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Treas.
HJ
10
.A13
P4
v. 371
Department of the Treasury
PRESS RELEASES
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DEPT. OF THE TREASURY
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
May 1, 1998
John D. Hawke, Jr.
Under Secretary of the Treasury to the
National Association of Affordable HOllsing Lenders
Miami, Florida
It is a pleasure to be with you today. Let me begin by thanking Judy Kennedy and Joe
Flatley of NAAHL for inviting me to speak today, and more importantly, for their and your
continued leadership toward a goal that I believe -- and that I know Treasury Secretary Rubin
and President Clinton believe -- is of immense importance to our society and our economy as
we approach the 21 st century: Giving {'v{'ry American the opportunity to join and succeed in
the economic mainstream.
I'd like to start by discussing the economy as a whole, because the foundation for
creating real economic opportunity for all is a strong national economy. When President
Clinton came to office, unemployment was 7.3 percent, budget deficits kept interest rates high
and confidence low, and job creation was slow. The President put our fiscal house in order,
which has been central to low interest rates, low intlation, unemployment now down to 4.6
percent, and strong business investment. The economy has created 15 million new jobs over
the last 5 years, and real median wages have begun to rise.
Unemployment in the fifty largest cities is down to 6.5 percent, from 9 percent in
1992. And crime is down substantially. But we know all too well that there is still much to be
done to advance the poorest segments of our economy. For example, recently, Second
Harvest -- a network of food banks -- reported that more than 21 million people used
emergency food programs in 1997, and nearly 40 percent of those seeking aid came from
working households.
RR-241O
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2-
We can, and we must, do more to ensure that our economy works for all Americans.
The key is to identify strategies and replicate them on a national scale and on a sustained basis.
Our strategy involves a three pronged approach:
•
The first is strengthening public safety. In addition to the human costs, high
crime rates are a signi ficant barrier to economic activity.
•
Second, is investing in people, through the Earned Income Tax Credit; through
education and training, from pre-school to adult; and through improving the
"job readiness" of the least advantaged and connecting them to the workforce.
•
And third, which I will focus on today, is increasing access to private sector
capital and other measures to restore healthy market forces in the inner cities
and distressed rural areas. Despite the fact that financial markets in the United
States are today the most innovative, the broadest, and deepest in the world, we
still have a severe shortage of capital to create housing and jobs in the inner city
and in rural communities.
At Treasury, we have been very focused on these problems. We have enacted new
incentives for investments in the inner cities, from our brownfields tax incentive to encourage
the revitalization of environmentally contaminated properties in distressed areas, to new rounds
of Empowerment Zones, fostering comprehensive approaches to a community's problems. We
have enacted incentives to help firms hire low income workers who have a difficult time in the
labor markets. And we have made permanent the low income housing tax credit, helping to
create 90,000 units of affordable housing every year. This year, the President has proposed
expanding the credit by 40%, which would mean an additional 180,000 units of affordable
housing over the next five years alone.
And I think one of the most siE,nificant things we've done is help make our financial
system work better for communities long left behind. At the core of this approach, we have
strengthened the Community Reinvestment Act and launched the Community Development
Financial Institutions Fund. Let me focus on these two items for a moment.
When President Clinton came into office in 1993, he was determined to strengthen
CRA regulations to encourage mainstream financial institutions to lend to creditworthy
borrowers throughout their community. The regulators have done just that, focusing CRA on
performance, not paperwork. Since taking office we have repeatedly fought off efforts to
undermine CRA.
Now in its 20th year, CRA, in my view, is working. In 1996 alone, large commercial
banks made $18 billion in community development loans. In the last four years, national
banks have invested four times as much in community development as they did in the previous
thirty years. Moreover, Home Mortgage Disclosure Act data for 1996 show that since 1993,
private sector conventional home mortgage lending to African Americans has increased by
67.2 percent, lending to Hispanics has risen 48.5 percent, and lending in low and moderate
income areas is up 37.9 percent. All this, in a period in which the market grew only 18
percent. This data shows real progress, but much work still needs to be done.
Going forward, nonprofit groups report that there have now been $397 billion in loan
pledges to low income areas since CRA was enacted 20 years ago. Over the past five years,
loan pledges have totaled $355 billion, 89 percent of all loan pledges made since 1977. Now,
that's pledges, and not loans yet made, so you have a lot of work to do to be sure those
pledges become reality. Having said that, progress has been remarkable, and you deserve
congratulations for your hard work in helping to make this possible.
To cite just one example, since 1990, Bank of America in San Francisco has profitably
lent more than $10 billion as part of its Neighborhood Advantage program, a system of low
and moderate income home loans, to borrowers in communities across the western United
States. And Bank of America is hardly alone. Mainstream banks across the country have
developed -- and made money from -- similar initiatives to serve low income markets.
With all this progress, as we move to modernize the nation's financial system, we need
to make sure that communities are not left behind. Financial modernization will mean
enormous benefits for consumers. We estimate that consumers spend $300 billion a year on
financial services, and it is clear that even modest gains in efficiency that can come about
through the elimination of barriers to competition can have a significant effect on consumer
costs.
While we have strongly supported Financial Modernization legislation, we have been
very disturbed by some of the amendments that have been grafted on to the bill as it has
moved forward. In particular, the bill mounts a frontal attack on the national banking system.
It shuts down innovative efforts that the acc has made to make national banks more
competitive, it discriminates against national banks as compared to state banks, it fails to
relieve archaic limitations on the ability of national banks to seJl insurance, which do not apply
to state banks, and it would, in our view, significantly diminish the role of the elected branch
of government in financial institutions policy. In particular, we think this formulation of the
legislation would diminish the effectiveness of CRA enforcement, by disabling national banks
from participating in new financial activities through their own subsidiaries, and forcing all
new activities into Federal Reserve-regulated holding company affiliates, where they are
beyond the scope of the acC's ability to judge what a bank's CRA commitments should be.
The Secretary has communicated to the House Leadership that he would recommend a veto of
the bill if it were enacted in this form. You should have a stake in these issues.
Let me turn now to the CDFI Fund, a key focus for us at Treasury, and, in many
respects, a complement to CRA. Inevitably, there are things that banks will have trouble
doing. This is especially true in new markets, or forgotten communities where social returns
-4-
can be particularly large relative to private ones. The goal of the CDFI Fund is to build a
nationwide network of community development financial institutions to expand access to
credit and financial services in lower income communities. Often, CDFls are the pioneers in
their marketplaces, making the leading edge investments based on superior local knowledge,
providing technical assistance to borrowers, and thereby demonstrating to traditional lenders
that these are viable markets. Banks, in turn, are looking for these opportunities, partly as a
result of CRA. Banks have partnered with CDFIs, and once they become involved, many of
these mainstream institutions are staying at the table as they come to understand these markets
and see the available opportunities.
The CDFI Fund has two main programs: the CDFI program, which is designed to
assist specialized community development financial institutions, and the Bank Enterprise
Award program, which rewards financial institutions that are increasing their lending and
providing more financial services in distressed communities. Both programs pursue strategies
designed to meet local needs to help each community deal with its particular circulllstances,
whether it is helping people buy a house, or start a business. They help foster partnerships
between mainstream financial institutions and local communities.
The Fund has awarded over $75 million to 80 CDFls and intermediaries around the
country in its first two rounds of awards, and under the BEA program, 92 insured depository
institutions have received over $30 million in awards for their activities. This year, the third
round of the BEA program will provide another $25 million in incentives to banks and thrifts
who increase their investments in distressed communities and in CDFls; 104 banks have
applied, seeking $60 million in funding. The Fund has launched its third round of CDFI
awards, for approximately $40 million, with applications due June 12th. And the Fund has
launched a special awards round focused on increasing the capacity of CDFls with the greatest
needs for technical assistance.
As with any new organization there have been some growing pains at CDFI. I believe
we have dealt with those problems effectively and we will continue to improve procedures as
this program grows and matures. In fact, the Fund was recently given an unqualified audit for
its activities since inception. We are moving this program forward with the new leadership of
Ellen Lazar -- who you know well -- and who I believe brings to the job the dedication,
experience and energy needed to implement the CDFI Fund's important work in the years
ahead. Most importantly, we have a vision that makes sense, a strong program, and
investments that have begun to flow to communities and make a difference in people's lives.
Let me give you just one example. Recently, I visited a CDFI in North Carolina -Self Help, which operates a credit union and a venture capital fund. I saw first hand how a
young man who had been running a marginal fresh fish business, was able to get a $1,000
micro-loan from Self Help to buy a fish fryer and thereby to offer a great fast food menu to his
customers. His business began to grow, and now he employs two full-time and two part-time
helpers. With his first profits he was able to expand by buying another frier and a stove, and
-5-
now this determined young man wants to borrow $15,000 to buy a refrigerated truck, so he
can drive to the shore and pick up his own fish. We sometimes forget how much difference
even a very small loan can make for a small business entrepreneur, and that s one of the things
that CDFIs can do very well.
I
I also had the opportunity to visit a distressed neighborhood in Durham, where Self
Help was rehabilitating rental properties and selling them back to former tenants. I spoke to a
minister there who told me that just a few years ago, no one dared to sit on their front steps or
go down the street to the store because of all the drug trafficking and violence there. But with
funding from Self-Help and other sources, the neighborhood is now beginning to turn around.
Houses are being repaired, and families have been given the opportunity to own their own
homes for the first time. The increased home ownership is not only benefitting those families,
but it has made the neighborhood safer, and has encouraged families on the block -- now
homeowners - to become more involved in their community.
Now we must build on these successes and others like them. We are asking Congress
for $125 million for CDFI. And we are working with Congress on the re-authorization that is
required for this most useful program to continue. Our legislation will make improvements to
the CDFI and BEA programs. We are also seeking to launch a new capital access program at
CDFI, working with the states to fund loan loss reserves that enable banks and CDFls to make
more difficult small business loans to budding entrepreneurs. These state programs have been
enormously successful in reaching new small business borrowers safely and soundly. I think
this new CDFI program will be an exciting new initiative for communities. We will be pushing
forward with both appropriations for CDFI and reauthorization in the weeks ahead. We look
forward to working with Congress to pass these bills on a bipartisan basis.
In conclusion, let me return to where I begin. As a nation, we can never hope to reach
our full economic potential unless we succeed in bringing all Americans into the economic
mainstream. There are programs that work all around the country. What we need to do is
ensure that those programs are replicated on a national scale. commensurate with the
problems. This can be done, and it must he done. Thank you very much.
--30--
PUBLIC DEBT NEWS
Department of the Trrasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
May 04, 1998
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13 -WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
91-Day Bill
May 07, 1999
August 06, 1998
912795AEl
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
Low
High
Average
------
4.980\
4.995\
4.990t
Investment
Rate 1/
Price
----------
------
5.114\
5.131%
5.122%
99.741
98.737
98.739
Tenders at the high discount rate were allotted
26%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Tendered
Competitive
Noncompetitive
$
$
4,208,601
1,416,032
PUBLIC SUBTOTAL
39,721,895
5,624,633
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
3,668,010
3,668,010
135,210
49,390
135,210
49,390
$
TOTAL
1/
38,305,863
1,416,032
Accepted
43,574,505
Equivalent coupon-issue yield.
RR-2411
http://www.publicdcbt.treas.gov
$
9,477,243
To: Publt( lffi1rE
5-04-98
2:04pm
p, 2
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
OF THE PUBLIC DEBT - WASHINGTON DC
BUREAU
CONTACT:
FOR IMMEDIATE RELEASE
Office of Financing
202-219-3350
May 04, 1998
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
May 07, 1998
November 05, 1998
912795AQ4
Tenn:
Issue Date:
Maturity Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
------
Low
High
Average
5.100%
5.110t
5.110%
Investment
Rate 1/
Price
---------5.307%
-----97.422
97.417
97.417
5.318%
5.318%
Tenders at the high discount rate were allotted
68%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
$
Competitive
Noncompetitive
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst
Refunded Maturing
Additional Amounts
$
TOTAL
1/
Accepted
Tendered
Tender Type
28,042,907
1,214,859
$
4,623,472
1,214,859
29,257,766
5,838,331
3,980,000
3,980,000
1,461,135
532,865
1,461,135
532,865
35,231,766
Equivalent coupon-issue yield.
RR-24l2
http://www .pub licd~bt.tre:lS.gov
$
11,812,331
ot 2
NEWS
ornCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 3 :OOPM
May 4,1998
CONTACT: Paul Elliott
(202) 622-2016
TREASURY ANNOUNCES MARKET BORROWING ESTIMATES
The Treasury Department announced on Monday that its net market borrowing for the April June 1998 quarter is estimated to be a pay down of $110 billion with a cash balance of $45 billion
on June 30. The Treasury also announced that its net market borrowing for the July - September
1998 quarter is estimated to be in the range of $0 billion to $5 billion with a cash balance of $40
billion on September 30, 1998.
In the quarterly announcement of its borrowing needs on February 2, 1998, the Treasury
estimated net market borrowing for the April- June quarter to be a pay down in the range of $75
billion to $80 billion with a cash balance of $35 billion on June 30. The current estimate largely
reflects an improvement in budget receipts and an increase in net issuances of nonmarketable State
and Local Government Series (SLGS) securities.
Actual net market borrowing for the January - March 1998 quarter was $10.3 billion with an
end-of-quarter cash balance of $27.6 billion. On February 2, the Treasury estimated net market
borrowing for the January - March quarter to be $10 billion with a cash balance of $20 billion on
March 31. The higher end-of-quarter cash balance was primarily the result of lower budget
outlays and larger net issuances of SLGS.
The regular quarterly press conference will be held at 9:00AM on Wednesday, May 6, 1998.
--30-RR-2413
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY (.)
TREASURY
NEW S
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
May 5,1998
REMARKS TO THE TREASURY BORROWING ADVISORY COMMITTEE
OF THE PUBLIC SECURITIES ASSOCIATION
BY DIRECTOR OF THE OFFICE OF FINANCIAL ANALYSIS
JOHN H. AUTEN
When you were here three months ago, real growth was running close to 4 percent and
inflation was about 1-112 percent. The Asian situation showed signs of stabilizing and adverse
impacts on the U.S. economy were fairly hard to find. Now three months later, there are
similarities and there are also emerging differences.
Let's take the domestic side of the equation first. Real growth in the fourth quarter and in
the first quarter were similar in overall magnitude. The fourth quarter is now carried on the books
at 3.7 percent annual rate, although we may have been quoting an advance estimate of 4.3 percent
when you were here. Those things happen. Suppose we split the difference and call it 4 percent
for the fourth quarter. That, in turn, is very close to the 4.2 percent advance estimate for the first
quarter which was released last week. Not much is lost by calling this a 4 percent quarter, too.
There is a world of difference between the two quarters in the composition of that
4 percent growth. This quarter looks a lot better. In the fourth quarter of last year, final sales to
domestic purchasers slowed abruptly to growth of 2 percent annual rate and business capital
investment actually moved into the negative column.
•
The fourth quarter's 4 percent real growth was only achieved through some piling up of
inventories and a sizable improvement in net exports, widely recognized at the time as
reflecting difficulties of seasonal adjustment.
•
The first quarter's real growth is much more solidly based. Final sales to domestic
purchasers rose at a 6 percent annual rate with business investment posting a large gain.
Inventories were a relatively neutral influence and the 4 percent real growth in the first
quarter was achieved despite roughly a 2 percentage point subtraction from net exports,
some of which was a reversal of the fourth-quarter seasonal effect.
RR-2414
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
An improving pattern between the fourth and first quarters is also evident in inflation
performance.
•
The GDP chain-weighted price index was up at an annual rate of only 0.9 percent in the
first quarter, down from 1.4 percent in the fourth quarter. The increase over the last year
was also 1.4 percent -- the smallest such four-quarter change since 1964.
•
The behavior of an alternative measure of prices was even more striking. The price index
for gross domestic purchases excludes exports and includes imports, hence reflecting the
prices paid by u.s. consumers, businesses, and the public sector. This index was flat in
the first quarter for the first time since 1954.
•
Part of this return to zero inflation was due to falling oil prices which may not last. But,
another part can probably be attributed to foreign competition and global disinflation,
which may even intensify as Asian adjustments proceed. In the past year, the prices of our
nonpetroleum goods imports have fallen by more than 4 percent.
The latest reading on the employment cost index for the three months ending in March
was also relatively encouraging in the inflation context. The seasonally adjusted quarterly index
for total compensation rose by only 0.7 percent, or a modest 2.7 percent annual rate and the
smallest quarterly increase in a year. The only reservation would be that quarterly changes in the
series can be volatile and that the first quarter result may be exaggerating the extent of
improvement. By most other measures, labor markets are extremely tight.
Still, it is impressive that after seven full years of expansion, with the unemployment rate
at or below 5 percent for the past twelve months and real GDP growth close to 4 percent over the
past six quarters, inflationary pressures actually seem to have eased.
The emerging difference in the current situation is that adverse effects on real activity in
the U. S. are beginning to be felt from Asia. Up to this point, the chief impact had come in the
form of lower inflation and lower interest rates, both of which considered in isolation could
certainly be viewed as desirable developments.
The impact of the East Asian crisis is now beginning to show through in the
U. S. trade data, in the form ofa reduction in U. S. exports. From October through February, U.
S. merchandise exports fell by nearly 5 percent, most of it recently, with the major East Asian
countries accounting for 80 percent of the drop. These results are approximate and based on
unofficial seasonal adjustment.
•
U. S. exports to the area are likely to fall further in most cases, not only because of
income compression in Asia, but also because exchange rate movements have made U. S.
goods relatively expensive and a further loss of market share is likely.
3
There has not been much sign yet in the published data of increased U. S. imports from
Asian countries. If such an effect were to materialize, and it seems inevitable in the course of a
successful Asian adjustment, it could imply some additional dampening influence on the growth of
U. S. GDP.
Looking out to the future, slower U. S. growth seems sure to emerge. Continued growth
at a 4 percent rate hardly seems feasible, even on the most favorable assumptions for productivity
performance. But no drastic shift in the policy settings would seem to be required. The gradual
emergence of restraint through the medium of a wider net export deficit would appear to be a
highly probable development during the balance of the year.
Some recent indicators already seem to be pointing in that direction. Unfortunately, in this
business, some indicators can usually be found pointing in any direction. But, it may be significant
that industrial production has flattened out recently, growing at only 1 percent annual rate in the
first quarter; and that the latest survey of the National Association of Purchasing Management
reported a slower rate of growth in manufacturing in April. These might be early signs of the
return to a more moderate pace of growth.
All things considered, growth near the economy's trend potential of 2-112 percent or so
seems the most likely outcome going forward, along with the continuation of relatively low
inflation and low interest rates.
That is a summary of recent economic developments and the near term economic outlook.
--30--
OFFICE or PUBLIC ·AFFAIRS .1500 PENNSYLVANIA AV ENUE. N. W•• WASHINGTON, D.C.' ZOnG. (202) 611·2960
Office of Financing
202/219-3350
CONTACT:
EXBARGOED UNTIL 2: 3 0 P. K.
May 5, 1998
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills totaling
approximately $13,000 million, to be issued May 14, 1,,8. This offering will
result in a paydown for the Treasury of about $1,850 million, as the matur~g
publicly beld weekly bills are outstanding in the amount of $14,857 millio~.
In
accounts
weighted
~o these
addition to tbe public holdings, Federal Reserve Banks for tbeir own
bold $7,169 million of the maturing bills, wbich may be refunded at the
average discount rate of accepted competitive tenders. Amounts issued
accounts will be in addition to the offering amount.
Federal Reserve Banks bold S1,894 million as agents for foreign and
international monetary authoritie~, which may be refunded within tbe offering
amo'..lllt. at the weighted average discount rate of accepted competitive tenders.
Additional amouots may be issued for such accounts if the aggregate ~ount of
new bids exceeds the aggregate amount 0: maturing bills.
