)"DD(l)
(Il, SEN (-I
PP RUEATRS
DE RUEHC IB4JJ 2962128
ZNR UUUUU m
P 222117l OCT 96
FH SECST ATE WASHDC
TO RUEHAB/AMEM8ASSY ABIDJAN PRIORI:Y BBBS
RUEHAR/AMEMBASSY ACCRA PRIORITY B8BB
RUEHOS/AMEMBASSY ADDIS ABABA PRIORITY BBBB
RUEHEG/AMEMBASSY CAIRO PRIORITY BBBB
RUEHLM/AMEMBASSY COLOMBO PRIORITY BBBB
RUEHDK/AMEMBASSY DAKAR PRluRITY BBBB
RUEHDR/AHEHBASSY OAR ES SALAAM PRIORITY BBBB
RUEHKA/AMEHBASSY DHAKA PRIORITY BBBB
RUEHll/AMEMBASSY ISLAMABAD PRIORITY BBBB
RUEHKHI AMEHBASSY KAMPAL APR IOR ITYBBBB
RUEHNR/AHEHBASSY NAIROBI PRIORITY BBBB
RUEHNE/AMEMBASSY NEW DELHI PRIORITY BBBB
RUEHVJ/AMEMBASSY SARAJEVO PRIORITY BBBB
RUEHSQ/AHEHBASSY SKOPJE PRIORITY BBBB
RUEHSI/AHEMBASSY TBILISI PRIORITY BBBB
RUEHYD/AMEMBASSY YAOUNDE PRIORITY BBBB
RUEHYE/AMEMBASSY YEREVAN PRIORITY BBBB
INFO RUEHBS/AMEHBASSY BRUSSELS PRIORITY BBBB
RUEHCP/AMEMBASSY COPENHAGEN PRIORITY BBBB
RUEHLO/AMEMBASSY LONDON PRIORITY BBBB
RUEHFR/AMEMBASSY PARIS PRIORITY BOBB
RUEHTC/AHEMBASSY THE HAGUE PRIORITY BBBg
RUEHKO/AMEMBASSY TOKYO PRIORITY BBOO
BT
UHCLAS STATE 229m
SEE PARAS. 7-13.
SUMMARY
2. THE UNITED STATES IS SEEKING TO LIFT RESTRICTIONS ON
PROCUREMENT UNDER THE WORLD BANK'S FY-97 IDA INTERIM
TRUST FUND THAT DISADVANTAGE U.S. FIRMS AND THREATEN OUR
ABILITY TO PROVIDE FUNDING FOR IDA. EFFORTS DURING THE
MID=199629682483
815766
OCT. 1-3 IMt/WORLD BANK ANNUAL MEETINGS TO CONVINCE OTHER
DONORS TO LIFT THE RESTRICTIONS mE INCONCLUSIVE AND THE
ISSUE WAS HOT RESOLVED. WE ARE NOW URGING KEY IDA
BORROWERS WHO SHARE OUR CONCERNS ABOUT THE IMPlIC~TIONS
FOR FUTURE IDA FUNDING TO WEIGH IN WITH DONOR CO~TRV
GOVERNMENTS. ACTION ADDRESSEES ARE REQUESTED TO RAISE
THIS ISSUE WITH ~OST GOVERNMEHT OFFICIALS AHD URGE THEM
TO TAKE APfI,qQf'Rl-AiE ACT IOH. EHD SUMMARY.
THE ISSU[
\THE INTERNATIONAL DEVElOPMENT ASSOCIATION (lDAI IS
IRE WORLD BANK'S SOFT LOAN WINDO~ FOR THE POOREST
lOUNTRIES. DURING REPLENISHMENT NEGOTIATIONS EARLIER
THIS YEAR FOR THE FY97-99 PERIOD OOA-II), THE UNITED
STATES INDICATED T~AT,'GIVEN ITS ARREARS TO IDA-IB, IT
COULD NOT MAKE ANY FUNDING COHMITHENTS FOR FYS). TO
BRIDGE THE GAP SmEEN THE END OF IDA-18 IN FY96 AND THE
DELAYED IMPLEMENTATION OF IDA-11 IN FY98, DONORS AGREED
TO CREATE AONE-YEAR INTERIH TRUST FUHD lIfF). THE ITF
INCLUDES ABOUT USD 3.3 BILLION FROM SOME 35 OTHER DONORS.
AS A QUID PRO QUO FOR PARTICIPATING IN AN IDA FUND
NO U.S. CONTRIBUTION, SOME EUROPEAN DONORS INSISTED
ON RESTRICTIONS THAT PREVENT FIRMS FROM THE UNITED STATES
AND OTHER ITF HOH-DOHORS FROM BIDDING ON ITF-FUNDED
PROCUREMENT COHTRACTS. THESE DOHORS CLAIM THE
RESTRICTIONS WERE NECESSARY TO ~IN DOMESTIC SUPPORT FOR
THEIR OWN CONTRIBUTIONS TO THE ITF. SOME ALSO THOUGHT
THE RESTRICTIONS ~OUlD BE AN "INCENTIVE" TO CONVINCE THE
UNITED STATES TO PAY ITS IDA-IB ARREARS AHD FULLY
PARTICIPATE IN IDA·ll. BUT THE RESTRICTIONS SERIOUSLY
BACKFIRED IN CONGRESS, JEOPARDIZING OUR ABILITY 80TH TO
FULLY CLEAR OUR ARREARS AND TO PROVIDE FUNDING FOR IDA-II.
4.
~ITH
E.O. 12958: N/A
TAGS: EAID Em IBRD XD XY XW ZJ 2L EG
SUBJECT: DEMARCHE TO IDA BORROWERS ON REMOVING PROCUREMENT
RESTRICTIONS UNDER THE IDA INTERIM TRUST FUND
REF: !A) 96 STATE 12S1J3, (BI 96 DAR ES SAL 6366
I. THIS IS AN ACTION REQUEST.
22121 HZ
APPENDIX D
) AT THE OCT. 1-3 INFlWORLD BANK ANNUAL MEETINGS IN
WASHINGTON, TREASURY SECRETARY RUBIN APPEALED TO ITF
DONORS TO REHOVE THE PROCUREMENT RESTR ICTIONS. THERE liAS
LITTLE POSITIVE REACTION, BUT THE ISSUE WAS NOT RESOLVED
AND DISCUSSIONS WilL CONT1NUE IIITH DONORS TO FIND AN
ACCEPTABLE SOLUTION. AT THIS JUNCTURE, DIPLOMATIC
SUPPORT FOR OUR POSITION FROM KEY IDA BORROWERS WOULD BE
VERY HELPFUL TO OUR EFFORTS TO SWAY OPINION AMONG DONORS.
b. FURTHER DETAILS ABOUT THE INTERIM TRUST FUND AND THE
PROBLEMS CAUSED BY tHE PROCUREMENT RESTRICTI~S CAN BE
FOUND IN REF A, CABLED TO ALL POSTS IH JUNE 1996. SEE
PARA. 14 OF THIS CASLE FOR ALIST OF IDA PROJECTS IH
ADDRESSEE COUNTRIES SUBJECT TO PROCUREMENT RESTRICTIONS.
UNCLASSIFIED
2212144Z
rKIUktlY
UNCLASSIFIED
DEPT TREASURY COMCEN
PH 622 - 2222 RM 1121/MT
PAGE 82 OF B3
ACTION REQUEST
1110=199629682483
615766
7. DRAWING ON THE TALKING POINTS IN PARA. 13 BELOW.
ACTION ADDRESSEES ARE REQUESTED TO APPROACH FOREIGN,
FINANCE. AND/OR DEVELOPMENT/PLANNING I1INISTRIES AT AN
APPROPRIATE LEVEL TO SEEK SUPPORT FOR LIFTING ITF
PROCUREMENT RESTRICTIONS. PLEASE SLUG REPORTING ON HOST
GOVERNMENT RESPONSES FOR S1ATE (EBIlfO/OOFI AND TREASURY
(OASIA/IOB) .
22!2l44Z
1110=199629682483
HIS766
IIERf UNABLE TO PARTICIPATE IN THE FIRST YEAR OF IDA-II.
AN INTERIM TRUST FUND IIrn liAS ESTABlISHED BV OTHER
DOHORS TO FUND IDA PROJECTS DURING FY97.
--UNFORTUNATEl r .... -IRS PLACED PROCUREMENT
RESTRICTIONS Oh
___ BY THE INTERIM TRUST FUND
WHICH BAR U.S. FIRMS FROM TENDERING PROCUREMENT BIDS.
--THESE PROCUREMENT RESTRICTIONS HAVE CAUSED ASEVERE
POLITICAL BACKLASH IN CONGRESS WHICH THREATENS U.S.
SUPPORT FOR IDA. AFTER HORE THAN 35 YEARS OF STRONG
COHMITMENT TO IDA AND TOTAL CONTRIBUTIONS OF USD 22
BILLION, CONGRESS AND THE ADMINISTRATION REJECT THE IDEA
THAT liE HERIT ·PUNISHMENT· FOR TEMPORARY FUNDING PROBLEMS.
8. IIHILE ALL INTERIM TRUST FUND DONORS HAVE AVOICE IN
FUND DECISIONS. CERTAIN COUNTRIES ARE KEY SUPPORTERS OF
THE PROCUREMENT RESTRICTIONS. CHANGING THEIR POSITIONS
IS CRUCIAL TO OUR SUCCESS IN LIFTING THE RESTRICTIONS.
THESE COUNTRIES INCLUDE FRANCE. GERHANY, UNITED KINGDOM,
DENMARK. NETHERLANDS AND BELGIUM. JAPAN SHARES SOME OF
OUR CONCERNS ABOUT THE EFFECTS OF THE RESTRICTIONS.
·-USD TBB HILLION APPROPRIATED TO PAY DOliN OUR IDA-IB
ARREARS HAS BEEN PUT ON HOLD BY CONGRESS UNTIL AT LEAST
MARCH 1997, AND SOME IN CONGRESS HAVE INDICATED THEY IIILL
ATTEMPT TO TAKE BACK THESE FUNDS IF THE RESTRITIONS ARE
NOT LIFTED.
9. FOR DHAKA, COLOMBO. KAMPALA, ACCRA. OAR ES SALAAM,
CAIRO, AND NAIROBI: IIHILE YOU SHOULD ENCOURAGE HOST
GOVERNMENTS TO CONTACT AS MANY OF THE KEY TRUST FUND
DONORS AS APPROPRIATE, WE RECOMMEND PARTICULAR ATTENTION
BE DIRECTED TO THE GOVERNMENT OF THE UNITED KINGDOM.
--EVEN THOSE IN COHGRESS WHO SUPPORT IDA SAV THAT IT IIILl
BE DIFFICULT TO OBTAIN FULL FUNDING FOR OUR FY98 IDA-II
DUES IF THE PROCUREMEHT RESTRICTIONS REMAIN IN PLACE.
lB. FOR NEW DElHI AND ISLAMABAD: IT WOULD BE ESPECIALLY
HELPFUL IF HOST GOVERNMENTS 1I0ULD INTERVENE IN PART ICULAR
WITH THE UK AND JAPAN, IN ADDITION TO OTHER KEY DONORS.
II. FOR DAKAR AND ABIDJAN: POSTS SHOULD ENCOURAGE HOST
GOVERNMENTS TO INTERVENE AS BROADLY AS POSSIBLE WITH KEY
ITF DONORS, BUT APARTICULAR FOCUS ON THE GOVERNMENT OF
FRANCE 1I0liLo BE HELPFUL.
--SECRETARV RUBIN IS ACTIVELY PRESSING INTERIM TRUST FUND
DONORS TO RESCIND THE PROCUREMENT RESTRICTIONS, BUT SOME
DONORS MISTAKENLY BELIEVE THE RESTRICTIONS IIILL ENCOUR~GE
THE UNITED STATES TO INCREASE ITS IDA FUNDING. THE
RESTRICTIONS ARE MORE LIKELV TO HAVE THE OPPOSITE EFFECl.
SEEK VOUR HELP IN CONVINCING THE INTERIM TRUST FUND
DONORS THAT LIFTING THE PROCUREMENT RESTRICTIONS IS THE
8[S1 ~EANS OF ENSURING LONG-TERr, IDA susrAIN~.BIL IlY
.-~~
12. FOR YEREVAN, TBllISI, SARAJEVO AND SKOPJE: YOUR
HOST GOVERNMENTS' REPRESENTATION IN THE II0RLD BQNK IS
HANDLED BY THE DUTCH, WHO HAVE BEEN PARTICULARLY
INSISTENT ABOUT RETAINING THE PROCUREMENT RESTRICTIONS.
STRONG REPRESENTATIONS BY DUTCH CONSTITUENCV MEMBERS
COULD BE VERV HELPFUL IN CHANGING THE DUTCH POSITION.
-.~! STm HERE IS THE FUTURE OF U.S. PARTICIPATION IN
IDA, WHICH \lILL oIR£CTlY AFFECT IDA'S OVERALL FUNDING
lEVEL A~D ITS DEVELOPMENT ROLE IN IDA RECIPIENT COUNTRIES.
--IN ADOITION, PROCUREMENT RESTRICTIONS SUCH AS THESE ARE
IN VOUR IHTEREST AS AN IDA BORROWER. IN ORDER TO
ASSURE THE BEST VALUE fOR MONEY. PROCUREMENT SHOULD BE
AVAILABLE FRO~ AS MANY SOURCES AS POSSIBLE.
HOT
13. TALKING POINTS:
--THE UNITED STATES IS FIRMLV COMMITTED TO THE PRINCIPLES
AND OBJECTIVES OF THE IDA PROGRAM. VICE PRESIDENT GORE
AHD TREASURY SECRETARY RUBIN REITERATED THIS COMKITMENT
EARlIER THIS MOHTH AT THE IHF/WORLO BANK ANNUAL MEETINGS.
--M'[ ASK THAT VOU CONTACT APPROPRIATE INTERIM TRUST FUND
DONORS TO VOICE YOUR SUPPORT FOR LIFTING THE RESTRICT;OHS.
--lIE IIILl CONTINUE TO PARTICIPATE ACTIVELY IN IDA, AND
--DONORS WHO IIlll ftAY AKEY ROLE IN ANY OECISION~ Ok THE
IlF PROCUREMENT RESTRICTIONS INCLUDE fRANCE, GERMANY,
UNITED KINGDON. DEHNQRK, NETHERLANDS. BELGIUM AND JAPAN.
IllL WORK CLom YIII TH THE U. S. CONGRESS TO SECURE
UNDING FOR OUR FY98 AND FY99 CONTRIBUTIONS TO IDA-II.
EHD IALKIHG POINTS
-BECAUSE liE NEEDED TO CLEAR OUR ARREARS TO IDA-IS, WE
IIU(,I ,,(,(,IClcn
22121442
APPENDIXE
Talking points on IDA Interim Trust Fund (ITF)
for Secretary Rubin for calls to
Finance Ministers Clarke, Waigel and Arthuis
•
I am calling to alert you to a very pressing issue concerning funding for the International
Development Agency (IDA).
As you know, the IDA Interim 'frust Fund (ITF), which is funding IDA projects during
the one year gap between IDA-lO and IDA-II, has procurement restrictions which
exclude U.S. companies from bidding on projects from the fund.
These restrictions were put in place partly as a way of encouraging the U.S. Congress to
fully fund past and future U.S. IDA commitments. We said at the time that they would
probably have just the opposite effect -- making Congress less likely to support IDA -and unfortunately this has been the case.
I sent you a letter in September laying out the problem the restrictions pose for our ability
to gain Congressional support for U.S. IDA funding. We have now reached a critical
juncture -- perhaps the final opportunity for the rTF donors to take action on modifying
the procurement restrictions.
The President's budget will request full funding for IDA arrears and the scheduled IDA-II
payment. We are prepared to push forcefully for these appropriations If we are to have
any realistic chance of achieving our request, we must be able to show Congress that other
donors have shown flexibility on the procurement restrictions. It is critical that the
restrictions not be in force while Congress is deliberating the IDA funding issue this
Spring.
We understand the domestic political difficulties you face on this issue, especially with
your Parliament. Obviously our preference is for a full lifting of the procurement
restrictions. However, we are willing to work on a solution that gives all of us a viable
political outcome.
There will be a meeting of the IDA Deputies on February 6th in Paris where they will
consider a number of options for modifying the procurement restrictions.
Please encourage your delegates/Overseas Development Agency to be flexible at this
2
meeting in coming up with a recommendation to modify the restrictions.
•
If no accommodation is made, I see a very real chance that U.S. Congressional support for
IDA will evaporate putting the institution's future in grave danger.
Additional Point for French Finance Minister
•
We appreciate your 1vfinistry's willingness to explore options thus far. I encourage you to
emphasize the importance of this issue to your European colleagues -- particularly in
Britain·and Gennany.
The ITF contributors reviewed the implementation of the Tokyo agreement.
In response to the US request to relax the procurement restrictions, the ITF
contributors considered whether it would be possible to apply the Tokyo
agreement flexibly-conscious of the need to avoid disruption of IDA lending.
They concluded that the principal features of that agreement remain valid. Buc,
equally they took the view that some flexibility might be possible in relation to
I
ITF funds remaining uncommitted at the end of FY97.
They concluded that they would submit for consideration by their authorities a
proposal that ITF funds uncommitted as of the end of 'fY97 (not more than
SDR 700 million) be held back; the use of such funds (i.e., with or without
procurement restrictions) would be determined following consideration of
decisions by the US, authorities on the payment of the amount needed to clear
their arrears to IDA 10 ($934.5) and the first tranche ($800 million) of their
pledge to IDA11. ITF contribUtors agreed to consider the outcome no later
than December 3 L 1997.
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
February 26, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $12,503 million of 5-year notes, Series D-2002,
to be issued February 28, 1997 and to mature February 28, 2002
were accepted today (CUSIP: 9128272L5).
The interest rate on the notes will be 6 1/4~.
All
competitive tenders at yields lower than 6.359~ were accepted in
full. Tenders at 6.359~ were allotted 37~. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 6.359~, with an equivalent price of 99.539. The median yield
was 6.314~; that is, 50~ of the amount of accepted competitive bids
were tendered at or below that yield.
The low yield was 6.260~;
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
$26,366,416
Accepted
$12,503,306
The $12,503 million of accepted tenders includes $499
million of noncompetitive tenders and $12,004 million of
competitive tenders from the public.
In addition, $835 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $445 million
of tenders was also accepted at the high yield from Federal
Reserve Banks for their own account in exchange for maturing
securities.
RR-1520
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
~178~9. . . . . . . . . . . . . ..
. . . . . . . . . . . . . .
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL 10:30 AM EST
Text as Prepared for delivery
February 27, 1997
Secretary of the Treasury
Statement before the, House Foreign Operations Subcommittee
of the House Committee on Appropriations
Mr. Chairman, it is a pleasure to testify today on the President's FY 1998 budget
request for foreign operations.
As President Clinton has said, the United States is the only country that can
provide effective leadership in today's world --and it is more important than ever for
our own well-being that we do so. However, for us to function as the world's
indispensable nation, we must participate in international institutions and the global
economy. That, in tum, requires a full commitment to our foreign affairs budget,
which pays for the United Nations, bilateral assistance programs and the
international financial institutions (IFls) - the World Bank, the International Monetary
Fund and the regional development banks. Accounting for only one percent of
RR-1521
1
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
the federal budget, these programs provide an enormous return for American
taxpayers. Abroad, they help bring peace and stability, foster democracy, build free
markets and free trade and promote sustainable development. At home, that leads
to increased exports, high quality American jobs and greater economic and national
security.
The Clinton Administration has worked hard with Congress to maintain
support for the IFls, by negotiating major reductions in our budgetary commitments,
and working forcefully for continued reforms. I am pleased to report today that we
have made significant progress in both areas.
Account by account, we have
negotiated, on average, a 40 percent reduction in future U.S. obligations to the
multilateral development banks, which, after we pay our arrears, will lower our
annual commitment to $1.2 billion. On the basis of this annual U.S. investment, the
multilateral development banks will be able to lend a total of $46 billion over which
we have enormous influence. For their part, the IFls are reducing overhead,
becoming more open, doing more to prevent corruption and promote the private
sector, and becoming more sensitive to environmental concerns. They are, in fact,
providing us with better value for the money than at any time in their history.
However, U.S. arrears to the IFls total well over $1.5 billion, more than our
arrears to the UN when you include $700 million in as yet unreleased IDA funding
2
appropriated last year. We are the world's largest and richest economy yet we are
the largest debtor to the United Nations, and account for the lion's share of arrears
to the Multilateral Development Banks. Nations around the globe, who look to us for
leadership, are seriously questioning our willingness to lead. Our budget request of
$1.6 billion for the IFls includes about $300 million to partially pay down those
arrears, the first payment on a proposed three year plan to clear all of our MOB
arrears. The remainder of our request goes to meet our annual commitments.
This year is critical. If we do not meet our commitments, we will jeopardize our
leadership in these institutions. This will affect foreign policy priorities from Bosnia
to the former Soviet Union, from the Middle East to Africa. It would also undercut our
ability to direct ongoing reforms. We cannot lead with other people's money. Make
no mistake: we make this budget request purely and simply because it is in our
economic and national security interest.
The IFls have been instrumental in the economic renewal of Asia, Latin
America, and central and eastern Europe, helping foster economic reform and
democracy which has turned these regions into dynamic emerging markets for our
exports. Even so, the vast economic and human potential of the developing world
has barely been tapped, and the central role the IFls play in bringing developing
nations into the economic mainstream has not abated.
3
The multilateral development banks are building the underpinnings of a
market based economy by helping nations improve legal systems, reduce
corruption, pursue policies based on fiscal responsibility, build capital markets,
engage in free trade, and foster sustainable development. In the poorest countries
they are laying the foundation for long-term growth by funding child survival
programs, and improving health, education and basic infrastructure. In our own
hemisphere, which receives more multilateral development bank lending than any
other region, the Banks have been critical in supporting the dramatic transition of
countries like Haiti and Guatemala. The IMF's Enhanced Structural Adjustment
Facility (ESAF) complements and underpins the Banks' efforts through the
macroeconomic and structural conditions attached to ESAF loans. The IFls also
play an important role in efforts, led by the United States, to provide debt relief for
the poorest countries.
Let me describe the role IFls have played in the development of one country:
Poland, which has emerged as the leading economic success story in Central and
Eastern Europe. Its bold economic reform, a model for others, was based on a
strong reform commitment of the Poles, but it could not have succeeded without the
support of bilateral donors and the IFls. The United States was the largest
contributor to the Polish Stabilization Fund and provided additional support through
USAID. The IMF helped Poland stabilize its hyperinflation and the World Bank
4
followed up with support for structural reforms. Together they provided $5 billion
of loans to help Poland through the harsh years of adjustment that set the stage for
its subsequent recovery. Exports have tripled since 1990, and GOP has risen by 27
percent since growth resumed. Private capital has now overtaken official sources
of finance as the leading source of capital and Poland has repaid its $1.5 billion IMF
loan.
By working to promote growth in developing nations, the IFls are helping
create markets for U.S. goods. Developing countries now account for 42 percent of
U.S. exports, and those exports are growing at twice the rate of exports to
developed countries.
Growth in countries borrowing from the International
Development Association doubled from 4 percent in 1991 to 8 percent in 1995. U.S.
finns exported more than $25 billion worth of goods and services to the 79 very poor
countries eligible for IDA funds in 1995 and roughly $60 billion worth to IDA
graduates. Those IDA graduates, countries such as Korea and Turkey, had received
a total of about $2.2 billion in loans from IDA. Both now contribute to IDA. Similarly,
the United States exports substantial amounts to countries which in the past have
borrowed from the IMF but are now creditors of the IMF, including a number of
emerging market economies. Of course, the IFls also benefit American businesses
and workers directly through the projects they finance. In the past year alone, U.S.
firms received over $3.2 billion in direct business from the multilateral development
5
banks.
Congress has directed the Administration to secure needed reform in these
institutions. They have done so. They have cut overhead, yet the services they
provide have not suffered. For example, the Inter-American Development Bank has
cut its budget by 5% in real tenns since 1995 and staffing is down 12% from its peak
in 1988. Yet loans managed by the bank have increased 48% since 1991. The African
Bank has instituted a sweeping reorganization including term limits and replacing
70 percent of its managers.
The World Bank, long a target of criticism, has become more open, and has
cut its administrative budget 10% in real terms over the last two years. It has now
proposed a major reform program under President Wolfensohn's leadership which
is even more responsive to past criticisms. But it also has a significant pricetag and
we are carefully reviewing its details. The IMF has also controlled its administrative
budget, allowing it to rise by only one percent in the last three years. It has made
substantial advances in transparency and strengthened its capacity to detect
financial crises.
The Administration and Congress must continue to work together and
maintain the bipartisan commitment to these institutions that has existed for fifty
6
years by setting goals for reform, and evaluating how we are progressing. These
institutions have not solved all of their problems, but we will reduce our leverage for
deeper reform if we keep failing to meet our commitments.
Let me briefly mention the issue of procurement restrictions in the IDA Interim
Trust Fund which has been of concern to many members and to this Administration.
Yesterday, I submitted a report detailing the Administration's efforts to change the
ITF procurement rules. The ITF donors have recommended that $1 billion, or about
113 of the trust fund, be set aside, and potentially made available for U.S.
procurement While this result is not everything we wanted, we put enormous effort
into this issue and, given the obstacles, I believe this is the best we could achieve.
Let me also mention a separate but related budget request, which is for $3.5
billion in budget authority for U.S. participation in the IMF's New Arrangements to
Borrow. This new line of credit would build on the General Arrangements to Borrow
and provide a larger reserve tank for the IMF to respond to financial shocks. We are
also discussing a possible increase in the normal financial resources. We have
consulted with the Congress regarding these matters in the past and will, of course,
continue to do so. These funds would not be scored as outlays, as they are offset
by the creation of a counterpart claim on the IMF that is liquid and interest bearing.
This request is critical to supporting the lMF's primary role of promoting
7
international monetary stability by preventing financial shocks and responding to
crises that may emerge.
Mr. Chairman, let me conclude by reiterating how important these institutions
are to our own economic well-being. Countless workers and businesses depend on
trade -and a thriving global economy --for their livelihoods. Every day our national
interests more intertwined with the political stability of other nations, their economic
health and their policies which encourage --or discourage --the free flow of goods
and services. In that regard, American workers and firms depend on the Wond Bank,
the regional development banks, the IMF, the United Nations and bilateral assistance
programs, because these institutions are instrumental in promoting democracy, free
markets, the rule of law, a stable international monetary system and sustainable
development.
There has been a tremendous movement over the last decade toward more
economic and political openness. We cannot afford to reverse the tremendous gains
we have made in fostering growth in the global economy over the last fifty years.
Instead, let us fully fund America's commitments to these institutions and
begin the process of paying what we owe. Let us pledge to work together to
strengthen and reform them, not abandon them. By doing so, we will advance the
8
interests of all Americans and set the stage for strong, long-term economic growth.
-30-
9
DEPARTMENT
OF
THE
'IREASURY (l!fID
~~~/
TREASURY
NEW S
~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
................................
OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
February 26, 1997
Contact: Calvin Mitchell
(202) 622-2920
CLINTON ADMINISTRATION'S BUDGET OFFERS
$224 BILLION IN TAX CUTS OVER TEN YEARS
The Treasury Department today officially released revenue estimates for the tax proposals and
other revenue measures included in the Clinton Administration's FY 1998 Budget through the
year 2007. Previous estimates ran only through 2002. The Administration's tax relief proposal
is targeted primarily for middle income taxpayers to help with raising a child and education.
"President Clinton strongly believes that while working within the constraints of a balanced
budget, we should also invest in critical priorities for our nation, such as education, and provide
tax relief for the middle class," said Treasury Secretary Robert E. Rubin.
The Treasury Department estimates that the Administration's Budget proposals would provide
$224.8 billion in tax cuts over the FY 1998 - FY 2007 period, with $98.4 billion of the tax cuts
coming between FY 1998 and FY 2002.
Secretary Rubin said, "from the beginning of the Clinton Administration, our budgets have been
based on realistic and prudent economic assumptions. As a result, actual budget deficits have
come in under the projected deficits each of the past four years."
The bulk of tax relief is in the form of tax credits for dependent children ($97.3 billion) and tax
credits and deductions for college tuition and job training ($87.7 billion). These tax cuts would
be paid for, in part, through the elimination of unwarranted tax benefits and the closing of
corporate loopholes totaling $73.3 billion between FY 1998 and FY 2007 ($34.3 billion between
FY 1998 and FY 2002). The Budget also proposes the extension of recently expired trust fund
excise taxes and other revenue measures that are expected to yield $87.3 billion over the
FY 1998 - FY 2007 period ($41.7 billion FY 1998 - FY 2002).
-30RR-1522
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
February 27, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $19,277 million of 52-week bills to be issued
March 6, 1997 and to mature March 5, 1998 were
accepted today (CUSIP: 9127944S0).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.34%"
5.36%'
5.36%-
Investment
Rate
5.64%"
5.67%'
5.67%-
Price
94.601
94.580
94.580
Tenders at the high discount rate were allotted 94%'.
The investment rate lS the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$50,259,800
Acce}2ted
$19,277,040
$44,050,514
1,104,286
$45,154,800
$13,067,754
1,104,286
$14,172,040
5,105,000
5,105,000
0
0
$19,277,040
$50,259,800
An additional $1,527,000 thousand of bills will be
issued to foreign official institutions for new cash.
5.35
RR-1523
94.591
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
February 27, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 45-DAY BILLS
Tenders for $23,140 million of 45-day bills to be issued
March 3, 1997 and to mature April 17, 1997 were
accepted today (CUSIP: 9127944F8).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.14%"
5.16%5.16%-
Investment
Rate
5.24%"
5.27%5.27%-
Price
99.358
99.355
99.355
Tenders at the high discount rate were allotted 49%.
The investment rate 1S the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.15 - 99.356
RR-1524
Received
$82,158,570
Accepted
$23,140,380
$82,158,000
570
$82,158,570
$23,139,810
570
o
o
o
o
$82,158,570
$23,140,380
DEPARTMENT
OF
THE
1REASURY fg)
..
TREASURY
NEW S
178~q~"""""""""""",,"""""".
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANlAAVENUE. N.W .• WASHINGTON. D.C.. 20220. (202) 622-2960
EMBAGOED FOR NOON FEBRUARY 28
Text As Prepared For Delivery
"US Economic Policy Toward Japan in the Second Clinton Administration"
Remarks by
Lawrence H. Summers
Deputy Secretary of the Treasury
The Japan-America Society of Washington, DC
Washington, DC
February 28. 1997
Introduction
Good afternoon. It is a pleasure to be here today with a group that has done so much to
strengthen our relationship with Japan. Addressing the economic challenges posed by the US
Japan relationship was a central priority of the Clinton Administration four years ago as the
President began his first term in office. Now at the beginning of the second term. we have an
excellent opportunity to reflect on the progress that we in America and Japan have made in our
relationship and a chance to reflect on how to go forward.
We entered into a framework with Japan as an integral part of our effort to restore US
leadership in the global economy. That framework had three over arching objectives.
•
First, to restore the global competitive position of the United States.
•
Second~ to pursue policy measures in concert with Japan to reduce Japan's global trade
and current account surpluses; and
•
Third, to achieve progress in specific trade sectors where US firms had been denied
access or equal footing in Japan.
By achieving these economic goals. we hoped and expected to make progress beyond the
economic sphere. Repairing the economic relationship seemed central to strengthening our
political and strategic relationship, our most vital bilateral relationship. Today it is clear that we
have made real progress in all three of these objectives.
The US Competitive Position
Four years ago, few would have projected that the US economy would be as strong and
competitive as it is today and few would have forecast the range of difficulties that Japan has
encountered.
RR-1525
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2 In the early 1990s. the American model of capitalism with its decentralization. lack of
government direction. independent central bank and emphasis on markets was widely
disparaged. A common joke went that the Cold War between America and Russia was over but
that Japan and Germany had won.
Four years later. America has proven that it is uniquely competitive. We have created
over 11 million jobs. It is now clear that we will grow faster in the 1990s than either Europe or
Japan. International observers rate us the most competitive economy in the world. On a sectoral
leveL the United States is leading in almost every variety of post-industrial activity.
This change is due to a dynamic American economic system and a private sector
supported by a strong foundation of government policies. These include a commitment to deficit
reduction that has cut the deficit from 4.7% ofGDP in 1992 to 1.4% ofGDP today. a renewed
effort to improve education and the steadfast promotion of exports.
In contrast, these have not been easy years for Japan. Financial problems. deflation,
structural rigidities and difficulties in innovation have held back Japan's economic growth. In
1993, the IMF forecast long term growth for Japan of 4%: today the figure is half that.
This represents a remarkable reversal of fortunes.
Reducing Japan's Current Account Surplus
In 1993, Japan's current account surplus was the major asymmetry in the world economy.
Its imbalance had evolved from a surplus largely concentrated with the United States to one
spread roughly evenly across Asia, Europe and North America. In our framework agreement, the
Japanese government entered into a commitment to "achieve over the medium term a highly
significant decrease in its current account surplus." It is encouraging that Japan's current account
surplus has fallen from 3.1% ofGDP in 1992 to 1.4% ofGDP today. reflecting fiscal policy
which helped promote domestic demand as well as a broader structural shift.
While the global surplus was the crucial measure. its drop has predictably translated into
a reduction in Japan's bilateral surplus. Japan's current account surplus with the US has shrunk
$67.3 billion in 1994 to $47.7 billion in 1996 reflecting macro as well as microeconomic
changes. Japan's merchandise trade surplus has also shrunk in half from $120 to $62 billion.
Macroeconomic policies directed at imbalances and microeconomic ones directed at
import penetration are like two blades of a scissor. You need both to cut toward your objective.
Fiscal policies directed at increasing domestic demand and consumption, for example. are likely
to mean easier penetration by foreign producers. And trade liheralization and structural reform
enhance the impact of macroeconomic policy by increasing the responsiveness of imports to
changes in demand and prices.
Opening Markets
Accordingly, as the third goal of this policy. we undertook to address problem sectors
where US firms had been denied fair access to the Japanese markets and to support an expanded
-3 direct presence for US firms in Japan's economy. What distinguished this new approach to
opening the Japanese market was a bottom line strategy of measuring success. This was not
designed to set targets for US market share in certain sectors as some critics claimed. hut rather
to provide clear measures to monitor progress in implementing the agreement.
As a result, over the last four years. we have negotiated 24 trade agreements with Japan.
more than under any previous Administration. From autos and auto parts to cellular phones to
insurance to telecommunications to financial services. we have opened up markets that were
closed.
These agreements are an important reason why US exports to Japan have grown over
41 % over the last four years, twice as fast as exports to the European Union. In goods covered
by the July 1993 Framework agreement. US exports have risen 85 percent. three times the rate of
other US exports to Japan.
In the United States, this progress has created high paying jobs for Americans. In Japan,
it has enabled Japanese consumers and Japanese manufacturers to pay less for products and
components.
Ultimately, however, the greatest accomplishment of the Framework may be that it has
further strengthened our indispensable strategic relationship. By strengthening our economic
partnership, it has enhanced our strategic partnership which provides an anchor of stability in the
world's most dynamic region.
Our Continuing Agenda
Let me now turn to the second portion of my remarks. how our partnership should and is
likely to evolve over the next four years.
US policy towards Japan over the next four years will focus on efforts in three basic
areas.
•
•
•
First, to promote domestic demand-led growth and a more balanced pattern of external
surpluses;
Second, to open Japan's markets and investment system to international participants; and
Third, to reform Japan's financial system.
The Macroeconomic Outlook
As Secretary Rubin said earlier this month. Japan's challenge is to continue to maintain
the supportive macroeconomic policy stance necessary to promote a strong domestic-demand led
recovery and to prevent a resurgence of its external surplus.
I referred earlier to the tremendous improvement that has occurred in Japan's current
account. Clearly, current accounts will fluctuate. What is crucial is that Japan's current account
must not again be permitted to become the defining asymmetry in the industrialized world
economy. Too often in the past we have seen cycles in which .lapan's trade surplus has declined
-4 with consequent reductions in trade frictions only to rise again. It is critically important to all of
us that we avoid a repeat of this phenomenon.
To avoid this, it is essential to restore domestic demand-led growth. That. in tum.
depends on a set of macroeconomic policies to restore confidence. It depends on monitoring and
ensuring the structural liberalization to create private investment opportunities that 'can be
important engines of demand. And it means working to repair as rapidly as possible the
problems of the financial system.
We learned in the early 1990s the difficulty of achieying expansion after a period of
slowdown. particularly in the face of financial headwinds . .lapan's current financial restraints
make action on this score vital to long term growth.
The Japanese authorities are in the process of putting in place a number of important
measures to strengthen the banking system. These look very encouraging and we hope that they
will be put in place quickly. They should help create the conditions for a stronger Japanese
banking system in the future.
The stakes are large. Moving forward it is important that Japan carefully assess the
underlying strength of domestic demand and in that context. that it determine the appropriate
pace of fiscal consolidation. In this context. it is important to note that Japan has a relatively.
modest underlying structural deficit, and a fiscal policy process that permits adjustments to
changing circumstances.
Fundamentally, Japan's capacity to prepare for an aging society depends upon its ability
to grow its economy by expanding its capacity to produce. That is how you create the resources
that are necessary to support an aging population.
Opening Markets
On the trade agenda going forward. I will not layout a detailed blueprint for future trade
actions, or attempt to give you a comprehensive list of products where action is likely or suggest
how we will ultimately balance a variety of competing priorities. Rather, let me say the
following.
First, this Administration will continue to focus on ensuring full implementation of the
large number of agreements we have already negotiated. Japan's credibility in the United States
and with its other major trading partners as well depends on following through on its
commitments. We have an elaborate process in place to monitor these agreements and we will
continue to see that they live up to their initial promise.
Second, we will continue to work on ways to resolve the problems that remain in several
areas. And we will remain prepared to take appropriate action to address those problems not yet
visible over the horizon. Where these problems are amenable to a multilateral solution or can be
addressed by the WTO, this Administration will be creative and pragmatic in pursuing those
-5avenues. But wherever necessary, we will be prepared to pursue our interest directly with the
Japanese Government.
Financial Reform
Outside the trade area, we are devoting increased attention to the opportunities created by
the Prime Minister's commitment to' deregulate, restructure and reform the Japanese economy
and financial system. As decades of trade talks have remove successive layers of the classic and
more visible forms of protection from the Japanese economy, the focus has necessarily shifted to
broader structural features of the Japanese economy which still make Japan. in some respects a
uniquely difficult place for foreign firms to compete.
The most important and perhaps the most promising proposals for reform are in the
financial area. In the US, a strong and innovative capital market and banking system has played
a vital role in sustaining our recent recovery. Our interests in the prospective Big Bang lie in the
following broad areas:
•
Expanding opportunities for competition
•
Promoting greater transparency and disclosure; and
•
Seeing Japan create a stronger and more dynamic financial system.
Expanding opportunities for competition.
In January of 1995, the US and Japan concluded a financial services agreement which
opened substantial new opportunities in asset management corporate finance and other important
financial activities.
The financial reforms now under discussion have the potential to provide even greater
scope for innovation and competition which are important not only to the future prospects of
Japan's economy, but also to the opportunities and strength of US financial institutions.
Promoting greater transparency and disclosure.
You will not be surprised to learn that we also believe that strong public disclosure
standards are a necessary condition for a well functioning capital market. Japan has a ways to go
in this area to meet the Prime Minister's objective of adopting world class standards along the
lines of those that exist in London and New York.
This is important not just because better disclosure is critical to the strength of financial
institutions but also because a more transparent system would help strengthen the credibility of
Japan's plans to strengthen the supervisory system. Weaknesses in supervisory systems are
likely to be magnified not masked when disclosure requirements do not provide for effective
market discipline.
Disclosure is important because it helps increase the potential for the markets to allocate
capital more efficiently by rewarding the productive and penalizing those firms that might be
either irresponsible about risk or simply bad about finding ways to be competitive. Indeed
disclosure is one of the best tools we have for addressing Japan's distinctive pattern of corporate
affiliations.
-6Creating a Stronger and More Dynamic financial system
Finally. as I have said many times. the dynamism of America's economy owes much to
its financial system, the nervous system of the American economy. In Japan as in the United
States, improving the financial system is the best way to sustain a dvnamic
economv.
.