Tenders for the bills will be received at Federal Reserve Banks and
Br~~~hes ~~d at the Bureau of the Public Debt, Washington, D.C.
This offering
of Treasury securities is governed by the terms ·and conditions set fortb in the
Uniform Offe~ing Circular (3l CFR Part 356, as amended) for the sale and issue
by the Treasury to the public of marketable Treasury bills
notes, and bonds.
l
Details about each of the new securities are given in the attached offering
hiShlights.
000
At tachIr.en t
RR-2415
For press releaus.
SpUclICS.
public $c"eJu/~s and offin·ttl biographies, call our 24-"ollr /4:( line at (202) 622-2040
HIGHLXGHTS
or
TRBASOR~ OgFB~XNOS OP MBBKLY BXLLS
TO BE XSSUBD NAY 1t, 1998
May 5, 1998
Qffering Amount •••••••••.•••••••••••••••••• $5,750 million
pelcription of Offering'
and type of •• curity •••••••••••••••••• 91-day bill
Te~
CUSIP nwnber ••••••••••••••••••••••••••••••• 912795 AF 8
Auction data •••••••...•••••••• ~ •••.•••••••. May 11. 1998
X•• ue data .....••..•••••.•.•••.•••••••.•... May 14. 1998
Maturity date .•••.••••.•••••.•.••..•..•..•• August 13, 1998
Original iSBue date .•.•.••.....•••.•.•...•• February 12, 1998
Currently outatanding •••...•.•••••..•...... $10,846 million
Minimum bid aDlouot • . • • • • • • • • . • • • • • . • • • . • • •• $10,000
Multiples ••
$ 1,000
0"
••••••
0
•••••
•
••
0
••
The fol1o"inq rules apply to all
lubmipsion of Bid ••
Noncompetitive bids
0
••••••••••
.ecyriti~s menti9ne~
$7,250 million
18:l-day bill
912794 58 Ii
Hay 11, 1998
May 14, 1998
Noveftber 12, 1998
November 13, 1997
$18,451 million
.$10,000
$ 1,000
sbove.
........................ Accepted
io full up to $1,000,000 at the average
discount rat. of accepted competitive bids.
Must be expressed ao a di3count rate with three decimals In
Comp e tit i v e bid s .. • . . . • . • • . • • • . . . • . . . • . . . .• ( 1 )
incremonts of .005\. e.g., 1.1001\. 7.1(15\.
Net long position for each bidder must be reported when tbe
(:2 )
Bum of the total bid amount, at all di&count ratea, and tbe
net loog poaition is $1 billion or greater.
Net long position lIIuat be determined as of one half-hour
(3 )
prior to the closing time fo~ receipt of competitive trnders.
Maximum RecogniFed Bid
ot a Single yield ..•......•.•.••• ······· 35\ of public offering
Maximum Award •.. · · · · · · · · · · · · · · , · · · · · · · · · · · ·
3S~
of public offering
Receipt of Iendergl
NonCOII\pati ti va tenders •...•.••...•..•...... Prior to 11:00 noon Kaatern Daylight S.ving time on auction day
COlllpatitive tenders .....•.••• •···········•• P~ior to 1:00 p.m. Hastern Daylight saving ti~. on auction day
PavmentTen!l1 ...•••.....•.••••....•......•• Pull payment with tender or by charge to a funds account
at a Federal Reoerve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
1789
OmCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE. N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
EMBARGO TIME WILL BE SET
May 6, 1998
REMARKS BY GARY GENSLER
ASSISTANT SECRETARY FOR FINANCIAL MARKETS
MAY 1998 TREASURY QUARTERLY REFUNDING
PRESS CONFERENCE
Good morning. I am pleased to be with you today. Due to the Clinton
Administration's policy of fiscal discipline we now face the challenge of managing a surplus
instead of financing a deficit. Adjusting our debt management to this new environment of
balanced budgets is an exciting challenge for the Treasury.
I will begin by announcing certain changes to the composition and frequency of our
coupon security offerings. I will then announce the tenns of the May quarterly refunding.
Next, I will review Treasury's market borrowing requirements for the balance of the current
calendar quarter and for the July-September quarter. Lastly, I will update you on our plans for
inflation-indexed Treasury securities.
I. Changes to Coupon Offerings
The changes to our coupon offerings that we are announcing today help us to achieve
the three principal goals of Treasury debt management: (1) sound cash management; (2)
lowest cost financing for the taxpayers; and (3) the promotion of efficient capital markets.
The changes also help us to advance the related principles of market liquidity, and balanced
issuance across the yield curve.
Over the last two years, due to improving fiscal conditions, Treasury has reduced the
issue sizes of our various offerings. In particular, the market in privately held Treasury bills
has declined in overall size by $130 billion, or 22 percent.
RR-2416
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
We feel it is appropriate at this time to adjust our issuance cycle and the instruments that we
offer, in order to continue to assure large, liquid issues in the coupon sector, and to promote
greater liquidity in the short-term bill market. Consistent with this, we wish to (1) limit
further contraction of net bill issuances; and (2) focus our coupon offerings around larger, less
frequent offerings of benchmark securities.
More specifically, we plan to institute the following two changes:
First, Treasury will discontinue new issues of 3-year notes after the May refunding.
This change is consistent with our practice of changing the specific instruments offered by the
Treasury in response to market demands and Treasury borrowing needs. The 20-year bonds
were discontinued in 1986, the 4-year notes were discontinued in 1991, and the 7-year notes
were discontinued in 1993.
Second, we will reduce the frequency of new issues of 5-year notes, shifting to a
schedule of quarterly issuances instead of monthly issuances. Thus, the 5-year note will
replace the 3-year note in the quarterly refundings, starting in August. The last monthly 5year note will be issued at the end of June. We expect that the offering size of each new
quarterly 5-year note will increase substantially from the recent size of $11 billion.
The two changes announced today will enable us gradually to increase the size of our
Treasury bill offerings. The changes should also help to prevent the average life of our
marketable debt from increasing significantly as a result of bill auctions being reduced more
than coupon auctions. In addition, in light of these changes, we plan to review our auction
practices. We will consider extending the use of the single-price auction technique to the 10and 30-year auctions in the regular quarterly refundings. Treasury has been conducting singleprice auctions for 2- and 5-year notes since September 1992 and for inflation-indexed
securities since their inception in January 1997.
II. Terms of the Quarterly Refunding
I will now turn to the terms of the quarterly refunding. We are offering $22.0 billion
of notes, to refund $25.4 billion of privately held notes maturing on May 15 and to pay down
approximately $3.4 billion.
The two securities are:
First, a 3-year note in the amount of $10.0 billion, maturing on May 15, 2001. This
note is scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern time on Tuesday, May
12.
Second, a 10-year note in the amount of $12.0 billion. This note is scheduled to be
auctioned on a yield basis at 1:00 p.m. Eastern time on Wednesday, May 13.
3
This is the fIrst time in 20 years that the Treasury has announced an overall net pay
down in a quarterly refunding.
III. Expectations for This Quarter and the Next Quarter
I would now like to review our expectations for the rest of this quarter and for the next
quarter.
As announced on Monday, May 4, we estimate that we will net redeem $110 billion of
marketable securities in the April-June quarter. The estimate assumes a $45 billion cash
balance at the end of June. Including the securities announced in this refunding, we have
already net redeemed $74.6 billion of marketable securities. (See the attachment for details.)
The tentative auction calendars for May, June, and July are included in the chart
package that was distributed today. Short-term cash management bills may be needed to cover
the low point in the cash balance in early June.
We estimate that the Treasury will borrow between $0 and $5 billion in marketable
securities during the July-September quarter, assuming a $40 billion cash balance on
September 30.
IV. Inflation-Indexed Securities
Finally, let me briefly update on our plans for inflation-indexed Treasury securities.
Last month, we held our sixth auction of inflation-indexed securities: a new 30-year indexed
bond. We were pleased with this auction, and we continue to be pleased with the development
of the inflation-indexed market. As has been recommended by the Treasury Borrowing
Advisory Committee, we are planning to sell a 30-year indexed bond in July 1998. We expect
this will be a reopening of last month's issue. We plan to announce a regular schedule of
indexed security issues by the end of this year. In addition, we expect to publish fInal rules on
fungible indexed STRIPS next month.
The August quarterly refunding press conference will be held on Wednesday, August
5, 1998. I would now be happy to answer any questions that you may have.
4
ATTACHMENT
CASH RAISED
Including the securities announced in this refunding. we have paid down $74.6 billion
of cash from sales of marketable securities.
This has been accomplished as follows:
raised $8.4 billion from the 30-year inflation-indexed bonds issued April 15;
paid down $8.8 billion in the 7-year notes that matured April 15;
paid down $5.5 billion in the 2-year notes that were issued April 30;
raised $0 billion in the 5-year notes that were issued April 30;
paid down $11.9 billion in the regular weekly bills including those announced
yesterday;
paid down $7.7 billion in the 52-week bills which were issued April 2 and 29;
paid down $45.8 billion of cash management bills that matured on April 16 and April
23; and
paid down $3.4 billion with the notes we are announcing today.
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLYAj';IA AVENUE, N.W. _ WASHINGTON, D.C .• 20220 -(202l 622-2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
May 6, 1998
CONTACT: Office of Financing
202/219-3350
TREASURY MAY QUARTERLY FINANCING
The Treasury will auction $10,000 million of 3-year notes and $12,000
million of 10-year notes to refund $25,401 million of publicly held securities
maturing May 15, 1998, and to pay down about $3,400 million.
In addition to the public holdings, Federal Reserve Banks hold $4,990
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 $1,471 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 notes being offered today are eligible for the STRIPS program.
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 the notes are given in the attached offering highlights.
000
Attachment
RR-2417
For press releases, speeches, public schedules alld official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC
MAY 1998 QUARTERLY FINANCING
May 6, 1998
Offering AInount . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000 million
Description of Offering:
Term and type of security . . . . . . . . . . . . . . . .
Series ....•...•.•..•......•........•..••.
CUSIP number . . . • . • . . • . . . . . . . . • . . . . . . . . . • .
Auction date .....•.....•....•....•.....••
Issue date . . . . . • . . . . . . . • . • . . . . . . . . . . . . . . .
Dated date . . . . . • . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . • . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate . • . . • . . . . . . . . . . . . . . . . . . . • . . .
$12,000 million
3-year notes
T-2001
912827 4E 9
May 12, 1998
May 15, 1998
May 15, 1998
May 15, 2001
Determined based on the average
of accepted competitive bids
Yield . . . . . . . . . • . . • . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
Interest payment dates ••..•.••...••...••. November 15 and May 15
10-year notes
C-2008
912827 4F 6
May 13, 1998
May IS, 1998
May 15, 1998
May 15, 2008
Determined based on the average
of accepted competitive bids
Determined at auction
November 15 and May 15
Minimum bid amount . . . . . . . . . . . . . . . . . . . . . . .
Multiples .•....•.........•...••..•...•...
Accrued interest payable
by investor . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium or discount . . . . . . . . . . . . . . . . . . . . . .
$5,000
$1,000
$1,000
$1,000
None
Determined at auction
None
Determined at auction
STRIPS Information:
Minimum amount required . . . . . . . . . . • . . • . . . . Determined at auction
Corpus CUSIP number . . . . . . . . . . . . . . • . . . . . . . 912820 CX 3
Due date(s) and CUSIP number(s)
for additional TINT(s) . . . . . . . . • . . . . . . . Not applicable
Determined at auction
912820 CY 1
Not applicable
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids . . . . . . . Accepted in full up to $5,000,000 at the average yield of accepted competitive bids.
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 . . . . . . . . . . . . . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders .... Prior to 12:00 noon Eastern Daylight Saving time on auction day
Competitive tenders . . . . . . . Prior to 1:00 p.m. Eastern Daylight Saving 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
1789
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622·2960
FOR RELEASE AT 1 P.M. EDT
May 6,1998
"24-7: America's Role in Supporting the Global Economy"
Remarks by Lawrence H. Summers,
Deputy Secretary of the Treasury
Economic Policy Institute
Washington, DC
Thank you. It is an honor to b~ here to discuss America's role in the new global economy with so
many of those who will shape it.
These are remarkable times for the United States. In the last 300 years there has not been a
protracted period when the country with the world's greatest GNP has had as high a ratio to the
country with the world's second greatest GNP. There has not been a time in the last 300 years
when the country with the strongest military forces had as large a ratio to the country with the
second largest military forces. And there has not been a time in the last several hundred years when
a country has been so powerful as an example around the world, from the English language, to
Coca-Cola, to the Internet, as the United States is today.
Our success is not in question. What is today in question is our ability to invest it well. Trade has
accounted for one third of the growth of our economy since 1992, yet the United States lacks fast
track authority to open new markets and new opportunities overseas. The International Monetary
Fund is working to uphold America's stake in stability and growth to Asia, yet we have failed to
approve funding to ensure it is well prepared for the crises of tomorrow. The United Nations is
today helping to keep the peace and promote our core interests and values around the world, yet
we have not paid it what we owe and face the prospect of even losing our vote in the General
Assembly.
I'd like to spend my time today talking about America's preeminent position in the global
economy and the responsibilities which come with that position -- both in our international
policies and in the policies we pursue at home.
RR-2418
1
For press releases, speeches, public schedules and official biographies, call our 24.1zour fax line at (202) 622·2040
I. A Remarkable Moment
The world looks very different than it did at the beginning of this decade. a time when America
was said to be in decline. The right things -- employment, real wages, national savings and
investment -- are all up. And inflation, crime, the welfare rolls and the budget deficit are alJ down.
indeed, lower than they have been in a generation. It is now clear that America will grow faster in
this decade than Japan and Europe. Their four-decade-long story of convergence has ended and
America is pulling further ahead.
In short. we are reaping the rewards for sound macroeconomic policies and for working to promote
a more open and stable global economy. But as the President has often said, we cannot allow the
hum of our growing prosperity to lull us into complacency.
We should not forget that there has been another time in our nation's history when our companies
were enjoying unprecedented success at home and abroad; when our elected leaders vowed to
shrink government; and when, for all of economy's success, workers were fearful for their security
and blamed their insecurity on immigrants and foreign competition. That time was 1927.
There followed a series of catastrophic economic and foreign policy errors that sent the world
shuttling toward what were perhaps the darkest years in human history. History does not repeat
itself. Any historical analogy between the world today and the world of the 1920s is surely
imperfect. But the experience of the late 1920s offers important lessons about the importance of
outward-looking international policies at a time of enormous change in global affairs.
Investing today's success in a safe and prosperous tomorrow will require leadership on many
fronts. Today let me focus on the aspect that is most central to what we do at Treasury and has
acquired such prominence in light of events in Asia -- the promotion of a safe and effective
global financial market.
II. The Challenge of Stable World Finance
I am convinced that when historians write the history of the last quarter of the twentieth century,
200 years from now, the end of the Soviet Union and the Cold War will be the second story. The
first story will be the rise of market institutions across those countries and across Asia. This has
created a situation that is unprecedented in human history: where countries where more than 2
billion people live are growing at rates where standards of living doubled in less than a decade,
something never seen in the economic history of the United States or any country in Europe.
There are many reasons for this remarkable progress but I would suggest to you that a very
important part has ~een played by the annual one quarter of one trillion dollars in global capital that
has flowed to the developing world -- capital that has been a source of growth in emerging
economies as it has been a source of innovation and diversification in the industrialized world.
Our efforts at the international level must begin with this fundamental linkage between strong
growth and strong capital flows around the world. Our goal must be to make the global capital
market work more effectively as a source of opportunity -- and reduce its capacity to be a source of
2
instability .
Let me say something that will not surprise you. I believe that Congress needs to support the IMF
because a well-funded IMF is critical to promoting the interests of American workers and savers
and every American's interest in the spread of market-based democracies around the world. I also
believe that meeting our commitments to the IMF maximizes our ability to reform both the IMF
and the international monetary system to be more effective at promoting growth and stability.
Now let me explain why.
Economists and historians will debate the causes of the Asian financial crisis for a long time.
What is clear is that the approach the IMF has taken on behalf of the international community -conditioning financial support on strong domestic policy measures to restore confidence -- is the
right one. If we can today talk more positively about most of the region than we would have
thought likely even 1 month ago it is in no small part due to the success of this approach.
To be sure, important policy challenges remain: particularly in light of the uncertain policy
environment in Indonesia. But without the support the IMF provides in these situations we
would now in all likelihood be dealing with a great deal worse: possible debt moratoria in a
number of countries, a generalized withdrawal of capital from the developing world and
potentially large consequences for our export industries and our financial markets.
Insurance against the spread of the Asian financial crisis would be reason enough for the United
States to support the IMF. But there are others:
•
the IMF and sister World Bank programs, not just in Asia but worldwide have achieved
more trade liberalization than our bilateral or multilateral negotiation have ever achieved.
•
IMF fmance and conditions have been the primary external mode of support for the
dramatic changes ill Russia's economy over the last 5 years, changes that have seen it
move from a state dominated hyperinflating economy to an economy with stable money
and a predominant of Europe;
•
the IMF has further promoted US interests by supporting stabilization in Poland and
Central Europe, preventing the spread of the Mexican financial crisis through strong
support for Argentina and supporting economic reform in the Former Soviet Union.
Every dollar the United States puts into the IMF leverages four of five dollars from the rest of the
world. Yet it is does not cost the taxpayer one cent. And it does not add to the federal deficit.
The IMF is indispensable and cheap at the price. That does not mean we should be entirely
satisfied with the IMF as it is. But the IMF will not change, and it most certainly will not change
in a way that best promotes our core interests and values, if the United States loses its credibility
and voice within the institution by failing to make good on its commitments.
3
The IMF should be more transparent and accountable and more open in its reaching of
agreements with countries. It should allow for external evaluation of its procedures and results.
And it should work at ways of sharing the information it has with those in the markets.
The IMF should improve its surveillance techniques to focus more on capital flows and the health
of key financial institutions. There is a need for better banking system regulation around the
world and more effective attempts to intensify the dialogue with countries that -- like Mexico in
1994 or Thailand in 1997 -- are heading for serious difficulty. Without a strong IMF or
something very much like it, it is hard to see how we could go about getting that need fulfilled.
Finally, we need to find mechanisms to bail in investors not bail them out -- so we can ensure that
policy makers do not confront the choice between uncontrolled chaos and confusion on the one hand
and large bailouts on the other -- which is too often the choice they confront today. Again, we do not
have all the answers, but it is very difficult to see how such procedures could operate without an
international institution with striking resemblance to the IMF.
The content of IMF programs will be a matter of continuing debate and evolution. But if the
United States does not contribute to the IMF, we risk losing the opportunity to help shape its
approach to economic policy around the world. In short, not to support the IMF today would be a
little like canceling one's life insurance when one is already sick. Like any such decision, it might
work out just fine. But at a time when markets in many countries are fragile and looking for
confidence to the world's only superpower, it is a gamble we should not take.
III. The Broader Challenges of Integration
There is a lesson in these arguments for the other symbols of our international engagement that I
mentioned at the beginning of these remarks.
Consider Fast Track. We have an immense amount to gain from the tide of global integration
that has been unleashed in these latter years of the 20th century. But, you might say, we have to
be in it to win it. Ifwe want other nations to open their markets -- we must open our own. Ifwe
want sensitive regions to stabilize, we must allow them to enter the world trading system. That is
why we have helped to complete 240 new trade agreements lowering barriers to American goods
since 1993. And that is why we are working to achieve closer integration across the Pacific by
reinvigorating APEC, and in our own hemisphere through a Free Trade Area for the Americas.
Without fast track these negotiations can proceed much as the early, critical stages of the
negotiations for the Uruguay Round of the GATT proceeded. But there are limits to how long this
can continue -- and there are costs.