.
Some see a conflict between financial deregulation and maintaining the stability of the
financial system. It is certainly correct to say that the speed, sequence and timing of financial
reform are tough questions and important to get right. In general. however. we believe these
objectives are likely to be complementary rather than conflicting. and the problems of the
Japanese financial system at present are due more to a record of slow. uneven. ambivalent reform
efforts rather than efforts of excess speed in getting the bureaucrats out of the way of the market.
The objectives of financial deregulation and financial stability are complementary
because stronger capital markets can diffuse risk more broadly across the financial system and
because institutions protected from competition are unlikely to be particularly risk conscious or
good at finding ways to increase return.
As Chairman Greenspan said in Tokyo late last year. we should encourage Japan to move
ahead--to be careful to get it right--but to move ahead. We are beginning what we expect to be
an ongoing discussion with the Japanese authorities on these issues next week.
Conclusion
In conclusion, these are portentous years. Much of the drama that will play out in the
world over the next few years, from continuing economic progress to a rapidly changing China to
political evolution in other rapidly growing countries will take place in Asia. With the US Japan
economic relationship we stand a much better chance to address these challenges successfully.
How Japan and we deal with these challenges will be critical to the success of other countries and
ultimately the entire world.
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
March 3, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,082 million of 13-week bills to be issued
March 6, 1997 and to mature June 5, 1997 were
accepted today (CUSIP: 9127944L5).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.09%5.11%'
5.10%-
Investment
Rate
5.23%5.25%'
5.24%-
Price
98.713
98.708
98.711
Tenders at the high discount rate were allotted 15%-.
The investment rate lS the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
RR-1526
Received
$53,333,692
AcceJ;1ted
$13,082,149
$47,775,582
1,488,055
$49,263,637
$7,524,039
1,488,055
$9,012,094
3,445,955
3,445,955
624,100
$53,333,692
624,100
$13,082,149
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE-RELEASE
March 3, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,075 million of 26-week bills to be issued
March 6, 1997 and to mature September 4, 1997 were
accepted today (CUSIP: 9127945L4).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.19%'
5.20%'
5.19%'
Investment
Rate
5.40%'
5.41%'
5.40%'
Price
97.376
97.371
97.376
Tenders at the high discount rate were allotted 12%'.
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-lS27
Received
$47,335,473
Acce}2ted
$13,074,947
$39,713,475
1,147,398
$40,860,873
$5,452,949
1,147,398
$6,600,347
3,445,000
3,445,000
31Q2~12QQ
31Q2~12QQ
$47,335,473
$13,074,947
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 2023-9
FOR LY1MEDIATE RELEASE
March 4, 1997
Contact: Peter Hollenbach
(202) 219-3302
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY ARKANSAS STOR.t\1S, TORNADOES
The Bureau of Public Debt took action to assist victims of floods in Arkansas by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Arkansas affected by the storms. These procedures will remain in effect through April 30, 1997.
Public Debt's action waives the nonnal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most fmancial institutions serve as paying agents for savings bonds.
Arkansas counties involved are Clark, Cross, Greene, Hempstead, Jackson, Lonoke, Nevada,
Pulaski, and Saline. Should additional counties be declared disaster areas the emergency
procedures for savings bonds owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete fonn PD-1 048, available at most fmancial institutions or the Federal Reserve
Bank. Bond owners should include as much information as possible about the lost bonds on the
form. This infonnation should include how the bonds were inscribed, social security number,
approximate dates of issue, bond denominations and serial numbers if available. The completed
fonn must be certified by a notary public or an officer of a financial institution. Completed
forms should be forwarded to Public Debt's Savings Bond Operations Office located at 200
Third St., Parkersburg, West Virginia 26106-1328. Bond owners should write the word
"Floods" on the front of their envelopes, to help expedite the processing of claims.
000
PA-251
RR-1529
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HONG KONG'S ECONOMIC FlITllJU:: AN AMERICAN VIEW
BY
LAWRENCE H. SUMMERS
nF.PUTY SECRETARY OF THE U.S. TREASURY
PRESENTED TO THE AMERICAN CHAMDER OF COMMERCE
HONG KONG
March 3, 1997
INTRODUcnON
It's great to be here in Hong Kong. This city impresses me not only fnr it.. spectacular
archit:cturc, but for what those buildings house -- on~ of wnrlc1''1 most active currency markets,
AsiQ'S second largest stock market, key operations nf the world's great banks. and some of the
world's shrewdest financial prof~sionals in hnth the public and private seeton;,
The importance of the future of Hnng Kong to the United States is Im;asured not just by the huge
value of trade between ollr twn economies. the scale of our invc:~t.lllcnt here, or by the volume of
financial flows, but also hy number of our citIzens whose: Ii vdihoods.depcnd on Horig Kong"
prosperity.
Some 36.000 American ~ili~t;llS live here. And the 1100 US firms that have
invested S14 billion iu Hong Kong employ some 250,000 people, 10% ot"the total
work force.
Vlhat's more. our govc:nunents arc; cngllged in close collaboration on ~ wide array of efforts to
fight
or~lSllized
crime •• narcotics trafficking, money laundering, and smuggling.
rcversion proccss has focused 2 great deal ot attention on Hong Kon~, and rightly !lO, given
its importance to the global economy.
TI1C
RR-1S30
2
But it occurs to me. as I look forward, that many people Me missing a wry important faeet of
Hone Kong reversion. The majority appear to view tT:tMition as somcLhing that Chino is "doing
to"
Hong Kong.
But the reversion process is hardly a one·wl1Y strect. The transition will
potentially have just as hig an impact on China.
Today. I'd like to say :1 few word!; about what the ultcrplay between the two gr~A1t economies
within the "one country two ~ystems" framewurk mean:s for Hong Kong. tor {:hina and for the
world.
FRAMEWORK Ii' JR TRANSmON
Hong Kong'~ reversion to China is in many ways a political event unparalleled ill h.istory. It
marks the takeover of a \.:apilaiist, democratic society by ~ ~cia1ist one. but with strong
guarantees of the combined system and life.style ofthe former.
A great deal of l1uention has been paid to the proce!iS
surrounding tIus shift. On the economic
and financial ~pcets, of which 1 feel more competent to speak, 1hc authorities involved have
taken many uf the stcps neoessary to make tor a smooth tnLmiLion.
I
In terms of Q lcgol framework, the Joint Declaration amI Basic Law loy tIle basis for R
lrUllsition tha.t can preserve what hac; made Hon~ Kung:so special Q1ld so successtlll ao; an.
economy.
Hong Kong is to retain its autonomy in economic affairs. including it~
independent tj~cal and monetary policy under the guidance of an extremely
competent civil service.
Hone Kong is also to ~tain its status as an international financial center, wld its
own currency .- scpi11atc from the renminbi.
•
Hong Kong has ensconced il$lf well in the international tinancial system -- reinforcing
its separate role as a fimw~iai player. These are moves that China has supvorted.
Hong Konlol. b a participant in the New Arr,mgement to Borruw recently agreed by
the imernutional fmancinl community. If recently joineu the Dank for
InteIlUltional Settlements. Hong Kone will continue Lu ~ a key member of
APEC, and ....·ill retain its separate membership in lhe major intcrna.tional fmancial
institutions.
I
Hong KUlig's financiol and economic civil servants are rt;l,;ognized as world class by their
global counterparts. I am looking lorward to seeing my Hong Kong counterpart at tb~
upwming gathering of finance anti monetan' offi~iab in Tokyo.
3
Hetlecting their hi~ professionalism, Mr. TWig's rc,c:nt decision to leave current
cabinet members in their pusLs - iududing Hong Kong" extremely competent
economic team -- is vcry welcome. It ad& weight to the re~sur3nces that have
been given ISL thc highest politica1lcvcb that Hong Kong's sound financial and
economic sysLem will remain intact.
•
Honi Kong has also Lakcll measures to cnsure that it hQS the resources to preserve
economic and mUllclaq stability should market confidence be rocked by some
unanLil.:iplSlt:d development.
Ilong Kong's foreign exchange reserves are now abouf $04 hillion -- a sizeable
cushion aga.inst exchange rate instability or shock to the balance of payments.
Access to liquidity has been reintorced hy a network of nine repurchase
agreements that the Hong Kone Monetary Authority has set up with other I.:culJal
banks in the r~gion.
Th~ Hong
Kong dollar is further backed up by China's pledge to protect it with its
own massive reserves of over $100 billiull ~h(Juld it come to that.
•
Hong Kong officials at the hi2hest levels have bc:clJ l1.;tive in explaining such
:lrrangements in international financial cin.:h;s wid national capitals, including oW'S.
At least so far. the markets have evaiualed these aspects of the transition favorably.
Properly IlliUkets have shown rcmarkllblc growth in the last six months, and the
Ha.1lg Seng Index is at its highcst levels since 1994.
It is abo noteworthy that Hong Kong's government borrow~ in Hong Kong dollars
ilt rotes lower than those of the United States for period~ of ac; much as two years.
Bnt as one central banker's favorite cliches has it: Crt'.<iihility is not owned; it is rented.
After the all the excitement, when legalities of reversion are com.;lu~ku csJld iller
Hong Kong ho!tt~ this year's annual meetings of the IMF lWd Wurld Bank in the
Autumn, it will be essential for all political aulhuriLit::s to continue to behave in Q
way conducive to the maintenance of nlW'k.cl ~(Jnfidc:ncc.
It is crucial that this tranSition go well, nul j~t for Hong Kong but for China as well. Apart from
questions of international poliLi~s liml prestige, the transition i3 11 matter of economics for both.
BENEFITS FOR CnINA
4
China is -- and hl\~ heen for the past 19 years -- in thc midst of an economiC' transformation of
im.men~e proportions. This trBruifuClnation hll3 progre:.sed from experimentation with rnarkt!l
pricing of goods to the development of highly ElCtive capital markets in Shan~hal and Shcluhell.
Each phase ofChilUl.':; refonn process has introduced a greater reliance on markcl [ulces.
Early on, Chinn experimented with material incentives tv boost production and set
up special economic zones to Mtract forei211 direcL iu vestment and develop
export::>. China then undertook broader reforms Lo ce-shape its economy··
including enterprise taxMion, wage reform. amI the brea.k-up of the mono bank
system.
Most recently, China's has man~geu its first soft macroeconomic landing, and is
now turning in earnest to the :;l1uetural deficiencies -. such as the ST:ltc enterprise
sy"tem and the financial :;ector -- that bOOly need refonn.
At this juncture in China's trdIDifvlwation, more than ever, Hong Kone ha.o; a great deal to oITer
China.
•
Cle<lTly, in the area ofinvc:llment, JIong Kong's entrepreneurs, their capital and
technological resource:;, have been an ~ssential ingredient in ( :hina's economic ~rvwth.
BetwccII 1991 and 1995, Hons Kong invested more than $68 billiull in China.
Convcue1y, China h3S taken advant:lee of opportUnitit:s ill Hong Kong. China's
estimated 5tock of direct investment in Hon~ Kong al end 1995 was S2S billionscc~md only to the United Kingdom.
•
Hong Kuu.!;', h~ also provided China with the opportunity to import financial products
from oue of the most innovative financial centers in the;: wurld.
•
But perhaps Hong Kong's greatest potcnti~1 value to Chinl:l is as 11 source of good ideas,
technical expertise, and ~ an exemplar or model for the kind of system that can bring
China the most economic success.
rirst, Hong Kong has II very impressive record on mcicroeconomic m::tnagement:
High economic growth, prudent fiscalmano.gemcnt :md government surpluses.
and experience in dealin2 with (,;~ita1 flows ond an open foreien e;.(change
system. Hone Kong has the ~plc to convey this kind of knowledge.
Second, Hong Kong's rc~ulators helve invaluable experience in finam.:iai systems
and regulation. The bwnps that hove oceurred on this road. and lhe improved
mnrlcet oversight 11Ud rc:gulation that have emerged as a result, hClVC only increased
Hong Kong's crcueutiab as Q soW'Ce of wisdom for China.
5
I tmd, (:hin~ r.O.llld drAW O.n Hong Kong's example of clearly delineating the role
of government in the economy.
Founh, Honi Kon~ is a sterling example of the benefits ofintegrntion with the
world economy. Hong Kong's economic success has depended on its ability to
Ulk.~ IUlVWlUi~t: of the opportunities in global marketS •• ma.king it a trade leader in
Asia and a Ii viJig eXliluplc of Lllc bcndiLs uf open markels.
o
lbis is especially true for fi.n4ncilll services, where lIong Kong ha~
gcncnUly moinwmcd n high standard for markct access, lIong Kong's
example of the value of finQncialliberaliz,Qtion, accompanicd by strong
prudential supervision, should be studied by other emerging Asian
economies as they consider their offers in the current round of finCUlciQI
services negotiation.
I-inl'llly, Hone Kong, Rnd the Hong Kong people, have a deep understanding of
how market.. are ,",uPI'O,",ed to WorK. Thi~ is eX1'\ctly the kind of knowledge that
China will have to draw on again and again if it wante; to hllllc1 the kmrl of
economy that will work in the 21st cenrury.
FREEDOM AND ECONOMIC PROSPERITY
Any accurate economic history of the latter part of the 20th century will have to gi ve due
attention to two striking developmenu: the transfonnation of industrial economics into
information-intensive economies based on services; nnd thc inclusion of millions of Asians in an
paralleled rise in global prosperity, Hong Kong, with it:; world-class financial sector, has been at
the vanguard of both of these developments. In the 21st century, China, with its va.st resourccs
and Hong Kong as an exemplar, has the potential to follow suit.
I noted earlier that allthorities on both sides have made good preparations to pennit a smooth
economic transition. J sense, however ~om~ mrmy believe that politics and economics are
somehow mutually exclusive. This is too simple a view.
nll:r~
i:> no fuewall between economic freedom and freedom in its many other dimensions. The
free flow u[ illfurru~lion i~ essential to free society. to free markets. and to a stroni: fmancial
system. It is essential to HOll~ KOIllo:'~ Dru~l't:rity - and to China's .- that information flow freely,
Integrity also is central to both economics and politic$. HUlI~ KOll~':) suwe:ss ~ tl financial
center has been bU9cd to no ,mall extent on its (;ivil service's professionalism and hUJlc:;l
administration, nnd on the trunspnrency of its rcgulation. If prosperity is to be maintained, these
too mu£t be maintained.
vy
It is important to recognize that e('.onomic~. and particularly finance, is drivt:n
CApCI.:Luliu1l5
and perceptions. Even a perceived risk that China is seeking 10 undenninc Hong Kong's
autonomy or tamper witt"! the fonnulas that have made it su sl.u;l,;cssful could :5cvcrcly damage
Hons Kong's standing in international financial circles ami, by association, its economic
prospeet~.
I stress these points because I am wllvinced that in the global economy of the 21st century, even
more than in the econumy uflhe 20th c.entury, the quality of govern:mce will be a key
detenninant uf pru:;~elily. Capital, .skilled manpower (Uld other factors of production are ("v~r
mon;: mubile and respon:5ive to changes in the qtU1lity ofthe business environment. And a" we
muve f10m an industrial to an information era, the degree of freedom become" an ever more
important prerequisite for economic success.
Thc5e points bear emphasis. China's actions regarding the I.egislative Council and efforts to
repeal or amend several key provisions of Hong Kong's civillibenies laws raise som~ ~un\';~I1b
about its appreciation for the fundamental importance of freely flowing infonnaliull, aud for the
integrity and autonomy of Hong Kong'~ economic system.
The danger is that. if China handles the troin:siliuu poorly, ifit encroaches or is
perceived to encroach upon Honll. KUlJ~'s autonomy, lIong KongcT3 have the
ability to make such actiuru; cAtn::mely costly -- either by leaving Hong Kong
(their skills are very wclwme elsewhere) or by troruferring their funds out of the
territory.
This would not only be ~i:)astroU:5 for the lIong Kong economy. but the loss to China woulrl he
immense: nOl.iusl iu uuminal terms, the lost capital :lIld economic strength of Hone Kong, hut in
terms u[puleutial benefit:;. For as I've stressed in my remarks, there is milch that China can
glean fruw Hong Kong that would nid in its own development.
CONCLUSION
In short., the trlUlSition is as much for China to make as it is for Hon~ Kung. And it is csscntiru
that China allow Hong Kong to be }1ong Kong. And if there i:s lu ue some convergence of
systems over time, it would be beneficial for alllnvoJved Ull China's system become more like
Hong Kong's than the other way around.
Suffice it to say thitt the Administration will ve watching closely how events Wlf'old here,
including with regard to how these ~ ... el1~ affect U.S. interests and our stalce in bOfh Hong Kon~
and China'~ ~uccess,
We at the U.S. TreasuI)' will continue to work with our colleagues in Hong Kon" as they
maintain their sepan&lc: c~onomic system. We will continue to meet regularly with our fUltllleial
counterparts in lhe wntcxt of gatherings of the TMF, APEt', KIS, and as panners in l.h~ NAD.
We look furwi;ud to intensifying our cooperation on matte~ relating to money li:1ulu.iering and to
7
customs issues. Aml, fwthcr rcinforcing the separateness of China anrl Hong Kong's economic
systems. our U:l..\ laws will, after July 1st, continue to regard Hone Kong and China as two
distincl enlilies for the purposes of U.S. taxation.
I hope that this close Qttention and interest by thp I J.S. in the reversion process i~ taken in the
spirit in which it is given - out of a profound interest in the health
well-bcing of both Hong
Kong ll11d Chins.., and our relationship w1th both.
anu
DEPARTMENT
OF
THE
.I-
r,.
'IREASURY (W)\
TREASURY
NEW S
178'l
OFFICE OF PUBUC AFFAIRS -1500 PENN SYLVAN lA AVENUE. N.W. - WASHINGTON. D.C. - 20220 - (202) 622-2960
Statement of Valerie Lau
Inspector General, U.S. Department of the Treasury
Before the House Ways and Means Committee,
Subcommittee on Oversight
March 4, 1997
Madam Chairwoman and Members of the Committee:
Today, I would like to direct my remarks to two areas. First, I will discuss the role of
my office under the IG Act and our relationship to the IRS Inspection Service.
Second, I will describe the work of the Treasury OIG and the IRS Inspection Service
in the areas defined by GAO as high risk.
Role of My Office Under the IG Act
As you know, the Treasury Office of Inspector General was established by the 1988
Amendments to the IG Act of 1978. Like all other OIGs, our mission is to conduct
independent and.objective audits and investigations relating to the programs and
operations of our Department; make recommendations that promote economy,
efficiency and effectiveness; and prevent and detect fraud and abuse.
Unlike most other OIGs, however, the Amendments did not create a single audit and
investigative entity for the Treasury Department. We have direct review authority
over some Treasury bureaus and oversIght authority over others. We oversee
investigative units within four law enforcement bureaus. Also, with respect to the
Internal Revenue Service, we oversee internal audit and investigative staff who
RR-1532
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have remained under the direction of the IRS Chief Inspector. That office retained
primary responsibility for all direct audit activity at the IRS, while my office was
assigned oversight responsibility. For remaining Treasury bureaus, we have direct
audit and investigative authority.
The Amendments also gave my office the authority to initiate, conduct and/or
supervise audits of the IRS. However, our capability to do many such audits is
limited. We have an audit staff of approximately 160 auditors who must provide
primary audit coverage for the remaining 11 Treasury bureaus. Our recent efforts
have been focused on helping these other bureaus improve operations and meet
the Chief Financial Officer's Act (CFO) and Government Management Reform Act
(GMRA) requirements. In contrast, the Chief Inspector has approximately 460
auditors who focus solely on IRS programs and operations. Consequently, my office
must rely on IRS Internal Audit for most of the audit coverage given to IRS. In
addition, as you have heard today, the GAO performs an extensive amount of audit
work at the IRS, including the bulk of the financial statement work.
Prior to the Amendments, the Inspection Service reported solely to the IRS
Commissioner and had little contact with Treasury officials and Congress. The
Amendments changed this relationship. They required that the Inspection Service's
work become subject to the reporting requirements of Section 5 of the Act. As such,
the Inspection Service's results are routinely included in my Semiannual Report to
the Congress, including its tax writing and general government oversight
2
subcommittees.
In keeping with this requirement, my Semiannual Reports have highlighted the work
of my office and the Inspection Service in each of the high risk areas since 1990.
While the IRS and Customs have made progress in managing the risks associated
with each area, significant long-term concerns still remain. For this reason, both the
Inspection Service and my staff will continue to focus significant audit coverage on
these areas and wi" routinely report the results of our assessments to the
Secretary, the Congress, and the public.
A clearer understanding of the scope of the Inspection Service's activities can be
seen within the framework of the overall mission of the IRS. As you know, the IRS
is a large, complex and geographically dispersed organization which employs over
100,000 people who collect over $1.4 trillion in tax revenues and enforce the tax
laws. Considering the significant amount of money involved, the discretionary
authority of enforcement personnel. the size of the organization, the massive
processing operations, and the scope of taxpayer contacts taking place daily
throughout the country, it is easy to see the inherent risks associated with IRS
operations. 'Within this framework, the Inspection Service has historically directed
its audit coverage to those IRS activities that are related to the collection of tax
revenues, enforcement of tax laws, and processing of returns and other information.
3
Managing High Risk
We are here today to talk about high-risk issues. Managing risk and minimizing the
vulnerabilities is a job for all of us in the public service. IGs, department and
agency managers at all levels, and the Congress share this responsibility.
Congress is doing its share as evidenced by a recent series of enacted legislation.
Legislation like the Government Performance and Results Act of 1993 (GPRA),
Government Management Reform Act of 1994 (GMRA), and the Information
Technology Management Reform Act of 1996 (ITMRA) provide a perspective and
approach to improving government operations which appear well-suited to fixing the
problems. These laws provide the framework for systematic long-term solutions for
making a government that works better and costs less.
GAO has discussed with you their extensive work in the IRS and in other high-risk
areas.
Let me briefly discuss with you some of the work that my office and the
Chief Inspector are doing to address those areas for which the Treasury is
responsible. Let me first discuss how we are helping to address high-risk areas.
Integrate High-Risks Areas in Audit Planning - Effective audit planning focuses
on high-risks areas. We have instituted a long and short-range planning system
that systematically identifies programs and activities subject to the risk of fraud,
waste, and mismanagement. As these areas are defined, we plan audits,
evaluations, and investigations to identify management actions needed to avoid
mistakes.
4
Ensuring That Recommendations for Corrective Action Are Implemented Monitoring the department's implementation of recommendations is another way to
ensure that progress is being made. Treasury management is ultimately
responsible for implementing audit recommendations and achieving the cost
benefits outlined in our reports. We monitor management's implementation through
the Department's Audit Tracking System. This system allows us to follow up on
management actions. For the Treasury high-risk issues, we and the Chief Inspector
are making a concerted effort to examine completed corrective actions in order to
ensure that they are actually having an effect on previously noted deficiencies.
Additionally, my office is completing an evaluation of the Department's audit
tracking system. We will make recommendations to ensure that this system
provides information needed by management to assure that corrective actions are
being timely and correctly made.
I will now discuss the work of my office and the Chief Inspector's as they pertain to
the following:
Financial management at the Customs Service and IRS;
Oversight of IRS' Tax Systems Modernization efforts;
Filing fraud:
Asset forfeiture;
Information security; and the
Year 2000 problem.
5
Customs Financial Management - Financial management at both the Customs
Service and the Internal Revenue Service has been previously reported as a
material weakness and has received extensive criticism from GAO. With the advent
of the Chief Financial Officers Act, these weaknesses took on greater emphasis.
To provide some perspective, the Customs Service, which is of the size and
complexity of a large Fortune 500 company, has existed for well over 200 years
without the discipline of undergoing annual financial statement audits. Furthermore,
like most federal entities, its operational and administrative functions were
organized to address budgetary needs and requirements. Therefore, it was not
surprising that its systems and operations were not readily able to withstand the
scrutiny of a financial statement audit.
Three years ago, we assumed responsibility for auditing Customs' financial
statements from GAO. Customs has improved its financial management; however,
more needs to be done. The results of Customs' fiscal year 1996 financial
statement audit are a meaningful indication of the tangible progress it has made in
addressing previously reported material weaknesses. While Customs' most serious
material weaknesses have been addressed, they have not been fully eliminated.
We believe that Customs' planned improvement efforts are appropriately focused
on control weaknesses involving invalid drawback payments, in-bond shipments,
and core financial systems. Customs needs to focus its energies on these efforts.
We believe the relative risk associated with Customs' financial management can be
6
reduced with the continuing support of Customs senior and mid-level management.
They must ensure that planned improvement efforts are properly implemented so
that existing material weaknesses are resolved and related problems do not recur.
IRS Financial Management - IRS' FY 1996 financial statements are the fifth set
prepared by the IRS' Chief Financial Officer and submitted for audit in accordance
with the CFO Act. These statements are presented in two separate sections. The
first section presents the financial statements of the "Administrative" operations, i.e.
IRS' accounting for the appropriated funds it receives to conduct operations. The
second section presents the financial statements of the UCustodial- operations, i.e.
collection of revenue on behalf of the Federal govemment.
Since 1992, a GAO team, which included auditors detailed from IRS' Office of the
Chief Inspector, has attempted to audit IRS' financial statements. They were unable
to render an opinion as to the fair presentation of these statements citing severe
financial management and control problems at IRS. GAO is now auditing IRS' FY
1996 financial statements. The OIG and Treasury CFO are closely monitoring the
progress of this audit because of the significance of the IRS audit results to the first
ever audited Treasury-wide financial statements for FY 1996. Next year, the OIG
will have responsibility for auditing the FY 1997 financial statement section
pertaining to IRS' "Administrative" operations. GAO will continue to audit IRS'
financial statements covering "Custodial" operations.
7
Tax Systems Modernization - The IRS has spent billions on TSM and there
has been dissatisfaction with the results to date. IRS performed this work without
having an overall plan, a consistent approach to managing contractors, or persons
with the necessary skills to successfully complete the job. However, many
congressional committees, including this one, have already heard of the problems
with TSM and are probably not interested in hearing them in detail again.
The IRS' Chief Inspector's work regarding TSM has been extensive. Since 1991,
IRS Inspection has issued almost 90 reports on TSM. These reports have reflected
the same kinds of problems that GAO has reported in their audits. In our
Semiannual Reports to Congress, we have highlighted the Chief Inspector's TSM
work and since 1992 have reported TSM first as a major area of concern and later
as a material weakness. In early 1996, we issued our own report on Treasury's
Oversight of TSM which concluded that Treasury's past oversight of the
modernization program had not been effective. Around the same time, the
Department and IRS adopted a new approach to oversee TSM - the Modernization
Management Soard (MMS). In addition, the IRS created an Investment Review
Soard (IRS) consistent with GAO's best practices self-assessment. As IRS and the
Department embark on a whole new approach to TSM, the Chief Inspector
continues to conduct a substantial body of audit work. In conjunction with his
efforts, we plan to initiate a followup audit to assess whether Treasury has improved
its ability to oversee TSM and whether IRS is addressing the recommendations
made by the Chief Inspector and GAO.
8
I believe the Treasury OIG has a significant role to playas TSM and other "fixes"
are put into place. While others continue to extensively audit the development of
TSM and other IRS activities, the OIG's oversight role includes monitoring the IRS'
progress in implementing previous recommendations and assuring performance of
adequate audit followup. We also participate as an advisory member of the MMB.
We believe that the MMB and IRB are promising oversight mechanisms to help IRS
address and resolve its difficult issues.
While these oversight mechanisms are very new, they are having an impact. For
example, in a 1996 audit of TSM, the Chief Inspector found that IRS' Document
Processing System (DPS), an integral part of TSM, continued to be at risk because
of repeated setbacks in the delivery of major DPS sub-systems. Furthermore, those
setbacks indicated that IRS may not have the required technical expertise to deliver
those sub-systems. The auditors recommended that IRS consider canceling any
further development of DPS. Based on this and other ongoing evaluations of DPS,
the IRB recommended, and the MMB agreed, that completing DPS was not cost
effective given its projected return on investment. DPS was terminated in October
1996.
Filing Fraud - As with Tax Systems Modernization, the Chief Inspector's Office
has established an aggressive revenue protection audit strategy. This is designed
to assist IRS management in improving systems for detecting return filing fraud in
advance of issuing tax refunds. In a report released last month, the IRS internal
9
audit staff concluded that IRS' 1996 Revenue Protection Strategy initiative
effectively enhanced the selection of returns most susceptible to noncompliance
with filing requirements. Since Fiscal Year 1995, IRS internal audit has issued 18
reports on revenue protection activities. Some of the recommendations from those
reports include methods to identify suspect tax return preparers who deliberately
understate their client's tax liabilities and strategies developed to detect the use of
duplicate social security numbers to claim additional tax exemptions. Other reviews
addressed the suitability of electronic return originators and the prevalence of tax
refund fraud related to false claims under the earned income credit program. In
addition to these specific audits performed on filing fraud areas, the Chief
Inspector's internal audit staff monitors the processing activities in an on-line
environment each tax filing season.
Asset Forfeiture - GAO has two concerns regarding asset forfeiture
vulnerabilities - the need for better accountability and stewardship of seized
property, and economies that could be realized through consolidation of the Justice
and Treasury asset management and disposition functions. With regard to the
management of seized property, Customs, as the custodial agent, has taken
substantial actions that, if properly implemented, should remove Customs' seizedproperty management from the high-risk category. Customs continues to upgrade
existing security at its storage facilities, appropriately focusing on those facilities
where particularly large amounts of illegal drugs are stored prior to destruction.
Additionally, while Customs' Fiscal Year 1995 year end physical inventory of illegal
10
drugs and other contraband revealed significant errors in recorded quantities and
quantities on-hand, its Fiscal Year 1996 year end inventory showed that these
conditions had considerably improved.
Customs also is taking steps to correct previously reported weaknesses in its seized
property tracking system. It is implementing a new seized asset case tracking
system that, when fully operational, should offer improved controls and audit trails
over seized and forfeited property, thus, reduCing the ability to disguise a loss or
theft of seized property. Customs is taking steps to ensure that existing
weaknesses are resolved and related problems do not recur. The relative risk
associated with Customs' seized property management system can be reduced with
the continuing support of Customs top and mid-level management by ensuring that
planned improvement efforts are properly implemented.
Since the OIG has not examined the benefits of consolidating the Justice and
Treasury funds, we are unable to comment on the extent of GAO's estimated
savings. Our work has focused on the use of Treasury Forfeiture Funds by state
and local law enforcement recipients. Our conclusions from this work raises
concerns regarding the administrative difficulty imposed on recipients because of
the existence of two sets of guidelines to which they must adhere. We also had
some difficulty in assessing whether Treasury funds have been spent in accordance
with Treasury program criteria. We found that recipients commingle funds from
Treasury, Justice, and other sources making it more difficult to ensure that the funds
11
were being used for intended law enforcement purposes. Therefore, because of the
different spending guidelines and program requirements, local law enforcement
agencies would likely find it easier to receive money from one fund or to comply with
one uniform set of guidelines for both funds. Treasury and Justice have been
working together to establish more uniform guidelines.
Information Security - GAO is rightly concerned about malicious attacks on
computer systems. Federal computer systems are open to attack because so many
computers are interconnected these days. The Government is vulnerable, and so is
the Treasury Department. Computer intruders, whether outside or inside our
bureaus, look to defraud and steal government resources, access sensitive data,
and disrupt government services and operations. Whatever the nature of the attack
or its consequences, the seriousness of this threat is real.
At Treasury OlG, we have a new group that specializes in information technology
issues. So far, we have reviewed information security policies for Customs and
ATF We have reviewed information security administration, program change
procedures and mainframe security software at Customs, ATF and Secret Service
during our annual financial audits. These audits identify a number of weaknesses
that intruders could exploit. Some reported weaknesses have been corrected;
however, others have not. We have also issued a comprehensive report on
disaster recovery planning that compares the plans among the different Treasury
bureaus We found several bureaus do not have a workable disaster recovery plan
12
- a serious security weakness. IRS Inspection Service auditors have also given
extensive coverage to computer security issues. For example, in 1992, the
Inspection Service reported that the Integrated Data Retrieval System (IDRS)
control systems did not detect or prevent unauthorized accesses by IRS employees
to tax information. The information obtained was used for improper and illegal
purposes.
In response to the 1992 report, IRS management implemented the Electronic Audit
Research Log (EARL) system to identify employees who improperly access IDRS.
Since EARL development began in 1993, Inspection Service auditors have
monitored and reported on the design and progress of the system deployment. In
addition, my office performed a followup audit to evaluate IRS' progress in
correcting the IDRS access weaknesses. IRS managers have used these
assessments to set the strategic direction for EARL and develop operating
procedures to improve their overall effectiveness in identifying unauthorized access
to IDRS.
Even though improvements have been made to detect and deter unauthorized or
improper access to tax information, weaknesses still exist. For example. IRS
management still has not completed an important corrective action of obtaining
security accreditation for the EARL system. In 1994. the Chief Inspector's office
also identified significant security weaknesses over sensitive taxpayer information
on personal computers and mini-computer systems in IRS. They made a number of
13
recommendations to strengthen controls, however, in a 1996 followup audit, they
found that these weaknesses still exist. Clearly, more needs to be done to improve
information security at IRS.
Year 2000 Problem - As we have already heard, agencies must immediately
assess their Year 2000 risk exposure and need to budget and plan how they will
overcome the date problem for all of their mission critical systems. These plans and
strategies need to be developed immediately if conversion is to be accomplished by
early 1999. The Department's schedule and milestone dates are in accordance with
the Government-wide schedule, with most of the conversion work expected to be
completed by early 1999. While the Department's approach is consistent with
GAO's recommendations, the ultimate challenge for Treasury will be to ensure that
its approach is appropriately applied in an expeditious and timely manner.
The Department is currently finalizing their Year 2000 approach and vulnerability
assessment. We know that Year 2000 is a particularly high risk area at IRS,
Customs, and the Financial Management SerVice, and the assessment may identify
other information systems which may be affected by the Year 2000 problem. Our
strategy has been to await the results of the vulnerability assessment, and then
determine where direct OIG involvement is required. At that time, we intend to
identify issues, programs, or systems that might cause completion dates to slip or
milestones to be missed. Furthermore, we are meeting with Department and bureau
information resources management officials. We regularly attend the Treasury Year
14
2000 work group meetings and participate in the Chief Information Officers and
Chief Financial Officers Councils where the Year 2000 problem is a regular agenda
item. Additionally, we are conducting a Department-wide Survey of Information
Technology investment management practices. As a part of this survey, we are
assessing the impact of the Year 2000 problem on systems development initiatives
and plan to follow their progression.
To conclude, I believe the federal audit community is an important element in the
identification, analysis, and removal of high-risk areas. Our collective work can
provide assistance to management in its efforts to minimize high-risk programs and
other vulnerable areas. Audit followup is also a critical part of the puzzle and
should be used to report on progress and identify what is working and what is not.
believe that my office, together with the Chief Inspector's Office, has a good record
in this effort.
This concludes my statement. I will be happy to answer any questions you or
members of the committee may have.
15
DEPARTMENT
OF
1789
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASillNGTON, D.C.· 20220· (202) 622-2960
EMBARGOED UNTIL lO~O AM EST
Text as Prepared for delivery
March 6, 1997
Statement Before tbe Subcommittee on
Treasury, Postal Service and General Government
Committee OD Appropriations
U.S. House of Representatives
Secretary Robert Rubin
Chairman Kolbe. Congressman Hoyer. members of the Comminee:
I appreciate the opPOnuniry to testify on the Treasury Department' s fiscal year 1998
budget request. With me today is George Munoz. our Assistant Secretary for Management and
Chief Financial Officer.
Let me begin by saying I look forv.rard to working with Chairman Kolbe in his new
position as Chairman of this Subcommittee. I have worked closely with Chairman Kolbe over the
last four years. in particular when we worked on trade issues. and I look forward to working with
him in his new capacity_ and with Mr. Hoyer. \l,lth whom we have worked constructively for a
long time. and the other members of the Subcomminee as well.
I believe the progress we have made in this Administration in bringing down the deficit
by over 60 percent the past four years is enormously imponant to our overall economic health,
and we are committed to a~hieving a balanced budget by 2002. Treasury's budget was
constructed to be consistent ~;th this objective.
The Treasury plays a key role in the core functions of government: tax policy, banking
policy. the IRS. 40 percent of the federal law enforcement officers. management of the federal
government's debt structure. economic policy development. budget policy. international
economic affairs. inner city economic developmenL the processing of federal payments and the
manufacture of our nation -s currency. With such a broad portfolio. we take very seriously the
notion that we must continually seek new ways to improve services and lower costs. As
Secretary. I have been interested in and very focused on management.
RR-1533
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In our fiscal year 1998 budget request of $1 1.7 billion. funding is proposed for the most
essential operations. The operating budget of $ I 1.2 billion. excluding the IRS information
technology fund, is 4.2 percent over the fiscal year 1997 appropriated level. Our request
maintains current service levels for all of Treasury's operations. while proposing important
advancements for a few Department programs and priorities.
I am pleased to report that. in the spirit of intense managerial focus. Treasury's budget
this year is in compliance one year ahead of time with all requirements mandated under the
government's strategic planning guidelines - the so-caIIed Government Perfonnance and
Results Act (GPRA). We are "focusing resources on the highest priorities: changing <>ur focus
from input to results: and expanding cooperation among managers. workers and stakeholders.
The FY 1998 request continues funding to pennit a proactive approach to policy
development concerning the nation's economic. financial. enforcement and tax policies. This
level will also provide the flexibility needed to meet Treasury's growing demands in areas such
as expanded oversight of major law enforcement operations. refonn of international financial
institutions, ongoing tax code improvements. and policy implications of electronic payments and
other complex financial instruments.
Let me now highlight some budget items focusing on three key Treasury missions -- law
enforcement. management of the government's finances. and promotion of a prosperous global
economy. We've attached a more detailed presentation of our fiscal year 1998 request to my
remarks.
LUll
En/orn:mcn/
Mr. Chairman, as you knew,. Treasury is responsihle for over tony percent of the federal
government" s la\\ enforcement personnel. We arc requesting new resources to: combat violent
crime: decrease a\'aibhility of ilkgal drugs and other contraband: protect designated officials:
continur.: counter-terrorism eflons: and upgrade b" enforcement equipment. skill levels and
facilities. Let me mention a fe\\ of our pnonties.
Requested funds \\ ill enhance.: T rcasur;. efii.)fts to decrease the a\'ailability of illegal
firearms to cnmlnals and .lu\'cniles. eSpt:clall~ :\ IT' s succcssful Kids and Guns initiative. We
also.sed. nc\\ resources lor Customs to tight narcotics trafficking and other illicit smuggling
activJt\ at our horders
FinanCIal cnme enforcement continues to he a high priorit:-: The profits of crime that are
laundered Into the l:nited States' finanCIal systcm e:ach year an: staggering and detrimental by
any calculation. and the: losses attrihutahle: to financial fraud -- such as bank fraud and access
de\lce IrJud -- are a threat tp tinanclallransacllOnal systems. We v.ill enhance our tools in
suppon of e:ssentJJI finanCIal cnme: In\estJgatlons to bettcr rrotecl our tinancial institutions and
to trace ilitcH profits to theIr crimlnJI source:s
\1one:- launde:nn~ and othc:r finanCIal cnmes should he: recognized as clear threats to
financial institutions. as well as a new avenue for law enforcement to attack the leaders of drug
gangs and organized crime. The FY 1998 budget continues efforts by the IRS, the Financial
Crimes Enforcement Network. Customs and the Secret Service. in cooperation with other law
enforcement agencies. to address money laundering.
Additional resources. for the Secret Service will be used to support the continued
implementation of outstanding White House Security Review recommendations. We must
maintain our vigilance in discharging our protective mission by employing methods to detect and
confront security threats· before they surface.
We continue to emphasize counter-terrorism efforts. Customs will continue to
aggressively promote protection at airports through automated targeting. non-intrusive inspection
systems. and increased enforcement presence. The Bureau of Alcohol. Tobacco & Fireanns will
work to decrease explosive and arson crimes through the canine explosives detection program,
explosive inspections. an arson clearinghouse.
We also seek to upgrade law enforcement equipment. skill levels. and facilities for A TF,
Customs. the Secret Service. and the Federal Law Enforcement Training Center.
Efreetin:/.\" Manage the Gowrnmenr ·s Finances
New resources will enable Treasury to manage the Tax Administration process to
improve compliance with ta" laws. advance the Goverrunenfs fiscal and financial management,
and secure effective and efficient information systems.
Yt:sterday. you heard from Deputy Secretary Summers regarding the IRS and tax
modernization. Last year. we promised a sharp turn in program direction. I am pleased to say
that the commitments made last year have been kept. including. for example. hiring a new CIO.
dramatically increasing the use of the private sector. implementing a new Investment Review
process. and establishing the Modernization Management Board which functions as an activist
board of directors. In addition. we have canceled several major contracts and collapsed over 30
separate projects into a mort: manageable nine. Nevertheless. changes of this magnitude will
take timc. just as the problems developed over a considerable period of time. However. let me
state unambiguously that the Treasury remains committed to modernizing the IRS. We believe
that!t is essential for the Administration and the Congress to work together to improve the
functioning of our tax administration system. and in my time at Treasury. this comminee has
played a major role in catalyzing efTective focus on the relevant issues.
Thc Internal Revenue Sen·ice. Financial Managemt:nt Service. Departmental Offices.
Alcohol. Tohacco and Firearms and Secret Service are also requesting funds to ensure that
program systems will not he affected by the Year 2000 date changes. These systems are critical
to core go,·emment functions such as cash management. payments. collections. accounting. and
financial reporting.
Finally. a priority for Treasury is to develop and implement policies relating to fiscal and
financial issues such as electronic money and other complex financial instruments.
Promote a Prosperous World Economy
Treasury plays a key role in fostering global economic growth and stability, in order to
further U.S. economic and national security interests. Treasury has been actively involved in
issues ranging from assistance to Russia. help in reconstructing Bosnia.. and emergency support
for Mexico. which. as vou know. has repaid the U.S. government in full. principal and interest,
including a profit of $580 million. Most of the funding for these priorities is through {)Uf
commitments to the World Bank. the regional development banks. the International Monetary
Fund. and the New Arrangement to Borrow. and are under the jurisdiction of another
subcommittee. But let me just mention a couple of priorities in this area that are under the
jurisdiction of this committee.
The FY 1998 budget proposes to strengthen the Department's capacities to engage in
opening new markets for trade and investment. reducing financial risks throughout the world and
forging links with emerging markets. We also seek to upgrade equipment for the Customs
Service to support a more effective:. fair trade compliance and maintain analytical parity with its
counterparts in other countries.
A high priority for Treasury is to strengthen the soundness of financial institutions in this
coumr:-. The Offices of Thrift Supervision and the Comptroller of the Currency continue to play
a major role in ensuring bank and thrift safety and soundness in order to advance a strong
national economy. The Office of the Comptroller of the Currency has been designated to study
the issues related to electronic money. In addition. the OTS and OCC are downsizing in
response to the consolidation of financial institutions.
Mr. Chairman. let me mention one final an:a that is a priority for Treasury. President
Clinton strongly believes that it is critical to the: economic well-being to all Americans. no matter
where we live. or what oar incomes are. that we bring the residents of America' s inner cities and
other economically distr~ssed areas into the econom·ic mainstream. Treasury is actively involved
in this effort. through measures such as the Community De:velopment Financial Institutions
Fund. which provides much needed Investment capital to distressed urban and rural
communi lies. (1ur budget includes $125 million for this critical program. which last year drew
over 26~) applications for over $300 million in assistance:. demonstrating the market demand and
potential for this program.
Mr. Chairman. let mt: conclude: b~ saymg that I <lppreciate the helpfulness and
cooperation that I have recein:d from this Subcommittee since coming to Treasury. We have
worked closely on the IRS. as ! menttoned a moment ago. and this Committee has been most
helpful In suppon of Treasur: 's b\\ enforcement efforts. I look f(mxard to maintaining that
cooperation as we mO\'e forward.
It has been my great honor to serve as Treasury Secretary for the last two years. In that
time I have been continually impressed by the high quality of Treasury employees. They are
professional, very knowledgeable about their various fields of expertise. extremely dedicated to
their work. and to serving the public. The people at Treasury are our greatest resource. They
deserve our respect and support. especially as we go through the difficult process of reaching
budget balance.
With such a dedicated and talented team. withthe close cooperation of Congress and the
Administration, and with the appropriate funding for the Treasury Department. we will be able to
maintain - and improve - the high level of service you have come to expect from the
Department. And when we do that. Mr. Chairman. we will help this country have a strong
economy and society for years and decades to come. Thank you very much.
-30 -
DEPARTMENT
OF
THE
TREASURY (I)
;
',;~
TREASURY
NEW S
w.y
..
"
,.
~..
OmCE OF PU,U(: .-VT'dK., • 1500 PE:-.l:\SYlS:\:\lA :\YE:\CE. !\.W. • \\A..'iHl:\GTO:\. IH • 202:!1I •
EMBARGOED UNTIL 2:30 P.M.
March 4, 1997
CONTACT:
.
,..,
i:!O~, h~:!~qhl
Office of Financina
202/219-3350
~
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two ser~es o! Treasury DIlls
to~alin9 approximately $24,000 mil:lor., ~o be lssued Maret 12,
1997. This offering will result in a paydown for the Treasurj' ",.
about $250 million, as the maturing weekly bi!ls are O~lsta~~ln~
:n the amount of $24,246 mil:lor..
Federal Reserve Banks hold $6,947 million of the maturing
billa 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 $2,727 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. Additior;a} ar.:8~n:s
may be issued for such acco~nts if the aggregat~ amount of new
bids exceeds the aggregate amoun: of maturing bills.
Tenders for the bills will be receIved at Federa:
Reserve BanKS and Branches and at the Bureau of the Publ~c
Debt, Wa~hington, D. C. This offering of Treasury securities
ie governed by the terms and conditions set forth l~ ~he Uniform
Offering Circular (31 CFR Part 356, as a~e~ded; fer th~ sale,a~d
issue by the Treasury :0 the p~b:lC of marketable Treasury bll.s,
notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-1534
...
HIGHLIGHTS OF TREASURY OJPFERXHGS OF W&KICLY BILLS
TO BE ISSUED KARCH 13, 1997
March 4, 1997
Offering Amount .
$12,000 million
$12,000 million
Description of Offering:
Term dnd type of security
CUSI P number
Aucti)n date
Issue date
Maturit.y date
Original issue date .
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 4M 3
March 10, 1997
March 13, 1997
June 12, 1997
December 12, 1996
$13,126 million
$10,000
$ 1,000
182-day bill
912794 5M 2
March 10, 1997
March 13, 1997
September 11, 1997
March 13, 1997
$10,000
$ 1,000
The following rules apply to all securitie. pentioned above:
Submission of Bids:
Noncompetitive bids
Accepted in full up LO $1,000,000 at the average
discount rate of accepted competitive bids
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
Maxirrrum Award .
35% of public offering
ReceiIJt uf Tenders:
Noncorrvetitive tenders
Prior to 12:00 noon Eastern Standard time
on auction day
Competitive tenders.
Prior to 1:00 p.m. Eastern Standard time
on auction day
Payment Terms
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
--
~·/il
~
~A~
0
CD
(])
C';J
fE;?dera1 financing
WASHINGTON, D.C.
February 28,1997
20220
s
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB) ,
announced the following activity for the month of January 1997.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $57.6 billion on January 31, 1997,
posting a decrease of $537 million from the level on
December 31, 1996. This net change was the result of a decrease
in holdings of agency assets of $450 million, and in agency
guaranteed loans of $87 million.
FFB made 10 disbursements
during the month of January, and FFB reset the interest rate on
one loan to the Resolution Trust Corporation.
In addition, two
RUS-guaranteed loans were bought-down and three were refinanced
under section 306C.
FFB also received 19 prepayments in January.
Attached to this release are tables presenting FFB January
loan activity and FFB holdings as of January 31, 1997.
RR-1535
N
N
CD
0
<l)
~
N
N
N
N <S?
0
N
(/)
(/)
~
0-
N
0
N
(IJ
LL
LL
Page 2 of 3
FEDERAL FINANCING BANK
JANUARY 1997 ACTIVITY
DATE
)RROWER
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
;ENCY DEBT
~ESOLUTION
TRUST CORPORATION
lote 29 / Advance # 1
1/2
$4,557,024,956.17
4/1/97
5.332% S/A
)VERNMENT - GUARANTEED LOANS
;ENERAL SERVICES ADMINISTRATION
~oley
~oley
Services Contract
Services Contract
~hamblee Office Building
~amblee Office Building
~oley Square Courthouse
lemphis IRS Service Cent.
lo1ey Square Office Bldg.
!emphis IRS Service Cent.
1/6
1/6
1/10
1/10
1/14
1/17
1/31
1/31
$230,054.09
$178,006.84
$142,034.16
$75,131.14
$30,941.00
$36,247.56
$603,459.00
$179,665.80
7/31/25
7/31/25
4/1/97
4/1/97
7/31/25
1/2/25
7/31/25
1/2/25
6.861%
6.861%
5.259%
5.259%
6.972%
6.937%
6.980%
6.977%
1/17
$9,191,762.22
11/2/26
6.941% S/A
1/2
1/3
1/24
1/27
1/27
1/27
$15,541,442.48
$216,147.88
$365,000.00
$4,733,727.37
$26,029.81
$258,325.34
12/31/18
12/31/18
1/3/17
12/31/18
12/31/18
12/31/18
6.665%
6.774%
6.804%
6.721%
6.721%
6.721%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
~SAfPADC
:CTC Building
~URAL
UTILITIES SERVICE
~st Kentucky Power #188
:outh Texas Electr ic #200
:. Nebraska Tele. #398
'ri-State #
'ri-state #
'ri-state #
Qtr. is a Quarterly rate.
fA is a Semi-annual rate:
interest rate buydown
maturity extension or interest rate reset
306C refinancing
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Program
January 31. 1997
December 31. 1996
$ 1,431.5
4,557.0
0.0
5,988.5
$ 1,431.5
4,557.0
0.0
5,988.5
Agency Assets:
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural utilities Service-CBO
Small Business Administration
sub-total*
3,675.0
17,875.0
5.5
18.8
4,598.9
0.1
26,173.3
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DoEd-HBCU
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural utilities Service
SBA-State/Local Development Cos.
DOT-Section 511
sUb-total*
3,188.2
0.2
37.6
1,561.4
2,339.3
19.0
1,308.1
16,702.4
304.8
12.3
25,473.2
Agency Debt:
Export-Import Bank
Resolution Trust Corporation
U.S. Postal Service
sUb-total*
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
Net Change
FY '97 Net Change
1/1/97-1/31197
1011/96-1/1197
0.0
3,675.0
18,325.0
5.5
18.8
4,598.9
0.1
26,623.3
0.0
-450.0
0.0
0.0
0.0
0.0
-450.0
0.0
-825.0
0.0
0.0
0.0
0.0
-825.0
3,200.4
0.2
37.7
1,561.4
2,335.3
19.9
1,382.8
16,702.0
308.3
12.3
25,560.2
-12.2
0.0
-0.1
0.0
4.0
-0.8
-74.7
0.4
-3.5
0.0
-87.0
-59.0
0.0
-1. 6
-65.4
7.0
-0.8
-74.7
-48.3
-13.5
-0.4
-256.8
=========
========-=
$ 57,635.0
$ 58,172.0
0.0
0.0
$
-390.3
-1,439.1
-1.500.0
-3,329.4
$
-1hQ
$
=========
=========
-537.0
$ -4,411.2
DEPARTMENT
OF
THE
TREASURY
'l'REASURY
(~j)
NEW S
~~f~~/789
....................................
•
OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANlAAVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
For Release Upon DeliyeQ'
ExPected at 930 a m
March 5 1997
STATEMENT OF DONALD C. LUBICK
ACTING ASSISTANT SECRETARY (TAX POLIcy)
DEPARTMENT OF THE TREASURY
BEFORE THE BOUSE WAYS AND MEANS COMMITTEE
Mr. Chairman and Members of the Corrurunee
I am pleased to appear before you today to discuss the we provisions of the President's
Fiscal Year 1998 budget The President's plan would provide targeted tax relief, promote a fairer
tax system and encourage activities that contribute to economic growth. while achieving a
balanced budget by Fiscal Year 2002 We look forward to working with all the Members of this
Commmee to accomplish these goals
We are especially pleased that, following this OVervJCW of the tax provisions of the budget,
the Comrrunee is haVlng this heanng today to focus on education issues. The President's FY
1998 budget plan conwns a number of proposals to promote education. In panicular, the
President has offered several tax proposals to encourage higher education and job training We
welcome tlus opporruruty to diSCUSS these proposals with you
In addition to encouragIng investment In educauon. the President's tax plan would provide
tax cuts to working families. capItal gams tax rehef and SImplification targeted to horne
ownership. and tax incentives to promote savmgs and to promote the hiring of the economically
disadvantaged Under the President's plan. the gross tax cuts would total $984 billion through
FY 2002
The President's tax plan IS also fiscally responsible The budget offsets the costs of these
tax cuts by making cuts in spendmg and by ehrrunaung unwarranted corporate tax subsidies.
closing tax loopholes that are not econorrucaJly sound, and Improving tax compliance These
measures produce budget savings of $34 3 binI on through FY 2002. Reinstatement of expired
trust-fund excIse taxes under the President's tax plan will produce additional saVlngs of$36.2
billion through FY 2002
The President's budget produces. WIthout a sunset of the tax provisions. balance in FY
2002. under OMB assumptions To ensure balance under CBO assumptions. the President's
budget would sunset after FY 2000 the followtng tax prOVISIOns the child credit: the HOPE
scholarstup tultlon credit and tUition deduction. expanded IRAs (except in cenain technical
aspects). and the brownfields deductIon
RR 1516
Others have proposed higher tax cuts, but our commitment to balancing the budget and
sound tax policy requires us to exercise restraint. As Secretary Rubin stated in testimony before
this Committee on February II, tax cuts that are much more costly than the President's proposals
would require us to make cuts that are too deep in Medicare, Medicaid, education, the
environment, or other priority areas
Given the need for fiscal discipline, one of our principles throughout President Clinton's
tenure has been that tax relief should be concentrated on middle-income taxpayers. In 1993, the
Admirustration worked with Congress to cut taxes for 15 million working families by expanding
the Earned Income Tax Credit (EITC), and to help small business by increasing expensing of
capital investments and by providing targeted capital gains incentives. A year later, the President
proposed his Middle Class Bill of Rights, including child tax credits, deductions for higher
education, and expanded Individual Retirement Accounts. Then in 1996, he signed into law a
number of other tax benefits for small businesses and their employees, as well as a new tax credit
for adoption
ThiS year, the budget again proposes the President's Middle Class Bill of Rights, with a
number of proposals aimed at helping middle-class families pay the bills, raise their children and
send them to college, and save for retirement This year, however, the plan goes farther. It
includes more tax incentives and relief with regard to education and training, capital gains on
home sales, work opportunities, and distressed areas, and provides employment and investment
incentives to revitalize the District of Columbia
Middle Class Bill of Ril:hts
The President's Middle Class Bill of Rights focuses on middle-income taxpayers. It
includes targeted tax incentives to encourage investment in education and training. It would
Immedlateiy and significantly benefit families with young children, and promote long-tenn saving.
When evaluating the extent to which the Administration's budget enhances educational
opportunities. however, these proposals must also be considered in conjunction with the
President's Pell Grant proposals. which give comparable education incentives for those persons
who do not have a high enough tax liability to benefit from a non-refundable tax credit.
Education and Training Incentives. Well-educated workers are essential to an
economy expenenclng technological change and faCing global competition. We believe that
redUCing the after-tax cost of education for IndlVlduals and families through tax credits and
deductions would encourage Investment In education and trairung while lowering tax burdens for
middle-Income taxpayers There is Wldespread agreement that increasing the education levels of
the U S work force IS essential to a growing economy and an increasing U. S standard ofliving.
The ever-groWlng expenses of higher education. however, place a significant burden on many
middle-class families
The President's balanced budget plan contains tax incentives to assist families with the
costs of postsecondary education. These incentives will encourage Americans of every age to
pursue their education beyond high school so that they can compete effectively in the global
economy of the next century and achieve a higher standard ofliving. Tax reliefis provided to
families of all kinds, whether they are saving to send a child to college, paying currently for a
parent or child to attend college or graduate school, or hoping to lessen the burden of student
loans. Tax benefits are available not only for undergraduate degree programs, but also for
training to acquire or improve job skills. These tax proposals complement other proposals in the
budget to increase access to higher education, such as the proposal to increase the maximum Pell
Grant by $300 and to make more aid, including .pell Grants, more accessible to independent
students with low income levels. In addition, the budget proposes to cut a variety of student loan
fees.
The tax incentives are a key pan of our agenda for higher education because they provide
broad-based assistance, and they do not require more students to panicipate in the financial aid
system Also. by providing incentives to save for higher education, they can help families prepare
for the cost of college, helping to reduce the demand for student aid.
The President's budget contains five specific tax proposals related to higher education.
They are.
HOPE Scholarship Tax Credits. Taxpayers would be able to claim a
nonrefundable tax credit of up to $1,500 per year (indexed for inflation beginning
in 1998) for two years to cover tuition and fees for themselves, their spouses, or
their dependents while enrolled at least half-time in the first two academic years of
a degree or certificate program To take the credit in the second year, the student
must have attained the eqUivalent of at least a B minus grade point average in
course work completed before that year No credit is available if the student has
been conVIcted of a drug-related felony Federal grants (but not loans or workstudy payments) reduce the allowable credit The credit is phased out for families
filing a jOint return with modified AGI between $80,000 and $100,000 (between
$50,000 and $70,000 for Single filers), Indexed for inflation beginning in 200 1.
The credit would apply to course work beginning after June 1997.
Education and Joh Training Tax Deduction. As an alternative to the
HOPE scholarship, taxpayers could elect to deduct up to $10,000 per year ($5,000
in 1997 and 1998) of tUItion and fees for students enrolled at least half-time in a
degree or certificate program. or for courses to improve job skills The deduction
can be claimed even by taxpayers who do not itemize. Unlike the HOPE
Scholarship credit, which IS calculated per-student, the deduction does not vary
wah the number of students In a family The deduction is phased out at the same
income levels as the HOPE Scholarship credit and would apply to course work
bel!lnnlnl! after June 1997
- -
- -'... -
These two provisions will help make 14 years of education the norm for all
Americans They would make a dramatic difference in family finances and are
expected to help 123 million students in 1998 alone. In fact, middle-income
familtes would be able to combine the tuition deduction with the President's
proposal to allow penalty-free IRA withdrawals for education (or with a qualified
state tuition program), in many cases, this would have the same effect as avoiding
all income tax on college savings.
Tax-Free Employer-Provided Educational Assistance. We should also
continue to encourage employers to provide educational assistance to their
employees Currently, up to $5,250 of tuition paid by an employer under a
qualified educational assistance program need not be included in the income of the
employee However, the exclusion for undergraduate education expires in mid1997, and the exclusion ceased to apply to graduate-level courses after mid-1996.
The Administration strongly believes that the tax law should encourage employers
that are willing to support employees' educations, including for those employees
who have already graduated from college and who go back to school to develop
new skills The budget would reinstate the exclusion for graduate-level assistance
retroactIve to its prior expiration, and would extend both undergraduate- and
graduate-level assIstance through December 31, 2000.
Ten Percent Tax Credit to Small Businesses that Provide Educational
Assi.{tance to Employees. In addition, the Administration believes that an
additional incentIve IS needed to foster increased educational opportunities and
work-force traInIng for employees of small businesses that otherwise may be
unable to devote sufficient resources to their employees' skill development.
To address thIS concern, the budget proposes that for taxable years
begInnIng after December 3 1. 1997. and before January 1, 2001, small businesses
(employers Wlth average annual gross receipts of $ J 0 million or less for the prior
three years) would be allowed a 10 percent income tax credit for payments for
education of employees under an employer-provided educational assistance
program ThIS proposal will help offset administrative costs of small businesses
prOVIdIng educational opportunItIes for theIr employees It is projected to benefit
I 7 millIon employees
Expanded Tax- Free Treatment for Forgiveness of Student Loans. The
AdmInlstratton belIeves In encouragIng Americans to use their education and
traInIng In communIty ser.1ce Pro\1dIng tax relief in connection with the
forgIveness of certaIn student loans v.;11 help make it possible for students with
valuable profeSSional skills to accept lower-paying jobs that serve the public
To thiS end. the budget elImInates the tax Itability that normally arises when debt is
forgiven. If the lender IS a chantable or educational institution that lends money to
-4-
a student to pay for education and then forgives the loan after the student fulfills a
commitment to perfonn community or public service at low pay for a certain
period of time. The same tax-free treatment would also apply when the Federal
government forgives a loan made through the direct student loan program for a
student who has been making income-contingent repayments for an extended
period.
$500 Child Tax Credit. Over the past decades inflation has reduced the value of the
personal exemption., so the burden of taxes has shifted from smaller to larger families. A targeted
child credit is an efficient way to address the increase in relative tax burdens faced by larger
families. Under the Administration's budget plan, taxpayers would receive a $500 nonrefundable
credit ($300 in 1997. 1998 and 1999) for each dependent child under the age of 13. The credit
would be phased out for taxpayers with adjusted gross incomes (AGI) between $60,000 and
$75,000. Beginning in 2001, both the amount of the credit and the phase-out range would be
indexed for inflation.
The relief is directed to low- and middle-income taxpayers because of the limited
resources available for tax reduction and higher-income taxpayers' relatively greater ability to pay
current levels of income taxes In the year 2000, this proposal will provide needed tax relief for
over 17 million middle-income families. The credit would be nonrefundable, but working families
would first deduct the child credit from their income taxes before deducting the refundable EITC
-- making it easier for them to get the benefit of both credits.
Expansion of Individual Retirement Accounts. The Administration believes that
individuals should be encouraged to save in order to provide for long-tenn needs, such as
retirement and education Tax policies targeted to middle-income taxpayers.can provide an
important incentive for generating new savings (By contrast, new tax benefits for savings by
upper-income people are more likely to result in shifting into tax-favored investments of savings
that would otherwise occur) The Administration's proposal would expand the availability of
deductible individual retirement accounts (lRAs) to families with incomes under $100,000 and
individuals with incomes under $70,000" These thresholds, as well as the annual contribution
limit of $2,000, would be indexed for inflation As under current law, if an individual (and the
individual's spouse) is not an active participant in an employer-sponsored plan, the individual (and
spouse) would be eligible for a deductible IRA without regard to income.
Taxpayers would have the option of either deductmg the amount deposited in an IRA
account (and paying tax on the contributions and earnmgs when withdrawn), or forgoing an
immediate deduction but not haVIng to pay tax on either the contributions or earnings on the
Beginning in 1997, eligibility would be phased out for couples filing joint returns with
AGls between $70,000 and $90,000 ($45,000 and $65,000 for single filers) Beginning in 2000,
eligibility would be phased out for couples filing Joint returns with AGls between $80,000 and
$100,000 ($50,000 and $70.000 for sincle filers)
- 5-
contributions when the funds are withdrawn from a new Special IRA, provided the contributions
remain in the Special IRA for at least five years. The purposes for which withdrawals could be
made without early withdrawal tax would be broadened to include higher education costs, firsthome purchases, and long-term unemployment.
Individuals with moderate incomes and younger people, who are now doing very little
saving, should find the expansion of IRAs to meet a wider variety of savings needs, such as firsttime home purchases and higher education expenditures, very attractive. This expansion also has
a strong policy rationale. Homes frequently provide an important financial resource during
retirement years, and education will improve productivity and economic security of the next
generation In addition, the knowledge that IRA assets are available to deal with possible family
crises, such as unemployment, will make middle-income families more comfortable with beginning
a commitment to IRA savings. Moreover, by dramatically increasing the number of middleincome taxpayers eligible for IRAs, financial institutions will have an increased incentive to
advertise vigorously and to promote tax-preferred savings accounts. Widespread advertising and
media attention to IRAs should be effective in increasing awareness of the importance of saving
and encouraging IRA contributions, especially among moderate-income taxpayers.
Exclusion of Gains on Salt of Principal Residence. The budget provides substantial
simplification and tax relief for miliions of Americans by replacing the current-law tax treatment
of capital gains on home sales with an exclusion of up to $500,000 of gain for married taxpayers
filing joint returns ($250,000 for other taxpayers) The exclusion is available every two years, so
long as the taxpayer used the house as a principal residence for at least two of the five years prior
to the sale (the exclusion would be pro-rated for taxpayers forced to move in less than two years).
The exclusion generally applies to sales on or after January I, 1997
The budget proposal would provide substantial simplification. Currently, all
homeowners must keep detailed records of the original cost and improvements to their home
because of the potential for capital gains tax liability, even though fewer than four percent of
home sales result in taxable capital gains. Under the budget proposal, record-keeping burdens
for income tax purposes would be substantially reduced for over 60 million households that own
their homes The number of taxpayers paying capital gains tax on residences would be reduced
from about 150,000 per year to fewer than 10,000 per year (one-quarter of one percent of those
selling their homes)
Under current law. capital gains from the sale of principal residences are subject to
tax. However. taXpayers can postpone the capital gams taX by reinvesting in a replacement
residence with a purchase price equal to or higher than the adjusted sales price of the house
that IS bemg sold. In addition, taXpayers age 55 and over can elect to take a one-time
exclUSion of up to $125.000 m gains on residences.
The current-law postponement of capital gain from the sale of a principal residence
encourages some taxpayers to purchase larger and more expensive houses than they need because
-6-
the purchase price of a new home must be greater than the sales price of the old home. Current
law also may discourage some taxpayers from selling their homes. When taxpayers feel they must
move to a less expensive home, because they are experiencing financial difficulty, going through a
divorce, or for other reasons, they currently must pay tax on any gain on their home sale. The
budget proposal would eliminate these problems in almost all cases.
Similarly, while the one-time capital gains exclusion has successfully relieved most
taxpayers over 55 from tax liability on the sale of their homes, it contains certain tax traps for the·
unwary that can result in loss of the benefits of the current exclusion and significant capital gains
taxes. For example, an individual is not eligible for the $125,000 one-time capital gains exclusion
if the exclusion was previously utilized by the individual's spouse. This restriction has the
unintended effect of penalizing individuals who marry someone who has already taken the
exclusion. The budget proposal would eliminate these traps for the unwary.
Estate Tax Relief for Small Businesses and Farms
The budget proposes to ease the burden of estate taxes on farms and other small
businesses, which may have a cash-flow problem when estate taxes must be paid after death.
Under current law, estate tax attributable to certain closely held businesses may be paid in
installments (interest only for four years, followed by up to ten annual installments of principal
and interest) A special four-percent interest rate is provided for the tax deferred on the first $1
million of value Only certain types of business arrangements are eligible for the installment
payment provision, and a special estate tax lien applies to property on which the tax is deferred
during the installment payment period To take full advantage of the available tax benefits, an
estate must make an annual filing using complicated interrelated computations to recompute the
payment due each year
The budget proposal would address the liquidity problems of estates holding farms and
closely held businesses, and simplify the tax laws. by increasing the value cap on the special low
interest rate from $ J million to $2.5 million, expanding the availability of these rules to other
comparable busmess arrangements, and authorizing the Secretary to accept security arrangements
in lieu of the special estate tax lien The applicable interest rates would be cut by 50 percent or
more, but interest paid would be nondeductible, thus eliminating the necessity for annual filings
and circular computations These proposals generally would be effective for decedents dying
after 1997, but estates already taking advantage of the installment payment plan would be given a
one-time opportunity to convert to the lower nondeductible interest rate in order to simplify their
filing requirements
Empowerim: Communities and the Economical!)' DjsadvantaJ:ed
The budget contains proposals to spur pnvate-sector participation in revitalizing distressed
communities and to generate job opportunities for long-term welfare recipients.
-7-
Tax Incentives to Clean Up Blighted "Brownfields" in Distressed Areas. To
encourage companies to clean up abandoned, contaminated industrial properties located in
distressed communities, clean-up costs associated with the abatement or control of certain
pollutants would be immediately deductible if incurred for a qualified site. Qualified sites include
business or income-producing properties located in specified high-poverty areas where it has been
certified that hazardous substances are present or potentially present in the property. The
deduction would be subject to recapture as ordinary income upon a subsequent disposition of the
property at a gain. The proposal would apply to expenses incurred after the date of enactment.
This incentive is expected to leverage $10 billion in private investment to help bring an
estimated 30,000 environmentally contaminated industrial sites back into productive use again,
helping to rebuild neighborhoods, create jobs, and restore hope to our nation's cities and
distressed rural areas.
Additional Empowerment Zones and Enterprise Communities. The Empowerment
Zone and Enterprise Community Program would be strengthened by a second round of
designations and a new mix of federal tax incentives. The program rewards communities that
develop comprehensive strategic plans for revitalizing their neighborhoods with a wide array of
community panners In the first round of designations announced in December 1994, 105
communities were selected
Under the budget proposal, the Secretary of Housing and Urban Development would be
authorized to designate two urban empowerment zones in addition to the six urban and three rural
zones designated on December 21, 1994 This would have the effect of extending the current
empowerment zone tax incentives to these additional areas, with technical modifications. In
additIOn, 20 additional empowerment zones and 80 additional enterprise communities, which
would be subject to modified eltgibility criteria, would be authorized. Among the 20 zones, 15
would be in urban areas and five would be in rural areas The 80 communities would be divided
between 50 urban areas and 30 rural areas Areas within Indian reservations would be eligible for
deSIgnation
These additional 20 zones would have available a different combination of tax incentives
than those available to eXIsting zones and would include the brownfields initiative, a current
deduction for acquisitions of certain business assets, and an expanded form of tax-exempt
financing In addition, the investment incentives available in the original EZs and ECs would be
strengthened
Tal Credits for Community-Oriented Equity Investments. Under the budget plan,
access to capItal in distressed communitIes would be enhanced through a new tax credit for equity
Investments In Community Development Fmancialinstitutions (CDFIs). The Community
Development Banking and Financial Institutions Act of 1994 created the Community
Development Fmanclal InstitutIOns (CDFl) Fund to provide equity investments, grants, loans, and
technical assistance to finanCIal instItutIons that have community development as their primary
mIssIon
-8-
The budget would make $100 million in nonrefundable tax credits available to the CDFI
Fund to allocate among equity investors between 1997 and 2006. The allocation of credits is
capped at 25 percent of the amount invested in any project and would be determined by the CDFI
Fund using a competitive process. Over time, this incentive is estimated to result in at least $5
billion of new lending and investing in distressed urban and rural communities.
Tax Credits to Facilitate the Transition from Welfare to Work. The goal of the
Personal Responsibility and Work Opportunity Reconciliation Act of 1996 is to move individuals
from welfare to work. However, it is anticipated that the process of moving some welfare
recipients to work will be a difficult challenge for a variety of reasons, including a recipient's lack
of prior work experience and skills relevant to the demands of a changing labor market. To
encourage the hiring of these welfare recipients, the President proposes a new welfare-to-work
credit that would enable employers to claim a 50-percent credit on the first $10,000 of annual
wages paid to certain long-term family assistance recipients 3 for up to two years. Thus, the
maximum credit would be $5,000 per year The new tax credit would be effective through
September 30, 2000
In 1996, the Congress replaced the Targeted Jobs Tax Credit with a work opportunity tax
credit (WOTC) of 3 5 percent of qualified wages paid to a targeted group during the first year of
employment, up to a maximum credit of $2, 100 per qualified employee. The WOTC expires after
September 30, 1997 The President proposes to extend the WOTC for an additional year.
Moreover, a new category of qualified employees would be added to the targeted groups. Under
the President's proposal, the WOTC would be allowed to taxpayers who hire certain food stamp
recipients (I.e., able-bodied adults age 18-50 who, under the Administration's Food Stamp
proposal, would face a more rigorous work requirement in order to continue receiving Food
Stamps) The credit for this group would be effective for individuals hired from the date of
enactment through September 30. 2000
Other Tax Relief Proyjsions
Extension of Other Expiring Tax Provisions. The budget would extend each of the
following proVISions for one year from their current expiration date
'''Long-term family assistance recipients" would be defined to include (1) members of
families that have received family assistance (AFDC or its successor program) for at least 18
consecutive months endmg on the hmng date. (2) members of families that have received family
assistance for a total of at least 18 months begmmng on the date of enactment. provided that they
are hired withm two years of the date that the 18-month total is reached, and (3) members of
families who are no longer eligible for family assistance because of Federal or state time limits,
provided that they are hired Wlthm two years of the date that they became ineligible for family
assistance
-9-
•
The 20-percent credit for research and experimentation expenditures (expiring
May 31, 1997),
•
The 50-percent credit for qualified clinical testing of certain drugs for rare diseases
or conditions (known as "orphan drugs") (expiring May 31, 1997); and
•
The fair-market-value deduction allowed for contributions of appreciated stock to
private foundations (expiring May 31, 1997).
Equitable Tolling of the Statute of Limitations. To ensure that disabled persons are
treated fairly when fil10g for tax refunds, the statute of limitations for refunds from the Internal
Revenue Service would be delayed when the individual is under a sufficient medically determined
disability and no other person has been authorized to act on the taxpayer's behalf in financial
matters The proposal would be effective for taxable years ending after the date of enactment.
Tax Incentive for Economic Development of Puerto Rico. To provide a more efficient
and effective tax incentive for the econonuc development of Puerto Rico, the budget proposes to
modify the Puerto Rican economic-activity credit -- basically a wage credit -- by extending it
indefinitely, open1Og it to newly established business operations, and removing the income cap.
The budget proposal wil1 address a real need to preserve and create jobs for U.S. citizens In
Puerto Rico
Allow Foreign Sales Corporation Benefits for Computer Software Licenses. The
foreign sales corporation (FSC) provisions, which provide a limited exemption from U.S. tax for
income aris10g in certaIn export transactions, currently are applicable to exports of films, tapes,
records, and Similar reproductions Smce computer software is similar to these other types of
property, we belteve that FSC benefits should be extended by legislation to licenses of computer
software
Tax Incentives for Economic Development of the District of Columbia. The budget
also 10cludes a package of Federal income tax 10centives designed to encourage hiring and
increased investment 10 undeveloped and underutihzed areas in the District of Columbia. We are
stil1 finaltzIng the details of this proposal and are discussing the economic development needs of
the Dlstnct With 10terested business and commumty leaders Thus, the specific details of the
incentives wil1 be released shortly together vmh the other components of the President's plan to
revitalize the Dlstnct as the Nation's capital and to Improve the prospects of success for home
rule To a large extent, the Distnct tax 10centlves build on the Administration's Empowerment
Zone and Enterpnse Commumty 1Ocentives, the Work Opportunity Tax credit, and the President's
proposed Welfare-to-\\'ork 10centlve Also 10cluded in the mix are substantial amounts of tax
credits specifically designed to 10crease the availability of debt and equity capital for those
projects 10 the Dlstnct that are determ1Oed, at the local level, to promote increased economic
actlVlty most effectively
- 10-
The IRS will assume responsibility from the District of Columbia for administering the
District's individual income taxes and unemployment insurance taxes, funded by an addition to the
IRS appropriation for that purpose. As a condition of this change, specific authorizing legislation
setting out the functions and timing will be required. The IRS will be responsible for
management, tax return and refund processing, customer service, computer operations,
compliance and enforcement, and will have all of its current enforcement powers available to it.
Closinl: Corporate Tax Loopholes and Other Reyenue Measures
The budget includes measures previously proposed by the-Administration to eliminate
unwarranted corporate tax subsidies, close tax loopholes that are not economically sound,
and improve tax compliance Such measures include:
•
Proposals focused on financial products, to maintain the distinction between
debt and equity, to curtail arbitrage opportunities, to prevent avoidance of gain
recognition on functional sales, and to measure income properly;
•
Proposals focused on corporate transactions, to prevent tax-free disguised
sales of businesses, to prevent the manipulation of the stock redemption rules to
distort income, to eliminate the use of inventory methods that mismeasure income, and
to reduce corporate subsidies such as percentage depletion on lands received from the
Federal government at a bargain price,
•
Proposals focused on the international tax rules, to measure export income
more accurately, to prevent manipulation of the foreign tax credit rules through
artificial labels, and to eliminate distortions resulting from the use.of derivative
financial instruments, and
•
Proposals focused on increasing tax compliance, for example by tightening the
substantial understatement penalty for very large corporations, expanding withholding
on gambling winnings, and streamlining debt collection procedures for non-means
tested. recurring Federal payments
Extension of Expired Excise and Other Trust Fund Taxes. The budget also
proposes reinstating the excise and other trust fund taxes that have expired. the Airport and
Airways Trust Fund excise taxes,· the Hazardous Substance Superfund Trust Fund excise and
income taxes, the Oil Spill Liabilaty Trust Fund excise taxes; and the Leaking Underground
Storage Tank Trust Fund excise tax These are not new taxes they have been applied for
years to finance specific programs, such as the provision of air traffic control services and the
The Administration will propose legislation to completely replace these taxes, effective
October 1. 1998, with cost-based user fees. as part of the Administration's effort to create a more
business-like Federal Aviation AdministratIOn
- 11 -
cleanup of certain hazardous waste sites. Each of these taxes would be extended through
2007
Tax Simplification and Taxpayers' Ri~hts
The Administration continues to support revenue-neutral initiatives designed to promote
sensible and equitable administration of the tax laws, including simplification. technical
corrections, compliance, and taxpayers' rights measures. In the near future, the
Administration will propose to Congress a package of such measures.
Conclusion
In conclusion, the President's FY 1998 budget plan proposes to reach balance by 2002
with prudent tax reductions that are pro-family, pro-education, and pro-economic growth, and
that are targeted to those who need them the most, with an emphasis on stopping abuses and
simplifying the tax system. We look forward to working with the Committee on these
proposals I would be pleased to answer any questions that you might have.
- 12 -
Errect or Proposals on Receipts II
FY 1998 Budget
---- ---------
!:~«?~~~'--
03/04/97
05:01 PM
Tax Cuts and Extenllon of Expiring Provilloni
Tax Cuts
1 Augmented tax credit for children
2 IRA!
3 Incentive for education
4 Three yelr extension of income excl~ion for employer provided educational assistance
(section 127) wrth 10% credit for small Mine" (through 1213112000)
5 Caprtal gains exclUSion on ule of principal residence
6 Oistreued Ireas Initiative package
7 CDFI
B Wof1( opportunity tax credit (through 913012000)
9 Small ~inen farm estate tax
10 Equitable tolling
1 1 Extend Puerto Rico wage credit indefinitely
12 Foreign Sales Corporation benefrts for licenses of computer IOftware for reproduction abroad
13 0 C tax Incentive
1998
Fiscal Years
2002
($'5 In billions)
1998-2002 2J
~.O
~tO
-10.4
-1.7
-9.4
-06
-0.3
-0.4
-0.0
-01
-00
00
-0.0
-01
-0.0
0.0
-0.2
-0.4
-0.0
-0.1
-0.2
-00
-01
-0.1
-0.1
-2.3
-1.4
-2.3
-0.0
-0.6
-0.7
-0.1
-0.4
-0.6
-0.3
-0.8
-0.0
-0.0
-0.1
-0.0
-0.0
0.0
-0.0
-1.7
-0.0
-0.1
-0.4
-17.9
-22.8
-98."
Eliminate Unwarranted Benefits and Other Revenue Measures 21
4.1
8.9
34.3
Other
Excise Taxes
Non-Tax 21
5.8
1.0
7.8
1.1
36.2
5.5
8.8
9.0
41.1
-1.0
..... 9
-22.4
Extension of Expiring Provtslons (1 'fT )
14 R & E credit
15 Orphan drug credit
16 Contributions of appreCiated stock to private foundations
17 Work opportunity ta)( credit
Total Tax Cuts and Extenllon of Expiring Provilion.
Total Other
Total Effect of Proposall on Receipts
-9.9
-1.5
-5.5
-36.1
Department of the Treasury
Office of Tax Analysis
11
21
Excludes outlay effects of $117 mittlon In FY 2002 and $328 million for FY 1997 - FY 2002 and FY 1997 - 2007.
extension of Superfund corporate environmental Income tax Is included In OtherlNon-Tax: $1.1 billion in 1998, $0.8 billion In 2002 and $4.2 billion In 1998 _ 2002.