Every year without "fast-track" we put at risk what might be called the Clinton Corollary to the
Monroe Doctrine -- the idea that the United States should be the major trading partner of Latin
America. Every year we are without it we raise serious questions about our commitment to
leading global efforts to bring trade barriers down and nations together. And make no mistake:
every year we are without it we reduce the prospect that the international trading regime would
4
increasingly reflect the importance of labor rights and environmental values.
Or consider the UN. As National Security Advisor Berger said last week, what we achieve
economically through the IMF and other IFls we have been able to achieve on so many other
fronts with the UN: everything from preventing the diversion of nuclear materials and the spread
of disease to agreeing international standards to make the skies safer and protect our
environment.
The world needs the UN. And the UN needs reform. By common agreement, we have achieved
more substantial change at the UN these past five years than in the entire preceding 45 years. And
in the bipartisan agreement negotiated last year we have a three-year plan to continue this reform
and build a UN fit for the next century. When we put that agreement at risk -- as occurred last
week -- we endanger not just the UN's future. We endanger our capacity to shape it in a way that
will continue to promote our core interests and serve our deepest values.
I have concentrated here on our international strategy -- on the critical need for the United States
to work actively to shape the arrangements and institutions that will, in tum shape the future 21 st
century global economy. But these efforts are not separable from what we do here at home.
Global capitalism is coming. No government is powerful enough to halt the flow of information
and ideas on the Internet, the movement of millions of dollars across markets at the flick of a
switch, or travel of millions of the world's people across borders each day.
The question is what kind of global capitalism we want to build. We do not want a global
capitalism that puts capital before every other interest and engages every country in a race to the
bottom: a bottom in which governments cannot support labor rights and fair taxes and cannot
protect the environment.
For it to be the right kind of capitalism we build and the right kind of global economy we see
emerging at the dawn of a new century, we need to work internationally to ensure that capital is
not the only factor of production that gets a hearing.
That is why we are working with other countries to promote global cooperation against corporate
and legal tax havens. That is why we are working actively in the OECD on the issue of tax
competition. It is why we have worked, within the IMF and the other IFls, and within the UN, to
ensure that labor and environmental concerns are given due weight in devising reform programs and
sustainable development strategies. And it is why fair labor and environmental standards have played
a core role in our bilateral and multilateral trade initiatives.
But we will also have to ensure that this global economy works well for those at home. Just as the
GI Bill of Rights was an integral part of the strategy behind the Marshall Plan, just as our
interstate highway system was partly the result of an effort to marshal our Cold War defenses -we must work to make both real and apparent the connection between our pursuit of stability and
prosperity abroad and our pursuit of stability and prosperity for every American.
5
History teaches that internationalism cannot be a goal pursued by elites for its own sake. We
must invest in a network of institutions that can realize the opportunities of this new global era and
defeat its threats. And we must invest in policies that will give every American the possibility to
prosper from the world thus created. Thank you.
6
DEPARTMENT
OF
THE
TRE"ASURY
1789
. OrnCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960
EMBARGOED UNTIL 10:00 am EDT
May 7,1998
JAMES J. FLYZIK
DEPUTY ASSISTANT SECRETARY FOR INFORMA nON SYSTEMS
AND CHIEF INFORMATION OFFICER
TESTIMONY BEFORE THE HOUSE WAYS AND MEANS COMMITTEE
Chairwoman Johnson, Representative Coyne, and members of the Subcommittee,
thank you for the opportunity to appear today to discuss the Department of the Treasury's
progress on the Year 2000 computer problem. The Department of the Treasury has stated
that the Year 2000 computer problem is our highest priority information technology
challenge. I am confident that Treasury has a strong program in place to address this
challenge, and while there is much work ahead of us, we have made significant progress to
date.
The Assistant Secretary for Management and CFO has overall responsibility for the
Year 2000 date transition. As Deputy Assistant Secretary (Information Systems) and CIO,
I am the overall program manager for the Year 2000 effort. The day-to-day responsibilities
of the Year 2000 program reside within my office. In addition, Treasury has contracted with
several firms with specialized skills in the Year 2000 problem, and these firms are assisting
the Department in its oversight role. Attached to this statement are copies of the Year 2000
Program Organization at the Department of the Treasury.
Secretary of the Treasury Rubin is briefed periodically on the status of our Year 2000
program, and the Assistant Secretary for Management and CFO and myself meet weekly with
bureau heads to review their Year 2000 progress. Working groups meet regularly for the IT,
Non-IT, and Telecommunications components of our program. The Department requires
each bureau and office to submit detailed monthly status reports. Additionally, the Secretary
of the Treasury has mandated that each bureau and office head select an executive official to
be in charge of their Year 2000 program. This individual, typically at the CIO or CFO level
or higher, is responsible for ensuring that the Year 2000 program at their bureau or office is
completed in a timely manner. I would now like to describe the overall status of Treasury's
Year 2000 program, some successes we have experienced, and some remaining challenges
we must address.
RR-2419
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Treasury has identified 323 mission critical IT systems and 269 mission critical Nonn systems. At present, we have renovated 133, or 54.7% of the mission critical IT systems
that need to be converted. We can now report 125 out of323 (38.7%) of the total mission
critical IT systems are now Year 2000 compliant.
I believe that, as a Department, we have made significantly more progress than has
been indicated by the above figures. We are conservatively not reporting progress until ~
systems have been renovated and tested. For example, the Customs Service, like the IRS,
manages its renovation efforts by components. Customs has three mission critical systems,
all of which require repair, which included 186 components. Although we report none of
these three Customs mission critical IT systems as completed renovation, testing, or
implementation. the fact is that 68.5% of the components within these systems have been
renovated, 35.3% have been tested, and 25% have been implemented.
Treasury operates one of the largest enterprise telecommunications networks in the
Government. This Treasury Enterprise System includes both local and nationwide
telecommunications systems. My office is directly responsible for the Year 2000 compliance
of these telecommunications systems.
The Digital Telecommunications System (DTS) is an integrated voice/data local
telephone system in over 30 Treasury locations that serves over 30,000 Treasury employees.
Treasury has established a phased implementation schedule so that DTS will be Year 2000
compliant by September 1998.
The Treasury Communications System (TCS) is a nationwide data network serving
all Treasury bureaus and some Federal agencies (such as Justice). The TCS provides multiple
services and is the largest secure, private wide-area network in the U.S. civilian Government.
We have established a test laboratory where each component of the TCS network can be
tested, both as an independent system, and from an interoperability perspective as each
component is interconnected with other components. Treasury is coordinating the Year 2000
issues with the manufacturer of each piece of equipment and software incorporated in the
TCS network and expects to be operationally Year 2000 compliant on or before 30
September 1998.
In order to address these challenges, a Year 2000 Telecommunications ACommand
Center@ has been established to serve as a central location for telecommunications activities,
including the Telecommunications Executive Body and Working Group meetings. Charts and
graphs depicting current hardware and software status of each corporate telecommunications
program, the independent verification and validation (IV& V) testing process, and overall
progress tracking are displayed prominently for use by program managers and executives.
To further promote communications among the CIO, Executive Body, program areas,
working groups and bureaus, the Department has established a telecommunications site on
the Treasury Year 2000 Intranet web site. In addition, Treasury has engaged a
2
telecommunications company to perfonn independent verification and validation (IV & V) of
the telecommunications infrastructure ~ith respect to Year 2000 compliance.
Since the kickoff of the Treasury Non-IT Working Group on August 28, 1997, NonIT efforts have been continuing. The management planning and the definition of bureau and
office specific Treasury Year 2000 Non-IT management plans began on October 16, 1997.
These plans are based on the standard plan fonnat, overall process, and content requirements
as defined in the Treasury Year 2000 Non-IT Baseline Management Plan, dated October 16,
1997. This Treasury plan has been used as a model by the General Services Administration
(GSA) for addressing Non-IT systems.
The Non-IT effort is supported by a central Non-IT database, on the Treasury Intranet
Year 2000 site, which provides a tracking tool to determine the compliance status of vendor
products.
As of March 6, 1998, Treasury bureaus and offices had identified 6,898 external data
exchanges, of which 3,169 were incoming and 3,729 were outgoing. The Department has
assessed 6,878 out of6,898 (99.7%) of these external data exchanges, and found that 87.3%
are Year 2000 compliant or have been granted a waiver. Of the 2,551 interfaces with the US
private sector, Treasury bureaus and offices thus far have contacted 2,446 and reached
agreements with 2,391.
In our regulatory and oversight roles, the Office of Thrift Supervision (OTS) and the
Office of the Comptroller of the Currency (OCC) are participating on the Federal Financial
Institutions Examinations Council (FFIEC) with aggressive programs to audit financial
institutions' compliance on Year 2000.
At the Department leveL coordination on Year 2000 data exchanges has been ongoing
with other government agencies. Treasury has held a series of meetings with executives and
staffs from the Department of Defense and the Department of Agriculture's National Finance
Center to address and resolve data exchange issues and readiness for Year 2000 testing.
In early 1996, Treasury established September 1998 as a program milestone date for
the completion of contingency plans. During a series of meetings with bureau and offices
heads in June 1997, the Department emphasized the need for contingency planning and asked
the bureaus and offices to accelerate their schedules for the development of these plans.
Since then, Year 2000 Contingency Management Plans have been developed at several
bureaus and offices for mission critical IT systems and components. Factors such as failure
date, time to implement, dependencies, interfaces, resources, responsible office, impact, and
criteria for invoking the plans are included. The bureaus' and offices' contingency planning
efforts will be expanded to address. Non-IT mission critical systems and telecommunications
items.
3
In spite of our best efforts to date and our aggressive plans for the future, the Year
2000 problem is far from solved. ~ndeed, several significant key issues pose special
challenges for us, and possibly for other Government agencies as well.
One issue that concerns us is vendor schedules for Year 2000 compliant versions of
their commercial off-the-shelf hardware and software products. Some vendors have yet to
release Year 2000 compliant upgrades of their products. While we are continuing to work
on our renovation efforts, our testing cannot be completed until we have obtained and
integrated the Year 2000 compliant third-party versions of these products.
Treasury's cost estimates for fixing the Year 2000 computer problem have continued
to rise. In our submission to OMB for the February 15, 1998, report, we estimated a total
cost of $1.43 billion, with the bulk of that cost being incurred in this fiscal year. Our cost
estimates were initially based in large part on a Year 2000 cost model that focused on costs
associated with mainframe lines of code. In the period since those initial estimates were
provided, Treasury bureaus and offices have made significant progress in their inventory and
cost estimate efforts for repairing and testing IT items, telecommunications items, and NonIT items. In the February 15, 1998, quarterly report, we estimated Non-IT program costs
of $68.6 million, and $295 million for telecommunications costs.
In addition to funding challenges, we must also contend with the increasing rate of
attrition within our information systems workforce. Skilled programmers -- especially those
with skills in legacy system platforms -- are in strong demand within the private sector,
which can pay significantly higher salaries than the Government.
I believe that Treasury has an aggressive overall Year 2000 program in place, and we
are on target to complete the conversion, testing, validation, and implementation of all
mission critical systems in time to avoid disruption to any critical systems. Nothing less than
100% compliance will be acceptable to the American public, or to me personally.
Thank you for the opportunity to meet with you today to discuss the actions being
taken by the Department of the Treasury in addressing the Year 2000 computer problem. I
will be happy to answer any questions you may have regarding this important matter.
-30-
4
Treasury Year 2000 Program Management
AS(M)/CFO
Nancy Killefer
DAS(FM)
DCFO
Steve
Ted Carter
Y2K Non-IT
Management
DAS(IS)/CIO
Jim Flyzik - CIO
Jane Sullivan - Dir. ITPM
Cost
Model
Y2K - Program Mgmt. .
Connie Drew - Asst. Dh· ITPM
Security
Officer
Bureau Y2K
, Executives
Treasury
CIO Council
Contractor Support
-Andersen Consulting
-VRI
Bureau Y2K
Program MgIrlt
Y2K Working Groups
II
Telecom
J. Gude H. Green
Telecommunications Year 2000 Work Group
Executive Body
Jim Flyzik - CIO
Jane Sullivan - Dir. ITPM
Connie Drew - Y2K Program Manager
Brian Carman - Acting Dir. CSM
Candace Hardesty - Dir. CIO Liaison & Bus. Svcs.
Hal Green - TCOM Y2K Project Manager
Treasury Y2K Work Group
Y2KIT
Project
TCOM Y2K
Project Management
Office
Y2K Non-IT
Project
IV&V
Scottie Banks
\Vireless Systems
Jim Downes
Nancy Boles
Radios
Interagency Servi
Nelson Hughes
Randy Clifton
Cellular Phones
FTS 2000
Dept. of State Network
Microwave Point-to-Point
DoD Classified Interfaces'
TCS
Litra Gunter
Jim McDermott
TRW (COTR: Tarrazzia
Martin)
DTSfDOTTSNMS
Keith Kearney
Julie Brown-Rund
Corporate SupportSys.
Abe Schachter
Brian Dilley
DTS - Lucent (COTR: Ron Mizia)
DOTTS - (COTR: Gregg Jewell)
VMS - Lucent (COTR: Tanya Beckett)
PCs (COTR: Tom Morrison)
LANs
Web
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
EMBARGOED FOR RELEASE AT 3:00 PM
May 6, 1998
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR APRIL 1998
The Bureau of the Public Debt announced activity figures for the month of April 1998, of securities
within the Separate Trading of Registered Interest and Principal of Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$1,319,684,903
Held in Unstripped Form
$1,088,124,510
Held in Stripped Form
$231,560,393
Reconstituted in April
$13,591,039
The accompanying table gives a breakdo\\lTI 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 the Monthly Statement o/the Public Deb~ entitled "Holdings of Treasury Securities in
Stripped Form."
The STRIPS data along with the newMonthly Statement o/the Public Deb~ is available on Public
Debt's Internet homepage at: www.publicdebt.treas.gov.Awide range of information about the
public debt and Treasury securities is also available on the homepage.
RR-2420
000
http://www.publicdebt.treas.gov
TABLE VI • HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, APRIL 30, 1998
Corpus
STRIP
CUSIP
Loan DeScription
Treasury Bonds:
CUSIP:
912810DM7
008
DR6
DU9
DN5
DPO
DS4
DT2
DV7
DW5
DX3
DYl
DZ8
EA2
EBO
EC8
ED6
EE4
EFl
EG9
EH7
EJ3
EKO
EL8
EM6
EN4
EP9
E07
ES3
ETl
EV6
EW4
EX2
EYO
EZ7
FAl
FB9
Principal Amount Outstanding in Thousands
Maturity Date
Total
Outstanding
Parton Held In
Unstrip~Form
Parton Held In
Stripped Form
Reconstrtuted
This Month
Interest Rate:
11·5/8
12
10-3/4
9-3/8
11·3/4
11·1/4
10-5/8
9-7/8
9-1/4
7·1/4
7·112
8-3/4
8-7/8
9-1/8
9
8-7/8
8-1/8
8-1/2
8-3/4
8-3/4
7·7/8
8-1/8
8-1/8
8
7·1/4
7·5/8
7·1/8
6-1/4
7·112
7·5/8
6-7/8
6
6-3/4
6-1/2
6-5/8
6-3/8
6-1/8
Total Treasury Bonds, .........................
912803AB9
AD5
AG8
AJ2
912800 AA7
912803 AAl
AC7
AE3
AFO
AH6
AK9
Al7
AM5
AN3
AP8
A06
AR4
AS2
ATO
AU7
AV5
AWl
AXl
AY9
AZ6
BAO
BB8
BC6
BD4
BE2
BF9
BG7
BH5
BJl
BK8
BL6
BM4
11/15/04
05/15/05
08115/05
02115/06
11115/14
02115/15
08115115
11/15115
02115/16
05115/16
11/15/16
05/15/17
08115/17
05/15/18
11115/18
02115/19
08115119
02115120
05/15120
08115120
02115121
05/15121
08/15121
11/15121
08115122
11115122
02115/23
08115123
11/15124
02115125
08115125
02115126
08/15126
11/15/26
02115/27
08115127
11/15127
8,301,806
4,260,758
9,269,713
4,755,916
6,005,584
12,667,799
7,149,916
6,899,859
7.266.854
18,823,551
18,864,448
18,194,169
14.016,858
8,708,639
9.032,870
19,250,798
20.213,832
10,228,868
10.158,883
21,418,606
11.113,373
11,958,888
12.163,482
32,798,394
10.352,790
10,699,626
18,374,361
22,909,044
11,469,662
11.725,170
12.602,007
12,904,916
10,893,818
11.493.1n
10,456,071
10,735,756
22,518,539
480,658,801
4,469,806
2,765,858
7,279,313
4,747,916
2,792,784
11,355,959
6,741,916
5,432,659
6,928,454
18,565,951
18,058,928
8,175,929
8,768.858
3,067,039
2,041,670
5,673.198
18.002,312
5,780,868
3,051.523
5,535,566
10,086,173
4,402,088
5,768,602
7,840,519
8,957,590
2,715,626
10,564,761
18,229,236
3,274,862
3,353.970
10,nO,327
12,589,316
10,093,818
10,974,7n
8,835,271
10,503,756
22,435.339
310,63~,538
3,832,000
1,494,900
1,990,400
8,000
3,212,800
1,311,840
408,000
1,467,200
338,400
257,600
805,520
10,018,240
5,248,000
5,641,600
6.991,200
13,m,600
2,211,520
4,448,000
7,107,360
15,883,040
1,027,200
7,556,800
6.394,880
24,957,875
1,395,200
7,984,000
7,809,600
4,679,808
8,194,800
8,371.200
1,831,680
315,600
800,000
518,400
1,620,800
232,000
83,200
170,026,263
49.600
100,500
8,000
0
233,600
375,040
162,240
136,000
136,000
800
4,160
861,280
420,800
161,600
230,400
1,043,200
410,560
515,600
105,120
764,960
105,600
146,240
1,086,400
1,072,125
583,200
60,800
748,800
229,024
97,040
976,000
421,760
24,600
140,000
0
475,200
0
36,800
11,923.049
-
TABLE VI· HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, APRIL 30, 1998 - Continued
loan Description
Treasury Notes:
Series: Interest Rate:
CUSIP:
9
B
912827WE8
9-1/4
C
WN8
8-7/8
D
WlV8
8-7/8
A
XE7
9·1/8
XN7
B
8
C
XW1
5-3/4
AK
3H3
5-5/8
AL
3K6
7·7/8
D
YE6
5-5/8
AM
3P5
AN
5-5/8
3R1
Y
5-3/8
3U4
8-1/2
YN6
A
5-1/2
3Y6
Z
5-112
AB
4A7
5-5/8
AC
4C3
8-7/8
B
YVV6
8-3/4
C
ZE5
8-1/2
D
ZN5
5-3/4
X
3M2
A
7·3/4
ZX3
5-3/8
3WO
S
8
A85
B
7·7/8
B92
C
7·1/2
D25
D
A
F49
7·112
6-3/8
G55
B
5-7/8
M
3J9
N
5-3/4
314
P
5-3/4
303
5-5/8
3S9
3V2
5-1/2
C
6-1/4
J78
A
5-1/2
D
3Z3
5-1/2
4B5
E
5-3/4
4D1
F
5-3/4
l83
B
A
5-7/8
N81
7-1/4
P89
B
7-1/4
C
088
7·7/8
R87
D
A
7-1/2
S86
6-1/2
T85
B
6-1/2
U83
C
5-7/8
V82
D
5-5/8
W81
A
6-7/8
B
X80
7
Y55
C
6-1/2
D
Z62
6-1/4
B
2JO
6-5/8
2U5
C
6-1/8
D
3EO
5-1/2
B
3X8
a
Total Treasury Notes
.......