DEPARTMENT
OF
THE
~'\
I
IREASURy!g)1
March 5,1991
TREASURY
NEW S
TESTIMONY BY THE DEPUTY SECRETAR Y BEFORE THE
HOUSE APPROPRIATIONS SUB-COMMI1TEE
Mr. Chairman and Members oj the Comminee:
I am pleased to be here today to report on the Department's progress with respect to
modernizing the Internal Revenue Service. Commissioner Richardson will address the overall
bucget request.
The Department's perspective is that the next few years will not be easy for the IRS; they
must do their current work, absorb natural workload growth, and improve their service and
productivity while the resources to get all this done become ever more constrained. Beyond that,
aging computer systems have to be made to handle the year 2000. This presents a singular
challenge for the IRS, their overseers, and their appropriators.
When I testified before this Subcommittee last year, I acknowledged that there were
significant problems with the TSM program. At that time, I promised a sbaJp tum in program
direction during the ensuing year. I think we all recognize that changes oftrus magnitude cannot
be completed overnight. but I am pleased to report today on a number of significant
accomplishments so far. I will then review the challenges that remain.
•
WIth respect to leadership, IRS' new Associate Commissioner for Modernization and
Chief Information Officer, Mr. Arthur Gross. has brought to US considerable systems
integration.and tax systems modernization experience from his years with the State of
New York. He is responsible for making sure that the modernization program gets on
track and stays on track.. So far, he has done a superb job under trying circumstances.
He has already recruited three key technical managers from outside the IRS,
thoroughly restructured the Information Systems organization, and replaced ten people
on his executive team. The IRS ~ also launched an extremely aggressive nationwide
search for fifteen additional technical managers, which·bas already yielded over 750
applications.
•
The mix of contractors versus IRS staff in TSM development has become much more
appropriate. Specifically, the IRS is contracting out 64% ofTSM development staff
work in 1997 versus 40% through 1995. As Congress requested, we submitted a plan
to migrate the bulk of the TSM-related development work to private sector
contr.lctors over the next few months. For the somewhat longer tenD, we are
preparing a solicitation for a prime contractor. Congress asked that the MMB prepare
a request for proposals to be ready for issue by July 31 to potential TSM prime
contractors. That work is on schedule.
Stringent criteria for moving ahead with modernization investments have resulted in
the winnowing out of development projects which were not affordable as they were
envisioned, or which could not be fielded cost-effectively, or which would not be
consistent with the IRS' emerging systems architecture. As a result of this analysis:
Twenty-six disparate modernization projects identified in last year's report to
Congress have been canceled or collapsed into a more targeted and
For press releases. speeches. public schedules and official biographies, call our 24~our fax line at (202) 622-2040
•
•
manageable nine.
The IRS has reduced the number of its own staff working on TSM
development projects from 524 to 156.
Major projects canceled include the Document Processing System (DPS) and
the next release of the Integrated Case Processing system (ICP).
•
The architectural blueprint will govern the conception and launch of any TSM project.
This critical document will clearlydescnbe what modernization would and would not
include and how the pi~ fit coherently together. Congress as*ed us to produce it by
May 15 of this year, and we are on track for timely submission.
•
Weare pursuing a strategy to explore the feasibility of outsourcing submission
processing as described in the plan which IRS submitted at Congress' request. There
are obvious concerns about taxpayer privacy and security that we must assess
carefully, and we need to see how the costs and benefits line up. This is not an issue
that will be resolved in a year or two. Outsourcing would be a major change in
direction for the Service, but we think the prudent course of action is to investigate
our options.
•
The IRS has already delivered to Congress a plan to implement GAO's
recommendations regarding Information Systems. The implementation is well under
way as the IRS has concentrated on upgrading IRS' technical capabilities and
infrastructure, and on imposing a disciplined process for current and future acquisition
and development. This is hard and unglamorous, but necessary, work.. For instance,
we have shored up the system testing capabilities at the IRS to make sure that new and
modified systems deliver what they are supposed to. We have instaI1ed.a rigorous new
development methodology and a process for evaluating investments.
•
The IRS is developing an electronic tax administration strategy which they will review
with the MMB in the spring. This strategy will address how to make electronic filing
attractive to a much broader range of taxpayers, preparers, and information providers;
it will explicitly deal with removing disincentives for use that have held down the
acceptance of today' s offerings. The strategy will also address potential partnerships
with private sector enterprises and the leverage of private sector infrastructure.
Treasury Ovenight
In large part, the accomplishments I have just cited result from Treasury's strengthened
oversight and governance structure. I will now elaborate on what we have done and how and why
it works.
Treasury launched a new approach to oversight in 1995 when TSM issues made it clear
that more rigor was needed. We strengthened our approach in 1996 by creating the
Modernization Management Board, chaired by me as the Deputy Secretary, which we modeled on
an activist corporate Board of Directors. We also staffed the Board at the Department level.
The :M1vfB is. a new and different approach to oversight in several important respects. It
.
bnngs together offiCIalS from the IRS, Treasury, OMB, and NPR It focuses senior executives'
Page 2
10:"'H
sharp turn we promised last year, and we expect to show funher concrete results a year from
now. But the progress to date is just the beginning. The challenges which Treasury ~d the IRS,
working together, must successfully face over the next few years are:
•
First and absolutely, we must continue to deliver successful filing seasons. Our
confidence in the IRS' ability to do this is bolstered by the ·replacement over the past
few years of a great deal of aging and outmoded hardware. That is one very important
tangible result ofTSM invesunents to date which we must not lose sight of.
•
SeconcL we must maintain the current compliance rate, or the balanced budget plan is
in jeopardy.
These are only the bare necessities. We have to do much more, specifically:
•
Third, we must improve the quaIity and availability of customer service, defined as
everything from answering the phone promptly to resolving questions and issues in a
single crisp and courteous interaction. We think the American people are realistic
enough to know that the level of service they get depends on the season, but they can
and do expect us to handle their inquiries and situations promptly and effectively, with
a high level of accuracy and professionalism. I am happy to report that service has
already improved significantly versus the same time last year in several dimensions,
e.g.:
• The level of access has improved from 50010 to 68%.
• The number of people served has increased by almost 12%.
• Walk-in site assistance has increasea by almost 5%.
But this is only a start. One of the MMB' s evaluation criteria for the IRS' new
technology architecture is the speed at which material improvements in service occur.
•
Fourth, we must dramatically improve IRS productivity. While we look to outsourcing
and electronic tax administration to help, their impact is not in the near term. Only by
fundamentally reengineering the IRS' processes can the IRS handle its growing
workload at the same time as it improves its service and maintains compliance levels,
all in the face of reai dollar budget constraints. It should be clear that a smaller IRS
will not be able to do the work that needs to be done unless it is also a different IRS.
While we recognize that information technology will not provide the whole solution, it
is inescapably a'major part of it.
•
Fifth, we must therefore modernize the core databases and systems of the IRS as costeffectively as possible to support improved service and reengineered processes.
•
Sixth, we must more aggressively seek out every opportunity to reduce the burden on
taxpayers.
•
Finally, all of this must happen in concert with the major time-consuming effort of
dealing with the century date change on IRS computers and systems. Like every large
computer user, the IRS must get ready for the Year 2000, but with so much of their
software custom-made and very old, their problems are even worse than those faced
by most other agencies. Keeping the systems running into the next century is, of
course, an essential stay-in-business requirement for the IRS; it must have first call on
Page 4
attention on the issues with highest impact, including broad directions like outsourcing 5ubnusslOn
processing and electronic tax ;drninistration as well as specific high-profile initiatives like DPS.
Tills Board has been extremely engaged. It meets monthly and has given us the OppOrtUnIty for
some blunt but effective dialogue on how to do better.
Also, within the IRS, we have established more effective mechanisms for ensuring
appropriate business area participation and judgement in setting direction for technology-related
investments. IRS now has an Investment Review Board (IRB) chaired by the Deputy
Conimissioner, consistent with GAO/OMB best practice recommendations; Treasury officials play
an active role on that Board. The IRB has terminated several major modernization projects which
failed its criteria for investment attractiveness or readiness to proceed.
This change in oversight structures has already paid dividends and I expect it to become
steadily more effective in the coming months. In addition to these institutional changes, Treasury
will continue to intervene in IRS' strategic decisions, adding rigor to.analyses supporting the
choices, and indeed affecting those choices. The submissions processing situation is an illustrative
example which I would like to recount.
The IRS had contracted with Lockheed-Martin to build the Document Processing System.,
or DPS, a highly integrated system to scan, read, and store images of paper tax returns and other
documents. They took this approach because of the amount of paper remaining to be processed
even after the most optimistic electronic filing volume projections, the difficulty of recruiting
sufficient capable temporary staff to enter data, and the obsolescence of the equipment in use.
By early last year, two serious issues had emerged. The first was technical; the complex
interfaces with the old IRS systems were becoming the pacing item for deployment, since
Lockheed was very close to completion of a working prototype. The second issue was budgetary,
since the capital required to field this technology on a timely basis would have absorbed the
resources we needed to invest in modernization of the core databases which are the heart of
T ax Systems Modernization. So we had to make a difficult decision. While we could not change
the fact that the IRS had invested over $250 million, we believed it was vital to understand just
what they had bought and how to make the most of it going forward. Therefore Treasury,
through the MMB, insisted on a comprehensive analysis of the costs, benefits, and overall
approach to DPS, and then we materially supported the effort with MMB staff.
The analysis determined that the technology from Lockheed-Martin was practical and it
offered an attractive return on investment, if the capital were available to invest. Therefore an
outsourcing vendor able to overcome the capital investment hurdle could offer a viable
alternative. But even if outsourcing proves not to be the best approach, we still have options"
because we maintained access to working technology and the contracting vehicle to deploy it.
~d we are using the contr~ct to obtain from Lockheed a subset of their technology which we
will use to shore up submission processing in the short term.
The Challenges Ahead
The range of accomplishments I have cited demonstrate real progress in rounding the
Page 3
our resources. IRS' ChiefInfonnation Officer is currently leading an extensIve effon
to identify and cost out the corrective actions that we will need to take. Until the study
is complete, accurate cost estimates are not possible; the amount identified in the
FY1998 budget request may not prove sufficient.
While these challenges are very difficult, they are appropriate and we will do our best to
meet them. That will require completing the sharp turn. Treasury's OVersight will help, and we
will strengthen the MMB process at every opportunity. but we need to recognize that oversight
alone will not enable the IRS to meet its challenges. We understand the difference between
oversight and executive management, and it would be impractical and dysfunctional for Treasury
to try to micro-manage the IRS; the IRS itselfhas to make the changes happen.
As the Subcommittee knows, Commissioner Richardson will soon return to the private
sector after four years of arduous and meritorious service. Given today's challenges, it is clear to
Secretary Rubin and me that her successor should have a strong background in the management
of technology-based change, and we are personally involved in finding the strongest possible
candidate. We expect. the new Commissioner to lead a top-notch management team, and we will
hold that team accountable, finnly but fairly, for results. We also recognize that they need the
tools to get the job done. To the extent current laws inhibit the practice of sound management,
personneL and budget policy, they should be reexamined.
On a ctifferent tack, both taxpayers and the IRS win when we reduce the burden of tax
administration. Therefore, we are pursuing tax simplification consistent with policy objectives.
Making tax laws easier to comply with will help to reduce the need for service at the same time as
it reduces the number of forms and schedules which taxpayers must file and which the IRS muSt
then process. For example, the President's budget includes a provision which would exempt 99%
of principal residence sales from the capital gains tax, thus greatly reducing record-keeping
burdens for 60 million homeowners. And of course we have already made telephone filing a
popular option with more than 3 million taxpayers; over 20 million more are eligible.
We believe it is essential for the Administration and the Congress to work together to
improve the functioning of our tax administration system. We cannot pay the nation's bills
without it, and American taxpayers deseIVe tax administration which is not only fair but
responsive 'and efficient.
One final note. As we address real problems in the IRS, we must keep in perspective that
over 100,000 hard-working IRS employees do a difficult and unpopular job very well as they
collect 95% of the revenue which keeps our government running. It does not serve our country
well to attack their professionalism or their integrity. We should also remember that, in
comparison with most other countries' tax collection operations, our IRS does its job with
exemplary fairness and efficiency. Our task is to fix what is wrong while we protect what is right.
We look forWard to working with you on this vital national effort. I will be happy to
answer any questions the Comminee may have.
PageS
From: TREASURY PUBLIC AFFAIRS
3-2B-97 4:08pm
p. 5 of 27
PUBLIC DEBT NEWS
)enartrnent of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDlAIE RELEASE
,
March 5, 1997
Contact: Peter Hollenbach
(202) 219-3302
BUREAt: OF THE PUBLIC DEBT AIDS SAVINGSBONDS OWNERS
AFFECTED BY FLOODING IN aIDo
The Bureau of Public Debt took action to assist victims of flooding in Ohio by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Ohio affected by the storms. These procedures will remain in effect through April 30, 1997.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most fInancial institutions serve as paying agents for savings bonds.
Ohio counties involved are Adams, Athens, Brown, Gallia, Hocking. Jackson, Lawrence,
Meigs, Monroe, Pike, Ross, Seioto, Vinton and Washington. Should additional counties be
declared disaster areas the emergency procedures for savings bonds owners will go into effect for
those areas.
The replacemem of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete fonn PD-1048, available at most flnancial institutions or the Federal Reserve
Bank. Bond owners should include as muc;h information as possible about the lost bonds on the
form. Thisipforrnation should inClude how the bonds were inscribed, social security number,
approximate dates of issue, bond denominations and serial numbers if available. The completed
fonn must be cenifled by a notary public or an offlcer of a financial institution. Completed
forms should be forwarded to Public Debt's Savings Bond Operations Office located at 200
Third St., Parkersburg, West Virginia 26106-1328. Bond owners should write the word
"Floods" onthe front of their envelopes, to help expedite the processing of claims.
000
PA-252
Rl'-1538
From: TREASURY PUBLIC AFFAIRS
J009
3-28-97
4:09pm
p. 6 of 27
I'UBLIC DEBT NEWS
De Jartment of the Treasury • Bureau of the Public Debt • YVashingion, DC 20239
FOR IMMEDIATE RELEASE
March 5, 1997
Contact: Peter Hollenbach
(202) 219-3302
BUREAl: OF THE PUBLIC DEBT AIDS SA VINGS BO:~l>S OWNERS
AFFECTED BY FLOODING IN KENTUCKY
The Bureau of Public Debt took action to assist victims of flooding in Kentucky by expediting
the replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Kenrucky affected by the storms. These procedures will remain in effect through April 30,
1997.
Public Debt's action waives the nonnal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
Kentucky counties involved are Bourbon. Braken, Bullin. Franklin. Hardin. Harrison, Jefferson,
Pendleton. and Powell. Should additional counties be declared disaster areas the emergency
procedures for savings bonds owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete fonn PD-1048. availahle at most fmandal institutions or the Federal Reserve
Bank. Bond owners should include as much information·as possible about the lost bonds on the
form. .T~is information should include how the bonds were inscribed, social security number,
approximate dates of issue. bond denominations and serial numbers if available. The completed
form must be certified by a notary public or an officer of a financial institution. Completed
forms should be forwarded to Public Debt's Savings Bond Operations Office located at 200
Third St., Parkersburg. West Virginia 26106-1328. Bond owners should write the word
"Floods" on the front of their envelopes. to help expedite the processing of claims.
000
PA-253
RR-1539
DEPARTMENT
OF
1789
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
For Release Upon Delivery
Expected at 10:00 a m
March 6. 1997
TESTIMONY OF LAWRENCE B. SUMMERS
DEPUTY SECRETARY OF THE TREASURY
BEFORE THE
SENATE COMMITfEE ON FINANCE
Mr. Chairman and Members of the Committee:
I am pleased to appear before you today to present the views of the Department of the
Treasury on the Administration's IRA proposal. The Administration is committed to insuring that
all individuals are given the opportunity to save adequately for retirement. We are also committed
to promoting economic growth by raising the nation's saving rate. We believe our IRA proposal
will serve both goals. In my testimony today, I will review some basic statistics on savings and
growth, describe the Administration's IRA proposal, and then provide a more detailed discussion
of some of the issues involved in making IRAs more effective in promoting saving.
NEED FOR SA VING AND METHODS TO INCREASE SA VING
There is broad agreement among economists that investment contributes to economic
growth Thus, by stimulating investment we can increase growth and productivity. Since saving
provides the means of financing investment, not surprisingly there is a strong correlation between
saving and economic growth as well This close relationship is shown in Chart I, which graphs
net national saving as a share of GDP and real growth of GDP per worker for each of the G-7
countries and for the remaining DECD countries over the 1960 to 1994 period. The same data
for the 1980 to 1994 period is shown in Chart 2 While both saving and growth rates were
generally lower in the more recent period, the positive relationship between saving and growth
has remained strong What I conclude from this and other evidence is that increasing the U. S.
saving rate is likely to have beneficial effects on economic growth, international competitiveness
and living standards.
The second important part of the evidence is that the savings rate in the United States is low
relative to other countries Chart 3 shows the personal savings rate in the G-7 and the remaining
GECD countries over the 1960 to 1994 period. While the personal savings rate for the United
States, at 8.6 percent, was higher than the rate for the United Kingdom (5.6 percent), the U.S.
rate was lower than the rate for Italy, Japan, Germany, France, Canada and the remaining GECD
RR 1540
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2countnes. Further, the differences in savings rates are large, with the rates in Italy and Japan
about double the US rate
The third piece of the evidence is even more disturbing: The U.S. personal saving rate has
been declining Over the 1960 to 1986 period, personal saving as a percentage of disposable
personal income averaged 7.7 percent. In contrast, over the last decade the average was 5.
percent. While there has been an encouraging uptick in the savings rate over the last two years,
the rate in 1996 was still only 4.9 percent. The low personal saving rate is particularly troubling
in view of the aging of the baby boomers who are nearing retirement at the same time that life
expectancies, hence years in retirement, continue to increase. Many families today have simply
not accumulated the resources necessary to maintain their standard ofliving in retirement.
°
There are two principle ways to address the effect of the low saving rate on economic
growth and retirement income security The first is to reduce the Federal deficit. Important
progress has already been made over the past four years in closing the deficit. The
Administration's Budget continues this effort and eliminates the deficit altogether by 2002. I
know that the Chairman and Members of this Committee, and the other Members of Congress are
concerned as well, and I am confident that we can work together to achieve a balanced Federal
budget
The second mechanism is to improve current incentives designed to promote saving in
general and retirement saving in particular The Administration's IRA proposal was carefully
designed to improve the effectiveness of IRAs, while significantly expanding IRA eligibility.
Again, I think this is an area in which we can work together
Let me tum now to a brief description of the current law IRA provisions and of the
Administration's IRA proposal
CURRENT LA \\' IRAs
Under current law, a person can make a deductible contribution to an IRA up to the lesser of
$2,000 or compensation If the person or their spouse is an active participant in an employer
sponsored retirement plan, the $2,000 limit on deductible contributions is phased out for couples
filing a joint return with adjusted gross income (AGl) between $40,000 and $50,000, and for
single taxpayers with AGI between $25.000 and $35,000 To the extent that an individual is not
eligible for deductible IRA contributions, he or she may make nondeductible IRA. contributions,
up to the contribution limit
The earnings on IRA account balances are not includable in gross income until they are
withdrawn Withdrawals from an IRA are includable in income, and must generally begin by age
70V: Amounts wlthdra\l,rn before age 59 1/ : are generally subject to an additional 10-percent tax
This 10-percent early withdrawal tax does not apply to distributions upon the death or disability
of the taxpayer or to substantially equal periodic payments over the lives of the IRA owner and
-3his or her beneficiary. The lO-percent early withdrawal tax also does not apply to distributions
for certain medical care expenses, or to distributions for medical insurance by individuals
receiving at least 12 consecutive weeks of unemployment compensation. In general, an excess
distribution tax of 15 percent applies to the extent that an individual receives an aggregate amount
of retirement distributions in excess of$160,000 in any year.
ADMINISTRATION'S IRA PROPOSAL
The Administration's IRA proposal consists of three parts: expanding income limits, creating
new backloaded IRAs, and eliminating the 10 percent early withdrawal tax for certain specified
purposes.
Expand Deductible IRA Income Limits
Under the proposal, the income thresholds and phase-out ranges for deductible IRAs would
be doubled, in two stages. Beginning in 1997, eligibility would be phased out for couples filing
joint returns with AGI between $70,000 and $90,000 and for single individuals with AGI between
$45,000 and $65,000. Beginning in 2000, eligibility would be phased out for couples filing joint
returns with AGI between $80,000 and $100,000 and for single individuals with AGI between
$50,000 and $70,000 The income thresholds and the current-law annual contribution limit of
$2,000 would be indexed for inflation. As under current law, any individual who is not an active
participant in an employer-sponsored plan and whose spouse is also not an active participant
would be eligible for deductible IRAs regardless of income. In addition, the IRA contribution
limit would be coordinated with the current-law limits on certain elective deferrals, and the 10percent early withdrawal tax would apply to withdrawal amounts attributable to contributions
(excluding roll overs ) made during the previous five years even after an individual reaches age
59Yl
Special ("Backloaded") IRAs
Everycme eligible for a traditional deductible IRA would have the option of contributing an
amount up to the contribution limit either to a deductible IRA or to a new "Special IRA"
Contributions to this SpeciallRA would not be tax deductible, but distributions of the
contributions would be tax~free. If contributions remain in the account for at least five years,
distributions of the earnings on the contributions would also be tax-free. Withdrawals of earnings
from Special IRAs during the five-year period after contribution would be subject to ordinary
income tax and the lO-percent early withdrawal tax unless withdrawals are used for one of the
purposes described below (or unless the withdrawals are exempted from the early withdrawal tax
under current law, eg., upon death or disability)
The proposal would permit taxpayers whose AGI for a taxable year does not exceed the
upper end of the new income eligibility limits to convert balances in deductible IRAs into Special
lRAs without being subject to the early withdrawal tax. The amount converted from the
-4-
deductible IRA to the Special IRA generally would be includable in income in the year of the
conversion. However, if a conversion was made before January 1, 1999, the converted amount
included in income would be spread evenly over four taxable years.
Distributions Not Subject to Early Withdrawal Tax
The 10-percent early withdrawal tax would not apply to amounts withdrawn from deductible
IRAs or to amounts withdrawn within five years after contribution from Special IRAs, if the
taxpayer used the withdrawal to pay post-secondary education costs, to buy or build a first home,
to cover living costs (not just medical insurance costs) if unemployed, or to cover medical
expenses of certain close relatives who are not dependents. I will describe these provisions in
more detail later in my testimony.
The proposal would be effective January 1, 1997.
DISCUSSION
Determining the effects of IRAs and proposals to change them on household and national
saving is difficult Many factors influence saving, including demographic influences, social
insurance, and households' access to credit. One thing that is clear, however, is that policies that
operate by simply increasing the rate of return to saving are unlikely to be effective. Real interest
rates and stock market returns have been much higher over the past decade, when the personal
savings rate was at historic lows, than in preceding periods. It is apparent from this experience
that simply cutting taxes on saving to increase its rate of return is not the key to stimulating
saving Rather, the tax system should rely on focused incentives, like IRAs, that encourage
households to put money aside for specific goals, like retirement.
The academic and policy literature on the effects of IRAs on household saving have
discussed two main channels, the rate of return and psychological factors, that are likely to be
important in understanding the effects of IRAs.
Rate of Return. Even with a focused incentive like IRAs, the effect of increasing the rate of
return is uncertain The special tax preferences give IRAs a higher rate of return than funds
invested in taxable accounts. With a higher rate of return, many believe that people will save
more If individuals save to accumulate a specific target level of wealth, however, a higher rate of
return enables a saver to achieve his or her saving target with less saving Which of these effects
dominates is an empirical question If a taxpayer would have saved more than the maximum
contribution amount even without an IRA, the tax subsidy will reduce tax revenue but will not
provide any additional incentive for the taxpayer to save
Psychological Factors. In addition to the incentives provided by a higher after-tax rate of
return, there are psychological factors related to IRAs that may play an important role in
increasing sa\ing These factors include ( 1) the role played by advertising in inducing people to
-5save, (2) the importance of a penalty for early withdrawals in proViding the self-discipline to
undertake long-term saving, and (3) the important role of an explicit target, such as a contribution
limit, in inducing people to increase their savings.
Econometric Evidence. The econometric studies to date have focussed on the effect on
saving of altering IRA contribution limits and the rate of return. The evidence is mixed, with
some econometric studies suggesting that IRAs represent new savings and other studies
suggesting that IRA contributions are largely funded by shifting existing assets or by displacement
of saving that would occur even in the absence of the IRA preference Studies to date have not
adequately evaluated the importance of psychological factors on saving behavior, although these
may be the most important determinants.
My reading of the evidence is that IRAs, when carefully designed, can increase household
and national saving. Moreover, the available evidence provides guidance on the appropriate
design ·of IRAs In particular, IRA proposals must be designed to reinforce or encourage
psychological factors that could increase the efficiency of IRAs in promoting saving.
PRINCIPLES IN DESIGNING THE PRESIDENT'S IRA PROPOSALS
Three principles guided the development of the Administration's IRA proposal. First,
incentives must be expanded in a way that increases saving rather than encourages shifting of
saving that would have occurred anyway. Second, incentives must be attractive to individuals to
encourage participation. Third, incentives must have sufficiently broad appeal to encourage
advertising by financial institutions.
Let me elaborate on each principle
Targeted Expansion
I will first discuss the expansion of income limits and then discuss the treatment of spouses
with pension coverage
Income limits. The Administration's proposal would expand eligibility for deductible IRAs to
an additional 37 million tax-filing units, compared with the 75 million tax-filing units that are
currently eligible to contribute. With this expansion, 90 percent of taxpayers would be eligible to
make deductible contributions. The widespread availability of IRAs is important to stimulating
advertising which, as I discuss below, is a critical element of our approach to increasing national
saving Equally important, the proposal offers the vast majority of families a tax-free way to save
for retirement
There are sound reasons for excluding high-income taxpayers covered by pensions from
contributing to deductible IRAs though the use of income limits. First, high-income families are
more likely to have substantial asset accumulation than other families, and thus are more likely to
-6be able to divert funds from these accounts to finance their IRA. Second, high-income families
are likely to save more than the maximum IRA contribution limit anyway, and therefore an IRA
will not provide any incremental incentive to save. Third, high-income families are likely to have
greater access to tax-preferred forms of borrowing (such as home equity loans) than other
households, which can lead to transactions that are costly to the Treasury but have no effect on
household saving. For these reasons, IRAs are unlikely to stimulate saving among high-income
families, but the associated revenue loss would increase the deficit and hence lower national
saV1ng
Spousal Pension Rule. The Administration's proposal, like current law, would preclude both
spouses from making deductible IRA contributions if either spouse participated in an employer
retirement plan and the couple's income exceeded the income limits. The proposed higher
income limits reduce the number of individuals affected by the spousal pension rule and makes
changing the rule unnecessary.
Encouraging Eligible Individuals to Participate
Our second design principle is to encourage participation by making the incentive more
attractive to individuals eligible to contribute to deductible IRAs. An increase in participation
should encourage institutions to more widely advertise and may enhance national saving. I will
first describe the two ways the proposal is designed to encourage participation.
Tax treatment of withdrawals for special purposes. The Administration believes that a
important role of government is to help families help themselves meet critical needs: buying a
house, sending children to college, coping with major medical bills, and weathering periods of
unemployment. The special purpose withdrawal provisions in the Administration's proposal have
been designed to make IRAs more attractive, with the belief that carefu'lly designed withdrawal
rules could actually increase saving by encouraging wider participation and giving more families a
chance to develop a saving habit
Under the Administration's proposal, v.;thdrawals for first-time home purchases would be
made free of the early withdrawal tax. This change recognizes the critical role that
homeownership plays in raising families and in providing financial security during retirement
years
The Administration's proposal would also make withdrawals for post-secondary education
free of the withdrawal tax Well-educated workers are essential to an economy experiencing
technological change and facing global competition Just as investment is needed in factories and
computers, investment is needed in human capital to make our economy grow. Education can
help workers earn more during their working years so they can save more for retirement.
Withdrawals for education, like any other withdrawals from an IRA, would be subject to income
tax However, under the Administration's education proposals, tuition expenses could be
deducted or could qualify for a tax credit As a result of both the IRA withdrawal rule for
-7education and the tuition tax deduction or credit, education expenses would receive very generous
tax treatment under the Administration's proposal.
To see just how generous the tax treatment would be, consider a couple that wants to save
money for their children's college education. Suppose the couple's goal was to save for a
$10,000 tuition payment in the year 2001 and that their marginal income tax rate is 28 percent.
Without an IRA and without an education tax deduction or credit, the couple would have to set
aside an extra $5,847 both in earnings 1997 and again in 1998. After paying income tax on the
earnings, the couple would deposit $4,210 (=$5,847*(1-.28)) into a taxable savings account in
each of those years. Assuming the account earned 7 percent interest, the account would earn an
after-tax rate of return of 5.04 percent (==.07*(1-.28)). By the year 2001, the account would have
accumulated approximately $10,000.
In contrast, a couple that used an IRA and claimed an education tax deduction would only
need to set aside an additional $4,000 in earnings in 1997 and again in 1998. Because they would
contribute the $4,000 to a deductible IRA, they would pay no tax on the earnings. Furthermore,
the funds would grow at the full 7 percent rate of return. By the year 2001, they would have
accumulated slightly more than $10,000. While they would include the $10,000 IRA withdrawal
in taxable income on their income tax return, they would subtract an identical amount as a tuition
deduction. No early withdrawal tax would apply because the funds were being used for college
tuition In summary, without the education deduction and special IRA treatment for education,
the couple would have to save $5,847 in both years to pay the tuition; with the Administration's
proposal the couple would have to save only $4,000. In this example, by using the IRA and
taking the education deduction, the savings needed to pay for tuition Were reduced by almost 32
percent ($5,847-$4,000)/$5,847). Over a longer period, the difference would be even greater
We believe that the value of education to our economy and to the American people easily justifies
this special tax treatment
Recognizing the hardship faced by families facing long periods of unemployment and major
medical expenses, the Administration's proposal would also allow an exception from the early
withdrawal tax for individuals who have been unemployed for 12 weeks and for medical expenses,
including those of the taxpayer's child, grandchild, parent or grandparent, whether or not that
person otherwise qualifies as the taxpayer's dependent
While the Administration supports favorable tax treatment for these limited purposes, it would
not favor expanding preferential treatment for more general purposes. We have limited our
special purpose withdrawals to items that are likely to supplement retirement resources to a very
wide range of families and for well-demarcated emergency needs. These expenses are identifiable
and could not be readily diverted to what most people would consider to be personal
consumption It is important to understand that the early withdrawal tax plays a critical role in
enhancing the effectiveness ofIRAs In particular, it reinforces the self-discipline necessary to
undertake long-term saving It discourages individuals from tapping into their IRAs unless the
value of spending these funds exceeds the cost of paying the withdrawal and income taxes.
-8-
Special JRAs and Five- Year Rule. In a Special IRA, contributions are not deductible but are
tax-free upon withdrawal The Administration believes that providing taxpayers with the option
of a Special IRA will provide a savings vehicle that some middle-income taxpayers may find more
suitable for their savings needs than traditionallRAs. For example, younger individuals may
expect to be in a higher tax bracket when they take the money out of an IRA. These individuals
may be willing to give up the deduction at today's lower tax rate in favor of tax-free treatment in
a later year when they are in a higher tax bracket and choose to withdraw the money. Other
individuals may prefer the psychological advantage of paying the tax up-front. As they watch
their IRA assets accumulate, they will automatically know how much of their IRA assets could be
used for retirement needs--the entire amount in the account--without having to calculate how
much tax would have to be paid.
Withdrawals of funds for the previously-specified special purposes and withdrawals of funds
that had been in the account for five years would not be subject to the withdrawal tax. The fiveyear rule is likely to encourage more individuals to participate in an IRA than under current law.
Once these individuals see their assets start accumulating, they may be encouraged to keep assets
in the IRA until retirement and they may even be encouraged to make additional contributions.
Awareness and Advertising
Expansion of IRA eligibility and attractiveness under the Administration's proposal will
directly raise public awareness of the importance of retirement saving. An improved IRA
incentive will also make tangible to taxpayers the Federal government's commitment to insuring
the adequacy of resources in retirement Further, many taxpayers may be encouraged to save
more because the IRA contribution limit will provide them with a "publicly approved" saving
target
Other countries have long recognized the importance of public awareness efforts and public
incentives in stimulating saving Prior to the second World War, the US saving rate was higher
than Japan's Following the war, the Japanese Government launched a concerted national effort
to increase the Japanese saving rate The promotional campaign included worker seminars, the
distribution of children's saving banks. advertisements, pamphlets and other written material
While the post-war reconstruction surely accounted for some of the boom in Japanese saving
rates, some observers also credit the actions of the "Saving Promotion Movement" for
significantly increasing the Japanese saving rate
Related evidence indicates that employer-sponsored workplace education increases
participation in 40 I (k) plans This workplace education takes many different forms, including
seminars, newsletters, and other written material The content often covers broad financial
principles. such as the effects of compound interest and retirement needs, as well as specific
details tailored to the financial benefits available at a particular firm Worker education could lead
to increased participation for several reasons First, employees become more aware of saving
options Second, employees become more focused on the need to save Third, employees are
-9-
encouraged to participate because their co-workers participate. Some have conjectured that there
is a social aspect to saving. As more people participate within a firm, they may talk with their
friends and relatives about the benefits of saving. Like the experience with 401 (k )s, IRA
education could have similar payoffs.
There is an additional piece of evidence supporting the important role advertising plays in
influencing behavior. Prior to the Economic Recovery Tax Act of 1981, eligibility for IRAs was
limited to those with no pension coverage. Despite the fact that many workers in the economy
were not covered by pensions, IRA participation rates were extremely low. Because of this, the
expansion of IRA eligibility in the 1981 Act was at the time thought to be relatively modest.
Instead, IRAs were wildly popular, leading to much higher participation than initially estimated.
Most people who have examined the issue conclude that advertising by financial institutions was
what caused the high rates of participation. Following the Tax Reform Act of 1986, participation
rates fell by more than one would expect Again, observers have pointed to a substantial decrease
in advertising as being the cause
The Administration's proposal has been designed to include provisions that are likely to make
IRAs much more attractive, which will encourage wider participation. By expanding the potential
number of participants to 90 percent of all taxpayers, the Administration's proposal may induce
financial institutions to advertise more widely. As the baby boom generation ages and boomers
begin to think about retirement, IRA advertisements could encourage families to focus their
energies on developing a savings plan, even if they do not open IRAs. These positive effects
could occur even if expansion does not provide saving incentives at the margin. In summary, the
Administration's proposal has been designed to appeal to a broad segment of the population and
to encourage financial institutions to advertise, in the belief that advertising can be a powerful
stimulus for financial planning and saving
CONCLUSION
Let me conclude with three observations on which I believe we can all agree. First, saving is
critically im.portant to the retirement security of individuals and to the country's economic
growth. Second, effective saving incentives must recognize the psychological factors that
influence saving, and not just focus on increasing the rate of return on savings. Third, welldesigned saving incentives, like the Administration's IRA proposal, can increase saving
This Administration is committed to meeting the challenge of insuring adequate retirement
saving by the baby boom and subsequent generations One part of that commitment is our IRA
proposal. Other parts are our recent introduction of inflation-indexed bonds which are an ideal
vehicle for protecting retirement assets against inflation risk, and our continuing work on
simplifying pensions and increasing their attractiveness. I look forward to working with this
Committee on meeting this important challenge
Chart 1
Saving and Growth
in the DECO Countries 1960-94
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Note: Germany and Other DECO are almost identical.
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Chart 2
Saving and Growth
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Chart 3
Personal.Saving Rates in the OECD Countries
1960-94
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PUBLIC DEBT NEWS
Department of the Treasur;; • Bureau of the Public Debt • vVashington, DC 20239
FOR RELEASE AT 3 :00 PM
March 6, 1997
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECtRITIES ~ THE STRIPS PROGRAlVI FOR FEBRUARY 1997
Treasuf)Js Bureau of the Public Debt announced activity figures for the month of February 1997, of
securities within the Separate Trading of Registered Interest and Principal of Securities program
(STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$959,060,285
Held in Unstripped Form
$734,860,700
Held in Stripped Form
$224,199,585
Reconstituted in February
S9,082,335
The accompanying table gives a breakdown of STRIPS actiyity by individual loan description. The
balances in this table are subject to audit and subsequent revision. These monthly figures are included
in Table VI ofthej[onthly Statement afthe Public Debt, entitled "Holdings of Treasury Securities in
Stripped Form."
The STRIPS data along with the the newMonthly Statement of the Public Debt, is available on Public
Debt's Internet homepage at: \vnw.publicdebt.treas.gov. A wide range of information about the
public debt and U.S. Treasury securities is also available on the homepage.
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14.434,772
13.302.467
14.373,760
13.834,754
14,739.504
15.002.580
15.209.920
15.513.587
16.015,475
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DEPARTMENT
OF
THE
TREASURY
NEWS
OFFlCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIllNGTON, D.C .• 20220. (202) 622·2960
Monthly Release of U.S. Reserve Assets
March 7,1997
The Treasury Department today released U.S. reserve assets data for the month of
February 1997.
As indicated in this table, U.S. reserve assets amounted to $67,479 million at the end
of February 1997, down from $68,200 million in January 1997.
End
of
Month
Total
Reserve
Assets
Gold
Stock 11
Special
Drawing
Rights
2/3/
Foreign
Currencies M
ESF
System
Reserve
Position
in IMF
21
.l221
January
68,200
11,048
9,793
14,826
18,161
14,372
February
67,479p
1l,048p
9,866
14,687
17,841
14,037
11 Valued at $42.2222 per fine troy ounce. .
Z/ 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.
3J Includes allocations of SDRs by the IMF plus transactions in SDRs.
41 Holdings of Treasury Exchange Stabilization Fund (ESF) and Federal Reserve System.
Beginning November 1978, these holdings 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.
p
Preliminary
RR-1542
For press releases, speeches, public schedules and official biographies, call our 24~our fax line at (202) 622-2040
·<
PUBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • \Vashington, DC 20239
FOR IMMEDIATE RELEASE
March 7, 1997
Contact: Peter Hollenbach
(202) 219-3302
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY FLOODTh"G IN INDIAl~A
The Bureau of Public Debt took action to assist victims of flooding in Indiana by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Indiana affected by the storms. These procedures will remain in effect through April 30, 1997.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most fmancial institutions serve as paying agents for savings bonds.
Indiana counties involved are Clark, Crawford, Dearborn, Floyd, Harrison, Jefferson, Ohio,
Perry, Posey, Spencer, Switzerland, Vanderburgh and Warrick. Should additional counties be
declared disaster areas the emergency procedures for savings bonds owners will go into effect for
those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most fmancial institutions or the Federal Reserve
Bank. Bond owners should include as much information as possible about the lost bonds on the
form. This information should include how the bonds were inscribed, social security number,
approximate dates of issue,bond denominations and serial numbers if available. The completed
form must be certified by a notary public or an officer of a frnancial institution. Completed
forms should be forwarded to Public Debt's Savings Bond Operations Office located at 200
Third St., Parkersburg, West Virginia 26106-1328. Bond owners should write the word
"Floods" on the front of their envelopes, to help expedite the processing of claims.
000
PA-255
RR-1543
·
DEPARTMENT
OF
TilE
TI~EASURY
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANlAA'V£NUI:, N.W .• WASHINGTON, D.C .• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
Glarch
Contact: B ill-L uecht
(202) 622-8662
7, 1997
TREASURY'S BEA PROGRAM ACCEPTING APPLICATIONS,
$16.25 MILLION AVAILABLE TO BANKS
The U.S. Department of the Treasury's Conununity Development Financial Institutions (CDFI)
Fund is pleased to announce the beginning of the second funding round of the Bank Enterprise
Award (BEA) Program. A Notice of Funds Availability and the revised interim regulations for
the program was published today, March 7, 1997, in the Federal Register. The CDFI Fund
intends to make available up to $16.25 million for Bank Enterprise Awards in this round.
The BEA Program recognizes the key role played by insured depository institutions (banks and
thrifts) in serving the credit needs of distressed communities across our nation. In recent years,
many of these traditional financial institutions have increased their efforts to lend, invest, and
provide services in distressed communities. By offering incentives for these activities, the BEA
Program builds on these efforts.
The BEA Program is intended to encourage banks and thrifts to invest in and support community
development financial institutions (CDFIs) and to increase the lending and services provided in
distressed comrnW1ities by traditional financial institutions.
In the first round of the BEA Program, 38 institutions received $13.1 million in awards ranging
in size from $3,750 to nearly $2.7 million, with a median award of approximately $100,000.
These institutions ranged in asset size from $21 million to over $320 billion.
The deadline for application submission is April 25, 1997.
The CDF! Fund is holding a series of regional workshops to provide an overview of the revised
BEA Program regulations, an explanation of the streamlined application materials, and an
opportunity to ask questions. Each workshop will last approximately 2 'h hours. Bank and thrift
representatives interested in attending should contact the individual listed below.
-MORERR-1S44
For press releases, speeches, public schedules and official biographies, call uur 24~our fax line at (202) 622·2040
Schedule of Regional Workshops:
Boston
March 13.9:00 a.m.
Federal Reserve Bank
600 Atlantic Avenue
RSVP: Mark Lloret
(617) 973-3097
San Francisco
March 14, 9:00 a.m.
Federal Reserve Bank
101 Market Street
RSVP: Mary Malone
(415) 974-2871
Dallas
March 18,9:00 a.m.
Federal Reserve Bank
220 North Pearl Street
RSVP: Louisa Quinman
(202) 622-8103
Miami
March 19,9:00 a.m.
Federal Reserve Bank of Atlanta
9100 NW 36 th Street
RSVP: lermifer Grier
(404) 589-7374
New York
March 26, 9:00 a.m.
The College of Insurance
101 Murray Street
RSVP: Louisa Quittman
(202) 622-8103
To obtain an application packet, send a wrinen request by facsimile which includes the name and
title of the requester, the name of the institution, the mailing address, phone number, and
facsimile number to (202) 622-2599.
For further information on the BEA Program, contact Jeannine lacokes of the CDFI Fund at
(202) 622-8662:
-33-
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
1I......................................~i,78~9~....................................... .
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL 1 P.M. EST
Text as Prepared for Delivery
March 1 1, 1997
Treasul1' Secretary Robert E. Rubin
Statement before the
House Budget Committee
U.S. House of Representatives
Mr. Chainnan, I appreciate this opportunity to appear today to discuss the President's budget
proposal for fiscal year 1998.
It wasn't so long ago when the other industrial nations roundly criticized the United States
for not attending to its economic athirs and we were viewed as yesterday's economy. That
situation is now exactly the opposite.
The United States is once again viewed as the world's economic leader. Four years ago, the
unemployment rate was over 7 percent. Today. it is 5.3 percent. The economy has generated close
to 12 million new jobs over the past four years. or more than four times the rate of the prior four
years. Average real wages. which had been falling for a long time. now appear to be rising again,
and income inequality has begun to narrow. Business investment is at record levels, and for each
of the past three years. the World Economic Forum has recognized the US economy as the world's
most competitive.
The strong economic conditions we now enjoy are a result of squarely facing our challenges
-- in both the private and public sectors. The private sector has made great strides in becoming more
competitive. while in the puhlic sector. we ha\'e made dramatic progress in restoring fiscal order.
The 1993 deficit reduction program has reduced the size of the deficit from 4.7 percent to 1.4 percent
of GOP. That deficit reduction. in tum. inspired broad business confidence and drove down interest
rates, which. in tum. was central to the economic recovery.
Just as deficit reduction has heen the critical factor in these economic conditions. so is it
critical to a strong economy over the long-tenn. At the same time. because of the globalization of
the economy and the infonnation revolution. it is more important than ever that we also focus our
resources on priorities that are critical to long-term economic strength: educating our people:
bringing the residents of the inner cities into the economic mainstream: and maintaining U.S.
RR-1545
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
kalkrship in the global economy. The President's budget is designed to accomplish exactly that by
hrint!int! us to halance b\. 2002. while focusing on those priorities.
~
~
~1r. Chairman. I belie\l~ we have an historic opportunity to work together and build on the
extraordinary economic progress that has been accomplished over the last several years. We are
within striking distance of balancing the budget. which. in tum. would contribute enormously to our
economic progress. At the same time. there is a change in public attitude about the importance of
tiscal responsibility. Moreover. the global capital markets have created a powerful new incentive for
fiscal order. by punishing fiscal laxity with high interest rates that are inimical to economic health.
We can. should and must v·:ork together in a constructive spirit and with good faith to capitalize on
this moment and get the job done. and I believe we will get the job done because it is so enormously
in the public interest. I \\ould note that the Coalition has introduced a budget of its own. and while
\\1: have policy differences. this is constructive to the general budget process. and we look forward
h) working with them as the process de\elops.
The President" s budget will get us to balance by 2002 by using conservative and realistic
economic and technical assumptions. In prior Administrations. budgets were too often based on rosy
economic scenarios -- and. when the actual deficits came in much higher than projected, the result
\\as not only a higher deficit but increased public cynicism about the ability of the government to
get its fiscal house in order.
During the past four years. our assumptions and projections \vere realistic and conservative.
(her this period. the actual deficit fell more than we projected. and our projections were more
accurate than the CBCfs. In each of the last three years. actual deficits have come in, on average.
ahout $50 billion lower each year than we projected and almost $60 billion lower, on average, than
thL' C BO projection. which must be pretty much unprecedented. Moreover. CBO has already lowered
its projection for the 1997 deficit by $9 billion from a projection made less than two months ago.
This contrasts sharply with the tweh'c years prior to )992 when the actual deficit exceeded the
projected deficit in ten of those t\\ eh'e years.
In short. this Administration has a clear record of using consen'ative and realistic economic
and technical assumptions. and we do so again for our 199X budget. We have forecast less real
gnm1h than the Blue Chip consensus of private forecasters.
But. regardless of \\ hose forecasts tum out to be more accurate -- and we believe ours are
likeh to be hecause the~ are constructed in the same spirit of the budgets of the past four years-the President's budget will be balanced. As a failsafe. the budget automatically provides additional
savings if CB(Ys assumptions should prow more accurate than the Administration's. Thus. our
budget achie\es halance by 2()02 regardless of whether OMB or CBO's assumptions are used. CBO
Director June O·Neill. in a letter to Senator Frank Lautenherg. verified that CBO estimates that our
budget reaches halancl' b) 2002. \\ith these automatic additional proposals as failsafes.
Our savings aggregate $350 billion over five years. As with any sound budget plan, the
savings grow over time. In this budget. as the Administration estimates, 67 percent of the savings
occur in the last two years.
We carefully viewed the discretionary account for each of the agencies to make sure that we
have done everything we could to bring spending down, while maintaining the critical functions of
those agencies. We closed business tax loopholes and eliminate other business tax subsidies viewed
as no longer warranted. We auction broadcast spectrums. Our proposal cuts Medicare spending by
$100 billion over five years, but without adversely affecting the quality of care for beneficiaries or
the amount they must pay out-of-pocket. and extends the solvencv of the Part A trust fund to 2007.
At the same time, we recognize that there are obviously long term entitlement problems due to
demographic trends such as the aging of the baby boomers. which have not been addressed in any
of the Presidential or Congressional budget proposals of the past few years, and which we must
address through a bipartisan process.
. Within the context of moving toward a balanced budget it is extremely important, however,
that we invest in areas critical to future productivity and U.S. global leadership. There are many
initiatives in the budget tov,ard these ends. but today I would like to focus very briefly on a few,
particularly those that involve the 1.1X system.
The President has proposed middle-income tax cuts. which are designed to help middleincome people obtain the skills they need to prosper in the modern economy. They increase savings,
promote education. and. through our child tax credit. mah it easier to raise a child. We also have
programs to help move people from welfare to work and. more broadly. help distressed inner cities.
Let me say a word about the size and scope of the tax cuts. We have proposed tax cuts that
total $98.4 billion over five years. It is. in our judgement. a moderate. and because of its structure.
a carefully targeted tax program designed. as I said a moment ago. to help American families
prosper in the modem economy.
We believe our proposal strikes the correct balance bet\\een advancing the goals of a
balanced budget. and providing tax relief. Tax cuts which arc higher. would. in my opinion. run a
serious risk of requiring us to make cuts that would unduly harn1 our economy and our society -- or
abandon the goal of a balanced hudget. \\hich we ahsolutely must not do. We must not engage in
a "bidding war" over tax cuts.
N()\\. to go hack to the President' s priorities. As already discussed with respect to tax cuts,
much of the emphasis is on areas that an: critical to future productivity. The budget invests in
education and training, with Hope Scholarships. Pell Grants and Head Start to name a few. And the
budget includes new initiati\es. including the COF! Fund. tax incentives to revitalize distressed
neighborhoods. and ne" initiati\ es to encourage husinesses to hire former welfare recipients, so we
can bring all Americans into the economic mainstream .
..,
.'
The final area I wish to mention regards the importance of providing adequate resources to
maintain l' .S. leadership in the global economy.
The budget seeks a significant increase in overall funding to sustain our international
engagement. and our role. as the President says. as the world's indispensable nation, There is no
question that there is only one country in today' s world that can provide leadership on the critical
issues of the global economy and that is the United States. But to shape world events to advance our
security and economic self-interest. we must meet our commitments to the United Nations and in
the international financial institutions. such as the World Bank's International Development
Association and the International Monetary Fund. And. we should do so because it is·in the
economic and national security self-interest of the United States and our citizens.
Before concluding. let me make a comment regarding U.S. leadership that is not related to
the budget. 1 r.S. leadership otten involves making tough decisions that may be politically unpopular.
Last week. the President decided to recertit~· Mexico as an ally in our eftorts to combat drugs. In my
opinion. that decision was correct to most effectively maintain a strong war on drugs. fully
recognizing the problems in Mexico. I urge all of you to support the President on this matter.
~1r. Chairman. our nation has the v. orld's strongest economy in part because of the tough
choices we made in 1993. which have already cut the deficit by over 60%. The Administration is
ready to \\ork with Congress to finish the job: to balance the budget. and to do so in a way that
protects our priorities. both for now and the future. This is an historic opportunity. We must take
advantage of it.
Let me conclude by thanking you again for this opportunity to discuss the President's budget
proposal. I look forward to working with all of you this year.
- 30-
UBLIC DEBT NEWS
DcpartmcnI of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
March 10, 1997
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $12,068 million of 13-week bills to be issued
March 13, 1997 and to mature June 12, 1997 were
accepted today (CUSIP: 9127944M3).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.04%5.06%5.06%"
Investment
Rate
5.18%5.20%5.20%"
Price
98.726
98.721
98.721
Tenders at the high discount rate were allotted 38%.
The investment rate lS the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.05
- 98.723
RR-lS46
Received
$52,643,473
Accepted
$12,068,408
$47,257,346
1.379,626
$48,636,972
$6,682,281
1.379,626
$8,061,907
3,496,501
3,496,501
510,000
$52,643,473
510,000
$12,068,408
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
March 10, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $12,117 million of 26-week bills to be issued
March 13, 1997 and to mature September 11, 1997 were
accepted today (CUSIP: 9127945M2).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.16%5.18%'
5.18%-
Investment
Rate
5.37%
5.39%'
5.39%-
Price
97.391
97.381
97.381
Tenders at the high discount rate were allotted 41%'.
The investment rate lS the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
5.17 - 97.386
RR-lS4i
Received
$40,214,577
Accepted
$12,117,497
$33,670,675
1,147,402
$34,818,077
$5,573,595
1,147,402
$6,720,997
3,450,000
3,450,000
1, 946,500
$40,214,577
1,946,500
$12,117,497
DEPARTMENT
OF
THE
TREASURY
~~/78fq~. . . . . . . . . . . . . . . . . . . . . . . . . .. . .
............................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 _ (202) 622.2960
EMBARGOED UNTIL lOAM. EST
Text as Prepared for Delivery
March 1 1, 1997
Treasury Under Secretary for Enforcement Raymond W. Kelly
The New York Money Transmitter Geographic Targeting Order
Statement before the
U.S. House of Representatives Banking Committee
Subcommittee of General Oversight and Investigations
Introduction. Good morning Mr. Chairman and members of the Subcommittee. I
am pleased to appear before the Committee to discuss Treasury enforcement's successful
use of a geographic targeting order (GTO) or "The Order" to fight narcotics money
laundering through a segment of the money transmitter industry in the New York
Metropolitan Area. The New York GTO has been in place now for over seven months,
and it has caused a dramatic reduction in the amount of illicit funds moving through New
York money transmitters.
The circumstances surrounding the Treasury's issuance of the New York GTO,
and the lessons we are learning from it, are significant for Treasury enforcement, and we
appreciate your interest. The EI Dorado Task Force investigations that led to the
issuance of the GTO demonstrate the value of Treasury's coordinated, systematic attack
on money laundering problems affecting a particular segment of an industry. The
implementation of the GTO is an example of enforcement and regulatory cooperation at
its best. Perhaps most important, the GTO has demonstrated graphically that drug
money launderers have been extensively abusing a segment of the relatively unsupervised
money transmitter industry, and that this undergroul!d market does respond to regulatory
and enforcement pressures. The GTO therefore confirms the need for all of us to work
together to bring appropriate resources to bear more broadly on the problem.
The GTO. If you would, allow me to provide you with a brief overview of the
GTO. The GTO has been in place since August 7, 1996, and is currently scheduled to
expire on April 3, 1997. It currently requires 22 licensed money transmitters and their
approximately 3,500 agents to report information about the senders and recipients of all
cash purchased transmissions to Colombia of $750 or more. The GTO was issued under
a provision of the Bank Secrecy Act which allows the Treasury, either on its own
initiative or upon a request from an appropriate law enforcement authority, to require a
financial institution or a group of financial institutions in a geographic area to comply
RR-1548
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
with special reporting or record keeping obligations The special requirements may be
put in place upon finding that there is reason to believe that such reporting or record
keeping is necessary to ensure compliance with, or prevent evasions of, the Bank Secrecy
Act GTOs may be authorized for no more than 60 days at a time.
The statute and regulations under which the GTO was issued constitute a very
flexible and powerful tool. Prior to the New York GTO, Treasury had issued two ot-her
GTOs: in Phoenix in 1989; and in Houston in 1991. Like the New York GTO, both of
the earlier orders required special reporting of cash purchased money transfers through
non-bank money transmitters. But the past two GTOs were not as successful as the New
York GTO. This was so because they were not issued in the context of a sustained,
multi-agency law enforcement and regulatory task force investigation into abuses across
a broad segment of an industry.
Extension and Expansion. The GTO was extended and expanded in October to
include a total of 22 licensed transmitters and approximately 3,200 agents. The order
was extended again in December, and a third time at the beginning of February
The Money Transmitter Industry. In addition to a review of the GTO itself, an
examination of the money transmitter industry is essential to understanding Treasury's
initiative. Due to the global trend of rapidly increasing electronic commerce and the
continuing influx of immigrants who use international transfer services to send money
home to family and friends, the US. market for money transmission services has grown
steadily over the last ten years. US. money transmitters remit upwards of $10.8 billion,
exclusive of fees, each year, through approximately 43,000 locations nationwide. The
industry is highly concentrated: the vast majority of the funds transfers and locations ar-e
handled by two companies, Western Union and MoneyGram. And most of the money
transmission outlets are concentrated in six major states: California, New York, Texas,
New Jersey, Florida, and Illinois.
Most of the smaller money transmitters in competition with the major national
companies are oriented toward particular ethnic markets and rely on their own service
infrastructures for transferring funds, and for communications and settlement among
outlets: The niche customers served by these smaller providers are willing to pay a
premium for value- added services, such as receiving informal news from other
countries. These niche transmitters often are bilingual, and located in urban ethnic
communities.
State regulators are monitoring the growing money transmission market with
great interest Twenty-three states now have licensing requirements for money
transmitters, but those regulations vary a great deal, and are primarily focused on
consumer protection issues. Some states, including New York, also require each licensed
money transmitter to register the names and locations of each of its legal agents or
vendors. There are 52 licensed money transmitters in New York, which operate through
thousands of agents.
2
Despite these licensing procedures, it has become clear that the money transmitter
industry is vulnerable to abuse by organized money launderers. This fact has been made
plain as day by the work of the Treasury-led EI Dorado Task Force.
EI Dorado. The third piece of the picture requires further description The EI
Dorado Task Force can serve as a model of interagency cooperation and innovation in
combating a broad base of money laundering and financial crime. The task force is a
joint federal, state and local effort that includes some 140 agents, police officers and
support personnel from 13 agencies, including the Customs Service, IRS Criminal and
Examination Divisions, the Secret Service, the NYPD and New York State Banking
Department The task force targets systems or industries that facilitate money
laundering. Its resources are aimed at abuses in non-bank financial institutions, banks,
brokerage houses and private banking, and the bulk transportation and smuggling of
cash Since its inception in 1992, El Dorado has enjoyed a legacy of success unmatched
in federal law enforcement The task force has seized in excess of $150 million in
currency, made 700 arrests, and captured more than 2 tons of cocaine and 120 pounds of
heroin.
El Dorado's Operation Wire Drill helped lay the groundwork for our GTO. Wire
Drill is an ongoing investigative effort focused on systemic abuses in the money
transmitter industry. Over the past several years preceding the GTO, Operation Wire
Drill investigations have led to the conviction of hundreds of persons and the seizure and
forfeiture of over $10 million dollars associated with money laundering through the
agents of licensed money transmitters. These investigations focused primarily on
transfers of funds to Colombia and the Dominican Republic. El Dorado has been able to
demonstrate the complicity of money remitter agents in the simple scheme of structuring
large cash transactions to avoid the reporting and record keeping obligations of the Bank
Secrecy Act, using false invoices and fabricated identities of senders and recipients.
In July 1996, based on an investigation conducted by the El Dorado Task Force,
the government secured the first-ever guilty plea of a licensed money transmitter, Vigo
Remittance Corp., to money laundering charges.
Armed with information generated by El Dorado's Wire Drill investigations, the
U.S. Attorneys from the Southern District of New York, the Eastern District of New
York, and the District of New Jersey, along with senior officials of Customs, IRS, and
FinCEN presented me with a compelling case that a GTO would be an appropriate
measure to take with respect to a broad segment of the money transmitter industry in the
New York area.
Tailoring the GTO. As I already have indicated, the GTO is a very flexible tool.
FinCEN worked closely with the primary Assistant U.S. Attorney, and representatives of
Customs, IRS and the Department of Justice, to review the application and craft an
appropriate order. Twelve licensed transmitters and their 1,600 agents were identified as
particularly vulnerable to abuse. A number of factors were considered in addition to the
3
evidence generated by the Wire Drill investigations in the identification of their subjects.
Perhaps most strikingly, the business volume of the 12 money transmitters simply did not
accord with the size of the Colombian community in the New York area. New York
State Banking Department figures indicated that the 12 originally targeted transmitters,
serving a community of approximately 25,000 households, have been sending
approximately $1.2 billion annually to South America. About two thirds of this amount,
or $800 million, goes to Colombia. To account for this figure, each Colombian
household would have to send approximately $30,000 per year through money
transmitters to Colombia. Given that the median household income of this same
community is roughly $27,000 per year, there was cause for concern.
The terms of the GTO. The terms of the order were designed to avoid interfering
with legitimate commerce as much as possible
--The order was directed against transactions to Colombia because of its peculiar
status as perhaps the predominant narcotics source country in this Hemisphere.
--The reporting threshold of $750 was estimated to be well above the average
legitimate transmission of $200 - $500
--Money transmitter agents were required daily to report identifying information
about the sender and recipients of each covered transaction on a special form, and
to collect and file a copy of one of three standard forms of photo ill of the sender.
--At the same time, the licensed money transmitters were required to file,
electronically on a weekly basis, the same information filed by the agents. This
feature of the order was intended to enable investigators to check the accuracy
and completeness of filings, by comparing the filings of the agents with the
filings of the licensed money transmitters.
Finally, the GTO was made confidential, so that it would be a breach of the order
to notify any person (other than an attorney or accountant in the context of seeking
professional advice) about its terms or even its existence.
All of the information reported under the GTO is collected at the New York High
Intensity Drug Trafficking Area (HIDT A) office and entered into a database designed by
FinCEN to facilitate entry and analysis of the information collected.
Effects of the GTO . At this point, I would like to highlight directly the results
the GTO has produced. The GTO caused an immediate and dramatic reduction in the
flow of narcotics proceeds to Colombia through New York City money transmitters.
Curiously, business to Columbia dropped off even at the money remitters not subject to
the GTO. This suggests that much of the money remitted to Colombia has been
controlled centrally by high level cartel money brokers.
4
Our analysis of data generated by the GTO is ongoing, but the targeted money
transmitters' overall business volume to Colombia appears to have dropped by
approximately 30%. We believe that most of this money has been physically removed
from the New York Metropolitan area, either for transfer through money transmitters
op.erating in other cities along the East Coast, or for bulk smuggling out of the U. S On
this latter point, we have observed a dramatic increase in Customs interdiction and
seizure activity at the airports, seaports, common carriers and highways along the east
coast -- over $50 million since the GTO went into effect. This figure is approximately
four times higher than it has been in prior years. We have also gleaned a substantial
amount of intelligence out of Customs undercover operations
At the same time, it is clear that a significant number of money transmitter agents
have been willing to structure transactions beneath the GTO's $750 reporting threshold.
The number of transactions in amounts below $750 have risen sharply, and the amount of
funds transferred to Colombia in such increments appears to have almost doubled. The
EI Dorado Task Force has already arrested three defendants, and executed search
warrants on 22 money transmitter agents suspected of intentionally structuring
transactions in violation of the Order; additional people are currently under investigation.
One of the three defendants has already pleaded guilty. Two suspects are considered
fugitives. EI Dorado is continuing to pursue investigations of this type. Treasury will
consider imposing civil penalties against violators who are not pursued criminally.
GTO Filings. Ironically perhaps, the reports of transactions actually required by
the GTO -- on cash purchased transfers of $750 or more to Colombia -- have proven to
be of only limited use to investigators. Although we have no indications of widespread
non-compliance with the order, only about 1,000 required filings have been received
each month. These filings have for the most part amounted to a "good guy" database
with information about people who have nothing to hide.
Industry Reaction.. Several aspects of the industry response to the GTO are
notable. First, representatives of most of the licensed money transmitters have reported
that they generally approve of the GTO. Some have praised the GTO's "bright line"
rule, observing that it is is both easy to follow and easy to enforce upon their agents.
They also welcome the GTO's elimination of any unfair competitive advantage one
transmitter might have over the others. They believe the GTO assists them in
maintaining their network of agents, and that it is it is particularly important to those
transmitters which have imposed tight restrictions on their agents in response to pressure
already brought to bear upon them by El Dorado investigators.
Also of interest, is the fact that since the GTO was put in place, several money
transmitter agents have lowered their fee for transfers to Colombia from 7% to 5% of the
value of the transfer. This appears to be a logical business response to a reduction in the
demand for services.' This is particularly important because it represents a benefit of the
GTO to legitimate customers of money transmitters.
5
Next Steps. The final issue I would like to discuss today is next steps The
GTO's confidentiality provision was lifted in early December, in order to begin a public
policy discussion about what has been learned, and what next steps are available and
appropriate.
Naturally, we have begun to consider whether, and under what circumstances, the
Department of the Treasury might wish to issue additional GTOs. The New York
experience has taught us a couple of key lessons as we ponder this question. First -- and
I can't stress this point enough -- the task force environment is key to the successful
management of the additional administrative, analytic and investigative work involved in
a GTO. Without the coordinated analytic and investigative effort involving all of the El
Dorado task force participants, we would not even know what a success we have, let
alone be in a position to capitalize on it. In addition, the New York GTO involved
considerable administrative effort (and opportunity cost), much of which was born by
FinCEN.
Second, the efforts of the U S. Attorney's Office in the Eastern District of New
York in pursuing a series of cases over a two- year period were critical to building an
investigative foundation that justified the GTO. We applaud the Department of Justice
for encouraging other districts, to take this kind of approach. This is a classic example of
less in the short term leading to more in the long term.
Third, the GTO tool is intended to prevent and detect abuses, and cannot replace
traditional enforcement techniques. The New York experience has demonstrated the
powerful enforcement ramifications a GTO can have when the local authorities are
prepared to make use of it and where the regional record justifies it. Those conditions
may not prevail everywhere, at all times.
With this in mind, and in the context of our overall strategy to combat money
laundering, we at Treasury intend to continue looking carefully, and working with the
Department of Justice and other law enforcement and regulatory officials, to find
appropriate situations that may lend them.selves to application of additional, tailored
GTOs in other locations.
Permanent Regulatory Solutions. We are also nearing completion of a number of
notices of proposed rulemaking intended to address vulnerabilities in the money
transmitter industry. First, we intend to implement the Congressional mandate to register
money services businesses generally. A Federal registration requirement -- while
relatively easy for businesses to comply with -- will consolidate information about the
industry for investigators, and put real teeth into the law that already makes it a federal
crime to operate an unlicensed or unregistered money transmitting business. In addition
to the registration requirement, we hope to publish in the near future proposed rules to
require special record-keeping and reporting by money transmitters. Finally, we are
working with the Department of Justice to develop a series of meetings of US.
Attorney's and Federal law enforcement agencies from other parts of the country where
6
df\lg money laundering is a particular problem. We will be looking to explore ways to
leverage Treasury's unique tools in partnership with Justice to develop additional
innovative strategies.
Conclusion. In closing, I would like to emphasize how proud I am of the men
and women in Treasury enforcement as well as the Department of Justice, the New York
Police Department, and the New York State Banking Department, who have worked so
hard to make the EI Dorado Task Force and the New York GTO so successful. The
dedication to service, team-work, and professionalism demonstrated by these individuals
is deserving of the Committee's attention. Thank you for the opportunity to tell you their
story.
I would be happy to answer any questions you may have.
-30-
7
PUBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
March 10, 1997
Contact: Peter Hollenbach
(202) 219-3302
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY FLOODING IN TENNESSEE
The Bureau of Public Debt took action to assist victims of flooding in Tennessee by expediting
the replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective immediately for paying agents and owners in those areas of
Tennessee affected by the storms. These procedures will remain in effect through April 30,
1997.
Public Debt's action waives the normal six-month minimum holding period for Series EE savings
bonds presented to authorized paying agents for redemption by residents of the affected area.
Most financial institutions serve as paying agents for savings bonds.
Tennessee counties involved are Carroll, Cheatham, Dyer, Madison, McNairy, Montgomery and
Obion. Should additional counties be declared disaster areas the emergency procedures for
savings bonds owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond owners
should complete form PD-1048, available at most financial institutions or the Federal Reserve
Bank. Bond owners should include as much information as possible about the lost bonds on the
form. This information should include how the bonds were inscribed, social security number,
approximate dates of issue, bond denominations and serial numbers if available. The completed
form must be certified by a notary public or an officer of a financial institution. Completed
forms should be forwarded to Public Debt's Savings Bond Operations Office located at 200
Third St., Parkersburg, West Virginia 26106-1328. Bond owners should write the word
"Floods" on the front of their envelopes, to help expedite the processing of claims.
000
PA-255
RR-1549
DEPARTMENT
OF
THE
TREASURY {(I)
TREASURY
NEW S
ornCE OF PUBUC AFFAIRS • 1500 PENl\'SYLVANlA AVENel. l\'.W .• WASHINGTO!\. D.L. 20220. (2021622.2%11
EMBARGOED UNTIL 2:30 P.M.
March 11, 1997
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFBRING
The Treasury will auction two series of Treasury bills
totaling approximately $23,000 million, to be issued March 20,
1997. This offering will result in a paydown for the Treasury of
about $1,125 million, as the maturing weekly bills are outstanding
in the amount of $24,132 million.
Federal Reserve Banks hold $6,473 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 $1,793 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. Additional amounts
may be issued for such accounts if the aggregate amount of new
bids exceeds the aggregate amount of maturing bills.
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, as amended) for the sale and
issue by the Treasury to the public of marketable Treaeury bills,
notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-1550
HIGHLIGHTS OF TREASURY OFPBR~NGS OF WEEKLY
TO BB ISSOBD MARCH ~O, 1997
B~LLS
March 11, 1997
Offering Amount .
.
pescription of oct·
Term and type of s
CUSI P number
Auction date
ISBue date
Maturlty date
Original issue dat
Currently outstand
Minimum bid amount
Multiples .
The
follo~ing
rql,
Competitive bids
$10,000
$ 1,000
182-day bill
912794 2U 7
March 17, 1997
March 20, 1997
September 18/ 1997
September 19, 1996
$19,907 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 is $2 billion or greater.
(3) Net long position must be determined as of
one half-nour 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
Competit1ve tenders
PaY!T.e:-1t Terms .
M
$11,500 million
ply to all securitie, mention.d above:
Submission of Bids:
Noncompetitive bids .
.u-.
$11,500 million
-.
I"M /
.
.
A;/,~
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
NEWS
~/78~q. . . . . . . . . . . . . .. .
. . . . . . . . . . . . . . . .
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlllNGTON, D.C.. 20220. (202) 622·2960
Remarks as prepared for delivery
March 12, 1997
THE TREASURY'S STUDY OF CREDIT UNIONS:
A MIDPOINT REVIEW
Remarks of Richard S. Carnell
Assistant Secretary of the Treasury
for Financial Institutions
National Association of Federal Credit Unions
1997 Congressional Caucus
Washington, D.C.
March 12, 1997
I.
INTRODUCTION
I appreciate having this opportunity to give you a midpoint review of the Treasury's
study of credit unions. My goal this morning will be to provide some perspective on how we at
the Treasury view this study and how we're carrying it out. Let me emphasize that the study is
still a work in progress. So it would be premature for me to offer conclusions or
recommendations at this point.
I'd like to note at the outset that we at the Treasury did not ask to do this study. Congress
included it in a bill passed last fall to keep the government running this year. Although we didn't
seek this assignment, we take it very seriously and have been working hard to complete it on
time.
Not long after the ink had dried on the legislation mandating the study, I spoke to the
annual meeting of the California Credit Union League. I said that a few simple principles would
guide our approach. Those principles are very straightforward, and they bear repeating: Be fair
and objective. Be thorough and rigorous. Be open and inclusive. I hope that by the end of my
talk you'll have a better appreciation of how we're following those principles.
RR-1551
Far press releases, speeches, public schedules and official biographies, call our 24~our fax line at (202) 622-2040
2
II.
OVERVIEW OF THE STUDY REQUIREMENTS
Let me begin by talking about what Congress has directed the Treasury to do.
Section 2606 of the Omnibus Appropriations Act for 1997 requires the Secretary of the
Treasury to conduct a study of three major topics relating to credit unions. The first topic
involves the National Credit Union Share Insurance Fund. The second involves the supervision
and financial health of corporate credit unions. And the third involves the NCUA's regulations.
The study is due September 30, 1997. We're to conduct it in consultation with the NCUA, the
FDIC, and the Treasury's Office of the Comptroller of the Currency, which regulates national
banks.
Let me now take a more specific look at the three topics I listed a moment ago. The first
is the National Credit Union Share Insurance Fund. Congress has directed us to examine two
specific issues relating to the Fund. To begin with, we're to study whether the 1 percent deposit
that credit unions have made into the Fund should continue to be treated as an asset on credit
unions' books, and thus as part of their equity capital -- or whether credit unions should, instead,
expense it. We're to study whether the Fund should be administered by someone other than the
NCUA, and what would be the implications of such a change. More generally, Congress also
directed us to evaluate the NCUA's oversight of the insurance fund.
Second, Congress has required us to evaluate the nation's ten largest corporate credit
unions. We're to do this "in cooperation with appropriate employees of other federal agencies
with expertise in the examination of federally insured financial institutions." We're to look at
corporate credit unions' investment practices. We're to examine their "financial stability,
financial operations, and financial controls." And we're to review how the NCUA supervises
them.
Third, Congress has instructed us to study the NCUA's regulations. Let me read you the
exact language on this point. "The Secretary ... shall conduct a study and evaluation of ... the
regulations of the [National Credit Union] Administration." Now this language is rather broad.
You could conceivably read it as calling for a study of all the NCUA's regulations, which occupy
250 pages in the Code of Federal Regulations. But quite a few of these regulations, however
appropriate in themselves, have little connection to anything else even touched on in the law
calling for the study. To take only a few examples, the NCUA has regulations on adjudicative
hearings, advertising, flood insurance, the Freedom of Information Act, group purchasing
activities, money laundering, pension plan custodians, and suing the government for property
damage, personal injury, or death. Did Congress really intend us to delve into all of them? We
think not. Instead, we believe the best approach is for us to review the regulations dealing with
corporate credit unions, the National Credit Union Share Insurance Fund, and the safety and
soundness of credit unions.
3
III.
PROGRESS TO-DATE
Now let me give you a progress report on how we've been going about this study.
First, we believe it is important that we gain a thorough understanding of the study topics
from the perspective of credit unions and others interested in the subject. We have made
extensive efforts to meet with, and hear from, credit unions. My staff and I have had dozens of
meetings with credit union CEOs, credit union trade associations, and the NCUA. We have
visited eight natural-person credit unions and two corporate credit unions. We have met directly
with over thirty credit union CEOs, representing both large and small credit unions. And we
have met with the CEOs of five corporate credit unions and U.S. Central. These meetings have
deepened our understanding of how credit unions view the Share Insurance Fund, their corporate
credit unions, and NCUA regulations.
Second, since we can't possibly visit with everyone interested in credit union issues, we
published a notice in the Federal Register inviting public comment on the study topics. The
comment period ended February 28th, and I am quite pleased that we received over 170
comment letters, many of them from credit unions and credit union trade associations.
Third, we have had numerous meetings with the NCUA to learn about its operation of the
Share Insurance Fund, its oversight of corporate credit unions, and its approach to safety and
soundness regulation. We have paid close attention to the changes that have been taking place at
the NCVA in recent years. As you know, just last week the NCUA fmalized its Part 704
regulation, which includes significant changes to the regulation of corporate credit unions. Part
703, which is awaiting finalization, would make significant changes in the safety and soundness
regulations governing natural-person credit unions.
Fourth, as directed by Congress and with assistance from the OCC, we assembled an
inter-agency team of federal banking examiners to assist in our review of the financial condition
of the ten largest corporate credit unions. The six-person team -- with examiners from the OCC,
FDIC, OTS, and Federal Reserve -- has been working since mid-January. As part of this process,
the Association of Corporate Credit Unions made a detailed presentation to the Treasury's credit
union team and to the inter-agency examination team. The examination team has had numerous
meetings with NCUA officials and has conducted on-site reviews of both U.S. Central and
Wescorp.
In short, the Treasury has invested significant time and resources to learning more about
credit unions. We have approached this study with open minds, open ears, and an open door.
But we're still in the process oflearning. We aren't rushing to conclusions as we do our work.
4
IV.
MORE TO DO
While we have accomplished a lot in the five months since Congress gave us this
assignment, we have much more to do. First, we received most of the response letters to our
Federal Register notice at the end of February. As I said, we received more than 170 letters and
we will review each of them carefully.
Second, as we have met with the NCUA, credit union trade associations, credit unions,
and other interested parties, we have accumulated a significant amount of informational
materials. We're in the process now of going back over these materials to ensure that we
consider all of the facts, data, and viewpoints presented there.
While there is much left for us to do, I am pleased at this point that we appear to be on
target for getting our work done on time.
V.
A WORD ON FIELD OF MEMBERSHIP
Before concluding my remarks, let me say a few words about the field of membership
issue, which is of great interest to credit unions. This issue is not part of our study mandate.
I would note that this is an important legislative issue. NAFCU and CUNA are working
together to fashion a legislative solution, as are others associated with credit unions. This issue
is of direct policy concern to the Treasury as well, and one that we are following carefully.
Since we already had a team in place studying credit unions, it only makes sense that this
team has also been asking people about the field of membership issue. We continue to follow
this issue closely, and are considering all the elements involved. But we haven't taken any
position thus far.
VI.
CONCLUSION
I would like to close now by making three observations.
First, credit unions appear to be doing very well. Loan-to-share ratios are at record
levels. And the Share Insurance Fund has experienced no losses in the past couple of years.
Second, in our discussions with credit union representatives, we have been quite
impressed with their dedication to serving members' financial service needs.
Third, credit unions have been, and remain, an important and unique component of our
fmancial services system.
5
One might ask what we expect to accomplish with our study. It's a fair question. I think
there are two ways of looking at it. On the one hand, we expect to fulfill our Congressional
mandate, to consider the study topics and to make recommendations to Congress as appropriate.
But, in addition, I would note that I have always been impressed with the credit union
principle of pursuing self-audit and renewal. Indeed, there's a striking expression of this in the
World Federation of Credit Unions' "Statement of Credit Union Operating Principles". This
statement calls for all credit unions to pursue self-audit and renewal. It says: "Credit union
management and staff should regularly ask the question, 'How have we acted like (or unlike) a
credit union today?'"
I hope that the interactions between the Treasury and credit unions aids in that process of
self-audit and renewal. I also hope that our study, once completed, is useful to you as you seek
to realize your fundamental objective -- serving your members.
Thank you for the opportunity to speak here today.
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DEPARTMENT
OF
TREASURY
THE
TREA'SURY
NEWS
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OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 9 A.M. EST
Text as Prepared for Delivery
March 12, 1997
Statement Before The
House V A-HUD Appropriations Subcommittee
Secretary Robert Rubin
March 12, 1997
Mr. Chairman, distinguished members of this Subcommittee, I would like to thank you
for the opportunity to testify this morning on the President's FY 1998 budget request for the
Community Development Financial Institutions Fund
CDFI has been a high priority of the President since taking office. It is critical to the
effort to bring the residents of the inner cities into the economic mainstream, an issue which I
believe is vitally important to all of us -- no matter where we live or what our incomes may be.
We lose tremendously in terms of economic potential and in a worsening of our social conditions
because of these tremendous problems that have historically not been dealt with in this country.
Just think of the enornlOUS difference in costs that are borne by the taxpayers, and think of the
enormous differences in productivity, and in the quality of life for all of us, if we can provide real
opportunities for the urban poor to join the economic mainstream. CDn helps to create those
opportunities.
r tend to think there are three fundamental prerequisites for progress: investment in
people through education and health care; public safety; and economic development. The CDFr
Fund is a key component of the last point. The Fund's aim is to expand access to credit and
financial services in poor urban, rural and Native American communities. areas where one of the
biggest obstacles to economic development is a lack of access to mainstream sources of private
sector capital. As Robert Kennedy once said, "To ignore the potential contribution of private
enterprise is to fight the war on poverty with a single platoon, while great armies are lef1 to stand
aside." Access to financial institutions is a fundamental tool the residents of these economically
distressed areas need to lift themselves out of poverty.
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-
----
Since it began operating in October 1995, the Fund has already made a significant
contribution to increasing access to private sector capital. In January of 1996, we received 268
applications for the CDFI program and over 50 applications for the Bank Enterprise A ward
program. After a rigorous review program, we announced the selection of 32 CDFIs to receive
over $37 million in financial and technical assistance. In September, we subsequently announced
38 banks and thrifts to receive Bank Enterprise Awards. In January, the President announced the
winners of the Presidential Awards for Excellences in Microenterprise Development to highlight
the accomplishments of entrepreneurs in this area. The response to the CDFI program has been
overwhelming -- the requests for assistance were ten times the available funding. We are clearly
getting this kind of response because the private sector know it makes good business sense.
The Fund is beginning to have an impact. It has effectively promoted partnerships
between community based financial institutions, banks and other private sector players,
leveraging scarce Federal resources into private dollars for credit starved communities. That in
turn, fosters cooperation and synergy in efforts to revive economically distressed areas. For
example, ShoreBridge Capital in Cleveland is receiving a $1.5 million investment from the CDFI
Fund. Using that money, adding capital from other investors, they will finance businesses in
Cleveland to retain and expand the area's employment base, particularly focusing on
manufacturers in Cleveland's lower-income neighborhoods. The Santa Cruz Community Credit
Union in California offers a full range of financial services to lower income people and small
businesses. The $1 million grant from the CDFI Fund will be used to help the credit union open a
branch in the low-income, predominantly Hispanic city of Watsonville.
In this era of scarce budgetary resources, we must choose our priorities carefully, and
focus on those that have long term payoffs for our economy and our society. The Fund is a top
priority of the President precisely for that reason: its payoff is in the long-term health of our
national economy, by making our nation more productive and fostering higher economic growth.
Mr. Chairman, members of the Subcommittee, I appreciate this opportunity to speak to
you today, and I look forward to working with you in the future.