Corpus
STRIP
CUSIP
Maturity Date
912820 AN7
AP2
AOO
AR8
AS6
AT4
CB1
CD7
AU1
CGO
CJ4
CM7
AV9
CR6
CT2
CV7
AW7
AX5
AY3
CF2
AlO
CPO
BA4
BB2
BCO
BD8
BE6
CC9
CE5
CH8
CK1
CN5
BF3
CS4
CU9
CW5
BG1
BH9
BJ5
BK2
BlO
BM8
BN6
BP1
B09
BR7
BS5
BT3
BUO
BW6
BX4
CA3
C08
05/15/98
08/15/98
11/15/98
02115/99
05115/99
08/15/99
09/30/99
10/31/99
11115/99
11/30/99
12131/99
01/31/00
02115/00
02129/00
03/31/00
04/30/00
05/15/00
08/15/00
11115/00
11/15/00
02115/01
02115/01
05/15/01
08/15/01
11115/01
05/15/02
08/15/02
09/30/02
10/31/02
11/30/02
12131/02
01/31/03
02115/03
02128/03
03/31/03
04i30/03
08/15/03
02115/04
05/15/04
08/15/04
11/15/04
02115/05
05/15/05
08/15/05
11/15/05
02115/06
05/15/06
07/15/06
10/15/06
02115/07
05/15/07
08/15/07
02115/08
Principal Amount Outstanding in Thousands
Total
Outstanding
..................
Treasury Inflation-Indexed Notes:
Series: Interest Rate:
CUSIP:
3-5/8
9128273A8
J
3-3/8
A
2M3
3-5/8
A
3T7
912820 BZ9
BV8
Cl9
07/15/02
01/15/07
01/15/08
Total Inflation-Indexed Notes ........ ......
Treasury Inflation-Indexed BondS:
Interest Rate:
CUSIP
3-5/8
912810 FD5
Total Inflation-Indexed Bonds .. ........
Grand Total .. ........
. ....
912803 BN2
04/15/28
Portion Held in
Unstnpped Form
Reconstrtuted
ThiS Month
Portion Held '"
StriPped Form
9,165,387
11,342,646
9,902,875
9,719,623
10,047,103
10,163,644
17,487,287
16,823,947
10,n3,960
17,051,198
16,747,060
17,502,036
10,673,033
17,n6,125
17,206,386
15,633,200
10,496,230
11,080,646
11,519,682
16,036,088
11,312,802
15,367,153
12,398,083
12,339,185
24,226,102
11,714,397
23,859,015
12,806,814
11,737,284
12,120,580
12,052,433
13,100,643
23,562,691
13,670,354
14,172,892
12,572,290
28,011,028
12,955,on
14,440,372
13,346,467
14,373,760
13,834,754
14,739,504
15,002,580
15,209,920
15,513,587
16,015,475
22,740,446
22.459,675
13,103,678
13,958,186
25,636,803
13,583,412
6,357,187
7,188,246
5,064,475
7,092,423
6,251,903
6,862,744
17,269,687
16,606,347
6,812,360
16,865,598
16,647,860
17,502,036
8,149,433
17,n6,125
17,206,386
15,633,200
5,600,230
7,371,366
7,150,482
16,036,088
7,969,602
15,367,153
8,890,333
8,932,785
20,015,782
9,922,237
22,518,215
12,n1,614
11,675,684
11,920,580
12,052,433
13,100,643
22,943,075
13,626,354
14,172,892
12,572,290
27,578,228
12,761,4n
14,431,572
12,824,067
14,373,760
13,834,194
14,739,504
15,002,580
15,205,120
15,509,427
16,015,475
22,740,446
22,459,675
13,043,294
13,937,386
25,616,003
13,583,412
2,808,200
4,154,400
4,838,400
2,627,200
3,795,200
3,300,900
217,600
217,600
3,961,600
185,600
99,200
0
2,523,600
0
0
0
4,896,000
3,709,280
4,369,200
0
3,343,200
0
3,507,750
3,406,400
4,210,320
1,792,160
1,340,800
35,200
61,600
200,000
0
0
619,616
44,000
0
0
432,800
193,600
8,800
522,400
0
560
0
0
4,800
4,160
0
0
0
60,384
20,800
20,800
0
1n,800
32,800
145,600
105,600
200,000
38,900
0
0
118,400
0
0
0
52,000
0
0
0
0
95,200
13,200
0
12,800
0
58,250
204,800
79,760
84,080
51,200
0
2,400
0
0
0
6,400
0
0
0
25,600
1,600
161,600
0
0
0
0
0
0
0
0
0
0
0
0
0
0
789,085,598
727,551,468
61,534,130
1,667,990
16,999,488
16,101,495
8,427,695
16,999.488
16,101.495
8.427,695
0
0
0
0
0
0
41,528,678
41,528,678
0
0
8,411,826
8.411,826
0
0
8,411,826
8,411,826
0
0
1,319.684,903
1,088,124,510
231,560.393
13,591.039
Note' On the 4th wor1<day 01 each month Table VI Will be available elter 3 00 P m eastern bme on the Commerce Department's EconomiC Bullelln Board (EBB) end on the Bureau of the
Public Debt's webSite at http://www publlcdebureas gov For more Informabon ebout EBB, call (202) 482- 1966 The balances In thIS table are subJed to audit and subsequent adjustments
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
May 7, 1998
Monthly Release of U.S. Reserve Assets
The Treasury Department today released U.S. reserve assets data for the month of
April 1998.
As indicated in this table, U.S. reserve assets amounted to $ 70,329 million at the end
of April 1998, up from $ 69,353 million in March 1998.
End
of
Month
Total
Reserve
Assets
Gold
Stock II
Special
Drawing
Rights
2.1 3.1
Foreign
Currencies 4/
ESF
System
Reserve
Position
in IMF '2J
1998
March
69,353r
11,049r
10,108
13,582
16,638
17,976
April
70,329p
11,049p
10,188
13,821
17,053
18,218
II Valued at $42.2222 per fine troy ounce.
21 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.
3,1 Includes allocations or SDRs by the IMF plus transactions in SDRs.
41 Includes holdings or Treasury and Federal Reserve System; beginnIng November 1978.
these are valued at current market exchange rates or, where approprIate, at such other
rates as may be agreed upon by the parties to the transactions.
p
Preliminary
r
Revised
RR-2421
DEPARTMENT
OF
THE
TREASURY
~~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . .. .
............................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlflNGTON, D.C .• 20220. (202) 622·2960
STATEMENT PREPARED FOR THE RECORD
EMBARGOED UNTIL 2 P.M. EDT
May 7,1998
TREASURY ASSISTANT SECRETARY FOR TAX POLICY DONALD C. LUBICK
SENATE ENERGY AND NATURAL RESOURCES SUBCOMMITTEE ON NATIONAL
PARKS, mSTORIC PRESERVATION AND RECREATION
Chainnan Thomas and distinguished Members of the Subcommittee, I am pleased to have
the opportunity to submit this statement on behalf of the Treasury Department with respect to Titles
VI, VII, VIII, and XI ofS. 1693, a bill to renew, refonn, reinvigorate, and protect the National Park
System.
The Treasury Department supports the National Park Service and the work it is doing to
protect and preserve an important public resource -- our National Parks. At the same time. we
recognize the importance of developing appropriate financing methods that meet the needs of the
Park Service and avoid negative and fiscal implications for taxpayers. As you are aware, the
Treasury Department is committed to working with the Interior Department, the Office of
Management and Budget, and the Subcommittee on the financing needs of the Park Service.
Treasury's comments are confined to Section 701 of the bill, which is the only section dealing
with a tax matter. Section 701 of the bill would pennit an individual income tax filer to designate
that a portion of his or her tax refund (or of an additional amount included with his or her tax return)
be paid to the National Parks Trust Fund. The designation would be made on the individual income
tax return, on either the first page or the page with space for the taxpayer's signature.
Despite the worthy goal to be served by allowing the funds to be designated, the Treasury
Department opposes Section 701 of the bill. There are many federally supported functions that may
be interested in soliciting additional voluntary contributions from taxpayers. It is Treasury's view
that the tax collection system should not be used to give preferential treatment to certain functions
over others.
In addition, we have concerns about how this proposal would be administered and what its
impact would be on the efficiency and effectiveness of the tax system. By requiring infonnation that
does not directly relate to the determination of an individual's tax liability or overpayment, tax
check-off and designation provisions complicate tax returns and instructions for all taxpayers and
frustrate the objective of reducing the paperwork burden from, and the complexity of, tax forms.
RR-2422
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Such provisions can have a particularly adverse impact on certain types of very efficient electronic
filing methods, such as the TeleFile program under which simpler tax returns can be filed
interactively over the telephone. More importantly, the available space on individual income tax
forms is very limited and is already allocated so as to maximize compliance. Mandating additional
items could displace items crucial to the proper reporting and collection of tax. That could limit the
ability of the Internal Revenue Service to properly enforce the tax laws, and thus reduce tax receipts.
Including designations would increase complexity more than it may at fITst appear. and such
complexities would have to be addressed in any enabling legislation. For example, a taxpayer's
refund may be less than the taxpayer expects if the refund is offset to pay another liability such as
an unpaid student loan or child support amount. In other circumstances, a taxpayer may initially
receive a refund but subsequently be found to owe additional tax. Such possibilities would
complicate the IRS' handling of designated amounts, and would add to the burdens and costs of
developing and maintaining the necessary returns processing systems.
The additional burdens from implementing a refund designation program would be
particularly troublesome for IRS over the next several years. IRS must solve the year 2000 computer
issue. Many systems must be revised and in place before the beginning of the year 2000, but work
may continue on other, somewhat less crucial systems for several additional years. Major, long
overdue modernization ofIRS' systems will also require large amounts of resources. For both of
these reasons, IRS would be unlikely to be able to implement a new refund designation system in
the time frame specified by S.1693.
Finally, the Committee should be aware that taxpayer utilization of any refund designation
option is likely to be quite low. Many states have included check-off and designation programs on
their income tax forms. While utilization varies among programs and states and over time, it is our
understanding that typically only a small percentage of taxpayers make use of the options.
I hope these comments are useful to the Committee in its consideration of S.1693. Again,
thank you for the opportunity to express our views on this legislation.
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DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 12: 15 PM
May 7,1998
ASSISTANT SECRETARY FOR INTERNATION AFFAIRS TIMOTHY GEITHNER
THE EMU, UNITED STATES AND THE WORLD ECONOMY
I am pleased to be here. Your timing for this conference could not be better, but at a time
when almost everyone on the planet is speaking about EMU in some capacity its hard to convey
much new light on this issue.
I think my role today is to say something about what EMU might mean for the United
States, and to provide one perspective on where our interests, America's interests, lie in this
endeavor.
I don't think it will surprise you to hear that our approach to EMU starts with the
recognition that what is good for Europe economically is basically good for the United States.
Europe's gain is our gain. An economically unified, stable, prosperous, even ascendant Europe is
better for us than the alternatives. U.S. companies are well positioned to benefit from the
potential opportunities created by this next stage of European integration. We see no threat to
U.S. interests in a successful effort to build a strong, integrated European economy, with a sound
and stable currency.
Progress Toward EMU
I think it is remarkable how far Europe has come over the past six months, not to mention
since the Maastricht Treaty itself was signed
There has been remarkable convergence in interest rates and inflation performance, and
significant cumulative reductions in fiscal deficits
The Euro skeptics are in retreat, with new optimism emerging about corporate sector
restructuring on the Continent The strong Euro camp is more ascendant in the market's
eyes than the soft Euro school that dominated a few months ago
Work on the plumbing of this new financial system has made substantial progress
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~
•
And all this has come with a moderate recovery in confidence and growth in the major
continental economies.
The Challenges Ahead
Yet, not all is bright. Many of the challenges that clouded the European horizon in the
recent past still exist, though they have been masked somewhat by the growing recovery How
these challenges are resolved will have much to do with how Europe fares as monetary union is
put in place.
•
Unemployment remains high in large parts of the continent, and the recovery has not yet
produced meaningful growth in private sector employment.
•
Attempts at structural reform in the form of greater labor market flexibility still face strong
opposition.
•
There is still much to be done to increase competition, innovation, and growth in the
markets for many products and services, including financial services.
•
Despite the progress on the fiscal front, budget deficits in the major economies are still at
levels that are unsustainable over the long run and provide little scope for automatic
stabilizers to work in the event of a future slowdown
•
The institutional framework for setting monetary policy and for cooperating on other
policy issues has yet to be fully defined or tested in practice
•
Popular opinion is still not be fully supportive of EMU in some important member
countries, though polls show they will acquiesce in its arrival.
•
Europe still faces the question of how countries will adjust to assymetric shocks given the
existing degree of labor mobility and in a context where they will no longer have the
capacity to use macroeconomic policy or the exchange rate
So, where does this leave the United States') We have made a substantial investment over
the last several years in assessing the implications of EMU for the United States and th'~
international financial system. We've had a team of Treasury people in Europe following the
process, and an informal group of analysts in Washington at Treasury, the Fed, and the CEA
We've drawn heavily on the work of the academic communit\, and the analysts in the financial
community My remarks reflect the results of this investment
2
The Frameworkfor Macroeconomic Policy
America's interests in EMU lie first in seeing the establishment of a credible framework
for monetary and fiscal policy that will provide a sound foundation for domestic-demand-led
economic growth and a sound new currency. This means an independent central bank, free of
political influence. It means achieving and maintaining more sustainable fiscal positions. And it
means establish a clear exchange rate orientation that is insulated from temptation to use the
exchange rate to compensate for the constraints on other policy instruments. Together, these
things will be critical to the confidence investors have in the new currency.
Credibility, however, will be more complicated than simply applying the stability pact and
stating that monetary policy will be directed at the objective of price stability. Credibility will
ultimately depend on whether the macroeconomic policy framework is successful in delivering
sustainable growth that creates jobs. For if EMU fails to deliver the economic results on which
most governments are ultimately judged, then it may not be viewed as sustainable politically.
Structural Reform
The second area critical to U. S. interests is the structural agenda. Our interests lie in
seeing the Europeans succeed in making their economies more dynamic in adjusting to structural
change and their labor markets more flexible. The fundamental and most troubling paradox of
EMU is that it does not itself address what are probably the greatest economic challenges in
Europe -- the structural agenda -- and yet Europe's success in dealing with these challenges will
be critical to the success of monetary union itself.
Conventional wisdom has for some time been quite dark on the prospects for success in
this area. The efforts by the Governments in some of the major economies have not been
particularly ambitious, and where they may have attempted ambition, they have not been
particularly successful.
A successful attack on structural problems is difficult because it will almost certainly
require a substantial reduction in the role of the state in the continental economy, a less generous
benefit system, a regulatory regime that rewards innovation rather than inhibiting it, and a
willingness to let both firms and workers be exposed to the costs of adjustment and the.
consequences of failure.
Just to say it again, this area is critically important, because structural change that
produces a more flexible, responsive European economy, will be critical to making monetary
union work economically and to making it politically sustainable.
3
Europe
011
the Broader Global Stage
A third area of importance to the broader implications of EMU lie in the institutional
framework for decision making and the outward orientation of the new regime. Our interests lie
in seeing Europe preserve a capacity to act effectively on the world stage and to support further
economic integration with its trading partners.
The architects of EMU believe a Europe united on economic issues will speak with a
single, more powerful voice on the economic stage. This may be true, yet what matters more is
what Europe says and how it uses it voice. What is significant to Europe's trading partners is that
the requirements of consensus not impede effective action, that the challenge of making EMU
work not distract attention from other compelling problems, that the political pressures that will
come with structural reform in economies with very large unemployment not tilt the balance in
Europe toward those more separatist than integrationist in outlook.
It is also important to the international community that Europe develop an architecture of
decision making that makes it possible for us to act together effectively with individual members
states and with the new European institutions.
This is important in areas where speed, discretion, and a common framework are
important, as in exchange market cooperation. And it is important in areas where the security and
economic interests and the policy preferences of the member states may be quite diverse, and yet
we may need to act together to address common concerns. This may be true with respect to
common challenges we face in the specific regions of the world. And it may be true on specific
policy issues that involve the international financial institutions
These factors are important criteria against which to evaluate the potential impact of
EMU. Europe's success in these areas will determine the degree to which Europe is able to
create a more dynamic economy that can increase private sector employment, a strong euro, and a
more open Europe that remains supportive of further integration with the world economy and
Eastern Europe.
Our view is that a successful EMU measured against these objectives would be very much
in the interests of the United States and of the world economy as a whole.
Implications for the InternatIOnal A1011etary ,~)'stcm
There are those who say that a successful EMU may present a threat to the United States
economy and a serious challenge to the dollar's role as a reserve currency. We do not share their
concerns.
If the leaders of Europe deliver a successful, credible E\1U backed by strong policy
fundamentals, a more integrated capital market, and a more dynamic economy, then EMU would
4
probably be associated with some gradual increase in the euro's role in the system, relative to that
now enjoyed by the original currencies of the participating economies.
This is not something we in the United States should view with concern, and it is not
something we should try to resist.
All the bad scenarios for the dollar would probably have to start in the United States, with
some event that would undermine the unique set of factors that now account for the dollar's
central role in the system. Our primary concern should be to focus on those among this set of
factors that we can influence. And that means to focus our attention on sustaining policies that
make people regard our currency as a reliable store of value and an attractive means of payment,
that make the U.S. financial markets the most deep and liquid and innovative in the world, and
that make the U.S. economy an attractive place to invest.
EMU has also raised some other interesting questions about the international monetary
system, in particular the exchange rate system.
At this point, it looks like there will be more continuity than change in the international
monetary system as a result of a successful EMU. For the participants in EMU as a group, trade
will represent roughly the same share of GDP as is the case now the United States and Japan.
The exchange rate policy and the monetary policy orientation of the euro area look likely to be
quite close to Germany's at present, and thus quite similar to that of the Japanese and U.S.
monetary authorities. There will continue to be a flexible exchange rate system among the major
currencies, which we regard as a good thing. And we will seek to maintain an effective process
for cooperation on economic policy and in the exchange markets when circumstances make that
desirable and effective.
In this world, exchange rate stability depends mostly on each of us achieving sustained,
non inflationary growth at home, and avoiding serious domestic and external imbalances. EMU
won't change that.
Conclusion
Let me conclude by giving you the definitive word. President Clinton issued the
following statement on Monday:
"We welcome this weekend's historic announcement that eleven European countries have
qualified for, and decided to establish, an Economic and Monetary Union (EMU). The
United States has long supported European integration. We admire the determination that
Europe has shown in moving toward the economic convergence that makes EMU
possible. A strong and stable Europe, with open markets and healthy growth, is good for
America and for the world. A successful EMU that contributes to a dynamic Europe is
clearly in our best interest."
5
DEPARTMENT
OF
THE
TREASURY
TREASURY (lINE W S
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIAAVENVE, N.W. - WASlflNGTON, D.C. - 20220 - (202) 622·2960
FOR IMMEDIATE RELEASE
May 7, 1998
STATEMENT BY DEPUTY SECRETARY LAWRENCE H. SUMMERS
ON THE LOW INCOME HOUSING TAX CREDIT
"Secretary Rubin and I applaud the bipartisan effort to pass a 40 percent expansion in the
low income housing tax credit. The tax credit is helping to rebuild neighborhoods and restore
hope in communities all across the country. Already, the tax credit helps to build 90,000 units of
affordable housing every year. With this expansion, we will help to build an additional 180,000
units over the next five years. This affordable housing means not only new homes for hard
working families, but also neighborhood revitalization, bringing stability, better safety, and new
businesses to communities.
"President Clinton and Vice President Gore called for this expansion in our Fiscal Year
1999 balanced budget, fully paid for. The co-sponsors of the legislation -- Senators D'Amato,
Sarbanes and Graham, Representatives Johnson, Rangel, Ensign, Lazio and Metcalf -- all deserve
our thanks for working together on this important legislation."
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DEPARTMENT OF THE TREASURY
WASHINGTON, DC
May 7, 1998
SECRETARY OF THE TREASURY
The Honorable Newt Gingrich
Speaker
U.S. House of Representatives
Washington, DC 20515
Dear Mr. Speaker:
As the House again moves to consider H.R. 10, I want to reiterate the
Administration's strong opposition to the bill.
Enclosed are the March 31 Statement of Administration Policy and my March 16
letter.
I f the bill were to be presented to the President in its current form. I would
recommend that he veto it.
Sincerely,
Robert E. Rubin
Enclosures
cc:
Members of the House Banking Committee
Members of the House Commerce Committee
Members of the House Rules Committee
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loom
W -.: 03/31/98
hnp://www.whitehouse.gov/WH'EOP/OMBlSAPI1-IRIO-h.hl'!
~
~~~~~\
EXECUTIVE OFFICE OF THE PRESIDENT
.
wASHfNGTO~. D.C. 20503
\-: 'I.'
OFFICE OF MANAGEMENT AND BUDGET
STATEMENT OF ADMINISTRATION POLICY
(THIS STATEMEl'fT HAS BEEN COORDINATED BY OMB WITH THE CONCERNED AGENCIES.)
March 31, 1998
(House)
H.R. 10 - Financial Services Act of 1998 1
(Leach (R) IA and 3 cosponsors)
The Administration strongly opposes H.R. 10.
The Financial Modernization provisions of H.R. 10 would: (1) stifle innovation and
efficiency in the national banking system; (2) undennine the Community Reinvestment Act
by forcing financial innovation to occur in holding company affiliates rather than in bank
subsidiaries; (3) diminish the ability of communities and consumers to benefit from the
financial system; (4) eliminate advantageous features of the current thrift charter; and (5)
impose needless costs on small banks. If H.R. 10 were presented to the President in the
form of the Republican Leadership substitute. the Secretary of the Treasuo' would
recommend that it be vetoed. The Administration, however, would support House passage
of the credit union provisions of H.R. 1151 that have been included in H.R. 10 (excluding
Section 402) on a stand-alone basis. The Administration would look forward to working
with the Senate to improve the provisions of H.R. 1151. The Administration favors
expeditious Congressional action on credit union legislation and believes such action should
not be linked to controversies over financial modernization.
With the inclusion of H.R. 1151. H.R. 10 would also provide for interest to be paid on
reserves at Federal Reserve banks (section 402 of H.R. 1151 as reported). OMB estimates
that these provisions would have an estimated pay-as-you-go cost of $800 million over five
years. by reducing the annual net income of the Federal Reserve, which is paid to the
Treasury. This represents a transfrr of resources from the taxpayers to the bankin~
industn- which cannot be justified. The Administration understands that an additional
provision has been added to H.R. 10 which would require the Federal Reserve to transfer
retained earnings to the Treasury in an amount sufficient to offset the pay-as-you-go effect
of this provision of H.R. 1151. The Administration notes that the Senate-reported budget
resolution repeats language in prior budget resolutions prohibiting the scoring of savings
from the transfer of Federal Rese[\'e retained earnings to the Treasury.
Pav-As- You-Go-Scorinc
H.R. 10. is subject to the "pay-as-you-go" (PA YGO) requirements of the Omnibus Budget
ReconcIliatIOn Act of 1990. The AdministratIOn's PA YGO estimate for this bill is under
development. As noted above. the provisions of H.R. 1151 would increase the deficit for
pa;'-as-you-g? purposes by an estimated $800 million over five years. Unless its budget
effects are offset. enactment of H.R. 10 could contribute to a sequester of mandatory
programs.
The Administration understands that the proposed rule for floor consideration of H.R. 10
provides for the text of H.R. 1151. the "Credit Union Membership Access Act", to be
inserted into H.R. J O.
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
March 16, 1998
seCRETARY OF THE TREASURY
The Honorable Newt Gingrich
Speaker
U.S. House ofR.epresentatives
Washington, D.C. 20515
Dear Mr. Speaker:
This Ad.mjnistration has been a strong proponent of financial modernization legislation that would
reduce costs and increase access to financial services for consumers. businesses and communities
Although the House Republican leadership draft orR.R. 10 would remove some archaic
restrictions that have hampered innovation by our financial institutions, it fails to achieve true
reform. As currently drafted, the bill would stifle innovation and efficiency in the national banking
system, diminish the ability of communities and consumers to benefit from our financial system,
eliminate advantageous features of the current thrift charter, and impose needless costs on small
banks.
The bill would materially weaken the national banking system by depriving national banks of
powers they now have, by subjecting national banks to anti competitive limitations inapplicable to
state-chartered banks, and by exposing national banks to discriminatory state laws. The bill
would also leave in place archaic and unjustifiable limitations on the ability of national banks to
compete Taken as a whole, these changes would diminish the national charter, make national
banks less competitive, and undennine the authonty of the Office of the Comptroller of the
Currency.
Similarly, the bill strips away the benefits of the thrift charter -- without making the benefits of
that charter available to all depository institutions, as the Treasury did in its legislative proposal
Instead, at the expense ofbanks and thrifts and their customers, the bill dictates that financial
services companies conduct new financial activities only in a bank holding company affiliate. A
bank that wished to avail itself of new powers would thus have to transfer capital to an affiliate,
thereby depIcting the bank's resources and srufting any earnings benefit from the bank to the
affIliate This requirement would also cause a wholesale transfer of financial resources outside of
the reach of the Community Reinvestment Act. under which banks and thrifts made $18 billion in
loans to communities in 1996 alone. Communities, consumers, and those small banks unable to
afford tiUs new structure would clearly be among the losers under the draft bill
2
None of these steps is warranted by safety-and-soun.dnes.s concerns, and none is necessary to
create competitive equity among various providers of financial services. Taken as a whole, they
serve only to stifle creativity, reduce benefits to consumers, and undermine the nation's dual
banking system. In this respect, the bill is the antithesis of real financial modernization.
The Administration continues to support financial mod.emiz.ation. However, given the profound
deficiencies that I have described~ and others that my staffwill subsequently detail, we oppose this
bill and would not recommend it! enactment. We nonetheless stand ready to work with you and
the Democratic leadership to cure its deficiencies and produce a bill that would achieve real
refonn.
Sincerely,
Robert E. Rubin
cc:
The Honorable Richard K. Armey
The Honorable John A. Boehner
The HonorG.ble Tom Bliley
The Honorable James A Leach
The Honorable Michael G. Oxley
The Honorable JOchard A Gephardt
The HonorG.ble John D. Dingell
The Honorable John 1. LaFalce
The Honorable Bruce F. Vento
DEPARTMENT
OF
THE
TREASURY
OFf1CE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
May 7,1998
Contact: Paul Elliott
(202) 622-2960
JOINT STATEMENT BY TREASURY SECRETARY ROBERT E. RUBIN, FEDERAL
RESERVE BOARD CHAIRMAl'i ALAN GREENSPAN AND SECURITIES AND
EXCHAl'iGE COMMISSION CHAIRMAN ARTHUR LEVITT
On May 7. the Commodity Futures Trading Commission ("CFTC") issued a concept
release on over-the-counter derivatives. We have grave concerns about this action and its
possible consequences. The OTC derivatives market is a large and important global market. We
seriously question the scope of the CFTC s jurisdiction in this area. and we are very concerned
about reports that the CFTC s action may increase the legal uncertainty concerning certain types
of OTC deri\·atives.
The concept release raises important public policy issues that should be dealt with by the
entire regulatory community working with Congress. and we are prepared to pursue. as
appropriate. legislation that would provide greater certainty concerning the legal status of OTC
dcri\ati\'es.
-30-
RR-2426
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DEPARTMENT
NEWS
FOR IMMEDIATE RELEASE
May 7, 1998
OF
THE
TREASURY
CLIPS
Contact: Michelle Smith
(202) 622-2960
STATEMENT BY TREASURY SECRETARY ROBERT E. RUBIN
ON SENATE IRS BILL
I welcome the Senate vote on the IRS reform bill. I believe that it will lead to a final bill
with the organizational and personnel provisions that will give Commissioner Rossotti the tools
he needs to create the IRS the American people deserve. I commend the bipartisan effort in the
Senate to pass this bill.
-30-
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DEPARTMENT
OF
THE
TREASURY
1789
omcr. OF PUBUC AFFAIRS • 1500 PENNSYLVANJAAVF.NUE, N.W. • WASHlNGTON, D.C•• 20220. (202) 622-2960
EMBARGOED FOR RELEASE AT 12:30 BST
Text as Prepared For Delivery
May 8, 1998
Secretary Robert E. Rubin
Mansion House
London, United Kingdom
More than thirty years ago, I spent a year in London as a student at the London School of
Economics. It was one of the most important and wonderful years of my life -- in large part
because I had no responsibilities. Living and working with students from around the world taught
me first-hand about the issues of the world and the viewpoints of lhose from other lands in a way
I never could have learned al home. When I left I always wanted to come back and live in
London. I've never had that opportunity but I have spent a lot of time here and I have always fel t
at home.
1 also feel quite at home, from my business days, in the City, the world's first global
financial center; indeed, at the turn of the century, the world's only such center. In the decades
since, the City has retained that importance. Today, more foreign banks have offices here than
any other metropolitan area, and London is the world's center for foreign exchange trading. At
the eve of the twenty-first century, the City remains a dynamic and vital global financial center.
I gained my practical experience in global markets in another financial center: Wall
Street. During 26 years on Wall Street, and five years working on economic policy in the Clinton
Administration, r have experienced first-hand the intersection between politics and economics in
loday's fast paced world- Today 1 would like to focus on core issues at this intersection: the
critical importance of a nation's policies keeping pace with demands of the global economy, and,
for that to happt::n, the critical importance ofa nation's politics keeping pace with the demands of
the global economy- 1 want to address these matters for two reasons. First, the success of each
nation in meeting its heightened challenges in domestic and international economic policy
deriving from the global economy will determine its fate in the global economy_ Second, in this
era of interdependence, the actions of each nation can and will affect other nations as never
before.
1
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~
The interdependence created by international economic ties is, of course, not entirely
new. But massive political and economic changes in recent years have vastly increased the extent
of our interdependence. Behind the vast increase in interdependence lie a number of factors -_
especially the abandonment of central planning for free market policies and private sector-led
growth which has greatly broadened the scope of world markets and the impact of technology
which has linked nations in ways unimaginable just five years ago.
The scale and integration of global financial markets and the global economy have
expanded dramatically, and there has been an explosion of trade and investment. This, in turn,
has produced higher rates of growth and opened up new opportunities for many. As President
ClinlOn has so often said, our job now is to continue to make the most of these new opportunities
and to act so that their benefits are widely shared.
The changes in the global economy have been felt worldwide, but they have had the
greatest impact on developing and transitional countries. In many o[those nations, standards of
living have increased substantially and millions have been lifted out of poverty, although there is
most certainly an enormous amount left to do. In Latin America, for example, a growing list of
nations have had significant success in promoting the mutually reinforcing movement towards
the policies of market economics and the politics of democracy. In the process, they are
transforming themselves into dynamic economies and increasing their economic ties with
industriat nations, as are devetoping countries all over the globe. For example, exports to
emerging markets by the United States now account for more than 40 percent of our total
exports. Here in the United Kingdom exports to emerging market economies now account for 47
percenr of non-European exports. And private capital flows to emerging markets have increased
from $20 billion ten years ago to $250 billion last year.
But these new opportunities have also brought new risks, as we have seen most recently
in the Asian crisis. \Vhile global capital markets have enormous power to finance investment and
gro\J,rth, they also treat harshly countries viewed as pursuing unsound policies. In tum, those
impacts are felt not only in the countries involved but around the world. That is why the pursuit
of sound domestic and international economic policies in each nation is more important for all
nations than ever before. Twenty five years ago, for example, fluctuations in the Thai baht, or the
fortunes of the Korean stock market would have been little noticed and would have had little
effect outside those countries. Now they appear daily on the front page of newspapers around the
world and have significant economic effects on workers, farmers and businesses from Bangkok
to Brussels.
This growing interdependence has given all nations an increasingly greater stake in each
other's success, and all nations have a responsibility to pursue sound polices. It is in that
framework, for example, that during the 1980s and very early 1990s, the rest 0 f the world
criticized the United States for our large budget deficits, which had adverse impacts on countries
around the globe. And it is in that spirit that the finance ministers of the major industrialized
2
nations gather in London this week to review each nation's economic situation as well as the
common interests we share.
At the heart of our discussions will be the critical question of what governments should
do to promote economic growth and financial stability in their respective countries. Some have
argued that in this world of huge global markets, government has, in essence, become largely
irrelevant. I don't think there is any question that, as President Clinton and Prime Minister Blair
have often said, The underlying strength of a modern economy is a productive and competitive
private sector. But, as both the President and the Prime Minister have also said, government
remains critically important, although its role is changing. In a modem economy, governments
have a necessary and vital role in creating the legal, institutional and economic setting in which
the ingenuity, skill, enterprise and dynamism of the private sector can flourish and in which the
benefits of growth arc broadly shared. And there are some issues that markets alone simply will
not address effectively -- education, training, the provision of a social safety net, environmental
protection and core labor standards, to name a few matters where government is essential
The pursuit of these and other policies essential to success in the global economy is not
an easy task politically and each nation will follow a different path in pursuing these policies.
But we all share a common challenge: for our nations' policies to keep pace with the demands of
the global economy, our political systems must function effectively to meet those demands.
Let me now turn to what, in our view, are some of the most important policy challenges
that governments in the United States, Europe, and Asia face today.
First, the United States. Early in the first term of the Clinton Administration, a reporter
from a well-respected European newsmagazine interviewed me. At the end, he said that our
economy \vas doing very well but that ten or twenty years from now we'd be a second tier
economy. I asked why he thought that, and he said because of the state of our public schools and
our inner cities.
These are critical challenges that, particularly at a time when the U.S. economy is doing
\vell, we must meet. In addition, we must maintain fiscal discipline, help those who are
dislocated by trade and technology, and protect those who would other·...,ise be left behind.
Finally, and v<.!ry importantly, we must be strongly engaged with respect to the issues of the
international economy. In an interdependent global economy, strong American involvement in
addressing these issues is important not only to our own people, but to the rest of the world.
For the last fifty years, the United States has been a leader in liheralizing global trade,
promoting growth in developing countries, fostering a strong global economy, and dealing with
the problems of financial instability. This is no time to turn our backs on the strategy that has so
benefited my country and the world. Yet there are loud and growing voices urging us to tum
inward. We follow them at our peril. As seen by the debates in the United States over the
President's authority to negotiate trade agreements, the obstacles we have [aced in securing
3
funding for the IMF, and the impasse we have reached over our dues to the United Nations we
have much work to do in building broad·based public support for the forward looking
,
international economic policy that is so central to our own economic well being.
One obstacle to building this public support is anxiety about the rapidity of change in this
era of the global economy and dramatic teclmological developments. Yet ironically, it is exactly
that globalization and technological change that fuels the economic growth that benefits so many.
The key is not a vain effort to tum back the clock and to reject these forces for good, but to equip
all of our people to succeed in this new environment, to maintain a sound economic policy
regime more generally, and to greatly improve public understanding of the opportunities and
dynamics of the global economy and the benefits of forward looking economic policy.
Let me turn now to Europe.
In our view, three challenges stand out; launching the European Economic and Monetary
Union; furthering Europe's integration with the rest of the world; and addressing specific
domestic issues that each nation faces to foster growth and create jobs.
The launch of the Euro begins a new phase in Europe's integration, an era oftrernendous
promise. A successful Euro would help build a more efficient common market and would create
powerful impetus for countries to pursue sound policies and structural reforms -- both of which
would foster a stronger and more prosperous Europe -- and that is very much in the interest of the
United States and the rest of the world.
Some have raised concerns about the effect of a successful Euro on the international role
of the dollar. We do not share these concerns. We expect the dollar to continue to playa central
role in the international system. This role stems from the size and strength of the U.s. economy,
the extensive ties between the U.s. economy and the rest of the world, the depth and liquidity of
U.S. financial markets, and sound macro-economic policies. None of this will change with the
creation of a successful Euro. We look forward to a successful Euro that would benefit Europe,
the United States and the rest of the world.
As the Euro helps to further integrate some nations in Europe, it is critical that Europe
does not build walls between itself and the rest of the world. More affirmatively, we strongly
favor further liberalizing trans-Atlantic trade. As to ties among European nations, it is our view
that monetary integration should not delay bringing the transitional economies of Eastern and
Central Europe into the EU. Enlargement of the European Union will do much to cement Eastern
Europe's transition to market democracy; it is a corollary to NATO expansion.
Finally, the European nations continue to face structural and other issues that are key to
economic growth and job creation. No one, least of all we in the United States, underestimates
the difficulty in making markets more flexible, helping workers adapt to the global economy, and
preparing for an aging population .- and we have much to do in all of these areas. But it is
4
precisely in tackling these types of issues, which are made even more important by the advent of
the Euro, that politics must keep pace with economic imperatives.
Here in the United Kingdom, while unemployment is at an IS-year low, Prime Minister
Blair has pointed out that for you too there is still much to be done. As his agenda has
emphasized, modernizing your nation's social safety net and improving education and training
are clearly critical to the UK's continued success.
Let me now briefly tum to Asia.
One of the great economic accomplishments of the past fifty years has been the
phenomenal economic gro\Vth of Japan. But as this economic growth has slowed through the
1990's, Japan's economic situation has become the focus of much attention in Asia and across
the world. Japan faces the challenge of implementing quickly and effectively its substantial
fiscal stimulus plan, strengthening its financial system, opening its markets and deregulating its
economy. All of these are obviously difficult political challenges, but critical to Japan's own
economic well being and to the economic well being of Japan's Asian neighbors and the rest of
the world.
China, with one fifth of the world's popUlation, also faces enormous domestic challenges.
As Premier Zhu Rongji made clear in his recent remarks at Guild Hall, high priorities include
restructuring of state-owned enterprises, adaptation of China's social safety net, and far-reaching
reforms of the banking system. And here too, these enormous shifts in policy will pose great
political challenges.
In Asia more broadly, we arc beginning to see a return to financial stability in a number
of the countries affected by the recent crisis, but there is an enormous amount to do even when
reform has taken hold to get back on the path of sustained economic growth. The financial
assistance mobilized by the International Monetary Fund has played a key role in providing
breathing room for these countries. What is important now is sustained adherence to strong
reform programs, as difficult politically as that may be. Sound macroeconomic policies, stronger
financial systems and more open markets are key to restoring financial stability and to the long
term economic health of these nations.
The crisis in Asia has illustrated the importance of the work that the international
community began three years ago to strengthen the international financial architecture to help
prevent such crises and to deal with them more effectively when they occur. The Bretton Woods
institutions have served the international corrununity well for fifty years, but -- as will be
discussed in our meetings today and tomorrow and at the upcoming Leaders' meeting in
Birmingham -- that architecture needs to be modernized for the challenges oftoday's global
economy.
The United States believes architectural reform should focus on three areas: First, an
increase: in transparency so that investors have better information with which to make good
5
decisions. However, investors must then use that infonnation well. We were struck during the
Asia crisis how little rigorous risk analysis was done by many creditors and investors. Second,
we must strengthen domestic financial systems, to reduce the risk of economic and fmancial
crises. Virtually all financial crises in developing countries either began in or were exacerbated
by badly flawed financial sectors. These efforts will focus on measures to promote the adoption
of sound financial sector policies and new global standards, the cultivation of a strong credit
culture, and the possible development of new institutional arrangements for international
surveillance 9f domestic financial systems. Finally, we must work to create mechanisms so that
creditors and investors more fully bear the consequences ofthcir actions and thereby address the
so-called moral hazard problem. These mechanisms may include incentives to facilitate debtcreditor negotiations and exploring "lending into arrears" by the IMF.