-30-
DEPARTMENT
IREASURY
OF
THE
TREASURY
r,) N :E W S
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
Embargoed Until 2:00 P.M. EST
TEXT AS PREPARED FOR DELTVERY
MARCH 12. 1997
Testimony of Lawrence H. Summers
Deputy Secretary of the Treasury
Before the Senate Foreign Relations Subcommittee
on Western Hemispbere and Peace Corps Affairs
March U, 1997
Introduction
I am pleased to be here today and to have this opportunity to testify on what I believe is
one of the most important foreign policy issues facing this Administration and Congress. I want
to speak first about Mexico's cooperation on law enforcement activities to combat drugs -which was the basis for the President's decision to certify Mexico. I then want to discuss the
economic consequences that could potentially result from decertification, and the likely effect of
decertification on our cooperation.
We believe the President's decision to certify Mexico's counter-narcotics efforts was
the right one, based on the commitment to anti-narcotics displayed by the highest levels of the
Zedillo Administration. While we can not rest on the accomplishments over the past year, we
can note tangible progress.
Given the presence of General McCaffrey and Ambassador Gelbard at today's hearing, I
will not list all factors contributing to the final decision to certify Mexico. I will, however, cite a
few examples of Mexico's cooperation with Treasury and its bureaus in the fight against
narcotics
Law Enforcement Cooperation with Treasury and it Bureaus
First, we have been encouraged by measures taken by the Government of Mexico to
combat money laundering Mexico passed legislation in 1996 to criminalize money laundering,
and we have worked closely with Mexican officials in order to build on this law. Monday, the
Government of Mexico announced the enactment of new anti-money laundering regulations.
While still under review, our preliminary assessment indicates that the regulations would require
banks to report to law enforcement authorities suspicious transactions, as well as all currency
RR-1553
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
transactions in excess of $10,000
In addition, over the course of the past year:
Mexico extended wire tap authority for money laundering investigations, as part of its
organized crime legislation designed to provide greater tools to law enforcement.
Mexico's Treasury referred 21 money laundering investigations, involving 82 suspects,
to the Justice Ministry for prosecution.
Mexico's Treasury referred 26 money laundering cases to the US. for investigation, and
conducted 40 joint money laundering investigations with U. S law enforcement
authorities In addition, a Mexican Treasury official provided testimony in two major
narcotics trafficking and money laundering trials in the US.
The Mexican Justice Department assisted the US in seizing in excess of $4.6 million in
illegal assets
And representatives from the Mexican Treasury and Justice Department have participated
in several U S training exercises addressing money laundering investigative techniques.
This marked the first time that representatives from the Mexican Treasury and Justice
Departments had participated in joint training
Moreover, the US Customs Service reports continued improvement in cooperation on
air interdiction matters Specifically, Mexican Justice Department pilots continue to receive air
interdIction training from U S Customs, the Government of Mexico has deployed rapid response
helicopters to apprehend smuggling aircraft, and the Government of Mexico continues to allow,
on a case-by-case basis, U S Customs officials to pursue suspect aircraft into Mexican territory
We recognize, however, that there are shortcomings along with the successes that I just
described We share the Committee's concern that corruption at both high and low levels
continues to threaten the integrity of Mexican anti-narcotics efforts We have communicated to
the Government of Mexico that we view as unacceptable the unexplained release of the
suspected mone,· launderer, Humberto Garcia Abrego We have registered our strong protest at
the failure to freeze -- reported only recently -- more than $160 million in funds held in accounts
that U S Customs had linked to a suspected money launderer And we continue to seek
stronger efforts on the full range of issues affecting interdiction, anti-money laundering, and
InvestIgatory matters
Economic Effects of Decertification
Now let me tum to economIcs As we weigh the merits of reversing Mexico's
certifIcatIon, It is important that we look carefully at the economic damage that would
potentIal I Y Inil ict on Mexico -- and the consequences that could have for jobs and exports in our
o\\n economy GI\·en that our trade with Mexico was $130 billion last year, that we share a
3
2000 mile border, and that Mexico is the largest source of illegal immigrants into our country,
those consequences could be significant.
Let me say at outset that I cannot predict what the impact of decertification would be. I
can't judge the degree to which it would undermine confidence and damage Mexico's economic
future. But I can say that the impact would not be salutary. We need to face the real possibility
that investors will lose confidence in Mexico, and we have to assume that markets will also
recognize that risk. Markets are as fragile as they are difficult to predict, and decertification
could trigger results worse than we anticipate. No one would have predicted the scale of the
financial meltdown that threatened Mexican and U.S. interests just two years ago as capital fled
Mexico. Mexico overcame that crisis, but the costs were huge. Output fell over 6% in 1995.
Unemployment more than doubled. Real wages dropped 20% in 1995, meaning a huge fall in
the living standard of the average Mexican. As interest rates shot up over 80%, the banking,
losses in Mexico's banking system mounted, and a banking collapse was averted only through
extraordinary government support, at a cost to the government of 10% of GDP.
That episode is still fresh in the minds and memories of market participants. And despite
Mexico's remarkable recovery from the brink of default, Mexico's economy still has fragilities
and still depends on international capital flows from the private sector. This year Mexico will
need to roll over $10 billion in maturing debt, as well as foreign capital to finance new
investment. The global environment is benign at the moment -- Mexico has had good success
recently in raising funds on the international markets, and it attracted $9 billion in foreign direct
investment last year. Mexico will have no trouble meeting its capital needs if the global capital
markets stay strong and retain their confidence in Mexico.
But if confidence were to weaken and that capital were to dry up, Mexico's recovery
would be threatened. The peso would come under renewed pressure, interest rates would rise,
the fiscal deficit would widen, and investment would slow. Depreciation would threaten to fuel
renewed inflation Real wages, which are just now starting to climb again, would stagnate. The
banking system, which is slowly returning to health, would suffer a new setback. When the peso
depreciates 'ten percent, Mexican wages fall ten percent in dollar terms. The damage from a
weaker economy and weaker peso would be borne not only by Mexicans. It would also translate
into loss of U.S exports and jobs, and a surge in illegal immigration
We saw what happened to Mexico when capital stopped abruptly two years ago. U.S.
exports fell $5 billion in 1995 (before rising 23% to new record highs last year), and our $1
billion trade surplus turned into a $15 billion trade deficit. The consequences of Mexico losing
its access to international capital markets would not likely be as sudden or sharp this time,
because Mexico has resolved many of its fundamental problems. Decertification would not, in
my jUdgment, trigger a default now But a loss if capital inflows would dent the recovery now
underway in Mexico and deprive it of the resources it needs to achieve solid prosperity, build
high wage, not low wage jobs, and import US. goods
4
Why is Mexico Different')
Beyond the economic analysis, there is a broader context in which the impact of
decertification has to be judged. While decertification may have focused attention in other
countries on the need to fight drug trafficking more aggressively, let me say why I do not think it
would work well in the case of Mexico.
First, Mexico is unique in its closeness to the United States. Not only does Mexico send
84% of its exports to the United States and buy 7fJ% of its imports from American producers,
and not only do American investors account for 60% of the stock of foreign direct investment in
Mexico More than that, international capital markets see the close economic and political
relations between the United States and Mexico as the best guarantee of economic reform in
Mexico They see that the United States has been an effective partner for good economic policy
in Mexico, which helped to ensure economic policies that brought about a rapid recovery from
the financial and economic crisis of two years ago. Decertification would threaten that hard-won
credibility as a partner in Mexico's emergence as a strong and prosperous country.
Second, honest elected officials in Mexico would be undermined by a U.S. decision to
decertify, while those who are dishonest and corrupt would be strengthened and emboldened by
our condemnation of their superiors and by the reduction in the intensity of U.S.-Mexico
cooperation
President Zedillo and the reformers close to him are fighting for economic and political
reform in Mexico They are fighting for openness and transparency, and against corruption.
They are fighting against entrenched interests who resist reform. They look to us for support in
their struggle to modernize Mexico, just as those opposing reform seek to rally supporters under
the banners of nationalism and populism At this time, most Mexicans broadly support reform,
but that consensus may be vulnerable, especially in light of the economic hardships of the past
two years If we turn our backs on President Zedillo, we would strengthen those forces that
resist reform Not only would that undermine President Zedillo and the honest elected officials
\vho are committed to reform It would also drive a wedge between our two governments and
weaken our ability to reach agreements with our Mexican counterparts on combating drugs.
And it would weaken us as a force for Mexico's reform and modernization , which is a core
foreign policy interest of the United States
Final Observations
Certification with a waiver would be little less damaging than full decertification A
national interest waiver would spare Mexico any cut-off of U.S. assistance, but that assistance is
\'ery small and not economically significant The true damage would come from undercutting
our support for those in Mexico committed to reform, and from undermining investor confidence
in the close cooperation benveen our countries and in the strength of our American commitment
to work with MeXICO to advance reform
The deCIsion on whether to certify Mexico is one of the most important foreign policy
5
decisions we are likely to face in the next four years, given our shared border and uniquely close
economic relationship. We should not act without a very careful weighing of the consequences.
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OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622·2960
EMBARGOED UNTIL 10 A.M. EST
Text as Prepered for Delivery
March 13. 1997
Testimony by Acting Deputy Assistant Secretary
William Schuerch to the House Banking Committee -Subcommittee on Domestic and International Monetary Policy
March 13. 1997
Mr. Chairman. it is a pleasure to testif\ before you today on the President's request for
authorization for the Multilateral Development Banks (MOBs). I have worked with MOB issues
for many years. both here in Congress -- where I was with the Appropriations Committee for
over 15 years -- and in the Administration. I greatly appreciate the opportunity to discuss these
institutions with you, particularly in a year which the President has stated is critical to the future
of the MOBs.
I will focus my comments today on proposed authorizations for the World Bank's
International Development Association (IDA). the European Bank for Reconstruction and
Development (EBRD), the Inter-American Development Bank (lOB) and the Asian
Development Fund (ADF). At a future date. Deputy Secretary Larry Summers will testify before
you on proposed authorizations for the International Monetary Fund (IMF).
In his State of the Union Address. the President stated emphatically that it is in our
national interest to maintain our leadership in international organizations such as the World
Bank and the UN and that to do so we must fulfill our commitments to these institutions. He
said, and I quote, "If America is to lead. those of us who lead America must find the will to pay
our way."
Mr. Chairman, during my tenure at the Treasury Department. I have seen first hand the
truth of these words. As we have negotiated new MOB agreements and pushed for institutional
reforms, I have seen how America compromises its leadership when we fail to bear our share of
the burden. Instead of being able to focus our influence on pressing for improvements in the
RR1554
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
institutions, we have had to direct much of our energy to dealing \\'ith attempts by other donors
to convince us to meet our commitments. We have faced procurement restrictions on U.S.
business -- which so far we have been able to limit to the IDA Interim Trust Fund, and we are
facing threats to our voting power in the Banks. I believe that while our leadership position in
the multilateral arena remains largely intact. continued failure to meet our commitments poses a
growing threat to our interests.
There is a direct link between our abilitv- to lead and what has been our inabilitv
. to meet
even our reduced commitments. This is why we are at a critical point in our relationship with
other donors and with these institutions. In light of our large and persistent arrears. the rest of the
world is looking for a signal of our commitment to the international system that we largely
created and which we have shaped over the last 50 years. It is vital that we send a strong
message: that America will lead. that we will fulfill our commitments, and that we will bear our
share of the burden for institutions which strongly advance our interests.
Let me cite just a few examples of where the MOBs advance our interests:
•
In Bosnia, where the U.S. has provided the leadership to stop the civil war and begin the
reconciliation process, the World Bank and the EBRO are coordinating their own and
other donor funds to support the massive rebuilding process. These efforts, which
incorporate U.S. bilateral assistance to the region. are critical to maintaining peace once
the U.S. military presence is removed.
•
In our own hemisphere, the World Bank and the Inter-American Bank are providing
hundreds of millions of dollars to support the difficult transformation of countries like
Haiti and Guatemala. They also have provided critical support to Mexico since the 1995
peso crisis which helped to ensure that all U.S. emergency loans were repaid.
•
In Eastern Europe and the former Soviet Union. the EBRO and the World Bank are
providing nearly $8 billion annually in direct investments in private sector ventures and
to privatization and institution-building projects v.hich lay the groundwork for foreign
investment.
•
IDA is the world's largest funder of AIDS programs. In Africa, IDA is providing support
for AIDS and military demobilization to countries such as Uganda and Mozambique.
These programs underpin economic reform efforts which are allowing these countries to
return to growth and stability after years of civil war. In Uganda in partiCUlar, the
rewards of several years of concerted economic reform have translated into recent growth
of around 10%.
In these and many other areas, the MDBs are vital partners in our foreign policy. We
have a strong interest in seeing that they remain responsive to our priorities.
Let me shift briefly to the our FY9R hudget request. The Administration is proposing a
$1.5 billion budget request for the MOBs as part of the President· s 5-year plan to balance the
budget. Our request achieves three main goals:
•
First. it meets our $1.2 billion of scheduled commitments -- what we owe excluding our
arrears. This reduced commitment leveL which is less than our annual IDA commitment
alone under the prior IOA-l 0 agreement. is the result of the Administration's having
successfully negotiated down U.S. funding levels on average by 40% in the last set of
replenishment agreements.
•
Second. our budget fully clears our $234 million of arrears to IDA which is the most
important source of development aid to poor countries and where arrears present the
greatest problem for our international leadership.
•
Third. it begins a three-year process of clearing our $862 million of overall MOB arrears.
This will lead to a permanently lower level of required MOB funding after the year 2000.
•
It is equally critical that we show our long-term commitment to these institutions.
Therefore. we are asking for full authorization of the multi-year MOB funding
agreements we have negotiated.
Make no mistake. the Administration's request for the MOBs represents our firm belief
that. in the context of diminishing budget resources. these institutions cost-effectively serve the
foreign policy. economic and security interests of the American people. Our funding determines
our influence over $46 billion in annual MOB lending. far more than we could ever provide
bilaterally. Maintaining our leadership position insures that the institutions continue to focus on
areas of vital u.s. interest.
Let me step back for a moment and say that I am fully aware that many people ask the
questions. "Do the MOBs work? Does concessional lending serve the poor countries who
receive MOB loans and the donors who benefit from grO\\1h in developing countries T These
types of questions have always existed in the context of both bilateral and multilateral assistance.
As you know, they are questions that should be asked about all publicly funded programs on a
regular basis.
In response, it should be made clear that the MOBs have many notable successes. IDA's
twenty graduates, for example, now import $60 billion per year from the United States. Private
investment flows to developing countries have increased five-fold just in the last six years.
Overall, social indicators in the poorest countries have shown remarkable improvement. Since
1970, fertility and infant mortality rates are both down 40%. primary school enrollment is up
36%, literacy rates have risen 33%. life expectancy has increased 8 years. and the percentage of
people with access to safe drinking water has gone from 20% to 70%. MOBs projects -- which
have built classrooms, provided sanitation for millions of people. delivered textbooks in poor
countries, and fed millions of malnourished children -- haw played a major role.
Yet the MOBs and bilateral assistance programs have heen unable to overcome the forces
of social and political chaos and economic disintegration which plague many countries.
particularly in Africa. Nor have these programs yet heen ahle to spread adequately the benefits
of private foreign investment to many horrowers. Foreign inwstment has been limited to a few,
primarily Asian and Latin American. economies. v.:ith 80% of investment flows going to just
twelve countries. But there are signs of hope. Grovvlh among IDA-only borrowers. excluding
blend borrowers India and China. went from I % in 1991 to 6% in 1995. In Africa, even with all
of the crises of the last few years. overall growth has risen from I % to 4% during the same
period.
Thanks in large part to American influence. the MOBs are directing their resources at the
areas which hold the most promise for expanding the scope of private sector-led growth. The
institutions are pushing countries to reduce tariffs and barriers to investment. They are helping to
build institutions to ensure the rule of law. enforcement of contracts. and the elimination of
corruption. And they are providing support for sustainahle development and for basic education,
heath and infrastructure which are the building blocks of economic growth.
The MOBs are being selective by concentrating resources in the countries which are
doing the most to open and restructure their economies. ESAF. for example, conditions its
lending on borrower progress on free-market economic reforms. In IDA. 84% of lending over
the last four years went to countries rated by the Bank as average or above in terms of economic
reform. This helps ensure that IDA projects have the best chance of succeeding and provides
incentives to poor performers. Finally. the MOBs are phasing out lending for countries whose
access to capital makes their need for concessional resources less pressing. China will graduate
from IDA in FY99 and its borrowing this year will be less than 20% of prior levels. India will
also be phased down with loans going to sectors that cannot attract private capital. Neither of
these countries have access to the Asian Development Fund.
Can the MOBs continue to improve -- definitely. And we continue to press for reforms.
Do they currently serve the interests of their borrowers and of the people of the United States -the answer is yes, absolutely.
Despite problems caused by our arrears. we have achieved what I consider remarkable
success in the last set of MDB funding negotiations. Account hy account, we have reduced the
budgetary costs of the MDBs on average by 40%. we have successfully pushed for cost savings
and accountability within the institutions. and we have focussed the institutions on our foreign
policy interests and on free market values which we all share.
5
Looking at the specifics of our authorization requests:
First, our request for authorization for IDA is for $1.6 hillion which we have pledged to
fund the two-year IDA-II replenishment for FY98 and FY99. This $800 million per year is a
36% reduction from the $ 1.25 billion annual IDA-J 0 commitment negotiated by the previous
Administration. Despite this reduction, IDA will be able to continue at its current lending level
as loan repayments, higher contributions from other donors and World Bank net income transfers
have all increased as sources of IDA funding.
The IDA-II agreement will also permit us to continue to press our reform agenda.
Largely as a result of U.S. efforts, the World Bank has increased the transparency of its
operations. encouraged greater participation of beneficiaries in project design, created an
inspection panel and an auditing department to evaluate project implementation, and focussed
more attention on issues like corruption and labor rights. The Bank has also cut its
administrative budget by 10% in two years. World Bank President Wolfensohn is now
proposing a major new reform program which carries the reform agenda even further and holds
the promise of greatly improving the Bank's efficiency. effectiveness and focus. But it also has a
significant pricetag and we are carefully examining its details.
Let me briefly mention the issue of procurement restrictions in the IDA Interim Trust
Fund which has been of concern to many members and to this Administration. As you know, the
ITF donors have recommended that $1 billion, or about 1/3 of the trust fund, be set aside, and
potentially made available for U.S. procurement. While that outcome is not everything we
wanted, it is important to remember that the U.S. did not contribute to the ITF. and that the
practice of limiting procurement to fund donors and borrowers exists in IDA and all of the other
soft loan windows. The concept of burden-sharing is one that the U.S. has long championed.
We put enormous effort into this issue and. given these obstacles. this was the best we could
achieve. A report on our efforts was delivered to Congress on February 27th.
The second request we have is for authorization of the tinal three years of the InterAmerican Bank's eighth general capital increase, agreed to in 1994. This authorization would
continue our annual commitment of$25.6 million which is 15% of the total paid-in capital. The
lOB lends approximately $7 billion per year in Latin America and leverages an additional $2.4
billion in co-financing. It continues to be instrumental in supporting the region's dramatic shifts
toward greater democracy, lower tariffs, fiscal responsibility and economic growth. On the
ground, the IDB is helping cement the Guatemalan peace process by funding roads into isolated
areas and rural development programs to raise incomes in indigenous communities. It is helping
countries like Mexico and Argentina to privatize and strengthen their financial sectors to reduce
vulnerability to external shocks. It has also been a leader in developing effective microenterprise programs which bring private enterprise down to the grass roots level.
Third. we are requesting authorization for what we expect to he the final recapitalization
of the European Bank for Reconstruction and Development. Our request for $285 million over 8
years, or $35.8 million per year, is a 50% reduction from our previous annual commitment. We
nevertheless maintain our status as the largest single shareholder in the Bank with a 10% share.
After a shaky start, and I think most of you know that history. the EBRD has developed into an
efficient effective institution which is advancing private sector development in Eastern Europe
and the former Soviet Union. 70% of the EBRD's $10 hillion in cumulative funding has gone
directly to private sector projects where it has heen leveraged hy over $20 billion in private cofinancing.
The EBRD continues to be an effective catalyst for economic reform and democracy. As
part of its charter, the Bank can only operate in countries that are making progress toward greater
democracy and increased economic freedom. If a country' s reform program lags, the EBRD
reduces or ends it participation. The EBRD also is effectively targeting its resources to where
they are most needed. As countries such as Poland. the Czech Republic and Hungary attract
more private capitaL the EBRD is shifting its focus further East to the former Soviet Union
where its role as an a magnet for private capital investments is more sorely needed.
Finally, we are requesting authorization for the Asian Development Fund where we have
recently concluded a remarkably successful replenishment agreement. I call it remarkable
because. as you know, we face arrears in the ADF of $237 million. slightly larger than our
arrears to IDA. Despite this situation. the ADF -7 agreement incorporates a 41 % reduction in the
annual U.S. commitment with only a small reduction in our share from 16% to 15%. In addition,
we achieved all of the major goals we had laid out when negotiation began:
•
There are no procurement restrictions or special funds in the ADF which mirror IDA's
Interim Trust Fund. I credit this result in large part to Congressional reaction to the ITF
and the strong case the Administration made to lift the Fund's procurement restrictions.
•
Despite the wishes of many donors. China and India wi II continue not to have access to
the Fund.
•
Very importantly, the Fund has set a goal to become self-financing in haifa generation
(about 15 years) which would eventually eliminate the need for future funding from
Congress.
•
Finally, new high-growth Asian donors such as Korea. Malaysia and Thailand are taking
a greater share of the burden. For the first time Asian donors will provide 112 of the total
funding. These countries have benefited greatly from the Asian Bank and Fund's support
and are now showing their commitment to helping their poorer neighbors lift themselves
out of poverty.
7
Mr. Chairman. the agreements we are considering today are good ones - they
significantly reduce the MDB's budgetary cost and they ad\'ance American interests. But, as I
have said, we cannot lead in the multilateral system if we are unwilling to fund even our reduced
commitments. I urge you to support the Administration' s hudget request and full authorization
of these institutions as a statement of our commitment to international engagement and
leadership.
Thank you. I look fom:ard to your questions.
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DEPARTMENT
OF
THE
TREASURY
~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1I
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OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASIDNGTON, D.C .• 20220. (202) 622-2960
Remarks as prepared for delivery
March 13, 1997
BUILDING COMMUNITIES TOGETHER
Remarks of Richard S. Carnell
Assistant Secretary of the Treasury
for Financial Institutions
National Community Reinvestment Coalition
1997 Annual Meeting and Conference
Washington, D.C.
March 13, 1997
I want to speak to you this morning about something the Clinton Administration is deeply
committed to: expanding access to financial services for all Americans. In particular, I'd
like to discuss the Administration's initiatives in three areas: community reinvestment,
community development financial institutions, and the electronic delivery of federal
benefits and other federal payments.
I. COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act of 1977 has a straightforward purpose: encouraging
depository institutions to serve creditworthy borrowers throughout their communities.
CRA requires no public subsidy and no large Washington bureaucracy. Instead it brings
banks and communities together to make local economic development happen. It's the
kind of public-private partnership that can really make a difference in underserved
communities.
RR-1555
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2
Because of CRA more lenders are making good loans in all types of communities -sound, profitable loans to creditworthy low- and moderate-income persons.
But think back just two years -- to March 1995 -- and remember how CRA really was in
grave jeopardy.
Let me set the stage. A new Congress, flush with victory and bold ideas, was getting
ready to undermine CRA.
Safe harbors from community protests. Self-certification. Exemptions. All these
proposals were being developed in earnest by people who would lose no sleep at all over
eviscerating CRA. These rollback provisions would have seriously undermined CRA's
effectiveness -- and threatened to reverse the growing cooperation between mainstream
lenders and economically disadvantaged communities.
During the spring of 1995, I spent quite a few lonely hours at the witness table, testifying
before Congressional committees on this precise subject. At times it was discouraging.
But over the next year and a half we fought back.
We fought back although the prospects sometimes looked bleak. We fought back because
it was the right thing to do for America's neighborhoods and communities. Organizations
like yours stepped forward to explain quite eloquently just what CRA means to
communities. And Secretary Rubin made this Administration's determination very clear,
threatening to recommend a veto of any legislation undermining CRA.
In September 1996, when the Congress finally passed regulatory burden relief legislation,
the Community Reinvestment Act remained intact.
Why did we fight this battle? It's actually very simple. We need look no farther than
your own communities to find the reason.
Let's look at the some of the encouraging news, beginning with homeownership.
According to the Department of Housing and Urban Development, nearly two-thirds of
all American families now own their own homes. That's a 15-year high. Moreover, in
recent years the rate of homeownership has increased more rapidly for minorities than for
the nation as a whole.
A 1996 analysis of Home Mortgage Disclosure Act data by economists at the Federal
Reserve Bank of Chicago found that "between 1990 and 1995 the annual number of
3
mortgage originations to low- and moderate-income households, in low- and moderateincome census tracts, and to minorities nearly doubled". And generally "there was a
significant increase in the number of loans to individuals targeted by fair lending and
eRA regulations." A number of other researchers have reported similar results.
Another element of good news is the federal banking agencies' new eRA regulation,
initiated at President Clinton's urging in 1993 and becoming fully applicable this coming
July. We have limited experience with the regulation because it started to take effect only
in 1996, and we don't yet have Home Mortgage Disclosure Act data for that year.
Nevertheless, we have good reason to believe that the new approach will prove effective.
For example, the new regulation recognizes that one size does not fit all. To
accommodate the variety of depository institutions, the new regulation provides several
different performance evaluation methods.
And the regulation recognizes that a broad range of lending -- not just home mortgage
lending -- is important for community investment. And so regulators will, as appropriate,
take account of small business and small farm lending, community development lending,
and consumer lending.
But eRA is just one part of the Administration's approach to encouraging community
development through greater access to credit and capital. You might look at our efforts as
representing a balanced top-downlbottom up approach.
eRA is the top-down aspect, encouraging traditional institutions to go deeper into their
communities to make loans to qualified borrowers. Another important program -- CDFI - represents the bottom-up aspect. Let's look at CDFI for a moment.
II. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND
The Community Development Financial Institutions Fund, established in 1994, is an
innovative approach to expanding access to capital and credit.
I worked on the legislation establishing CDFI and now serve on the Fund's Community
Development Advisory Board -.- as does the President ofNCRC, John Taylor. He's a
lively and positive force at Board meetings. And let me assure you: John serves you
well.
4
The primary purpose of the CDFI Fund is to better enable non-traditional lenders to meet
the financing needs of economically distressed, underserved communities.
A wide range of specialized lenders can tap into the CDFI fund. They include community
development banks, community development credit unions, community development loan
funds, micro-enterprise loan funds, venture development funds, and community
development corporations.
The basic idea behind the Fund's programs is simple and sound: use small amounts of
Federal money to leverage significant amounts of private and non-federal public
resources. In helping these institutions, the Fund aims to support innovative approaches
to locally based private-sector community lending.
Due to the outstanding efforts of the Fund's Director, Kirsten Moy, and her staff, we have
another success story in the Administration's efforts to expand access to credit.
In 1996, under the first round of the CDFI program, the Fund awarded a total of$37
million to 32 CDFIs serving communities in 46 states. 50 percent serve predominantly
urban areas, 25 percent predominantly rural areas, and the remainder a combination of
both. Finally, 24 of the CDFIs serve empowerment zones or enterprise communities.
The Fund estimates that in the next two or three years the $37 million awarded will
leverage three to four times that amount in total capital raised for these institutions. In the
long term, the $37 million is expected to support lending and investment of 10 to 20 times
that amount.
Under the first round of the Bank Enterprise Awards program, the Fund awarded a total
of$13 million to 38 banks and thrifts located in 18 states. Of the 38 awards, two-thirds
went to recipients who increased their assistance to CDFIs.
The Fund estimates that the BEA program leveraged nearly $66 million in private sector
financial support for CDFIs, and it catalyzed another $60 million in direct lending by
banks and thrifts in economically distressed neighborhoods.
Looking forward, the Fund just announced the availability of up to $16.25 million for the
second funding round of the BEA program. Second round funding for the CDFI program
should be announced in a matter of weeks.
5
All of this is real money, flowing into real communities. The CDFI Fund's strong
showing warrants continued bipartisan support by the Congress. The President has also
reiterated his strong support for the Fund, announcing in January his intention to increase
funding by $1 billion over the next five years.
III.
EFT '99 AND THE UNBANKED
I'd like to tum now to my final topic: Electronic funds transfer and addressing the
problems of the unbanked -- part of an initiative we call EFT '99.
EFT is generally understood to include some very common things that you are all familiar
with: direct deposit, automated teller machines (or ATMs), and credit card transactions.
The goal of EFT is to take advantage of the reduced cost, improved convenience, and
enhanced security that comes with electronic technology.
Legislation enacted by Congress last year requires that the Federal government make all
of its recurring payments by electronic funds transfer, instead of paper checks, by January
1, 1999. This mandate covers not only vendor and expense reimbursements to
businesses, but all wage, salary, retirement, and federal benefit payments to individuals.
The EFT '99 mandate raises a number of intriguing issues for government agencies and
financial institutions. Possibly the most difficult of these issues deals with serving the
needs of a large number of "unbanked" federal benefit recipients.
When we say unbanked, what do we mean? The term "unbanked" refers to people who
don't maintain a checking, savings, or other transactions account at a depository
institution. Some estimates suggest that about 10 million federal benefit recipients are
unbanked. When you look at the U.S. population, as many as 20 percent of American
households may be unbanked.
Most studies generally agree that the unbanked are largely drawn from lower income,
younger, and minority segments of the population. Many of the unbanked cite a host of
reasons why don't have a relationship with a "traditional" financial institution. They
don't like the high minimum deposits or monthly balance requirements. They cannot
afford the high account maintenance and transaction fees. Some have insufficient
savings and a limited need for writing checks. Others have difficulties in managing an
account. And lastly many just dislike or distrust banks.
6
Nevertheless, the unbanked still need and still purchase financial services. And they do
so largely from what are known as "alternative" financial services providers. The latter
include pawnshops, check cashing outlets, money transfer firms, bill paying services, and
money order issuers. In many cases, the fees charged by these firms appear quite high,
especially considering the economic circumstances of the individuals involved.
Treasury and the other federal agencies working to implement the EFT 99 requirement
don't have unlimited time or flexibility to resolve all of the issues pertaining to unbanked
federal benefit recipients. But, we have a very rare opportunity to do some good.
The new law requires federal benefit recipients to designate a financial institution or other
"authorized payment agent" to receive their payments. If a recipient does not make such
a designation, the Secretary of the Treasury has to effectively do so for them, ensuring
that the recipient has access to their account at "reasonable cost" and with "the same
consumer protections with respect to the account as other account holders at the same
institution."
Against this general background, Treasury's Financial Management Service (FMS) is
now conducting additional research on unbanked federal benefit recipients as well as on
alternative electronic delivery options. That research should be completed in the near
future. It should assist FMS in better profiling unbanked federal beneficiaries, and
establishing standards for some key terms such as "payment agents," "reasonable costs,"
and "consumer protections."
Treasury's goal is to publish a notice of proposed rulemaking for implementing EFT '99
in a matter of months. This will provide individuals, federal agencies, and the financial
services industry time to plan what will hopefully be a seamless transition. We've
already spent a fair amount of time during the past few months talking to industry
representatives about their technical capabilities and current plans for meeting the needs
of the unbanked. Within the next few weeks we plan to meet with a wide range of
consumer and community groups as well.
While EFT '99 can't address the question of meeting the needs of the unbanked in its
entirety, we hope that the lessons learned from this program will have significant
spillover value for everyone concerned. Moreover, we firmly believe that EFT '99
provides a significant opportunity for financial institutions to serve a large and known
market of some 10 million individuals. We hope that banks and others will step forward
aggressively to serve these communities.
7
IV.
CONCLUSIONS
Let me close by making a few observations.
The Administration's program for expanding access to financial services is a balanced,
practical, and workable approach. We're trying to address the problems of credit and
capital deprivation, as well as the unbanked, through measures consistent with the private
marketplace. We believe this is the key to self-sustaining activities.
CRA, in concert with fair lending, has proven itself remarkably effective. It fosters
partnerships that bring hope and opportunity to cities and communities around the
country. Looking ahead, we'll continue to insist that the new CRA regulation be given a
fair chance to work. And this Administration will not tolerate -- let me repeat that -- will
not tolerate attempts to weaken or eviscerate the Community Reinvestment Act. We
made that pledge stick last time around. And, if necessary, we'll make it stick again.
Next, CDFI has been a rapid, unqualified success. It was enacted with strong bipartisan
support and now, more than ever, it deserves to be funded as fully as possible.
And finally I believe EFT' 99 will provide significant guidance in how to meet the needs
of un banked households and individuals. Here too, we can expect substantial private
sector innovation and participation.
As we work though our agenda, we look forward to hearing your views and encourage
your participation in the policy making process.
I appreciate the opportunity to speak to you this morning. Thank you for your work in
communities across America.
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omCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C.. %OUO - (202) 622·2960
Toward an IRS for the Twenty-First Century
Lawrence Summers
Deputy Secretary of the Treasury
Tax Executives Institute, Inc:
Washington, DC
March 17, 1997
Good morning. Thank you for that kind introduction. It is an honor to be here among tax
professionals to discuss the vital question of improving the way in which the IRS collects our
nation's taxes.
Nobody likes to pay taxes, but, as Oliver Wendell Holmes once said, they are the price we pay
for civilized society. They have been at the center of our nation's greatest debates from
Revolutionary times to today. They fund our anned forces, our children's education, and our
parents' health care, and they finance advances in science and technology that benefit us all.
Collecting taxes ha" always posed a difficult challenge. Because of the nature of the work they
do, tax collectors will never win popularity contests. Recently, announcements we have made
about continuing problems in computer systems have focused attention on the Internal Revenue
Service. Continuing improvements in the service provided by banks, brokers, credit card
companies, and other users of information technology bring ever more sharply into focus the
IRS's problems with customer service. At Treasury and the IRS we recognize that the IRS could
do much better at providing the kind of cost-effective, high quality service that the American
people deserve.
We have, I believe, reached an important turning point. Over the last year, the Treasury
Department has focused intense efforts on improving the IRS. The National Commission on
Restructuring the IRS, led by Senator Bob KeITey and Congressman Rob Portman, has already
made a significant contribution to the ongoing discussion. A consensus has emerged among a
wide group of stakeholders, from business executives to Members of Congress to leaders of the
National Treasury Employees Union. The message is clear: it is time for change.
I believe that in the next year or so we have the opportunity and the obligation to bring about the
RR-1556
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most far-reaching changes in the way the IRS is managed and in the way it does its business in
decades. The IRS needs to be more responsive to taxpayers, to use technology more effectively.
and to be more efficient. However you feel about structural tax reform, I suspect that most of
you share my conviction that for the foreseeable future, the United States will have an income
tax that taxes people based on their ability to pay. Given this, it is not possible to eliminate the
IRS, and it is vital that we have an IRS that functions effectively. We must all work
constructively toward this end. What we must not do is attack the IRS in order to promote other
agendas.
It will be the task of management at the IRS to manage infonnation technology better and to
harness it toward the goal of better customer service. What I would like to provide today is the
Treasury Department's view of how to establish a framework within which the IRS can best get
its mission accomplished. I use the phrase "get its mission accomplished" deliberately to
underscore the fact that the IRS of the future will have to contract out, outsource, partner with the
private sector, and rely on outside vendors to a much greater extent than the IRS of the present.
Last year in testimony before Congress, Secretary Rubin and I recognized that the modernization
program was, as we put it at the time, off track. We called for a sharp tum and made clear our
determination to bring about change in the way the IRS uses information technology and
provides customer service. And there has been change.
•
•
•
•
•
We have appointed a new Chief Infonnation Officer at the IRS, Art Gross. Following his
review of technology projects, we canceled or collapsed 26 programs into nine.
The IRS has increased outsourcing. The percentage of contractors, as opposed to IRS
staff, working on tax systems modernization has increased from 40 to 64 percent over the
past two years. The number of IRS staff working on tax systems modernization has
decreased from 524 to 156. And we expect to pursue a prime contractor for systems
modernization and integration and to develop an outsourcing strategy for submissions
processing.
The IRS has made progress in eliminating paper. This year, we estimate that 19.2 million
Americans will file electronically by telephone or computer, up from 11.8 million
taxpayers in 1995.
While there is a long way to go, the IRS has made progress in being able to respond to all
incoming calls.
The IRS has improved customer service by beginning to change the internal culture of the
IRS. Last summer, President Clinton signed bi-partisan legislation enacting the Second
Taxpayer Bill of Rights, which vastly increased our number of taxpayer advocates. After
interviewing our head Taxpayer Advocate on NBC's Today Show, Katie Couric
proclaimed that Americans have a friend at the IRS.
Steps such as these are obviously only the beginning. Everyone involved in this process at
Treasury, the IRS, Congress, and the union has recognized that the problems at the IRS have
developed over decades and will not be solved overnight or even over a couple of filing seasons.
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Only if we confront problems directly -- from protecting taxpayers' privacy to using technology
to making sure the phones are answered -- will we build an IRS for the 21 st century.
The Five Point Plan
As we chart our new course, we will focus on five critical areas -- oversight, flexibility,
budgeting, tax simplification, and leadership.
Let me address each of these in turn.
1. Institutionalize Oversight
First, we at the Treasury Department have strengthened and made proactive our oversight of the
IRS, and we take responsibility for refonning the institution. We will devote the necessary
resources, both managerial and financial, to do the job.
Oversight of the IRS by the Treasury dep~ent is the best way to ensure the IRS's
accountability to the American people and to coordinate tax collection with tax policy. Through
the Treasury, the IRS is able to bring concerns about the difficulty of administering tax changes
to senior Administration officials; I raise these concerns frequently in tax policy discussions with
policymakers in the White House and throughout the Administration. In addition, the IRS is able
to draw upon Treasury resources for critical projects, as demonstrated by our current cooperation
on the Year 2000 conversion.
Going forward, we will take two concrete steps to institutionalize oversight of the IRS. Over the
last year, we have set up a Modernization Management Board comprised of senior officials from
Treasury, the IRS, and other parts of the Administration. The Modernization Management Board
is directed at overseeing the infonnation technology programs and functions in many ways like a
corporate board, approving major strategic decisions and investments. Based on its success, we
will ask the President to issue an Executive Directive that will make this board pennanent and
extend its mandate to cover the broad range of strategic issues facing the IRS.
We will also establish a blue ribbon Advisory Committee, reporting directly to the Secretary of
the Treasury, to bring private sector expertise to bear on the management of the IRS. This
committee, composed of senior business executives, experts in infonnation technology, small
business advocates, tax professionals, and others, will meet regularly to make reconunendations
on major strategic decisions facing the IRS.
II. Increase Flexibility
Second, we will enhance and strengthen the IRS's ability to manage its operations. The IRS
faces a multitude of restrictions -- restrictions that would be unacceptable in the private sector -that hamper its ability to provide efficient service. For example:
•
The Commissioner should not have to wait four months to hire the management team he
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4
or she needs.
•
The IRS should be able to attract and retain the highest quality infonnation technology
specialists and other professionals.
•
The IRS should not face rules that make restructuring the workforce
needlessly difficult for employees and the employer.
To strengthen the Commissioner's ability to effect change, we at Treasury will work with
Congress, the Commission, and the union to improve flexibility: to bring on people with specific
skills more quickly ... to pay them more competitively ... and to give them the training they need.
Many of these changes will require legislation, and we expect to propose this legislation to
Congress later this year.
In return, if legislation is passed, employees of the IRS, as in any well-managed business. will be
held accountable for results.
Let me add that in taking these steps, we are conunitted to maintaining the independence and
freedom of the IRS from political influence.
And a crucial part of any strategy for improving flexibility has to be outsourcing. Just as private
industry has found that outsourcing enables an organization to focus on what it does best and to
rely on others for what they do better, so government can benefit from outsourcing as well.
Inevitably, resources hired from private companies will be more flexible than those that become
part of the IRS's overhead. \\!here it is cost effective, but only where it is cost effective, we will
pursue outsourcing strategies vigorously.
III. Reform Budgeting Procedures
Third, we will work with Congress to help the IRS get the stable and predictable funding it needs
to operate more effectively.