Before I conclude, let me mention one more critical objective in the global cOITumUlity:
continuing to promote growth and reforrn in the poorest countries. Despite the enormous
proe,'Tess made in developing countries over the last quarter century, hal f of the people of the
world still live in poverty. In particular, the continent of Africa has been largely left behind in the
globalization process. Having said that, there have been encouraging signs in that region
recently, and the United States is committed to building on that progress so that Africa may also
share in the benefits of the global economy. And of course, there is much work to do in other
developing regions of the world.
\\'hen I first started working on Wall Street as an investment banker, few could have
predicted the integration of the world's financial markets and of the global economy that has
occurred over the last thirty years -- or how the economic domestic policies of one country now
can affect other countries around the world. And few could have predicted the great benefits but
also harsh penalties that the global markets now bring in reaction to national economic policies.
For all of these reasons, sound and effective economic policies are more important than ever.
And pursuing such policies almost always requires meeting difficult political undertakings -- be
it building public support for international engagement, or creating a consensus for needed
structural reforms, or adapting to market economics. Nations that successfully meet these
economic and political challenges will realize the promise of the global economy for their own
people and meet their responsibilities to the world.
The role of governments in setting the framework and providing the underpinnings is
critical, but so too is the role of the private sector in being dynamic, productive and competitive.
President Clinton has often said that today's globalization and technological development
constitutes the most far reaching economic change since the industrial revolution, and has the
potential for enormous economic good for all the people of the globe. Our challenge -- on the
eve of the next century -- in both the public and private sectors is to harvest that potential and set
the course toward making the 21 st century an era of greatly improved economic well-being for
all the world's people.
-30-
6
DEPARTMENT
OF
THE
TREASURY
1I..1I..1I..1I..1I..1I....IIIIIIII....~!l178~qC.~..IIII..IIIIIIII......II..........1II
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIAAVENVE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
Contacts: Bill Luecht/CDFI Fund
FOR IMMEDIATE RELEASE
May 8,1998
(202) 622- 8042
Paul ElliottlTreasury
(202) 622-2960
MEDIA ADVISORY
US TREASURY OFFICIAL TRAVELS TO NY TO PRESENT FEDERAL GRANT
John Carlisi, Program Manager for the Department of the Treasury's COlllmunity
Development Financial Institutions (CDFI) Fund will travel to Ithaca, New York Oil Monday,
May 11, 1998 to announce an $807,000 award to Alternatives Federal Credit Unioll. This
assistance to Alternatives will allow the credit union to expand existing programs and develop
new programs serving low-income individuals in Tompkins County.
Other participants in the press conference will be US Congressman Maurice Hinchey,
Alternatives' Manager Bill Myers and several of Alternatives' borrowers and partners who will
share their reflections of Alternatives' impact on their lives
WHAT:
A press conference recognizing an $807,000 award made by the COFI
Fund orthe US. Department ortlle Treasury
WHERE:
Alternatives Federal Credit Union's new Loan Center
109 South Albany Street
Ithaca, New York
WHEN:
Monday, May I I, I C)()R
200 p.m
PARTJCIPANTS:
John Carlisi, Program I\'lanager, CDFI Fund, Department of the Treasury
US Congressman Maurice Hinchey
Bill Myers, Manager, Alternatives Federal Credit Union
Alternatives Borrowers and Partners Ineke SOlO, Ceil Blumenstock, Sonya
Hicks and Ariel Nereson
PHOTO OPPORTUNITY OF PRESENTATION OF AWARJ) CHECK
--30--
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
D EPA R T MEN T
0 F
THE
T R E' A SUR Y
I
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 8,1998
Contact: Michelle Lynn Bonner
(202) 622-2960
TREASURY OFFICIAL RECOGNIZES TWO STUDENT VOLUNTEER GROUPS
The Department of Treasury and the Internal Revenue Service today recognized the
volunteer efforts of Texas students on behalf of taxpayers. Treasury Deputy Assistant Secretary
for Management Operations Theodore Carter, presented students in East Dallas and Longview
with certificates of appreciation from Treasury Secretary Robert E. Rubin for their work
establishing IRS Volunteer Tax Assistance (VITA) sites.
In Dallas, Police Chief Ben Click joined Carter at the East Dallas Police Storefront to
present Explorer Post 3166 with the certificate of appreciation. The group is comprised of 17
high school student Explorers who used their diverse Hispanic, Cambodian, Vietnamese and
Anglo backgrounds, language skills, and training from the IRS North Texas District Office to help
135 area residents complete their tax returns.
In Longview, at Longview High School, Principal Brenda Modisette joined Carter to
present the certificate of appreciation to 35 students. The students received the VITA training
from the IRS North Texas District office and additional training on marketing and advertising
through their high school. The students volunteered their spare time over a two-day period and
helped a total of 55 classmates file their taxes. Twenty-two percent of those tax returns were
filed electronically using the IRS's new telephone filing system (Telefile).
The IRS' Volunteer Income Tax Assistance (VITA) program, involves IRS-trained
volunteers who provide free tax assistance at community locations to individuals who need
assistance with basic income tax return preparation. VITA is aimed at those for whom paid
assistance may be out of reach, those who are non-English speaking, persons with disabilities,
those with a low income, the elderly, and other individuals with special needs.
-30-
RR-2430
For press releases, speeches, public schedules and official biographies, call our 24-1zo11r fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
1789
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
May I I, 1998
Contacts: Bill Luecht/CDFI Fund
(202) 622-8042
Paul Elliott/Treasury
(202) 622-2960
TREASURY AWARDS COMMUNITY DEVELOPMENT GRANT TO CREDIT UNION
The Treasury Department announced today an $807,000 community development grant to
Alternatives Federal Credit Union in Ithaca, NY to be used for expanding affordable housing,
microenterprise lending and savings incentives programs
John Carlisi, program manager for Treasury's Community Development Financial
Institutions (CDFI) Fund presented the award to Alternatives Manager Bill Myers and Assistant
Manager Leni Hochman. Congressman ~1aurice Hinchey participated in the award ceremony.
Alternatives is one of 46 community development organizations recently selected to receive more
than $38 million from the Community Development Financial Institutions Fund
"The CDFl Fund is a sound investment for the Federal government," said Treasury
Secretary Robert E. Rubin "The Fund is helping to bring hope and foster gro\vth in economically
distressed communities across America. communities that have long been left behind." said
Secretary Rubin. "Specialized community-based tinancial institutions, that receive funding from
the CDFl Fund are revitalizing these communities by. for example. helping people buy a home or
start a small business. with the goal of moving all Americans into the economic mainstream"
This assistance to Alternatives will dramaticall\' strengthen the credit ullion "The CDFI
award will enable Alternatives to further its Illissiull of sef\'ing low-income individuals in
Tompkins County," said CDFl Fund Directur. Ellen Lazar "By expanding existing programs and
developing new innovative programs. the Fund's im'estment will help Alternatives meet its
ultimate I.:oal of buildinl.: a stronl.:er local eCOlHlIllic base ..
~
~
~
Alternatives, which has received $480.2g l ) of its award, will use the funds to expand its
Affordable Mortgage Outreach Program and microenterprise services, in addition to its Dollars
for Dreams Youth Credit Union and Individual Development Accounts programs The CDFI
Fund will be sending Alternatives the balance of its award once the credit union has raised
required matching funds
RR-243I
Far press releases, speeches, public schedules and official biographies, call our 24..1zour fax line at (202) 622-2040
The COF! Fund's mission is to expand access to critically needed capital and financial
services in low income 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. The Fund's programs pursue strategies designed to meet the unique needs of each
community by allowing the community to respond to its particular circumstances
Established by Congress in 1994, the CDFI Fund has made 79 awards totaling over $75
million through its CDFI Program. As required by law, these dollars are matched one-to-one with
non-Federal dollars by the award recipient resulting in a federal investment which will be
leveraged, at a minimum, two-fold and often many times over
The press conference took place at Alternatives' new Loan Center located at 109 SOllth
Albany Street. In addition to Mr. Carlisi. other officials who participated in the ·event were
U.S. Congressman Maurice Hinchey (NY -26). Alternatives' Manager. Bill Myers and
Assistant Manager, Leni Hochman. The following Alternatives' borrowers and partners made
brief remarks: Ineke Soto, a borrower under the Affordable Mortgage program; Ceil
Blumenstock. an Individual Development Account holder who is saving to expand her mail
order catalog business for people with disabilities; Sonya Hicks. a microentrepreneur and
owner of Christian Visions Bookstore Plus: and Ariel Nereson. a youth participant in the
Dollars for Dreams Youth Credit Union who is a sixth grade student attending Boynton Middle
School.
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE AT 12:45 P.M. EDT
May 11, 1998
"Perspectives on Latin American and Global Capital Markets"
Remarks by Lawrence H. Summers,
Deputy Secretary of the Treasury
Council of the Americas
Washington, DC
Thank you. I am delighted to be here today to talk about Latin America's role in world capital
markets with such a distinguished gathering.
It must give everyone in this room a sense of quiet satisfaction for there to have been a major
developing world financial crisis these past months -- and for Latin America to have been a bitplayer. And it must be no less a source of satisfaction to see some Asian reformers today being
told to learn some lessons from Latin America.
A source of satisfaction -- but if cliches become cliches because they express truth, then certainly
the cliche about the perils of complacency captures a very important truth for all of us in the
Americas today. We have achieved a great deal in these latter years of the 20th century. But we
have a great deal still to do if we are going to realize the enormous opportunities this new global
economy holds out to Americans of every latitude.
Let me spend my time today discussing what I believe to be three major challenges we face in the
years ahead: cementing and maintaining financial stability; furthering continental integration; and
working to lay the grounds for rapid, more inclusive grov.1h and development at home.
I. Investing in Financial Stabilit),.
The risks to world financial markets posed by the crises in Asia have not all passed. And to be
sure, Latin America is not going to emerge out of these events entirely unscathed. Reduced
confidence in emerging markets as a whole and the negative tem1S of trade effects of recent
events will are all likely to take their toll on the region for some months to come.
For all that, when we consider what might have happened, what many feared would happen at
RR-2432
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
such a time -- the message of the past few months for Latin America is overwhelmingly positive.
The fact is that we have seen in Latin America' s weathering of this crisis a very significant
maturation of the Latin American reform process that began a decade or so ago:
•
we have seen it in the taking of early and decisive policy actions by governments such as
Brazil to shore up market confidence and address potential imbalances;
•
we have seen it in the successful accumulation of reserves by the major economies in the
region throughout the crisis, with reserves in Mexico, Brazil and Argentina all now higher
than they were last summer;
•
we have seen it in the unwavering commitment of many governments to introduce and
maintain high levels of transparency about financial and economic data and the direction
of policy -- transparency that has greatly reduced market suspicions at a time when the
usual suspects were very much being rounded up;
•
and we have seen this maturation in the very large, less tangible reserves of credibility on
which economies in the region have been able to draw in responding to difficulties in a
more controlled way than has been possible in the past.
Latin America's relative insulation from the Asian typhoon tells us how far we have come. It can
also, in important respects, tell us something about where the international community should be
heading when it comes to building strong and stable financial markets.
It is no accident that Latin Americans have been prominent participants in the special 022
grouping that has met twice in recent months to discuss the longer term reform questions coming
out of Asia. As this group and others involved with these issues will attest, we have a lot to do to
make the global financial system more secure and resilient to crises. But I think we know what
some of the answers are. And we know that Latin America is in many of these areas is, for once,
a model to be emulated -- not avoided.
First, we know that we need to ensure there is greater transparency and openness in both the
private and public sector around the world. No one in Argentina can now doubt the power of
abundant information in helping to reduce risk and increase market confidence. Equally, while there
are obvious questions of cause and effect, it is worth noting that Mexico's economic turnaround
started around the same time it started to publish economic and financial information for all to
observe on a regular time-frame.
Second, we know that we need all to work -- as the most recent Committee on Hemispheric
Financial Issues meeting in Santiago in December committed every member to work -- to
strengthen banking supervision and prudential regulation, with the universal adoption of the
Basel Core Principles for Effective Banking Supervision, and high quality training to ensure our
supervisors are up to the challenges that modem financial markets present.
2
To be Sure, most Latin American economies have a way to go in building strong, open and
competitive financial systems. And of course, a sound banking system means more than a list of
internationally recognized standards -- it means cultivating a credit culture. sound supervision. limits
on the quality of assets at a bank's disposal, limits on government safety nets, and effective controls
on self-dealing. But the change in Latin America is visible. And the rewards are clear.
Going forward, Latin America, which has far and away the greatest presence in global bond and
equity markets of any emerging market region, needs to continue to set the pace: for example, by
ensuring that every country, not just seven subscribes to the International Monetary Fund's
Special Data Dissemination Standard, and by promoting effective regional surveillance, built on
the principle that friends warn friends when trouble is near.
Finally, we should be looking to see this hemisphere lead the way in finding creative solutions to
the third, most difficult long-term reform challenge we face in responding to all the financial crises
we have seen in recent years. Namely, the challenge of finding mechanisms to bail in investors not
bail them out and to ensure that policy makers do not confront the choice between uncontrolled
chaos and confusion on the one hand and large bailouts on the other -- which is too often the choice
they confront today.
This task has a microeconomic and a macroeconomic dimension. Countries need bankruptcy laws.
And they need effective judicial institutions to enforce them. That is part of being in a global
capital market. But we also need procedures for dealing with situations where countries get
themselves into very profound financial difficulties at the sovereign level. In short, we need
systems that can handle failure, because until the system is safe for failure we will not be able to
count on success.
II. Continental Integration
Continued integration is one of the greatest challenges we face in this hemisphere as we approach
a new century. This integration has so many dimensions:
•
it is about the volume of phone calls between the United States and the Latin America
growing 150 percent in this decade -- faster than to any other part of the world; and phone
calls just to South America growing 170 percent;
•
it is about the travel between the United States and Latin America growing nearly twice
as fast as travel with the rest of the world;
•
it is about American students -- North and South '-- traveling and studying in other parts
of the hemisphere in ever greater numbers;
•
it is about a near-doubling in the stock of United States foreign direct investment in Latin
America since the start of the decade and an even sharper rise, albeit from a low base, in
Latin American FDI in the United States during this period;
3
•
and it is about trade: the reduction of cumbersome customs regulations and border
restrictions, the 30-odd bilateral and multilateral trade agreements that have been signed
in this hemisphere and. ultimately, the creation of a Free Trade Area of the Americas.
It is critical that when we think about integration we do not allow it to be measured by solely in
terms of trade agreements. But as the President underlined in Santiago last month, it will be very
important to move ahead with the negotiations for the FTAA in the years ahead. This will
eventually have to mean Congress granting the President the customary Fast Track negotiating
authority that has been afforded to Presidents in the past -- but the early critical negotiations that
laid the round for the for the Uruguay Round of the GAIT took place without Fast Track. And
the same can and must be true of the FTAA.
The FTAA will be important not just for the future of this region but also because it will in many
ways be the template for the major global challenge at the dawn of a new century: forging the
healthiest, sturdiest possible relationships between the mature economies and the emerging
markets. And an important part of that challenge will be about ensuring that all the individual
parts of the integration process add to the sum of the whole -- rather than subtracting from it.
With regard to trade, in particular, we will need always to think about FTAA and other regional
subunits in terms of their potential to add to world trade. Trade agreements within the Americas
that are trade creating have been and will always be welcomed. But they should not and will not
be welcomed when they merely divert trade from one country or region to another. That cannot
be the way forward for this hemisphere and it cannot be the way forward for the global economy.
III. The Challenge of Inclusion and Integration at Home
I have concentrated here on international policies -- the collective challenges we face in laying
the foundations of a more integrated and prosperous continent. But these efforts are not
separable from what we each do at home.
We now have government by the people across the hemisphere. What we still need to create is
effective government for the people across the Americas. As a highly conservative commentator
here in the United States has noted, people cannot hate their government and love their country.
While we are differently situated, many of the "second generation" challenges we face
domestically are the same in North and South America:
•
rapid, sustained growth demands high rates of national savings -- yet as nations very few
of us save at rates close to those that most European or Asian economies achieve;
•
gro\\th must be inclusive if it is to endure -- yet America, North and South, is home to
some of the highest rates of income inequality in the world and too many of our people
are living on the margins;
•
strong enforcement of legitimate law is critical to building a strong civil society, the key
4
to a vibrant democracy -- yet in many countries judicial systems remain fragile and in
none is the "reinvention of government" complete.
Certainly, the United States cannot entirely exempt itself from these issues while a child born in
Harlem has a smaller chance of living to the age of five and a smaller chance of graduating high
school than a child born in Shanghai; and when more than 10 percent of Americans do not have a
bank account and pay perhaps 10 percent at the local pawn shop to get every pay check cashed.
That is why President Clinton, President Zedillo, President Cardoso, President Frei and the other
leaders chose so wisely in selecting education as the major theme of the Summit of the Americas
in Santiago last month. Uniquely, education is something that can both increase the size of the
pie and include more in its benefits -- ever more so as we move into a post-industrial world in
which opportunity depends not on what people can lift but on what they can understand.
If achieving financial stability was the challenge of the latter years of this century, then investing
in our people is our challenge of the next. Because in a global economy, it is the only way to
maximize every nation's most unique and precious asset: its people.
Doing better will sometimes be a matter of resources. Without adequate resources. there carmot
be adequate investments in people. But equally, if not more, important will be spending more
wisely the resources we have now. In too many of our countries, too much of the education
budget gets spent on higher education for the few. We need to spend those resources on better
education for the many. And too often our education systems are judged by the quantity of jobs
they provide for teachers not the quality of the education it provides for our children. We need to
focus on education in substance and not just in fonn.
The latest research into the functioning of the human brain confinns what common sense would
suggest, that the time when mind is at its most plastic and open to knowledge and ideas is in the
earliest years of life. That is why, even on the narrowest economic calculus, investing in broadbased primary education offers every country by far the largest economic returns of any public
investment.
Universal access to and completion of quality primary education, and access to secondary
education for at least 75 percent of all children were the aims the leaders committed themselves
to in Santiago. Those commitments can and must be honored.
This is a task that should be and must be a task for individual nations to finance. But a
Hemispheric effort can make a big difference. In the past three years the IDB has approved more
than $1.5 billion in loans for education -- around 7 percent of its new lending. In the wake of the
Santiago Summit the IDB is committed to more than doubling the amount of new lending for
primary and secondary education between 1998 and 2002 -- to $5 billion. At Santiago the bank
was also requested to move to establish a special regional fund for education in the Hemisphere,
to meet the special challenges which educating our continent will present.
5
Investing in people, developing strong civil societies and more inclusive nations really are
common challenges of the nations of this hemisphere. And as the Summit underlined,
cooperation across countries as well as within them will be an important part of the solution. If
can continue the work of integration after the Santiago Summit just as it was continued after
Miami, and we can continue to pursue the right policies, domestically and internationally, for
strong and inclusive growth, 1 am convinced that the next decade really can be a special kind of
time for this hemisphere. If this century was the American century, the 21 st century can and
must be the century of the Americas. Thank you.
6
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
May 1l, 1998
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP·Number:
91-Day Bill
May 14, 1998
August 13, 1998
912795AF8
RANGE OF ACCEPTED COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
Investment
Rate 1/
Price
------
----------
------
5.000%5.010%5.010%
5.135%5.143%
5.143%
98.736
98.734
98.734
Tenders at the high discount rate were allotted
54%-.
M10UNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
$
TOTAL
1/
42,398,117
1,316,324
Accepted
$
4,359,949
1,316,324
43,714,441
5,676,273
3,069,485
3,069,485
119,610
35,090
119,610
35,090
46,938,626
Equivalent coupon- issue yield.
RR-2433
http:!hvww. pll bIicdl'bt.trcas. gOY
$
8,900,458
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
May 11, 1998
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
May 14, 1998
November 12, 1998
9127945B6
Term:
Issue Date:
Maturity Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
Investment
Rate 1/
Price
------
----------
------
5.160%
5.175%
5.170%
5.373%
5.387%
5.383%
97.391
97.384
97.386
Tenders at the high discount rate were allotted
18%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
Competitive
Noncompetitive
$
$
4,557,460
1,156,430
PUBLI C SUBTOTAL
32,920,255
5,713,890
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
4,100,000
4,100,000
1,586,670
466,830
1,586,670
466,830
TOTAL
1/
31,763,825
1,156,430
Accepted
$
39,073,755
Equivalent coupon-issue yield.
RR-2434
http://www.publicdebt.trcas.gov
$
11,867,390
DEPARTMENT
OF
THE
TREASURY
~~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
..............................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlllNGTON, D.C. • 20220 • (202) 622-2960
Contact: Public Affairs
(202)622-2960
FOR IMMEDIATE RELEASE
May 12, 1998
J\tEDIA ADVISORY
Treasury Secretary Robert E. Rubin will be joined by ranking HOllse Banking
Committee Democrat John J. LaFalce (D-NY), and other HOllse Banking Committee
Democrats at a press conference today Tuesday. May 12 at l:00 p.m., in room 2220 of the
Rayburn House Office Building.
Secretary Rubin and Banking Committee members will discllss financial modernization
legislation (H.R. 10), that is scheduled for tloor consideration on Wednesday, May 13.
--30-RR- 2..D5
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
5-12-98
To: Puhl'a Affatr!
1:45pm
p. i
PUBLIC DEBT NEWS
Department of the Treasury. Bureau of the Public Debt. Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
May 12, 1998
Office of Financing
202-219-3350
RESULTS OF TREASORY' S AUCTION OF 3 - YEAR NOTES
Interest Rate:
Series:
CUSIP No:
STRIPS Minimum:
Issue Date:
Dated Date:
Maturity Date:
5 5/8t
T-2001
9128274E9
$320,000
RANGE OF
Low
High
Average
May 15, 199B
May 15, 1998
May 15. 2001
ACCEPTED COMPETITIVE BIDS:
yield
price
5.620t
5.639t
100.014
99.962
99.978
5.633%
Tenders at the high yield were allotted
41\.
AMOUNTS TENDERED AND ACCEPTED (in thousands J
Tender Type
Competitive
Noncompetitive
Tendered
----------------$
-----------------
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
TOTAL
31,177,500
591,477
$
9,414,950
591,477
-----------------
31,768,977
10,006,427
2,270,117
580,000
2,270,117
580,000
-----------------
s
Accepted
-----------------
34,619,094
RR-2436
http://WWW.publlcdcbLtRU.gOv
----------------$
12.856,544
of
~
I>EPARTl\IENT
OF
TIlE
TREASURY
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS e1500 PENNSYLVANIA AV ~NU£. N.W. e WASHINGTON. D.C.e 10%20. (ZOZ) 6%2·n"
CONTACT:
E:M:BARGOED UNTIL 2: 30 P.M.
Hay 12, 199B
Office of Financing
202/219-3350
TREASURY I S WEEKLY BILL OFFERmG
The Treasury will auction two series of Treasury bills totaling
approximately $13,000 ~llion, to be issued May 21, 1998. This offering wi1~
result in a paydown for the Treasury of about $1,850 million, as the matuJ:ing
publicly held week1y bills are outstanding in the amount of $14,862 million.
In addition to the public holdings, Federal Raserve Banks for their own
accounts hold $6,910 million of the maturing bills, 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.
Feder~ Re •• rve Bank. ho~d $2,014 mi~~ion a. agents for foreign and
international monetary authorities, which may be refunded wi~in the offering
amount at the weighted average discount rate of accepted competitive tenders.
Addi tional amounts may be issued for such accounts if the agvregate amount of
new bids exceeds the aggreqate 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. '!'his offering
of Trea3UIy 3ecurities is governed by the terms ana conditions set forth in the
Uniform Offer~g 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 qiven in the
highlights.
attacha~
offering
000
Attachment
RR-2437
For press releases, speeches, pllblic schedules and official biographies, call 0 .. , 24-hollr /rzx line
Gt
(202) 622-2040
HIGHL'IGHTS OF TREASURY Oi'FBRINGS OF WliCEKLY BILLS
~
BE ISSUED HAY 21, 1998
May 12, 1998
Amount ..........•.....•.......••.. $5,750 million
Desoription of O£ferinq:
.,7,250 million
Term and type of .eouri ty ...•.•.• '. • . . . . . . .. 91-day bill
CUSIP nuaber •.................•........•... 912794 4Y 7
Auction date ....
May 18, 1998
I •• ua date ..................•.•............ lUy 21, 1998
Maturity date .......... " ..•..... " .
August 20, 1998
Original ia.ue data ........••.............. August 21, 1997
Cu~r.ntly outstanding ....
$30,137 million
Minimua bid aaount ....•...•..•.....••••.... fl0,000
Hul tiple • . . . . . . . . . . . . . . . • . . • . . . . . • . . . . . . . . . $ 1,000
la2-day bill
912795 AR 2
Hay 18, 1998
May 21, 1998
November 19, 1998
Hay 21, 1998
Of~ering
I
••
I
•••••••••••••••••••••••
I
II
••••••
••••••••••••••••
The following rule. apply to all
secu~iti.8
$10,000
., 1,000
mentioned above:
Subm.i •• ion of Bids:
Noncompetitive bid•......••......•......... Aocepted in full up to ~l,OOO,OOO at the average
discount rate of eccepted cOlllpeti tive bids.
Competitive bide . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
Must be expressed as a discount rate wlth three deciEsls in
~ncrQmQnts of .005\. e.g., 7.100', 7.105'.
(2)
Net long position for each bidder muat be reported wban the
8U11l of the total bid amount, at .11 discount rate., &tad the
net long position is $1 billion or greater.
(3)
Net long poait1on must be determ~ned as of one half-hour
prior to the closing time for receipt of competitive tenders.
Maximwa ReCOgnized Bid
at a Single yield ...................•...
Maximum
~wa~d
35~
of public offering
..........................•... 35' of public offering
Receipt of Tenders:
Noncompetitive tender •................ , •... Prior to 12:00 noon Ba.t.rn Daylight Savino time on auction day
Competitive tende~8 . . . . . . . , . • . . • . . . . . . . . . . . Prior to 1:00 p.d. Eastern Daylight Savinq time on auotion day
Payment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Full payment with tender or by charge to a funde account
at a Federal Reserve Bank on issue date
I
DEPARTMENT
OF
THE
TREASURY
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
..............................
OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622·2960
EMBARGOED UNTIL 10:00 A.M. EDT
Text as Prepared for Delivery
May 13, 1998
TREASURY UNDER SECRETARY FOR DOMESTIC FINANCE JOHN D. HAWKE, JR.
SENATE BANKING SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
Mr. Chairman, members of the Subcommittee, it is a pleasure to speak with you today
about the Community Development Financial Institutions (CDFI) Fund. I am joined by Ellen
Lazar, the new Director of the CDFI Fund.
The CDFI Fund is a critical component of our strategy to promote private sector-led
growth in economically distressed areas. The Fund's primary mission is to expand access to
credit and financial services in low income urban, rural, and Native American communities,
areas where one of the biggest obstacles to economic growth is a lack of access to private
sector capital. As you know, we have submitted proposed legislation to reauthorize the Fund.
The legislation would make technical corrections in the existing law to retlect the status of the
Fund within the Treasury Department, would extend the authorization for the CDFI Fund, and
would make other amendments to increase the Fund's ahility to help revitalize economically
distressed communities.
Community development financial institutions are specialized intermediaries that serve
economically distressed communities. They include credit unions, microenterprise funds,
development banks, and equity or loan funds that share this common mission: providing
financial services to people and communities typically overlooked by traditional financial
providers. For many years, institutions such as these have detied conventional wisdom by
making loans to people that could not get financing elsewhere, and these borrowers have
repaid with interest. Often, CDFIs are the pioneers in their communities, making the leading
edge investments based on their community knowledge and demonstrating to traditional lenders
that these are viable markets. These CDFls are expanding the reach of the private sector
marketplace.
RR-2438
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The role of the CDFI Fund is to further strengthen these institutions. The Fund
provides equity, loans, grants and technical assistance to CDFIs so that they can attract more
investors and depositors, and make more private-sector investments and loans to hard working
Americans who have been for too long left behind. With CDFI, I believe we have a new,
more market-driven approach to community development. By filling market niches and
drawing mainstream financial institutions into low income communities through partnerships,
CDFIs help to make our financial system work better for more Americans.
The CDFI Fund has two main programs: the core CDFI program, which assists CDFls,
and the Bank Enterprise Act (BEA) Awards program, which makes awards to financial
institutions that demonstrably increase their lending and other financial services in distressed
communities. The two programs are complementary and mutually reinforcing -- one working
with leading edge CDFIs and the other supporting innovative banks. By working through
local institutions, both programs respond to communities' individual financial services needs,
whether it is helping families to buy a house, or a budding entrepreneur to start a business, or
a community to provide the child care facilities working families need.
The program is still young, but we are already seeing signs of success. Thus far, the
Fund has awarded over $77.6 million to 81 CDFIs and intermediaries around the country. The
leveraging of the federal investment is strong. Although actual leverage numbers vary from
institution to institution, let me give you one example of how leverage works in a community
development credit union: The CDFI Fund investment must be matched at least one-to-one
with non-Federal dollars. The Fund's investment and the match become part of the credit
union's capital base, which enables it to raise additional customer deposits, all of which
become credit union resources available for lending to its members. Industry-wide,
community development credit unions have a loan-to-capital ratio of 6.65 to 1, so each dollar
of capital supports $6.65 of loans by the credit union. Because each federal dollar invested in a
credit union must be matched by another non-federal dollar, a $1 investment by the Fund has
the capacity to generate $13.30 in loans by the credit union.
These investments are making a difference. For example, Bethex Federal Credit Union
in the South Bronx, a small financial institution originally founded in 1970 by fonner welfare
recipients, received a $100,000 grant from the CDFI Fund to expand its financial services and
increase its business lending. Over the past 18 months, Bethex's membership has grown from
1,270 to 3,000 and its assets have increased from $1.6 million to $3 million. In addition,
Bethex has launched "School Banking," to encourage savings among students.
Earlier today, you heard from Self-Help of North Carolina, which operates a credit
union and a venture capital fund that secured $3 million from the Fund. I recently visited
Self-Help and some its borrowers, and their work is enormously impressive. I saw first hand
how a young man who had been running a marginal fresh fish business, was able to get a
$1,000 micro-loan from Self-Help to buy a fish fryer and thereby offer more fast food menu
choices to his customers. His business began to grow. and now he employs two full-ti me and
two part-time helpers. He has been able to expand by buying another fryer and a stove, and
now this determined young man wants to borrow $15,000 to purchase a refrigerated truck that
will enable him to pick up his own fish. We often forget how much difference even a very
small loan can make for a small business entrepreneur with creativity and a drive to be
financially successful, and that's one of the things that CDFIs can do very well.
I also had the opportunity to visit a low-income neighborhood in Durham, where SelfHelp was rehabilitating rental properties and selling them back to former tenants. I spoke to a
minister there who told me that just a few years ago, no one dared to sit on their front steps or
go down the street to the store for fear of becoming victims to drug-trafficking violence. But
with funding from Self-Help and other sources, the neighborhood is now beginning to turn
around. Houses are being repaired, and families have been given the opportunity to own their
own homes for the first time. It has made the neighborhood safer, and has encouraged the
homeowners to become more involved in their community.
With respect to the BEA program, more banks and thrifts than ever before are reaching
out to their communities and are investing in CDFls. This year, the Fund received 104
applications, a 40 percent increase over last year's applications. The Fund's $~O million in
BEA investments have already leveraged $27~ million in bank activities. Moreover, many of
the awardees are choosing to reinvest the awards they receive for past performance back into
community development projects. In this way, the CDFI Fund is getting increased private
sector leverage for federal dollars.
Central Bank of Kansas City, Missouri, for example, was awarded $99,869 for
increasing its loans and services in distressed neighborhoods by more than $8.~ million during
the first half of 1996. In addition to loans for housing and other purposes, the bank made a
significant loan to help a major manufacturer and employer remain in the community.
Though the CDFI Fund has accomplished much in a short time, as with any new
organization, there have been some growing pains. In my judgment, we have dealt with those
problems thoroughly and effectively, and they are behind us. In fact, the Fund was recently
given an unqualified audit of its financial statements since inception. The audit also confirmed
the findings of the Fund's management that material weaknesses had existed in the past, and
that the Fund had corrected or was in the process of correcting each of those weaknesses. (I
am attaching a chart showing exactly where CDFI stands in its efforts to cure those
deficiencies.) More broadly, let me emphasize that congressional oversight has been useful in
helping the Fund to strengthen its internal controls, and we will continue to improve
procedures as this program grows and matures.
We are moving this program forward with the new leadership of Ellen Lazar, who I
believe brings to the job the dedication, the many years of experience in community
development, and the energy needed to implement the CDFI Fund's important work in the
years ahead.
As we discuss the work of the fund today, we should keep in mind that the program is
only three years old. And the nature of its work is such that it necessarily takes time for the
impact to be felt. Moreover, we are beginning a new impact analysis that will provide
important date on how the work of the Fund is benefitting communities.
Mr. Chairman, the Fund's vision for stimulating private sector investment in distressed
areas makes sense, and the Fund's investments are beginning to make a difference in people's
lives. Since its inception, CDFI has enjoyed bipartisan support. I look forward to working
with all of you to enact the CDFI Fund's reauthorization, so that CDFI can use its innovative,
private-sector oriented approach to help more local communities across the country rebuild
neighborhoods, create jobs, and restore hope. CDFI is a solid investment in the long-term
economic well being of not only those communities, but all of us.
Thank you very much.
-30-
DEPARTMENT OF THE TREASURY
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS (CDFI) FUND
CORRECTIVE ACTION PLAN AND STATUS REPORT
:::::::::::::::::::::f,M:::gZ:::MA(grt~liw~iknii.M':::::::::::;J{::::" KPMG41~ddramiRf:I~dgH$::::·::::::::":j . .::::::::::?:}COrr'9tJ~::l.@af.9n:PIi6I:????i:C:::::::::t::::Q9riiMft:::~m(yi.:':"i.::9f:§tl~t1.::::::::::::::::::
1.A Absence of a formal Federal
Managers' Financial Integrity
Act (FMFIA) program to
identify and design corrective
actions for material
weaknesses
1. B Lack of a structured
system of documentation for
award files
1.C Vacant positions for
oversight of awards programs
Establish a formal management
control process and designate
the Deputy Director for
ManagemenUCFO as the
Fund's Management Control
Officer
Finalize the awards file maintenance
program and develop a "file contents
checklist" to identify all documents that
should be included in the awards files
The Director will designate the Deputy
Director for ManagemenUCFO as the
Fund's Management Accountability and
Control Officer and a formal FMFIAlFFMIA
program will be implemented during the last
half of FY 1998. The program will include
an identification of the Fund's Section 2
and 4 assessable units and a schedule for
vulnerability assessments by Fund
managers. The Financial Manager will
develop a Monthly Accountability Plan
(MAP) for publishing and reconciling
monthly financial and management
information and accompanying analysis.
(Target completion date 9/30/98)
Awards Manager will finalize the awards file
maintenance program and develop a "file
content checklist" (Target completion
date 9/1/98)
The Fund will recruit and hire an Awards
Manager and other support personnel to
adequately provide oversight to the awards
programs (Target completion date:
9/30/98)
The Deputy Director for ManagemenUCFO
will be designated the Fund's Management
Control Officer in May 1998. A new
Financial Manager entered on duty in April
1998 and began the process of drafting a
management accountability order,
identifying assessable units, and
scheduling vulnerability assessments
during the third and fourth quarters of FY
1998.
Staff will begin converting all official award
files to the new system described in Policy
Memo No.1 beginning in April 1998. A
new checklist will be used to confirm file
contents and each file will be reviewed and
signed by the Awards Manager The
Awards Manager is currently performing
this review function prior to any award
disbursement during FY 1998.
An Awards Manager entered on duty in
January 1998. The Awards Manager is
currently providing oversight for all award
closings and award disbursements during
FY 1998. Requirements for additional
awards administration support staff are
being developed, and an experienced staff
of awards administration support personnel
will be on duty before the end of FY 1998
Page 1 of 5
5/12/98531 pm
DEPARTMENT OF THE TREASURY
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS (CDFI) FUND
CORRECTIVE ACTION PLAN AND STATUS REPORT
i :IiI: i:iFM:iQ7::iMit,Jj@JW@~kng~I,~ ::,:::I::: e::::t RRMg:B~~#~mm.gila@J.lpnl,:i::: ::::i:i:i:::::::I,:: :::::::::::f:ff:::QgrriQtl~A~9o.eli.n':::::::'@:::::!·!:: .::.:::q9rmptf!:~tq~'!A~·pt·$i12ijj\::!%::::::
Develop formal, ongoing monitoring
procedures, and related forms, and
place them into operation
The Awards Manager, in partnership with
the Fund's program staff, will develop
formal, ongoing monitoring procedures,
and related forms, and place them into
operation during the third quarter FY 1998.
(Target completion date 9/1/98)
The Awards Manager is currently
monitoring reporting compliance for all
awardees that have assistance
agreements. The Awards Manager will
also conduct an assessment of the Fund's
monitoring needs from both a compliance
and program review perspective in
conjunction with the program staff.
Policies and procedures will be developed
and in the third quarter of FY 1998 with full
implementation by the fourth quarter FY
1998.
1 .E No formal review of
monthly financial statements,
accounting records, budgetary
reports, and supporting
reconciliations
Establish a formal process for
preparing, reviewing and
distributing monthly financial
statements, including specific
procedures for follow-up on
any issues identified during the
process
Develop procedures for reviewing financial
data processed and statements and
reports prepared by the Bureau of Public
Debt's Franchise Service on behalf of the
Fund (Target completion date 9/30/98)
A monthly accountability plan will be
developed which will require monthly
preparation of financial statements and
review of budget reports and supporting
reconciliations prepared by the Franchise
Service on behalf of the Fund The Fund
will meet with the Franchise Service In May
1998 to validate processes and
procedures The Fund has prepared
financial statements for March, 1998 and
Will continue to prepare and reconcile
financial statements for each month
through the remainder of FY 1998.
1.F Vacant positions for Chief
Financial officer and Controller
Develop additional financial management
positions and recruit personnel to fill
Hire a Financial Manager (controller) and a
budget analyst as soon as possible
A Financial Manager entered on duty
April 1998. The Fund's Financial
1.0 Lack of formal postawards monitoring procedures
In
Page 2 of 5
5/12/98531 pm
DEPARTMENT OF THE TREASURY
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS (CDFI) FUND
CORRECTIVE ACTION PLAN AND STATUS REPORT
:::::ii:i:::::i:i:i:E¥i::~l1i:iMAt.gniJ:Wliko!~i.!i<:i:::::::/<:KRMgiB$qpmmgn~attgijiI::C:::::::::i:ii::i::i:i::i:i:i:p.Arr~9.~Jv@i:A~l9nig§rtii:::i:ii)::::::::::iiqijrmi:i§iji\.q~:.~:Af.~!1~::i:r::::::::::
1.G Inadequate delineation of
organization responsibilities
within the CDFI Fund
1. H General lack of
documented policies and
procedures
Develop policies and procedures for an
awards administration and monitoring
function, In the first half of fiscal year
1998
Prepare an organization plan in
accordance with Treasury Directive 21-01
to properly delineate the Fund's
organizational responsibilities and clearly
define the Fund's mission and functions
statements. (Target completion date:
5/1/98)
The Fund's proposed organizational plan
was submitted to the Department on
February 18, 1998 and approved on April
13, 1998. The approved plan includes
functional statements and a delineation of
organizational responsibilities for all offices
within the Fund. The approved plan also
includes organization charts for both the
Fund and the Fund's placement within the
Office for the Under Secretary for Domestic
Finance.