Multi-year budgeting for capital projects is already in use in other federal agencies. For example,
the Department of Defense uses multi-year funding for many procurement projects, and the
Department of Housing and Urban Development uses this funding method for housing
construction.
Today, the IRS operates in a low-trust, short-tether budgeting environment. This makes rational
planning for capital projects such as infonnation technology very difficult. As we re-establish
trust and demonstrate that the IRS is investing resources wisely and prudently, we are examining
longer tenn approaches to budgeting. This year we have proposed funding for the next two years
for systems modernization, funding which can be used when needed. As evidence that we
recognize our responsibility to Congress and the American people, we have committed not to
spend these funds until and unless we demonstrate the clear benefits of our funding proposals.
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Over time, the Administration and Congress will have to give careful consideration to the
appropriate size of the IRS budget. The budget has declined by more than nine percent in real
terms over the last two years. On the one hand, efficiency improvements are surely possible
through information technology, which should enable us to reduce the budget. On the other
hand, more customer service requires more people serving customers, and experience
demonstrates that investments in improving compliance have pay-offs in extra revenues that far
exceed their costs.
IV. Simplify Taxes
Fourth, we will work to simplify the tax code.
There is no doubt that we can do a better job of administering the tax laws than we have. But our
job, and yours, would be far easier if we, working with Congress, were able to streamline our
9,451-page tax code.
Our Administration has already taken several steps toward simplification. This audience knows
first hand how our "check-the-box" regulations have simplified tax planning and compliance,
particularly for small business. The President's current proposal to exclude up to $500,000 of
capital gains from the sale of a home will dramatically simplify record keeping for more than 60
million families. The President's budget also states our intention to introduce new tax
simplification legislation in this year's budget cycle.
.
There are some who, based on the complexity of the tax code and on problems at the IRS. argue
for extreme measures such as a flat tax. I believe that such proposals would not only unfairly
increase the tax burden on the middle class and hamper economic growth, they would nQ1
simplify the administration of the tax code.
V. Leadership
Ultimately, every business executive knows that leadership is crucial to performance. Leadership
is particularly important when there is a need to change the culture of the organization.
Over the last four years, Commissioner Richardson has guided the IRS through difficult times
and has made progress in many areas. Now, as we move forward, we are committed to
appointing a new Conunissioner who has experience with the challenges of organizational
change, customer service improvement, and information technology management that the IRS
faces. While technical excellence in tax matters must be maintained, the greatest challenges
facing the IRS in the coming years are managerial.
We will charge the new Commissioner with developing a detailed strategic plan for change. And
we will work to give the new Commissioner the flexibilities and tools he or she needs to effect
change and to recruit a first-rate management tearn.
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6
Conclusion
These steps - institutionalizing oversight, increasing flexibility, obtaining predictable funding,
simplifying taxes, and introducing new leadership -- provide a framework for the kind of tax
administration system that American taxpayers deserve. Of course, there are other critical issues
that we must address. But I believe that progress on these five fronts will give the IRS a solid
foundation on which we can build.
In the coming months, the nation will engage in a discussion of how to reform and renew the
IRS. It is essential that we proceed constructively. The problems may lie in many places, but the
103,617 dedicated people of the IRS perform a difficult and Wlpopular job for our country. It
does not serve our country well to attack their professionalism or integrity.
As we evaluate and improve the way we administer our taxes, you, as tax professionals, have an
important role to play. We at Treasury and the IRS want and need your suggestions and help. I
look forward to working closely with Congress, the Commission, and members of the public
such as yoW"Selves to set the Internal Revenue Service on a new course for change as we enter the
21 st Century.
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T{ Y
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T.xt At PrcplTed tor DeUvery
March 11, 1997
IDB Annual Mattial
RemArki by
David A. Lipton
AnbtalU Secretary of tb. THUllI"}'
Mareh 17, 1997
Barcelon., Spala
1 am delighted to be here in this historic city and to have the clune. to add:caa tho Awlua1
Meeting of~e Inter-AmerilOA11 Deyelopment Bank. The Bank il belpiDi Gountries ill the rCiion
through a penod of enormous ChCU1~ and Opportunity, We are fol"t1.mate to have at i~ llC~lm
Enrique (SllsiClS, not only an ex,~l1enl President, but also a true 5tatosmo.n for our hemiaphere.
I. Tb. retul'D of capital nows
Th~ year 1996 brought ~lJnomic recovery and l"To&ress on refonn for most of the rogion. Must
countries achieved stable ur lower inflation and bToadly sO\md fiscal management, and. scvcriil
mQdc notable ~dvam;cs on prtvatin.tion. A harClmeter of that progress is the suceca. the .'eiiuo
hlld in attracting J)ri vl:I.le capital inflows, which exceeded four percent of GDP in the three 1ari~~
countries.
In some rcspeClS. last year also marked the pauing oftbe 198018 d.bt crisis.
•
Peru's commercial bank debt deal brought the Brady Plan to a close.
•
JusL as the final Brady debt inlltruments were created t Mexico beaDl1 to liquidate its Brady
ltom.ll:i, with proceeds from pure ~overtlign debt issued at Ions maturitios and improved
r4lcs. Mexico returned to the markets to issue over $20 billion, only one year After its
financial criSiS.
•
And for the poorest countrie~. the mtemational community recogniz~ the need \0 help
put their debt on a sustainahle ha.~;~ by engaging all creditors, inclucUnl for the fim time,
international financial institution~. in c1ebt reduction to il.lppOl't bold t.fonn.
RR-:5S7
•
From: TREASURY PUBLIC AFFAIRS
10009
3-28-97
4: 16pm
p. 14 of 27
2
Mexico's dramatic economic and financial success in 1996 deserves special mention. The deep
recession of 1995 yielded \0 five percent growth last year. And. in recoi1lition ofMexico's
success Secretary Guillermo Ortiz will be named Latin Finance Man of tile Year. That
recoiI'Lition is richly deserved.
n.
WllI capital flows briDK bl"ber Krowth or jijst bl¥her debt?
Anyune whu walchcd the: cApcricm;c Qf the 1970':s jlml 1980'~ mitd1~ ~k: Should we view the
f~UN I,;~pill:l.l !luws Lu the re~iQl1 a:s WI uppurlullily ur WI urm:n? DQ thO$C flows reflect a hard
~~~SJUc:nl uf cl,;unumil,; rc:lurwli ~ml ~J.'uwlh IJl'uSIJt:cb? IUlho yc~ 2000. will we look. back on
these timr:~ tu sec that fOlei&1l cClpital rueled stronger yowth, Or will we fimllhat the n:¥iun has
repeated tIle cydc uf i.udcbtedm:s:i ilnd financial dlf!lcultiC)?
Let me make some observations on those questions, TIle IW'ge in c~ital flows Ctlfl=<.:ls, in pW'l, t1
growing appetite for emerging marKet il1V~tm=llts by industrial \X)WlU-Y WVCltOD. In I6Qrnc:
cOllntlics, this pOl1folio shift lw beell fed by illstitutioll41 changcs that make it ~icr fur
investors to go abroad in search ofn:tums. The flows also reflect a &lobal eu~iruwm:nllluiL wu
remarkably benign, with low interest rate3 and generAlly strollS equity lllll,rkcta. We do Hot ll~c::d
to look far back in history to know that those <:apital inflows should 110t be taken fol' ilanted.
Keeping that warning in mind, we should recognize that the ,apital markets arc also offering a
$trona vote of confidence in the: region. Capital is rewarding ~onomi, reform, &reater 0PClUlCJI.
and the dccpcnin¥ of acmoCTa.cy. Moreover, the markctJ arc leaming to judie c~h eountry on
its own record, ra.ther than ns part of an emerging market basket. This mcanJ that jUJt AI matk;tt
have been impressed by recent progress, further progress will re<:civc richer rewarda. It also
metms thQt slippnge will receive swift punishment. So whether the flood capital into the
region is an opportunity or nn omen will depend above 1111 on the recipient countries themselves.
If eo.pittll is put to good uses, in Qll environment ofrefonn (LZld integration, great opportunity will
or
be l'e.llized.
Growth hlU bee,. too low
In the 1990's, the region's gevernments have made deoisivo progress, lClunchini a. generation of
reform focused on stronger fiscal and monetary polici,s, privatization, and 1iberl1li~Cltion. MQJly
examples come to mind.
•
Last year Brazil brought inflation down to just over ten percont.. compared to sixty
percent the year before and tw.nty-four hundred percent in 1994; it~ recent progress and
near-tenn plans on priva.tization have also been impressive.
•
Peru, Bolivia, Chile, and Argentina added another year to their track record of sound
macro~conomic
manag.ment.
From: TREASURY PUBL Ie AFFAIR:)
:0009
•
3- 2B-g?
4: 17 pm
p. 15
Even the poorest country in the h~IIli~JJlll:r~, Haiti, has sta.bilized its ecouomy and adopted
an ambitious iienda lO moucmilc ilud transfer to IJrivate oWllership ita ~xilting stateowned enterprises.
Of course. the re~don has 11ul y~t C01ll1J1ctcd the first g~cratjon ofrcforms. In many countries,
inflation remains in lhe:: duublo digits. SOl1l~ countries rely too heavily on tight monetary policy
to make up for a laJI. iisl,;GlI ~tallce. In those cues, fiscal deficits absorb too large a shue of
resources. depriYin~ cl,;ullomic:s of investment and growth.
Out even now ~tention is tumini to a seennd ieneration ofrefonn nCC4lc:d for the region to
achieve its full potenti~l. nit is becrlll!l.l!! growth in the region hliS rcmained too low, and its
benefits inGdequately shared. Last yE!A.r the reilon iTCW by abouL three percent •• much less them
the eight percent achieved by Asian d!velopinj countries am! importalltlYJ less than the 3.4
percent the World Bank estimates 1$ necessary to begin reduciJ1~ poverty. Higher growth is
needed not only for its own sake, but also to sustain the COntimusUj for economic reform that
brought Latin Amenca the progres!l it has achieved so far. The:: second generation of reform hIlS
stArted, 3nd the outlinei of a new Mthodoxy are emerging;. Bul much remains to be done.
The reforms agenda inehldes'
•
Fir,t, to reform p~J"I~;nn, tax, and financial SecLurs ill ord~ to stimulate S(1vings and ensuro
that financial gystf!m~ effectively tum savint(s into productive invcstmcnta. Chile hal
been a leader on renllion rcfonn. not only in lhc: rcgion J but globally. After fifteen years,
Chile'~ experience demonstrates the trememluu~ potential ofpcm,ion reform to boost
national savin8~ and deepen aomestic capiwi mArkets. Others in the resion have recently
embarked ~n their own important pensiuu rcfonns, including Bolivia, Mexico, p.nd
ArgentlllA.
•
Second, to hui1d legal and reiulatory systems thAt are fair and efficient. For example, it
is stn.king how linle mortgage lemlinx there is in most countries of the Americas. The
lRc){ nf effective titlini of property lUiS coustrain~d the oyolution of a. mortgage market I
~T'ld therehy frustrated the aspirauuu~ of millions of OUT hemisphere's citizens to own
their own home. Peru's innOvaLiv(; $tart with land titling serves the important objective of
enfranchisini people and brin~ill~ them into the fannal economy.
•
Third. to pursue good lit0vl:I'wmce and greater transparency, in both private and public
sectors. and tllUS to ensure: Uult govclllment is rcaponsive to the public it serves.
Improvcmcnts in the di" isiull of rc~onsibility among lovels of 80vemment will
strenithen the provision or public sc;rviccs. Bolivia has been a loader in this area Wlth ;t~
"Popular Participatiun" prugram that transfers responsibility for local investment to th~
communities thal are lSe::rve:d by that investment.
0f
27
From: TREA:;URY PU8l Ie AFFAIRe:
]009
3-28-97
4: 18pm
p. 15 of 27
4
Ill. Role of the IDB
As the hemisphere turns to this second generation of refonn and as the role of private capital
grows, the role of the Bank is also changing, Just five years ago, flows of official capital to
developing counuies exceeded private flows. Today. private flows are five times as large C1S
official flows, In view of that evolution in private capital flows, what should be the role of the
rDB? Let me suggest four broad objectives.
First, Support the Private Sector. Private capital and private initiative will ultimately power
economic growth and reduce poverty, tor only the private sector has the capacity to generate the
enonnous financial and managerial resources that are needed .- estimated a.t more than SGO
billion a year for infrastructure investments alone. The Bank has an important role to play in
supporting the private sector. It should catalyze flows of private capital in those countries and
sectors where it can make a difference, including through the usc of guarantees and insurance.
But it should step aside wherever the private sector can go it alone. It should support the second
generation of refonns, helping to ensure an environment that is attractive to private capital.
through strong conditionality on Bank programs, coordinated with the country assistance
strategies prepared with the World Bank.
Second, the Bank needs to focus ita lendina on those countries that need it most. While
capital inflows into the region have reached new highs. they remain highly concentrated. Just a
few borrowers are able to raise resources on the international markets. Last year Latin America
issued about SSS billion in sovereign debt, but 89% of that went to just three countries, Mexico,
Argentina. and Brazil. The Bank should respond by taricting those countries that still lack
access to private capital, not because they lack the will or the ability to reform. but perhaps
because they lack the track records that markets demand.
We appreciate that more than half of the Bank's loans go to the smaller countries, the C and D
countries. We urge the Bank to work toward the gonl adopted at the last replenishment of
lending 35 percent of its resources to the C and D countries. Indeed. this may also be a
propitious time to begin thinking about graduation of the wealthier and more creditworthy
countries from the IDB' s borrowing program.
Third, tbe Bank should focus on areas beyond the reach of tbe private sector. As the private
sector takes over much of the financing needed to create physical infrastructure, the Bnnk should
tum to addressing social and human capital development, so critical for building true prosperity.
The region's pressing needs in health and education will not be met by private markets alone. I
was heartened by President Iglesias's call today for the countries in tho hemisphere to narrow
huge education gap, and to ensure all our young people have access to a high school education.
5
Finally, the Bank should do more to support the reiton'. common errort. to deepen
inteeration. What does it mean to deepen integration? We must reduce all kinds ofbanicrs that
stifle and separate our economies and that prevent us from realizini together the benefits of
expanded markets. That means more than removing the barriers to trado of goods and services.
It also means improving and integrating the rules under which the private lectors of our c:ountries
operate and the practices of the institutions that enforce those rulea.
For example, it means elevatini and harmonizing the accountina Itandards that governments
employ in their dissemination of information on public fmancial institutiona. aa many of us have
done through adoption of the IMF's data disclosure standards. And it means encouraaini our
private sectors to adopt in common internationally accepted standards in their own financial
accounts. The goal should be that a bank examiner in Buenos Aires should be comfortable
reading the financial statement of a bank in Bogota.
When we integrate by opening markets and adopting common standards. we attract capital both
from within our countries and from outside. And by stimulating competition, we use that capital
more efficiently. raising productivity and generating growth.
Integration will reinforce reforms, and it will create momentum that will pull the region's poorer
countries along as well. We should see to it that our integration will benefit not only the
countries in the re&ion, but countries around the world which do business in and with the region.
Recognizini the benefits that intei!'ation can bring, both within and outside the reaion. the Bank
needs to engage non-regional members and the MIF Donors in supporting our integration
agenda.
Deeper regional integration is only part of the greater process of global inteiI'ation. While we
work to pursue regional initiatives, we must not lose sight of that larger agenda. Just as our
regional free trade agreements should support our common vision of a hemispheric free trade
area, so should regional integration be aimed at deepening global intesration, in particular
through the WTO. Simply moving barriers from the borders of our COuntriCi to the borders of
our hemisphere would defeat our broader purpose.
IV. FT AA, fast track, and financiallategratlon
To advance regional integration, the reaion's leaders agreed in Miami in 1994 to work jointly
towards a free trade agreement for the hemisphere. The Clinton Administration is deeply
committed to that goal. We are now working with our Congress to introduce the "fast track"
legislation needed to launch trade negotiations in a timely manner. Hemispheric free trade will
be at the top of President Clinton's aienda when he visits Latin America and the Caribbean in
May. Our own enthusiasm for free trade has been reinforced by our experience with NAFTA,
which allowed trade between our three members to grow over 40% sinco it went into effect,
despite the deep recession in Mexico.
From: TRFA:;URY PIlRI IC AFFAIR',
2:009
6
At the Miami SummlT, Ollr leaden; chQ.rgod their fil1tlllCe minister:; with developing an aeenda fOT
financtal market development and intesratio'n. Last May, the llluliliilcrs met in New Orlean!> to
elaborate Those goals IUld put forward an agonda to crc~te SU·ou¥. upen rtnanctal marketi. Since
Then we have worked actively to Qchicyc corucnsus 011 higher starulard!l for operation of
financial mark.ets and improvements to supervisory iwululions needed for those standards to
he ~tfective.
The! IDS has done much to support the integration Pl'OI,;~SS. w!th the personal commitment of
Pr~$ident Iglesias and the hard work of Bllnk staff. We Will on the IDB [0 eontinue and to
de~ren its en8a8~rnent on reaionLll integration.
V, Facing the ChaJJt.nlu
Our vision of the IDH is of fin institution thQt SC0!,S to en,illgc the private :lc:c.:lor: reaches areas the
private sector cannot; foeuses lending on countries thllt need it most; and wurks with us to
advance hemispheric intt.grntion.
OV~T
the coming mnnth~. lhe IDB and its members will grapple with severed dirncult issues.
Those issues include:
the split between lenrling to higher-income versus lower-income members,
•
the need for adrliflOl1i11 resources for coneessioMllending. and
•
the Bank'!i invnlvp.ment in the HIPC.
OUT position on tho~e i."~lle~ WIll be informed by tho vision of ~ho IDB thnt I ju.!t outlined. As the
evolu:ion of the gJohal r.~['!itnl m!\rht~ changes the landscape of Latin finance, our challc=nic i~ lu
ensure that the IDB
i.~. in the words
of Secretary Rubin. "as modem os tho markets it serves."
. 30 -
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
March 17, 1997
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $11,569 million of 13-week bills to be issued
March 20, 1997 and to mature June 19, 1997 were
accepted today (CUSIP: 9127944N1).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.09%"
5.13%"
5.13%-
Investment
Rate
5.23%'
5.27%"
5.27%-
Price
98.713
98.703
98.703
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
Type
Competitive
Noncompet.it. ive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$46,755,443
Accepted
$11,568,612
$41,612,896
1.430,179
$43,043,075
$6,426,065
1.430,179
$7,856,244
3,213,243
3,213,243
499,125
$46,755,443
499,125
$11,568,612
An "additional $146,475 thousand of bills will be
issued to foreign official institutions for new cash.
5.11 - 98.708
RR-1558
5.12 - 98.706
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
March 17, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $11,571 million of 26-week bills to be issued
March 20, 1997 and to mature September 18, 1997 were
accepted today (CUSIP: 9127942U7).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.24%"
5.26%'
5.26%-
Investment
Rate
5.46%"
5.48%'
S.48%-
Price
97.351
97.341
97.341
Tenders at the high discount rate were allotted 44%".
The investment rate lS the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$41,967,486
Accepted
$11,571,266
$36,374,023
1,164,388
$37,538,411
$5,977,803
1,164,388
$7,142,191
3,260,000
3,260,000
1.169,075
$41,%7,486
1.169,075
$11,571,266
An ·additional $343,125 thousand of bills will be
issued to foreign official institutions for new cash.
5.25 -- 97.346
RR-1559
o
2
EPA R T :\1 E N T
0 F
_-------...:z
THE
T REA SUR Y
~---------
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
CONTACT:
EMBARGOED UNTIL .2: 30 P. M.
March 18, 1997
Office of Financing
202/215-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $23,000 million, to be issued March 27,
1997. This offering will result in a paydown for the Treasury of
about $1,575 million, as the maturing weekly bills are outstanding
in the amount of $24,572 million.
Federal Reserve Banks hold $6,304 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 Banke hold $4,001 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. Additional amounts
may be issued for such accounts if the aggregate amount of new
bids exceeds the aggregate amount of maturing bills.
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, as amended) 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
HrGHL%GllTS OP "f'RBASORY OPPBRZNG8 Oll' WBBltLY BILLS
TO BB ISSUBD KARCH 27, 1997
March 18, 1997
Off.riDq Amount . . . . .
Descriptioa of OffertDg:
$11,500 million
$11,500 million
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
912194 2R 4
March 24, 1997
March 27, 1997
June 26, 1997
June 27, 1996
$32,684 million
$10,000
$ 1,000
182-day bill
912794 SN 0
March 24, 1997
March 27, 1997
September 25, 1991
March 27, 1997
$10,000
$ 1,000
The following rules apply to .11 securities mentiODed abovea
Submission of Bids:
Noncompetitive bids .
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
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. Bastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON. D.C .• 20220. (202) 622~2960
FOR IMMEDIATE RELEASE
CONTACT: Office of Financing
202/219·3350
March 18, 1997
TREASURY ANNOUNCES BILL AUCTION CHANGE
Beginning with the S2-week bill auction tentatively scheduled for March 26,
1997, awards made to Federal Reserve Banks for their own accounts in Treasury bill
auctions will be treated as additions to the announced offering amount. Currently, awards
to these accounts are within the announced offering amount.
The announcement of the 52-week bill auction, scheduled for March 21, will be
the rust annoWlccment to reflect this change. We are making this change in order to
provide more complete information to market participants. Awards to these accounts will
continue to be at the weighted average discount rate of accepted competitive tenders.
The treatment of awards to Federal Reserve Banks for foreign and international
monetary authorities in Treasury bill auctions will not change. Maturing bills held by
these accounts may be refunded within the annoWlced offering amount at the weighted
average discount rate of accepted competitive tenders. Purchases by these accounts that
exceed the maturing amounts will continue to be additions to the announced offering
amount.
The Uniform Offering Circular (31 CFR Part 356) will be amended to reflect this
change in the treatment of awards to Federal Reserve Banks for their own accounts in
Treasury bill auctions.
000
RR-1561
Embargoed Until 10:30 A.M. EST
March 19, 1997
Justice Department-(202)616-2777
Treasury Departme nt-(202)622-2960
JOINT STATEMENT OF
JAMES E. JOHNSON, ASSISTANT SECRETARY (ENFORCEMENT)
DEPARTMENT OF THE TREASURY
AND
ISABELLE KATZ PINZLER, ACTING ASSISTANT ATTORNEY GENERAL
CIVIL RIGHTS DMSION, DEPARTMENT OF mSTICE
CO-CHAIRS, NATIONAL CHURCH ARSON TASK FORCE
BEFORE THE HOUSE JUDICIARY COMMITTEE
MARCH 19,1997
Mr. Chainnan, Representative Conyers, and members of the Committee, thank you for the
opportunity to appear today to update the Committee on the efforts of the federal government to
investigate and prosecute individuals responsible for the deplorable act of setting fire to houses of
worship.
'
At the outset, we want to commend this Committee and Congress for its leadership in
speaking out against church fires and helping to bring these incidents to the forefront of national
attention. This Committee held hearings on the church fires in May oflast year. Those hearings,
along with similar hearings the next month in the Senate, highlighted the detennination withiri the
Administration and in Congress to do everything possible to investigate these incidents and bring
the perpetrators to justice, prevent further fires, and assist the victimized congregations to rebuild.
We also want to recognize the leadership of the chainnan and ranking member in enacting the
Church Arson Prevention Act of 1996, which has provided us with additional tools in combating
these crimes.
As a result of these combined efforts, we have made remarkable progress.
•
The rate of arrest (34%) in the church arson cases is double the general arrest rate for
arsons (16%). Federal and state authorities have arrested 175 suspects since January 1,
1995, in connection with 126 fires at churches and other houses of worship. Three
quarters of all defendants arrested in the last two years were arrested since June 1996,
when the President established the National Church Arson Task Force (NCATF or "Task
Force") to oversee the investigation and prosecutions of incidents of church arson.
•
Since January 1, 1995, 68 defendants have been convicted in federal and state
prosecutions in connection with fires at 55 houses of worship.
•
Overali, the NCATF has opened investigations of369 arsons, bombings or attempted
bombings that have occurred at houses of worship between January 1, 1995, and March
12, 1997.
Our testimony today will provide the Committee with the current status of the coordinated
church fires investigations and prosecutions. Rachel Rowland of the Federal Emergency
RR-1562
Management Agency (FEMA) will describe the federal government's efforts in the area of arson
prevention, Pat Glenn of the Community Relations Service (CRS) will discuss the services that
CRS has provided local communities, and Jacquie Lawing of the Department of Housing and
Urban Development (HUD) will discuss the joint efforts ofHUD, the National Council of
Churches, the Congress of National Black Churches and others in helping those congregations
already victimized by fire.
Last summer, in June 1996, the President established the National Church Arson Task
Force, which we co-chair, to formalize the coordination of investigations already underway. The
NCATF has brought together the Bureau of Alcohol, Tobacco and Firearms (ATF), the FBI,
Justice Department prosecutors, victim/witness coordinators, the Community Relations Service
and the U.S. Marshals Service, in partnership with state and local officers and prosecutors. Well
over 200 ATF and FBI investigators have been deployed and are working with over 75 federal
prosecutors and state and local authorities. This is the largest current civil rights investigative
effort and one of the largest series of arson investigations in history.
Each of the component agencies of the Task Force brings particular resources and talents
to the Task Force efforts.
The expertise of A TF in conducting arson investigations, particularly in making cause and origin
determinations, and the expertise of the FBI in conducting civil rights investigations has proven
highly beneficial to the success of the NCATF. The Civil Rights Division has extensive
experience in hate crimes prosecutions and in enforcing the criminal civil rights statutes that are
used in prosecuting racially motivated church arsons. CRS and victim/witness coordinators work
closely with victim congregations. We have met at least once a week since June oflast year with
the Task Force representatives, and we report to the President through the Attorney General and
the Secretary of the Treasury.
Coordination of Federal Effort
In an investigative effort of this size and scope, coordination among federal agencies and
between state and federal law enforcement is essential. To that end, the Attorney General
directed United States Attorneys either to establish a local task force focusing on church arsons or
to join an existing local task force. These local task forces include state and local law
enforcement and fire protection officials, as well as representatives of the ATF, FBI, the
Community Relations Service and victim/witness- coordinators.
In addition to the local task forces, the NCATF has an operations team in Washington
staffed by special agents of the ATF and the FBI and prosecutors on detail from the United States
Attorney's Offices around the nation and from the Criminal Section of the Civil Rights Division.
The director of this operations team is a senior experienced career prosecutor. This team works
with the local task forces to investigate incidents, analyze potential connections among incidents,
and prosecute cases. Due to the high priority of these matters, many federal cases are prosecuted
jointly by an NCATF prosecutor and an Assistant United States Attorney.
The Task Force has taken the following steps in carrying out its responsibilities:
•
Investigative Protocol. The NCATF has established a protocol for its investigations and
prosecutions. This protocol sets forth procedures for immediately exchanging information
among task force agencies, developing an investigative plan for each incident, and
ensuring that investigators pursue all lines of inquiry, including whether the crime was
motivated by race or religion, and whether any giv~n incident is connected to any other.
•
Unified Database. The NCATF has created a database of statistical information about
ongoing investigations. The A TF and FBI databases and computer systems are also used
in Task Force operations to track and analyze evidence about attacks on houses of
worship and to generate investigative leads.
•
Training. Last year, the NCATF conducted training among its constituent agencies.
ATF experts trained FBI agents and Department of Justice prosecutors in arson
investigations. Civil Rights Division prosecutors and FBI experts trained ATF agents in
civil rights investigations and prosecutions.
•
Tip Line. The NCATF ~stablished a toll-free tip line for citizens to report information on
church arsons. That toll free number is 1-888-ATF-FIRE. As of March 17, 1997,
NCATF had received over 2000 calls through that service. The ATF and FBI also are
offering rewards for information in a number of arson cases.
•
Threat Assessment Guide. The NCATF updated and distributed a Church Threat
Assessment Guide containing valuable information on the steps that may be taken to
prevent fires at houses of worship and the steps to follow after an incident has occurred.
Working with FEMA, the Task Force has distributed over 300,000 of these booklets.
Outreach
Without the confidence and cooperation of the victim congregations, many of these
investigations would have been destined to fail. The NCATF took steps early on to ensure a
solid, working relationship between law enforcement and the affected communities.
Less than a week after being formalized, the NCATF met with FBI and ATF Special
Agents in Charge and United States Attorneys from the Southeast region to emphasize the critical
importance of pursuing the investigations with vigilance, determination and dispatch, as well as
with sensitivity to the needs of the victims.
President Clinton, Vice President Gore, Secretary of the Treasury Robert Rubin and
Attorney General Janet Reno have worked to bring church arsons to national attention, speaking
out forcefully of the commitment of the federal government to solve these cases, and meeting with
ministers from the churches burned. Secretary Rubin and Attorney "General Reno instructed us to
remain in close contact with the affected communities.
As part of that effort, last week we traveled to Western Tennessee to meet with
investigators and prosecutors, as well as with pastors, congregations and community leaders.
This trip again gave us a chance to view personally the devastation that these fires have wrought.
It also gave us the chance to witness the renewed spirit of communities that have come together
to rebuild their houses of worship.
We went to the Salem Baptist Church in a small town called Fruitland, an African
American church that had been burned in November 1995, and met with congregants, pastors and
community leaders from around that area. We went to the Church of God of the Prophesy, a
church with a predominantly white congregation in Dyersberg, Tennessee, that was burned in July
of 1996.
We also met with the United States Attorney, ATF agents, FBI agents, and local
law enforcement personnel, who briefed us on the current investigations in the district. The
•
Unified Database. The NCATF has created a database of statistical information about
ongoing investigations. The ATF and FBI databases and computer systems are also used
in Task Force operations to track and analyze evidence about attacks on houses of
worship and to generate investigative leads.
•
Training. Last year, the NCATF conducted training among its constituent agencies.
ATF experts trained FBI agents and Department of Justice prosecutors in arson
investigations. Civil Rights Division prosecutors and FBI experts trained ATF agents in
civil rights investigations and prosecutions.
•
Tip Line. The NCATF /!stablished a toll-free tip line for citizens to report information on
church arsons. That toll free number is 1-888-ATF-FIRE. As of March 17, 1997,
NCATF had received over 2000 calls through that service. The ATF and FBI also are
offering rewards for information in a number of arson cases.
•
Threat Assessment Guide. The NCATF updated and distributed a Church Threat
Assessment Guide containing valuable information on the steps that may be taken to
prevent fires at houses of worship and the steps to follow after an incident has occurred.
Working with FEMA, the Task Force has distributed over 300,000 of these booklets.
Outreach
Without the confidence and cooperation of the victim congregations, many of these
investigations would have been destined to fail. The NCATF took steps early on to ensure a
solid, working relationship between law enforcement and the affected communities.
Less than a week after being formalized, the NCATF met with FBI and ATF Special
Agents in Charge and United States Attorneys from the Southeast region to emphasize the critical
importance of pursuing the investigations with vigilance, determination and dispatch, as well as
with sensitivity to the needs of the victims.
President Clinton, Vice President Gore, Secretary of the Treasury Robert Rubin and
Attorney General Janet Reno have worked to bring church arsons to national attention, speaking
out forcefully of the commitment of the federal government to solve these cases, and meeting with
ministers from the churches burned. Secretary Rubin and Attorney 'General Reno instructed us to
remain in close contact with the affected communities.
As part of that effort, last week we traveled to Western Tennessee to meet with
investigators and prosecutors, as well as with pastors, congregations and community leaders.
This trip again gave us a chance to view personally the devastation that these fires have wrought.
It also gave us the chance to witness the renewed spirit of communities that have come together
to rebuild their houses of worship.
We went to the Salem Baptist Church in a small town called Fruitland, an African
American church that had been burned in November 1995, and met with congregants, pastors and
community leaders from around that area. We went to the Church of God of the Prophesy, a
church with a predominantly white congregation in Dyersberg, Tennessee, that was burned in July
of 1996.
We also met with the United States Attorney, ATF agents, FBI agents, and local
law enforcement personnel, who briefed us on the curren~ investigations in the district. The
Western District of Tennessee has seen significant success in investigating church arsons, and we
have obtained several convictions. There remain, however, other difficult cases that have not as
yet been solved. Most sadly, there was another fire in Middleton, Tennessee, just last month.
These visits highlight the importance of community outreach. Working with CRS, the
NCATF developed and distributed to every ATF and FBI supervisor and United States Attorney a
"Best Practices" guide for conducting community outreach activities.
Statutory Authority and Resources
The support of Congress has been essential in responding to these crimes. When the Task
Force was formed, the federal government had authority under several statutes to investigate and
prosecute suspicious fires at houses of worship. These authorities include the Anti-Arson Act of
1982, which makes it a federal crime to use fire to destroy property used or affecting interstate
commerce (18 U.S.c. 844(1», and criminal civil rights statutes that make it a federal crime to
desecrate religious real property or a house of worship or to conspire to deprive persons of their
civil rights (18 U.S.c. 241 and 247).
On July 3, 1996, the President signed the Church Arson Prevention Act of 1996, which
was sponsored by Chairman Hyde, Congressman Conyers, and Senators Faircloth and Kennedy.
This statute, passed unanimously by both Houses of Congress, amended 18 U.S.C. 247, to
strengthen the criminal law against church burning and desecration. The new law removed a
cumbersome interstate commerce requirement, eliminated a $10,000 damage requirement, and
increased the maximum sentence to 20 years imprisonment for arson.
There have been two successful prosecutions under the amended Section 247 so far: one·
for the July 22, 1996, fire at the Church of God of the Prophesy in Dyersberg, Tennessee, and one
for the September 19, 1996, fire at the Church of Christ in Henderson, Nevada.
The 1996 Church Arson Prevention Act also authorized a HUD loan guarantee program
that can be used for church rebuilding, and authorized additional personnel at the Treasury.
Department and the Justice Department, including the Community Relations Service, to respond
to the fires.
Congress has also provided essential resources for our efforts. In August 1996, in a
supplemental appropriation for fiscal year 1996, Congress provided $12 million dollars to support
ATF's role in the Task Force. Congress appropriated an additiorial $12 million dollars in ATF's
fiscal year 1997 direct funding t'o support arson investigations, particularly those directed toward
religious institutions. Additional funds for Task Force activities by the Justice Department, the
FBI and CRS were also appropriated or reprogrammed.
The Justice Department has also been able to provide immediate and direct assistance to
local jurisdictions through the Department's Bureau of Justice Assistance (BJA). Pursuant to the
President's directive and congressional approval, BJA awarded grants to counties in 13 states to
intensify their enforcement and surVeillance efforts around vulnerable houses of worship. The
states were: Alabama, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, Oklahoma,
North Carolina, South Carolina, Tennessee, Texas and Virginia. Five hundred and eighty six
counties received over $2.7 million in awards. More than half of these funds were used to pay the
overtime costs of increased police and sheriff patrols, or to hire additional part-time law
enforcement officers. Additional funds were used to pay for security measures, such as lighting
and security systems, and educational efforts aimed at arson prevention.
In addition to the government effort to address church arsons, perhaps even more
impressive has been the tremendous outpouring of assistance and support from the American
people in response to these fires. These attacks are rightly seen as a threat to our common sense
of sanctuary and have generated a shared sense of outrage. People have crossed lines of faith,
race and region to engage in a united effort to rebuild and protect our houses of worship.
Religious groups, volunteer organizations, unions, insurance companies, financial institutions, and
civil rights organizations have all pitched in to tackle this problem. We would like to recognize
one person in particular, whose efforts have inspired all of us to work that much harder in
responding to this call. Reverend Mac Charles Jones was a principal leader for the Burned
Churches Fund at the National Council of Churches. Mac died just last week, and the world is
diminished by his loss. We mourn the loss of a forceful leader, a constructive critic, and a friend.
Results to date
The men and women of the ATF, FBI, the Treasury and Justice Departments, together
with their partners in local law enforcement have had striking success. The Task Force has
opened investigations of369 arsons, bombings or attempted bombings that have occurred at
houses of worship between January 1, 1995, and March 12, 1997. This number does not include
vandalism or other desecration at houses of worship, which continue to be investigated and
prosecuted by the FBI, the Civil Rights Division and United States Attorneys. Nor does it include
fires that the investigators have determined are accidental. Of these 369 arson investigations, at
least 155 have been fires at African American churches. Three quarters of the fires at African
American churches have occurred in the southern United States.
As a result of the exceptional partnership among federal, state and local law enforcement,
many of the incidents investigated have been solved, mainly by a combination of federal and state
arrests and prosecutions. Since January 1995, arrests of 175 suspects have been made in
connection with 126 fires at churches and other houses of worship. This rate of arrest (34%) is
significantly higher than the general arrest rate for arsons, which is approximately 16%, according
to Department of Justice statistics. Since the formation of the Task Force, the number of arrests
has increased significantly. One hundred and thirty persons, representing three quarters of all
defendants arrested since January 1995, were arrested following the June 1996 formation of the
Task Force.
The 175 arrests have led to a number of convictions. Since January 1, 1995, 68
defendants have been convicted in federal and state prosecutions In connection with fires at 55
houses of worship All but two of the remaining cases are still pending trial. 1 These prosecutions
include the first convictions under the 1996 Church Arson Prevention Act, 18 U.S.c. 247, as
amended.
1 There have been two acquittals. On November 21, 1996, a defendant was acquitted by reason
of insanity for the June 10, 1996, arson at Our Most Sorrowful Savior Catholic Church In Soap
Lake, Washington, and the June 14,1996, arson at the Community Evangelical Church in Soap
Lake, Washington. He was indefinitely committed to the Eastern State Hospital. In October
1996, a 13-year old defendant was acquitted of state arson charges stemming from a fire that
caused $500 in damage to the Slaughterneck United Methodist Church in Milford, Delaware.
The fire appeared to have been caused when a pile of leaves was set on fire behind the church.
All of the other prosecutions have resulted in convictions or are still pending.
Federal charges are pending in a number of cases, and grand jury investigations are
ongoing in many others. State prosecutions also have been initiated in consultation with federal
prosecutors or investigators. The NCATF actively monitors these prosecutions to ensure that any
federal interest is vindicated and to ensure that accurate information is compiled regarding law
enforcement's response to attacks on houses of worship.
There are still many cases that have yet to be solved, however, and new fires continue to
occur. Arson cases are among the most difficult criminal cases to solve. Forensic evidence is
often destroyed with the fire. Moreover, because some of the churches burned are located in
isolated, rural areas, there are often no eye witnesses to the incident. For these reasons, it can
often take years to solve arson cases.
The Task Force remains committed to expending the necessary time, resources and effort
to solving these crimes and prosecuting those who are responsible.
As you know, information relating to ongoing investigations may not be publicly released
before the investigation is concluded. Thus, we are constrained in the information we can
provide. We can, however, make some preliminary observations from the charges we have
brought so far.
The number and proportion of fires at African American churches have raised the
possibility of racial hostility as a motive. Indeed, nine defendants have been convicted of federal
civil rights charges in connections with six fires in Nevada, Tennessee and South Carolina. We
have found overall, however, that there have been a range of motives, from blatant racism and
religious hatred to financial profit, to personal revenge, burglary or vandalism.
There is still much work to be done before charges are filed in other cases. While it was
the number of fires at African American churches that brought these crimes to national attention,
the NCATF will continue to investigate and prosecute attacks on all houses of worship, regardless
of their denomination or racial composition.
Burning a church may implicate federal anti-arson and civil rights laws and warrants swift
and certain investigation and prosecution. The work of the NCATF continues to be vital to our
efforts to prevent these heinous crimes, and to prosecute those responsible, whether they are
motivated by racial hostility, religious bigotry, financial profit, revenge, or simply a desire to bum
down a symbol of authority in the community. The commitment of resources and attention to this
work by federal, state and local authorities has been essential to the success of the Task Force,
and the Task Force remains dedicated to solving these crimes and bringing the perpetrators to
justice.
In closing, we would again like to note that the Administration and Congress have worked
together in addressing this issue. We must continue our unified approach. As the President said
last summer: "We must rise up as a national community to safeguard the right of every citizen to
worship in safety. That is what America stands for."
-30-
6
omCE OF PUBUC AFFAIRS • 1500 PENNSVLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220' (202) 622·2960
--,----------------------------------------------~------~~-------FOR IMMEDIATE pLEASE
March 19, 1997
Contact: Office of Financing
(202) 219·3350
TREASURY'S INFLATION-INDEXED NOTES
APRIL BrEUNCE ePI NUMBERS AND DAILY INDEX RATIOS
Public Debt BmlO\1nced today the reference Consumer Price Index (CPI) numbers and the daily
index ratios for the month of April for the 10-Year Treasury inflation-indexed notes issued
February 6,.1997. This infonnation is based on the non-seasonally adjusted U.S. City Average All
hems Consumer Price Index for All Urban Consumers (CPI.U) published by the Bureau of Labor
Statistics of the U.S. Depanment of Labor.
In addition to the publication of the reference CPls (Ref CPO and index ratios, this release provides
the non-seasonally adjusted CPI·U for the prior three-month perioci. Public Debt intends to
announce the reference cPt numbers and the related index ratio monthly for at least one year.
This infonnation is available through the T~ury'S Office of Public Affairs automated fax system
by callina 202-622-2040 and requesting document number 1563. The information is also available
on the Intemet at Public Debt's home pa&e: (http://www.publicdebt.treas.gov).
The infonnation for May is expected to be released on April 15, 1997.
000
TREASURY 1()..YEAR INFLATION-INDEXED NOTES
SERIES:
A-2007
CUSIP:
9128272M3
AUCTION DATE:
ORIGINAl ISSUE DATED DATE:
ORIGiNAl ISSUE DATE:
MATURITY OATE:
Ref CPt on DATEC DATE:
TABLE FOR MONTH OF:
NUMBER OF DAYS IN MONTH:
CPI-U (NSA) Dec. '98
January 28.1887
January 15,1997
February 6, 1887
January 15, 2007
158.43548
ApriI,1997
30
158,6
159.1
159.6
CPI-U(NSA)Jan.'97
CPI-U (NSA) Feb. '97
Ref CPl and Index Rltloa for Aprl11D97
I
Calendar day
April
lAApril
pnI
Apnl
April
AprIl
April
RefCPI
1
2
3
4
5
6
7
iApr1l
8
IApriI
'April
April
9
10
11
Aprtl
12
13
April
April
April
April
April
April
April
Aprfl
April
AprIl
ApMI
Apnl
April
April
AprIl
APrIl
April
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1987
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
159.10000
159.11687
159.13333
159,15000
159.18887
159.18333
159.20000
159.21887
159.23333
159,25000
159.28H7
159.28333
159.30000
159.31887
159.33333
159.35000
159.36887
159.38333
159..0000
159.41887
15e.43333
159.4S000
158.48887
159.48333
Index Ratio
1.00418
1.00430
1.00440
1.004S1
1.00462
1.00472
1.00483
1.00493
1.00S04
1.00514
1.00525
1.00535
1.00548
1.00588
1.00598
1.00609
1.00819
1.00830
1.00M0
1997
159.53333
1997
1997
15&.55000
159.58887
1.00714
159.51867
I
1.00556
1.00587
1.00s77
1.00851
1.00ee1
1.00872
1.00ea2
1.00893
159.50000
I
I
1.00703
.I
I
I,
I
o
EPA R T 1\1 E N T
() F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622.2960
EMBARGOED UNTIL 2:30 P.M.
March 19, 1997
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $29,750 MILLION
The Treasury will auction $17,250 million of 2-year notes
and $12,500 million of 5-year notes to refund $29,122 million of
publicly-held securities maturing March 31, 1997, and to raise
about $625 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $1,534 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 $3,l12
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
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, as amended) 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-J.5tr4-
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YBAR NOTES TO BE ISSUED MARCH 31, 1997
March 19, 1997
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 .
$17,250 million
$12,500 million
2-year notes
AD-1999
912827 2N 1
March 25, 1997
March 31, 1997
March 31, 1997
March 31, 1999
Qetermined based on the
highest accepted bid
Determined at auction
September 30 and March 31
$5,000
$1,000
5-year notes
E-2002
912827 2P 6
March 26, 1997
March 31, 1997
March 31, 1997
March 31, 2002
Determined based on the
highest accepted bid
Determined at auction
September 30 and March 31
$1,000
$1,000
None
Determined at auction
None
Determined at auction
The following rules apply to all securities mentioned above:
Submission of Bids:
. Accepted in full up to $5,000,000 at the highest accepted yield
Noncompetitive bids
(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 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
. Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders
. Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Terms . . . . . .
Full payment with tender or by charge to a funds account at a
Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.· 20220. (202) 622·2960
DIILUlGOED VN1U 11 A.M. EST
Tat u prepared for dcliYay
March 20. 1991
Teaih"'Oll)' ofTlIDOtby F. GeittUId'
Senior Dcpury Agjc"'f Secacwy oftbe Tre:uury
far lmcmaionaJ Monewy aad FiNne',' Policy
Befoft the Bankina and Fmanc:itJ Scnicrs Co""mjnee
SUbCOnDUiaee 011 DomecK= and ImenuIIioaaJ Monel at)' Policy
of the Uai1ed Swa House of'Jlcpr E ,..."triva
aa
Tbunday. Marc:h 20. 1997
IntroduC1ion
Mr Cha.innan. Members of the Subcommittee. I am pleased to testify before you today on
the President's request for authorization for addltionaJ resources (or the Imcnwional Monetary
Fund (IMf)
Let me begin by summa.rizinl the main reasons why it is 10 imporunt to assure that the
IMF has adcqu.lte resources to any out iu miSSIon and why that mission is critical to the
Strategic, poln.caJ and economic wcrutS of the United Swes in the post cold war world.
•
The United States. as the fcadm, power an the post-cold war world. has. major stake in
the conunued Vlabihty oft.he IMF We have a great deal to gain from a strengthened IMF
that multilatcTI.hus the finanaaJ suppan for on-Ioinl economic monns in countries
unponant to our mterests and that can respond to widespread liquidity problems
•
To sustAIn ns capabilnaes the fund needs to suswn ns strength relative to • rapidly
expandlnl glob&! economy charaC1cnz.ed by exponential growth of international capital
maBCU In a world of new and potentaally JTCAtCT financial risks. the IMF needs a solid
finanaal fool.nl
•
We have to be prqwed to p&naapalc finanaally an the institution and to contribute our
s.hare if we arc to contInue to mfluenc% the policy and operations of the institution
effectively and to unplc:mcm needed reforms We cannot lead through the use of other
people's money
•
Our financ1&l commnmcntlo lhe Fund leveragcs several times as much from other
sources. and. CXCC"pt for the rdaJtvely small case ofESAF. these transaction are not scored
as a budgetary outlay UndCT establashed stllUIOry and budgetary treatment. increases in
the US comnutmenu to the gcncraJ flnanC1&J resources of the 1MF do not come at the
expense of othcr prosrams and will nOI .mplngc on our goal of reaching a balanced
RR-1565
2
budget.
The Administration's Request
Our agenda for the IMF involves these requests for authorization by the U.S. Congress:
Strengthening the IMF's financial resources.
•
The Administration is seeking authorization for U.S. participation in the New
Arrangements to Borrow (NAB) and to provide the dollar equivalent of SDR 2.462 billion
(approximately $3.4 billion) for this purpose. The NAB is a set of emergency credit lines
for the IMF to supplement its ordinary (quota) resources if necessary to deal with a threat
to the international monetary system. The President's budget requests an appropriation
for budget authority in addition to the SDR 4.25 ($6 billion) previously authorized and
appropriated for the General Arrangements to Borrow (GAB), first established in 1962.
•
The Administration is also reviewing the adequacy of IMF quotas, which finance the
ordinary lending of the institution. If, as a result of that review, we believe that an
increase in IMF quotas is needed to ensure that the IMF has adequate resources to carry
out its responsibilities well into the next decade -- and if we are able to negotiate a
satisfactory agreement -- then we will propose that the Congress authorize an increase in
the U.S quota. We will consult closely with the Congress as this review proceeds.
The Administration and the Congress have. since 1968, agreed that transactions with the
IMF related to U. S credit line arrangements or the U. S quota subscription are treated as
exchanges of monetary assets that are not scored as outlays and, therefore, do not increase the
deficit. When we provide such resources to the IMF, we get a liquid interest-bearing claim on the
IMF which is backed by its substantial reserves, including gold. Our claim is like a deposit in the
soundest of banks. on which we are paid interest and which we can withdraw on very short notice
if needed. Since 1980, appropriations as well as authorization have been required, but the "no
outlay" treatment has remained in place.
Consistent with this treatment, the Budget Enforcement Act of 1990 (BEA) provided for
an adjustment to discretionary spending limits to accommodate the previous increase in the U.S.
quota for the IMF. Following the precedent of the BEA., we will propose that there be an
adjustment to the discretionary spending limits for budget authority for the NAB and for a
possible increase in the US quota.
Providing Affordable Assistance to the Poorest Countries
•
The Administration seeks authorization for $75 million for the Interest Subsidy Account
of the Enhanced Structural Adjustment Facility (ESAF) of the IMF to support
concessional lending to the poorest countries that are willing to undertake comprehensive
3
market-oriented macroeconomic reforms to promote long-term economic growth. This
request is for the remaining amount of the commitment of $100 million made in 1994 by
the U.S. Governor to the Th1F, former Treasury Secretary Bentsen, for expansion of the
Interest Subsidy Account of the ESAF. Unlike the appropriations for strengthening the
IMF's basic resources, the appropriations for ESAF would entail budgetary outlays. We
anticipate that the $75 million would be outlayed over a period of 10 to 15 years. The
President's FY 98 budget requests appropriation of $7 million for this purpose.
SDR Equity Amendment
We are also in the process of considering an amendment to the Articles of Agreement to
assure that the newer members of the Th1F participate on an equitable footing in the Th1F's Special
Drawing Rights (SDRs) arrangement. SDRs are a form of reserve assets created by the Th1F in
the 1960s. There have been no additional allocations of SD Rs since 1981, although more than 40
countries have joined the IMF since that time. This would require congressional authorization but
there would be no appropriation of budget authority and no budget outlay entailed in this "equity"
amendment request.
The Role of the IMF
I want to take a moment to highlight just what the Th1F is and does to illustrate why
preserving its financial strength is so important. The IMF is the principal monetary institution of
the world economy. Current membership of 181 countries is virtually universal. Conceived in
1944 at Bretton Woods, New Hampshire, the IMF is charged with promoting a sound and open
world economy and a stable international financial system. Its regular activities include:
•
Oversight of the operation of the international monetary system and members' economic
and financial policies. This includes regular consultations with members about their
economic and financial policies, and surveillance of international financial market activity.
•
Promotion of strong, market-oriented, macroeconomic reforms through financing
programs that lay the foundation for sustainable economic growth and development;
General quota resources finance economic programs that promote sound monetary
and fiscal policy and include performance conditions;
ESAF programs provide closely monitored highly concessionallonger-term
financing to the poorest countries if they are willing to undertake comprehensive
reforms that help to prepare them for full participation in global economic activity.
ESAF is also the vehicle for the IMF's participation in the multilateral debt
initiative to assure a sustainable debt profile that fosters economic growth for the
most heavily indebted poor countries with a track record of sound policy
implementation;
4
•
Management and resolution of challenges to the stability of the international monetary
system, such as the developing countries' debt crisis of the 1980s.
The IMF's unique monetary characteristic is reflected in its financial structure. Quota
sUbscriptions provide the resources for most IMF lending and are the basis for members' voting
strength in the institution and for their access to borrow Fund resources. These quota resources
are of a revolving character.
Any transfer of these resources to the IMF is offset by another monetary asset in the fonn
ofa liquid, interest-bearing claim on the IMF which is backed by the IMF's strong financial
position. These claims are part of a member's international reserves and can be drawn for balance
of payments purposes at any time without charge.
The nature of quota transfers (and transfers under the GAB or NAB) also accounts for
their unique budgetary treatment. In accordance with the budgetary treatment recommended by
the Presidential Commission on Budgetary Concepts in 1968 and modified by the Congress in
1980, United States transfers to the IMF such as these are not scored as budgetary outlays and
thus do not increase the deficit.
Serving U.S. Interests
For 50 years the IMF has been instrumental to the exercise of U.S. economic and financial
leadership. The Fund multilateralizes the costs of advancing U.S. economic interests in promoting
stability, openness. and growth -- which create the incentives for peace and the spread of
democratic values that are our strategic goals.
Let me give you a few specific examples:
•
The IMF has played a critical role in aiding the transformation of the Eastern European
economies and the former Soviet Republics. Across much of the region, inflation has
stabilized. the role of the state has been reduced. budgets have been brought under
control. the private sector has expanded. trade barriers have been reduced, and growth has
been established The technical assistance and conditional lending programs of the IMF
were fundamental to the progress achieved so far. and they will be critical in sustaining the
momentum of reform going forward.
•
The IMF has been a powerful force for trade liberalization around the world. In countries
such as Sri Lanka, Argentina. Uganda and Lithuania -- to name only a few -- IMF
programs have resulted in the removal of state monopolies, the elimination of licensing
and quantitative restrictions and the reduction of high effective tariff rates.
•
The IMF's response to the Mexican financial crisis helped contain the risk of an escalating
series of crises throughout the emerging markets, which could have resulted in much
5
greater damage to U.S. economic interests.
•
Throughout the world, countries that at one point adopted IMF programs financed by the
IMF's short-term financial assistance have established long records of strong economic
performance. Five of the 14 non-G 1 countries that have agreed to participate in the
New Arrangements to Borrow are previous beneficiaries ofIMF programs.
°
As these examples illustrate, the IMF has played an important role in building the
economic fundamentals critical to growth and stability in countries that are of critical strategic
interest to the United States. It has helped foster the conditions that have led to the phenomenal
growth in U.S. exports over the last several decades. It has helped us avoid even greater demands
for bilateral assistance in countries of strategic significance to the United States.
These are the reasons that led the last two Administrations, President Reagan's in 1983
and President Bush's in 1990, to support an expansion ofIMF resources. In his message to the
Congress transmitting his FY 84 budget, President Reagan stated forcefully that these programs
are "critical to American world leadership and to the success of our foreign policy."
Reforms
The success of the IMF in these cases reflects in part the considerable progress the Fund
has made in adapting its own policies to changes in the world economy.
Refocusing Fund Surveillance and Adjustment Programs
With strong U.S. encouragement, the IMF now pays more attention to the quality offiscal
adjustment, encouraging countries with IMF programs to cut unproductive expenditures and to
shift more resources to primary education and health care and to essential capital investment.
Since 1990, military spending has declined from 5.5 percent to 2.2 percent ofGDP in countries
with IMF programs, and military spending has declined and social spending has increased as a
share of government outlays
A new emphasis on etTective governance and anti-conuption in Fund surveillance and
adjustment program design is just beginning to take hold but will help over time to accelerate and
deepen economic reform and lead to a more equitable distribution of economic opportunity and
rewards.
New procedures permit the IMF to act more quickly to support countries emerging from
civil conflict or other severely disruptive events that initially limit policy implementing capabilities.
Adapting to global financial markets
The IMF has also been instrumental in carrying out a number of initiatives launched by the
6
G-7 countries at the June 1995 Halifax Summit in response to the considerable changes that had
occurred in the global capital market. The G- 7 wanted to improve crisis prevention mechanisms
and to provide sufficient resources to deal effectively and efficiently with those crises that may
occur in the international financial system.
To improve early warning systems, the G-7 called for improved and effective surveillance
of national economic policies and financial market developments by the IMF and fuller disclosure
of key information to market participants. The IMF is expanding its surveillance activities to
cover financial sector regulation and supervision in emerging market economies and is giving
greater attention to financial sector reform in its adjustment programs, working with the World
Bank and national and international regulatory authorities.
The IMF also adopted strong disclosure standards for the provision of comprehensive,
timely, and accurate economic and financial data for countries seeking access to international
financial markets. Over 40 countries have already subscribed to the standards, which has helped
to create a new level of transparency and uniformity in the international reporting of vital national
economic data, thus improving the ability of markets to evaluate risk and reward in cross-border
financial transactions.
Transparency and accountability
Under continued urging by the United States, the IMF now publishes far more information
on member countries' economies, including background papers for the annual consultations it has
with members about their economic and financial policies under Article IV of the Fund charter.
The IMF also encourages members to publish Letters of Intent describing their IMF-sponsored
adjustment programs and the policy framework papers for ESAF lending. The IMF annual
reports also contain more detailed commentary on individual countries' policies. We are
continuing to push for release of more IMF documents and are gaining added support in this
effort.
Moving Forward
Ability to press successfully for continued reforms in the IMF depends upon our
demonstrating that our commitment to the institution is as strong now as it was when we spearheaded its creation over 50 years ago. If the IMF is to become a more effective engine of marketoriented structural reforms and trade liberalization, if it is to continue to adapt to new challenges
in the global capital market, increase transparency and promote good governance, if it is to
ensure more efficient use of its resources, we must assure that it has adequate resources to meet
both normal and extraordinary challenges.
The Fund's quota resources have been steadily shrinking in size relative to the world
economy and capital markets since the first half of the 1980s, even with the increase in quotas
agreed by rill members in 1990 and endorsed by the Congress in 1992. World GDP and world
7
trade have roughly doubled from the time of the Ninth General Review of Quotas, which
preceded that quota increase. Global capital flows have increased even more dramatically. The
Fund is smaller now when measured against these features of the world economy than at any time
in the past quarter century.
The rapid growth of international capital markets reflects the greater access that many
countries now have to private investment flows that can help to finance payments imbalances for
extended periods. The greater efficiency in the allocation of capital also increases the risk that
crises may erupt very suddenly and that the resultant financing gap for a country in crisis can be
very large. Far from diminishing the need for a strong HvtF, the growth and liberalization of
private capital markets underscore its continued importance.
At the Economic Summit in Halifax in 1995, the G-7 urged countries with the capacity to
support the international financial system to double the amount of financing arrangements
available from the G-1 0 countries to the IMF under the General Arrangements to Borrow (GAB)
for dealing with crises that threaten the system. The GAB has not been increased since 1983.
NAB
In response to this call, the G-l 0 and 14 smaller industrial and emerging market countries
have reached an agreement, subject to approval by the appropriate governmental authorities, to
create the New Arrangements to Borrow. The IMF took a decision endorsing the NAB
agreement in January 1997, subject to fonnal adherence by participants accounting for the
necessary 85 percent of total credit arrangements, including those with the five largest
arrangements.
Modeled on the GAB, which was created in 1962, the NAB is a set of credit lines to the
IMF that would serve as a reserve tank to deal with financial crises that threaten the stability of
the international financial system if the ordinary resources of the IMF need to be supplemented to
address these situations. The NAB would amount to SDR 34 billion (approximately $47 billion)
ifall participants adhere,.including the amount of the GAB-- SDR 17 billion ($23.3 billion). The
GAB would remain in effect and could be activated independently, but the NAB will be the
facility of principal recourse. No more than SDR 34 billion ($47 billion) could be provided under
the GAB and NAB combined. G-IO countries will participate in both facilities.
The U.S. share of the NAB will be SDR 6712 billion (about $9.2 billion), including the
SDR 4.25 billion ($5.8 billion) now available under the GAB. At current exchange rates, this
increase in our authorization and appropriation to lend to the IMF would amount to about $3.4
billion.
An important feature of the NAB is that it provides better burden sharing among the
international community, while enhancing our ability to block inappropriate activation. The
United States will have just under a 20 percent share of the total amount of the NAB which
8
provides sufficient voting power to block activation with the concurrence of just one other
participant, or in some circumstances, on our own.
Quotas
In addition to ensuring that the IMF can respond to large-scale financial emergencies that
threaten the stability of the system, it is important to ensure that the IMF has sufficient ordinary
resources to meet its ongoing responsibilities in the expanding global economy. IMF members
have been reviewing current IMF quotas for some time under the Eleventh General Quota
Review.
The Administration is also reviewing the adequacy of IMF quotas, which finance the
ordinary lending of the institution. If, as a result of that review, we believe that an increase in
lMF quotas is needed to ensure that the IMF has adequate resources to carry out its
responsibilities well into the next decade -- and if we are able to negotiate a satisfactory
agreement -- then we will propose that the Congress authorize an increase in the U.S. quota. We
will consult closely with the Congress as this review proceeds.
The current U.S. quota is SDR 26.6 billion (about $36.8 billion), amounting to 18.25
percent of the total The current U.S. share of IMF voting power is 17.78 percent, comfortably
above the 15 percent needed to veto key decisions such as an increase in quotas or an amendment
of the Articles of Agreement.
ESAF
I would like to tum now to our request for the Enhanced Structural Adjustment Facility.
Created in 1988, ESAF was expanded in 1993 and now has received total contributions of about
$] 4 billion for concessional lending to the poorest countries, provided they undertake
comprehensive economic reforms. ESAF currently provides up to about $1.4 billion annually in
affordable lending for the poorest countries in Africa, Latin America, the Caribbean, Asia and the
former Soviet republics.
ESAF programs lay the foundations to support the basic infrastructure development that
IDA lending and bilateral assistance provide. This is why ESAF programs are developed in close
collaboration with the World Bank and why some bilateral and multilateral assistance is linked to
ESAF program performance.
Through their emphasis on fiscal consolidation, improved accounting and budgetary
procedures, trade liberalization, privatization and de-regulation, ESAF programs help to promote
good governance by undermining the incentives for corruption and exposing expenditures and
revenues to greater scrutiny Greater focus in recent years on the impact of reforms on the most
vulnerable elements of society has led to increased attention to the need for viable safety nets.
9
ESAF is also the vehicle for IMF participation in the Heavily-Indebted Poor Countries
(HIPC) Debt Initiative which, for the first time, features debt relief provided by the international
financial institutions. This Initiative will provide debt reduction for eligible poor countries in need
of additional relief, based on a track record of sound policy implementation, with the objective of
helping them achieve debt sustainability. The ESAF will playa critical role in guiding the reform
efforts of countries hoping to qualify for relief under the RIPC Debt Initiative.
In 1994 the United States agreed to contribute a total of$100 million toward the ESAF.
In FY 95 the Congress authorized and appropriated $25 million toward this commitment. This
year we are requesting authorization for the remaining $75 million. This will be spread over 10
to15 years, and thus we are requesting $7 million in the FY 98 appropriation. U.S. contributions
to ESAF are scored as budgetary outlays.
The total U. S. commitment amounts to about 5 cents for every dollar provided for the
expansion of the Interest Subsidy Account from other donor sources. This is a modest and highly
leveraged investment for opening new markets for U.S. goods and fostering sustainable
development that helps to raise incomes abroad and at home.
SDR Equity Amendment
Finally, the IrvfF members are considering an amendment of the IMF Articles of
Agreement to provide a special, one-time, allocation of SDRs to enable newer members of the
IMF to participate on an equitable footing in the Special Drawing Rights arrangement. SDRs are
a form of international reserve assets created by the IrvfF and allocated to members for use in
transactions with the IMF and for transfers between members and other authorized holders. Any
special allocation of SDRs would require authorization but would not require appropriation of
budget authority.
Conclusion
Let me conclude by saying again that the IMF is a critically important institution for the
United States. Its role in the system is more important now than ever before because of the rapid
increase in financial integration and the dramatic changes in the international capital markets. It is
a valuable institution with a remarkable concentration of economic and financial talent, an
impressive record of success, and an ongoing commitment to change and reform.
We have a major stake in ensuring it can continue to serve as an effective instrument for
promoting growth, openness and financial stability.
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL 2: 30 P. M.
CONTACT:
March 21, 1997
Office of Financing
202/219-3350
TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $13,750 million
of 52-week Treasury bills to refund $13,680 million of publiclyheld 52-week bills maturing April 3, 1997, and to raise about
$75 million of new cash. In addition to the maturing 52-week
bills, there are $20,448 million of maturing publicly-held 13week and 26-week billa.
In addition to the public holdings, Federal Reserve Banks
for their own accounts hold $12,016 million of the three maturing
bills. These accounts are considered to hold $5,265 million of
the maturing 52-week issue, which may be refunded at the weighted
average discount rate of accepted competitive tenders. Amounts
issued to these accounts will be in addition to the offering
amount.
Federal Reserve Banks hold $4,671 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.
Additional amounts may be issued for such accounts if the
aggregate amount of new bids exceeds the aggregate amount of
maturing bills. For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $1,286 million of the maturing 52-week issue.
Tenders for the bills will be received at Federal
Reserve Banke and Branches and at the Bureau of the Public
Debt, Washington, D.C. This offering of Treasury securities
is governed by the terme and conditione eet forth in the Uniform
Offering Circular (31 CFR Part 356, ae amended) for the sale and
issue by the Treasury to the public of marketable Treaeury bills,
notee, and bonds.
Details about the new security are given in the attached
offering highlights.
RR-1566
Att~chm.ant
000
Hl:CJHLICJB'1'S OW TRDSURY OP1PDDfO OJ' 52-DU BILLS
TO B. I88UKD APRIL 3, 1'97
March 21, 199'7
Offerina !mOURt . . . . .
$13,750 million
D•• cription of Off.ripql
Term and type of security .
CUSIP number
. . .
Auction date . . . .
Issue date . . . . . . . .
Maturity date . . .
Original issue date
Maturing amount . . , . . .
Minimum bid amount . . .
Multiples . . . . .
364-day bill
912794 4T 8
March 26, 1997
April 3, 1997
April 2, 1998
April 3, 1997
$18,945 million
$10,000
8Vbmi"~OD of '1d••
Noncompetitive bids
Competitive bids
$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 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.
Mfy1pum B'Qogailld li4
at • Single Yi.ld
35% of public offering
Max1mym Award . . . . . .
35% of public offering
0'
Beceipt
Tap4.r,.
Noncompetitive tenders
Prior to 11:00 a.m. Eastern Standard
time on auction day
Prior to 11:30 a.m. Eastern Standard
time on auction day
Competitive tenders
Payment Term' . .
. . . .
.
Full payment with tender or by charge
to a funds account at a Federal
Reserve bank on issue date
TOTRL P.02
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
March 24, 1997
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $11,648 million of 13-week bills to be issued
March 27, 1997 and to mature June 26, 1997 were
accepted today (CUSIP: 9127942R4).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.26%5.27%'
5.26%
Investment
Rate
5.41%5.41%'
5.41%
Price
98.670
98.668
98.670
$575,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 18%.
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
5.13 - 98.703
RR-1567
Received
$53,556,124
Accepted
$11,648,073
$48,304,556
1,280,533
$49,585,089
$6,396,505
1,280,533
$7,677,038
3,274,235
3,274,235
696,800
$53,556,124
696,800
$11,648,073
UBLIC DEBT NEWS
DcpartmcnI of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
March 24, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $11,529 million of 26-week bills to be issued
March 27, 1997 and to mature September 25, 1997 were
accepted today (CUSIP: 9127945NO).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.32%"
5.33%"
5.33%-
Investment
Rate
5.54%"
5.55%'
5.55%"
Price
97.310
97.305
97.305
Tenders at the high discount rate were allotted 33%'.
The investment rate lS the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
RR-1568
Received
$44,746,244
Acce12ted
$11,528,982
$37,813,090
1,174,954
$38,988,044
$4,595,828
1,174,954
$5,770,782
3,030,000
3,030,000
~,:Z~~L ~QO
~,:Z~!2,~QO
$44,746,244
$11,528,982
DEPARTMENT
OF
THE
'IREASURY ~.)
TREASURY
NEW S
FOR IMMEDIATE RELEASE
March 25, 1997
STATEMENT BY TREASURY SECRETARY ROBERT E. RUBIN AND
COUNCIL OF ECONOMIC ADVISERS CHAIR JANET L. YELLEN
The Administration recognizes and respects the independence of the Federal Reserve in making
decisions about the nation's monetary policy. We share the goal of maintaining solid economic
growth with low inflation.
Recent indicators suggest that our economy continues on a healthy and balanced course, with
low unemployment, strong job creation and low inflation. We believe that the economy will
continue on this path, led by strong private-sector investment which is creating a foundation for
long-term growth and higher living standards for all Americans in the future.
-30-
RR-1569
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
VBLIe DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
March 25, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Tenders for $17,254 million of 2-year notes, Series AD-1999,
to be issued March 31, 1997 and to mature March 31, 1999
were accepted today (CUSIP: 9128272N1).
The interest rate on the notes will be 6 1/490. All
competitive tenders at yields lower than 6.270~ were accepted in
full.
Tenders at 6.270~ were allotted 47~. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 6.270~, with an equivalent price of 99.963. The median yield
was 6.240~; that is, 50~ of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.20090;
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
$37,989,482
Accepted
$17,254,292
The $17,254 million of accepted tenders includes $1,479
million of noncompetitive tenders and $15,775 million of
competitive tenders from the pUblic.
In addition, $1,600 million of
high yield to Federal Reserve Banks
international monetary authorities.
of tenders was also accepted at the
Reserve Banks for their own account
securities.
RR-1570
tenders was awarded at the
as agents for foreign and
An additional $889 million
high yield from Federal
in exchange for maturing
D E P ..-\ R T :\ I E ;\ T
0 F
T
I-i _E T R E :\ S l' R Y
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
EMBARGOED UNTIL 2:30 P.M.
March 25, 1997
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY EILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $14,000 million to refund $20,448 million
of publicly-held 13-week and 26-week bills maturing April 3,
1997. This offering will result in a paydown for the Treasury of
about $6,450 million.
In addition to the maturing I3-week and
26-week bills, there are $13,680 million of maturing publiclyheld 52-week bills.
In addition to the public holdings, Federal Reserve Banks
for their own accounts hold $12,016 million of the three maturing
bills.
These accounts are considered to hold $6,751 million of
the maturing 13-week and 26-week issues, which may be refunded at
the weighted average discount rate of accepted competitive
tenders. Amounts issued to these accounts will be in addition to
the offering amount.
Federal Reserve Banks hold $4,819 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. Additional amounts may be issued for such accounts if
the aggrega-te amount of new bids exceeds the aggregate amount
of maturing bills.
For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $3,533 million of the original 13-week and 26week issues.
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, as amended) 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-1571
-
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
T08E XSSUED APRIL 3, 1997
March 25, 1997
Offering Amount . . . . .
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 . . .
$7,000 million
$7,000 million
91-day bill
182-day bill
912794 SP ,5
March 31, 1997
April 3, 1997
October 2, 1997
April 3, 1997
912794 5D 2
March 31, 1997
April 3, 1997
July 3, 1997
January 2, 1997
$13,570 million
$10,000
$ 1,000
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
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
35% of public offering
at a Single Yield
35% of public offering
Maximum Award . . . . .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Prior to 12:00 noon Bastern 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
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
March 26, 1997
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $13,772 million of 52-week bills to be issued
April 3, 1997 .nd to mature April 2, 1998 were
accepted today (CUSIP: 9127944T8).
RANGE OF ACCEPTED
COMPETITIVE aIDS:
Discount
Rate
Low
High
Average
5.64\
5.66%
5.66t
Investment
Rate
5.98t
6.00%
6.00t
Price
94.297
94.'-77
94.277
Tenders at the high discount rate were allotted 22\-.
The investment rate is the equivalent coupon-issue yield.
TENDERS
R~CE!VED
AND ACCEPTED (in thousands)
Receiyed
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Foreign Offi~ial
Institutions
TOTALS
$62,562,152
Ac>=epted
$13,772,362
979,842
$61,325,152
$11,555,520
979,842
$12,535,362
.,237,000
$62,562,152
$13,772,362
$60,345,3l0
1.237,000
In addition, $5,265,000 thousand was awarded to the
Federal Reserve Banks for theIr own accounts.
5.65 -- 94.297
RR-1572
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
March 26, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $12,516 million of 5-year notes, Series E-2002,
to be issued March 31, 1997 and to mature March 31, 2002
were accepted today (CUSIP: 9128272P6).
The interest rate on the notes will be 6 5/8%-.
All
competitive tenders at yields lower than 6.660~ were accepted in
full.
Tenders at 6.660~ were allotted 29~. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 6.660~, with an equivalent price of 99.853. The median yield
was 6.640~i that is, 50~ of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.490%-;
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
$31,736,865
Accepted
$12,515,535
The $12,516 million of accepted tenders includes $644
million of noncompetitive tenders and $11,872 million of
competitive tenders from the public.
In addition, $1,100 million of
high yield to Federal Reserve Banks
international monetary authorities.
of tenders was also accepted at the
Reserve Banks for their own account
securities.
RR-1573
tenders was awarded at the
as agents for foreign and
An additional $645 million
high yield from Federal
in exchange for maturing
D EPA R T 'I E :\ T
0 F
TilE
T H. E :\ S t H. Y
NEWS
ornCE OF PUBUCAFFAIRS -1500 PENNSYLVANlAAVENUE, N.W. - WASlnNGTON, D.C. - 20220 - (202) 622·2960
Embargoed Until 2:30 P.M.
March 25, 1997
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION CASH MANAGEMENT BILLS
The Treasury will auction approximately $10,000 million of
14-day and $17,000 million of 19-day Treasury cash management
bills to be issued April 3, 1997.
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 ;;Cords of
the Department of the Treasury (TREASURY DIRECT). Tenders will
n2t be received at the Bureau of the Public Debt, Washington,
D.C.
Additional amounts of the bills may be issued to Federal
Reserve Banks as agents for foreign and international monetary
authorities at the average price of accepted competitive tenders.
This offering of Treasury securities is governed by the
terms and conditions set forth in the Uniform Offering Circular
(31 CFR Part 356 as amended) 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-1574
HIGHLIGHTS OF TREASURY OPFERINGS OF CASH MANAGEMENT BILLS
TO BE ISSUED APRIL 3, 1997
March 25, 1997
Offering Amount . . . . .
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 . . .
$10,000 million
$17,000 million
14-day bill
19-day bill
912794 4F 8
April 1, 1997
April 3, 1997
April 17, 1997
October 17, 1996
$47,864 million
$10,000
$1,000
$10,000
$1,000
912794 6Y 5
1, 1997
3, 1997
22, 1997
3, 1997
April
April
April
April
$10,000
$1,000
$10,000
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at the average discount
rate of accepted competitive bids
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award . . . . . .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders .
Payment Terms
(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 halfhour prior to the closing-time for receipt of
competitive tenders.
35% of public offering
35% of public offering
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
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
March 31, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $7,062 million of 13-week bills to be issued
April 3, 1997 and to mature July 3, 1997 were
accepted today (CUSIP: 9127945D2).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.17%
5.19%
5.18%
Investment
Rate
5.31%
5.33%
5.32%
Price
98.693
98.688
98.691
Tenders at the high discount rate were allotted 10%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Received
$37,979,234
Accepted
$7,062,059
Type
Competitive
Noncompetitive
Subtotal, Public
$36,081,275
1,417,759
$37,499,034
$5,164,100
1,417,759
$6,581,859
Foreign Official
Institutions
TOTALS
480,200.
$37,979,234
480,200
$7,062,059
TOTALS
In addition, $3,771,430 thousand was awarded to the
Federal Reserve Banks for theIr own accounts.
RR-1575
DEPARTMENT
OF
THE
1789
TREASURY
NEWS
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlllNGTON, D.C .• 20220 • (202) 622-2960
Contact:
Hortense Henderson
(202) 622-2960
TREASURY DEPARTMENT PUBLIC ENGAGEMENTS SCHEDULE
For the Week of March 29- April 4, 1997
*Revised as of 12:30 p.m., Monday, March 31,1997.
TUESDA Y, April 1
Deputy Secretary Lawrence H. Summers
U.S.-Russia Business Council's 5th Annual Forecast Conference
Remarks: U.S.-Russia trade and investment forecast '97
9:15 a.m. EST
The Four Seasons Hotel, Corcoran Ballroom
2800 Pennsylvania Avenue, N.W.
Washington, D.C.
WEDNESDAY, April 2
Treasury Secretary Robert E. Rubin
New York Stock Exchange Board of Directors and European, Asia Pacific and
Latin American Advisory COmmittees
Remarks: APEC meetings
12:30 p.m. EST
Willard Inter-Continental Hotel, Crystal Room
1401 Pennsylvania Avenue, N.W.
Washington, D. C.
Comptroller of the Currency Eugene A. Ludwig
Bank of Boston Community Development Corporation
Remarks
11 a.m EST
Roxbury Comprehensive Health Center
435 Warren Avenue
Roxbury,~assachusetts
(more)
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2-
THURSDA Y, April 3
*Note: The 11 :45 a.m. remarks by United States Treasurer Mary Ellen Withrow,
originally included on the public schedule, is a CLOSED event.
FRIDA Y, April 4
No events scheduled.
-30-
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
March 31·, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $7,040 million of 26-week bills to be issued
April 3, 1997 and to mature October 2, 1997 were
accepted today (CUSIP: 9127945P5).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.29%
5.31%
5.31%
Investment
Rate
5.51%
5.53%
5.53%
Price
97.326
97.316
97.316
Tenders at the high discount rate were allotted 35%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Received
$37,156,243
Accepted
$7,040,293
Type
Competitive
Noncompetitive
Subtotal, Public
$34,241,555
1, 211, 688
$35,453,243
$4,125,605
1,211, 688
$5,337,293
Foreign Official
Institutions
TOTALS
1,703,000
$37,156,243
1,703,000
$7,040,293
TOTALS
In addition, $2,980,000 thousand was awarded to the
Federal Reserve Banks for the"ir own accounts.
5.30 --
RR-1576
97.321
federal financing
WASHINGTON, D.C. 20220
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of February 1997.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $57.6 billion on February 28,
1997, posting a decrease of $10 million from the level on
January 31, 1997. This net change was the result of a decrease
in holdings of agency guaranteed loans of $10 million. FFB made
9 disbursements during the month of February. In addition, two
RUS-guaranteed loans were refinanced under Section 306C. FFB
also received 21 prepayments in February.
Attached to this release are tables presenting FFB February
loan activity and FFB holdings as of February 28, 1997.
RR-1577
Page 2 of 3
FEDERAL FINANCING BANK
FEBRUARY 1997 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Foley Services Contract
2/7
HCFA Headquarters
2/7
Foley Square Office Bldg. 2/14
$98,019.00
$142,769.00
$308,800.00
7/31/25
7/1/25
7/31/25
6.858% S/A
6.858% S/A
6.705% S/A
2/18
$9,062,296.28
11/2/26
6.656% S/A
2/6
2/6
2/10
2/24
2/26
2/26
2/28
$6,000.00
$4,864,000.00
$560,000.00
$789,000.00
$656,172.47
$1,325,667.68
$1,000,000.00
1/3/11
12/31/12
1/3/17
4/1/02
1/2/18
12/31/18
1/3/23
6.516%
6.564%
6.651%
6.214%
6.529%
6.547%
6.817%
GSA/PADC
ICTC Building
RURAL UTILITIES SERVICE
Bretton Woods Tele. #414
Horry Tele. Coop. #419
E. Nebraska Tele. #398
Panhandle Tele. #400
!-Sho-Me Power #913
!-Sho-Me Power #913
Colorado Valley #422
S/A is a Semi-annual rate:
306C refinancing
Qtr. is a Quarterly rate.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Export-Import Bank
Resolution Trust Corporation
U.S. Postal Service
sub-total*
Agency Assets:
Fn\HA-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
DoEd-HBCU
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural utilities Service
SBA-State/Local Development Cos.
DOT-Section 511
sUb-total*
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
February 28, 1997
January 31, 1997
$ 1,431.5
4,557.0
0.0
5,988.5
$ 1,431.5
4,557.0
0.0
5,988.5
3,675.0
17,875.0
5.5
18.8
4,598.9
26,173.3
3,675.0
17,875.0
5.5
18.8
4,59S.9
0,1
26,173.3
3,166.7
0.2
37.2
1,561.4
2,348.9
19.0
1,308.1
16,709.6
300.3
ll.:...Q
25,463.5
3,18S.2
0.2
37.6
1,561.4
2,339.3
19.0
1,308.1
16,702.4
304.S
12.3
25,473.2
=========
=========
$ 57,635.0
2..t..!
$ 57,625.3
Net Change
FY '97 Net Change
2/1/97-2/28/97
1011/96-2/28/97
$
$$
0.0
-390.3
-1,439.1
-1.500,0
-3,329.4
0.0
0.0
0.0
0.0
0.0
0.0
-825.0
0.0
0.0
0.0
0.0
0.0
~
~
Q.Q
0.0
-825.0
-21. 5
0.0
-0.3
0.0
9.6
0.0
0.0
7.2
-4.5
-80.5
0.0
-1. 9
-65.4
16.6
-0.8
-74.7
-41.1
-lS.1
-QI~
-Qd~
-9.7
-266.6
=========
$
-9.7
=========
$
4,420.9
@FedFRASER