The Awards Manager will develop and
implement appropriate policies and
procedures for the Fund's awards
administration function (Target completion
date 9/30/98)
Policy memos will continue to be issued
throughout the remainder of FY 1998 to
implement all aspects of awards
administration. The following Awards
Administration Policy Memos have been
issued to date:
Memo No 1, dated April 2, 1998
Page 3 of 5
5/12/98531 pm
DEPARTMENT OF THE TREASURY
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS (CDFI) FUND
CORRECTIVE ACTION PLAN AND STATUS REPORT
:::I::::II]f¥:$1fMate:AiJW~khi~$i$••L:::::::\::::\:::KRM~:'R~qpmm,oti~~b!£ij~:::
/,::[:::.::t:::;:::;:::m'rCorteEtiVi:AEtf6hJ?IaW::m: C·: \":: : : '\r::\::,::qQrmm:::~~tU~~$29f:~t:t~~"\::"":I"::
Develop formal, ongoing
monitoring procedures, and
related forms, and place them
into operation
The Awards Manager, in partnership with
the Fund's program staff, will develop
formal, ongoing monitoring procedures,
and related forms, and place them into
operation during the third quarter FY 1998
(Target completion date: 9/1/98)
Continue the design and
development of a portfolio
monitoring database
The Fund's Award Manager will continue
the design and development of a portfolio
monitoring database (Target completion
date 9/30198)
Track the receipt of all required
reporting activities for all the
CDFI Fund awardees since the
inception of the Fund
The Awards Manager will track all awardee
reporting requirements since the inception
of the Fund and contact all awardees that
are delinquent (Target completion date
9/30/98)
The Awards Manager is currently
monitoring reporting compliance for all
awardees that have assistance
agreements. The Awards Manager will
also conduct an assessment of the Fund's
monitoring needs from both a compliance
and program review perspective in
conjunction with the program staff,
Policies and procedures will be developed
and in the third quarter of FY 1998 with full
implementation by the fourth quarter FY
1998.
The Awards Manager is currently reviewing
data requirements and seeking information
on off-the-shelf database systems that can
be adapted to the Fund's awards
administration and monitoring processes
and requirements as well as program
evaluations. Several systems have been
reviewed and the Fund plans to begin the
system analysis and development during
the third quarter of FY 1998
The Awards Manager IS currently tracking
all incoming awardee reporting
requirements for both quarterly and annual
reports and sending delinquent letters
within two-days of the required due date. A
status report is being marntained on an
Excel spreadsheet In the third quarter a
new Monitoring Control Form will be
completed for all incoming reports The
Awards Manager Will focus on audit and
compliance monitoring and the program
staff Will focus on performance monitoring
and review all financial status and program
performance reports
Page 4 of 5
5/12/98531 pm
DEPARTMENT OF THE TREASURY
COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS (CDFI) FUND
CORRECTIVE ACTION PLAN AND STATUS REPORT
. . .}::F¥::~7·M"i.\idiirw~k~~~~~I:·:::.:: •.:.KRMGR~q9roro~a~m~n~ .:. .
Determine and communicate audit
guidelines for the CDFI Fund
awardees to follow
2. Liabilities incurred as a
result of the awards process
had not been recorded by the
CDFI Fund as earned by the
awardees, but rather as the
awards were disbursed.
Record payables for grant awards and
related grants expense at the point in
time when the awards are earned by
the awardees, rather than when
disbursed in cash
::Ipprr~~tl~AGU4h.P@t(:\ •.:·:.).·?¢U~$Utt.iI~~$pf•. ~ll?~·':'I::I\:
The Fund's Financial and Awards
Managers will prepare written audit
guidelines for the Fund awardees to follow
These written guidelines will be provided to
the awardees with their completed
assistance agreements. (Target
completion date 9/30/98)
New process flow procedures and general
ledger posting transactions will be
developed to ensure proper recording of
grant award payables and expenses
(Target completion date 9/1/98)
This task will be started in May 1998.
Written guidelines will be prepared and
included in all awardee assistance
agreements issued in the fourth quarter of
FY 1998.
The Fund is working with the Bureau of
Public Debt Franchise Service to develop
process flow procedures and initiate the
use of different general ledger posting
transactions for properly recording grant
award payables and expenses
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DEPARTMENT
TREASURY
OF
THE
TREASURY
{I' NEW S
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIAAYU.JU~ .. N.W. - WASillNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 1:30 P.M. EDT
Text as Prepared for Delivery
May 13, 1998
TREASURY ASSISTANT SECRETARY FOR FINANCIAL MARKETS
GARY GENSLER
SENATE DEMOCRA TIC TASK FORCE ON TOBACCO
Chairman Conrad, and distinguished members of the Task Force, I am pleased to appear
before you today. I joined the Treasury Department last year, after working for 18 years on Wall
Street. As a partner of the Goldman Sachs Group, L.P., I was fortunate to have a variety of
experiences that help inform my understanding of bankruptcy issues in the tobacco industry.
During the 1980's and early 1990's, I was a senior professional in the firm's merger effort. In that
capacity, I valued companies and advised clients on how to assess businesses. That is what I
hope to do here with you today. After I left the merger department, I gained both trading and
international experience as the head of Goldman Sachs' debt and currency trading efforts in
Japan. As a bond trader, I assessed how world and market events affected the valuation of bonds
and their underlying credits. That experience also bears upon the views that we will be
presenting today.
Jon Gruber, Deputy Assistant Secretary for Economic Policy, is here with me to help
address any of your questions. Mr. Gruber has been with the Treasury Department for the last
year, and is also a professor of economics at the Massachusetts Institute of Technology.
My testimony will consider the effect of comprehensive tobacco legislation on the risk of
insolvency in the tobacco industry. To best understand such effects, I will begin by providing the
Task Force with a brief overview of the tobacco industry and its business characteristics. I think
that you will share our conclusion that the industry is currently financially strong and viable, but
not without risk. This financial risk, which has been endemic to the industry for many years.
arises from uncertainties related to litigation concerning the companies' business practices.
Subsequently, I will turn to proposed legislation and its implications for the tobacco industry" s
overall financial health. Finally, I will make some observations about how bond investors assess
the tobacco industry's credit risk.
1. Industry Characteristics
The U. S. tobacco industry is financially strong. It is comprised of four major
RR-2439
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companies: B.A.T. Industries, Loews, Philip Morris, and RJR Nabisco. (A fifth company,
Liggett Group, has a market share of just over one percent.) As presented in Figure A, these
companies had combined revenues approaching $150 billion last year. They had operating
earnings in excess of $23 billion. Their combined stock market value is $145 billion. By all of
these measures, this is a large and viable industry. It also is concentrated as an oligopoly among
only a handful of players.
These companies also are well-diversified. As presented in Figure B, only one-third of
the industry'S operating earnings is derived from domestic tobacco. International tobacco sales
accounted for 27 percent of operating earnings. Moreover, each of the companies in the industry
has diversified holdings in other businesses. With interests in food, beer, financial services, and
hotels, the industry owns such familiar companies as Kraft Foods, Miller Brewing, Nabisco,
CNA, and Loews Hotels. These non-tobacco interests accounted for 39 percent of earnings last
year. As can be seen, the industry does not, by any means, rely solely on domestic cigarette sales
to stay profitable.
2. Business Characteristics
The tobacco companies share several business characteristics.
First, they enjoy significant brand loyalty from their customers. With such strong
consumer franchises, the companies benefit from significant barriers to entry. Moreover, the
industry's limited potential for technological innovation helps to maintain these barriers. In
addition, potential marketing restrictions are likely to raise these barriers and strengthen their
franchises.
Second, cigarette sales are highly concentrated among the top brands. The leading
product, Marlboro, accounts for approximately one-third of all domestic cigarette sales. The top
dozen brands together account for 80 percent of domestic cigarette sales.
Third, the tobacco business has very high operating margins. Loews, Philip Morris and
RJR had combined operating earnings of 38 cents on every dollar of domestic tobacco sales last
year. Even the smallest among them, Loews, earned 32 cents on every dollar of tobacco sales.
These generous industry margins are over three times the average profits enjoyed by American
industry as a whole.
The industry benefits from advantages on both the revenue side and the cost side of its
business. The strength of brand names and the industry's oligopolistic nature give tobacco
companies substantial pricing flexibility. At the same time, the industry's cost structure is
largely variable (i.e., directly related to output), allowing the industry to more readily adapt to
changing environments. Approximately two-thirds of costs are selling, general and
administrative costs. Dominated by distribution, marketing, and advertising costs, these are
largely variable. Manufacturing costs, which make up the remaining one-third of costs, also are
dominated by variable costs, such as the purchase of raw materials and packaging.
Fourth, the industry has provided smooth returns over many years. Contrasted to many
2
industries, the tobacco industry has had relatively modest volatility in revenues or earnings. This
is especially relevant in analyzing insolvency risk.
Fifth, the tobacco companies recently have experienced growth in international sales.
The companies are profitable in many countries, despite having lower market shares in foreign
markets. More importantly, they are profitable even in countries where cigarette prices are
significantly higher than in the u.s. For example, they profitably compete for sales in the U.K.,
Denmark and Norway, where the average price for a package of cigarettes is more than twice as
high as the price in the domestic market. Under most estimates of price increases under the
proposed legislation, prices in the United States are not expected to reach the current levels in
many foreign countries.
On the other hand, however, the companies have been confronted with declining demand
in the U.s. Over the last five years, domestic demand has dropped by more than one percent per
year.
3. Potential Legal Liabilities
As we have reviewed, the industry is currently financially strong and viable. It is not,
however, without risk. The tobacco companies face one major business uncertainty: the
potential for incurring substantial legal liabilities. This financial risk, which has been a
characteristic of the industry for years, emanates from uncertainties related to litigation
concerning the companies' business practices. Although the industry has lost only one lawsuit
in its history, the risk of a major damages award creates uncertainty that must be factored into
any assessment of financial prospects. The various expenses associated with settling and
defending lawsuits also affect the profitability of the tobacco companies.
As stated earlier, the risks associated with potential legal liability have confronted this
industry for many years. Litigation risks were endemic to the industry before any comprehensive
tobacco legislation was ever contemplated, and they remain an independent source of business
uncertainty notwithstanding the proposed legislation. Even in this environment, however, the
combined stock market value of the tobacco companies has risen almost 50 percent in the last
three years.
4. Proposed Legislation
I would like to now tum to the subject of comprehensive tobacco legislation and discuss
some of the key features as contemplated.
Price Provisions
The central goal of proposed legislation is to lower youth smoking and the volume of
cigarette sales in the United States. This goal is to be achieved in a variety of manners, including
increasing the price of tobacco products. S. 1415, as reported out of the Commerce Committee,
requires cigarette manufacturers to make substantial payments to the Government, and mandates
that the costs of such payments be passed through to consumers. As Deputy Secretary Summers
has testified, the Administration estimates that the provisions will raise the price of cigarettes by
3
$1.10 per pack, in constant dollars, by the year 2003, using pricing assumptions that ensure youth
smoking targets will be met. Given other underlying trends in cigarette pricing, it is anticipated
that the real price of cigarettes will rise to approximately $3.20.
Despite the size of the required payments, the proposed legislation contains three classes
of provisions that protect the industry against a sharp drop in profitability. First, as noted, the
legislation provides for consumers, not manufacturers, to finance the industry's payments. The
pass-through provisions in the legislation ensure that the payment costs do not come directly out
of tobacco company profits.
Second, industry payments are allocated by market share, and adjusted for sales volumes
declines after the fifth year. By taking into account individual companies' ability to pay, these
mechanisms further ameliorate the effects on industry profitability. In addition, a number of
proposals phase in the industry payments over five years. This allows the industry to adjust over
time.
Third, both the original Attorney Generals' proposed settlement and S. 1415 contain a
number of features that tend to maintain the market share of existing industry participants. For
example, the legislation imposes costs not only on current market participants, but also on new
entrants and importers.
Further Provisions
The Commerce Committee bill further attempts to reduce youth smoking through other
means, such as restricting the access of youth to tobacco products, and restricting marketing to
youth. It also imposes surcharges if the industry does not meet the youth-smoking reduction
targets that the companies agreed to with the Attorneys General.
Legal Liability Provisions
Another central feature of comprehensive legislation is the legal liability protections that
it provides to the industry. The comprehensive legislation would settle the 41 outstanding state
suits against the industry, as well as a handful oflocal suits. The terms of the legislation also
would apply to new entrants to the industry, and to international competitors. It thus resolves
significant legal uncertainty, and provides broader coverage than merely settling currently
outstanding legal claims. National legislation that covers all potential participants in the industry
ensures that the industry is able to pass settlement costs on to consumers.
Comprehensive legislation also provides for limits on the industry's liability. Such limits
further reduce the legal uncertainty facing this industry. The extent of the reduction in risk,
however, depends on the details of the limits themselves.
s.
Implications of Legislation for Bankruptcy Risk
I will now tum to the question of how comprehensive tobacco legislation will affect the
tobacco industry'S financial health. In summary, we do not believe that the proposed legislation will
4
materially affect the tobacco companies' risk of insolvency. Even under conservative assumptions
with respect to price, domestic sales volume and operating margin, the tobacco industry will remain
very profitable. The companies will continue to have earnings that are more than sufficient to cover
interest payments. In short, comprehensive tobacco legislation poses less risk of bankruptcy for this
industry than pending and future litigation, or simply the vicissitudes of the market.
The Effect of Price Increases on Sales Volume
Our analysis of the proposed legislation focuses on its effects on pricing, sales volume, and
operating margins in the tobacco industry. As previously outlined, the proposed legislation contains
several provisions that provide for the pass-through of payments to prices. The attendant price
increases will lead to a decline in sales volume. We estimate that for every 10 percent increase in
price, there is a 4.5 percent reduction in product demand. As a result, a $1.10 price increase, for
example, would lower sales volumes by about 22 percent.
Some research analysts from Wall Street have predicted that the price increases caused by
the proposed legislation will be greater than this analysis, and other legislation that has been
proposed has contemplated greater price increases as well. If the price increase were higher, say
$1.50, there would be a projected 30 percent decline in domestic cigarette volumes.
The Effect on Operating Earnings
Operating earnings are affected not only by reductions in sales volume, but also by declines
in operating margins. As previously noted, the tobacco industry's cost structure is largely variable,
allowing it to more readily adapt to changing environments. Thus, it is likely that the proposed
legislation would cause the industry's margins to decline only modestly. Based upon the relationship
between sales volume and operating margin that currently exists within the industry, we estimate that
a 22 percent decline in sales volume will lead to a decline in operating margins of approximately 15
percent. Under those circumstances, the combined effect of declining domestic sales and operating
margins would lead to only a 12 percent decline in the total operating earnings of the industry.
Accordingly, the tobacco companies would remain more profitable than American industry as a
whole.
As noted earlier, some Wall Street research analysts project larger volume declines than 22
percent, and some proposed legislation contemplates larger volume declines as well. Even if that
were the case, the domestic tobacco businesses of the various companies would remain profitable.
Using margin assumptions more conservative than above, a 30 percent decline in volumes would
lead to only a 15 percent decline in industry operating earnings. The industry would still have over
$4 billion in domestic tobacco operating earnings and approximately $20 billion in overall operating
earnings.
Corporate Debt Levels
The tobacco companies paid approximately $3 billion of interest payments last year on their
outstanding debt. As noted, the industry had operating earnings of over $23 billion. Thus, the
5
industry earned enough to cover its interest more than seven times. Indeed, all of the major
participants in the tobacco industry have operating earnings from sources other than domestic
tobacco -- such as international sales and non-tobacco products -- that far exceed annual interest
payments. Thus, even with significant reductions in domestic tobacco earnings, these firms should
be able to meet their interest obligations. Moreover, the asset values of the non-tobacco businesses
of Phillip Morris, RJR Nabisco, and Loews, are greater than the companies' outstanding debt. For
instance, in the case of RJR Nabisco, the company's 80 percent stake in Nabisco is worth
approximately $10 billion, while the company's outstanding debt (excluding Nabisco) isjust over
$5 billion.
6. Bond Market Investors
I now will discuss how bond investors assess the industry'S credit risk. Bond investors are
an important barometer, as they risk their money based on their assessment of potential risks and
rewards. In addition, they are not easily swayed by politics, rhetoric or theory.
By way of background, corporate bonds trade at yields that are higher than the Treasury's
borrowing rate. This interest rate differential is due to many factors, but is primarily associated with
the risk of corporate default. Investors refer to this interest rate differential as a "credit spread." The
greater the "spread" above Treasuries, the greater the credit risk associated with the company.
In addition to assessing the risk of companies in relation to the Treasury, investors also make
judgments about the risk of companies in relation to each other. Investors assess the relative risks
of corporate bonds in terms of maturities and company-specific risks. The yield that investors
demand on a particular firm's bonds reflects what investors believe to be the credit risk of the firm.
Investors generally demand a higher yield if they perceive that the credit risk is more significant.
Conversely, they will accept a lower yield if they believe that the credit is safer. Thus, the yield
demanded by investors for a particular bond will change as perceptions about the company's
creditworthiness change.
Figure C illustrates how bond investors assessed the credit risk ofthe tobacco companies at
three points in time. We looked at trading levels (I) prior to the Attorney Generals' proposed
settlement, (ii) just after the Attorney Generals' proposed settlement, and (iii) during the several days
after the Commerce Committee voted S. 1415 out of committee. The numbers in the columns
represent the additional yield that investors required to buy the tobacco companies' bonds (relative
to an index of other relevant corporate bonds). Where investors demanded higher yields, they
perceived higher levels of risk.
A number of important observations can be made from this information. First, investors
viewed the credit risk for all of the companies in early April 1998 as about the same as they did one
year earlier. This is evidenced by the fact that the additional yield required by investors did not
changed materially. In fact, investors were willing to purchase the industry'S bonds at modestly
lower yields than prior to the Attorney Generals' proposed settlement. Accordingly, S. 1415 does
not appear to have had any negative effect on investor perceptions of the tobacco companies' credit
risk. If anything, these firms are now viewed by investors as slightly safer than they were one year
ago.
6
Second, after the Attorney Generals' proposed settlement, the bonds of one of the companies.
RJR, improved significantly. This suggests that investors saw the Attorney Generals' proposed
settlement as lowering the credit risk for this company. That yield advantage was reversed as the
enactment of the June 20 settlement became less likely. But, to reemphasize, in the wake of the
Commerce Committee vote, the market's assessment of the bankruptcy risk of RJR, as well as the
other tobacco companies, was no different than it was before discussions of comprehensive tobacco
legislation were made public. The risk was, and remains, low.
Third, the interest rates required on the debt of all but one firm in this industry are very close
to those required on the most fmancially secure businesses in America. The one company for which
investors require an additional premium, RJR, has greater levels of debt. This is primarily due to
the debt left over from RJR's leveraged buy-out completed in 1989. To give you some context,
however, even RJR, which is the riskiest of the tobacco companies, has a yield that is similar to wellknown companies such as Westinghouse and K-Mart.
7. Conclusion
In conclusion, the tobacco industry is fmancially strong and viable. Comprehensive tobacco
legislation includes mechanisms to protect that financial condition. The legislation assures that
payments are made by consumers rather than the tobacco manufacturers, and makes adjustments
according to individual companies' ability to pay. The industry has substantial operating earnings
to bear any decline in earnings due to price increases caused by the legislation. The industry also
has significant non-tobacco assets that are currently valued well in excess of their debt. As
previously noted, tobacco companies for years have faced substantial legal uncertainties related to
their business practices. Comprehensive tobacco legislation does not increase these existing risks.
Lastly, S. 1415 does not appear to have any material effect on bond investors' perceptions of the
tobacco companies' credit risk.
While there are commercial risks facing the tobacco companies, as there are facing all
companies, we do not see any reason to expect that the pricing effects of comprehensive tobacco
legislation would materially affect these companies' risk of insolvency. They should be able to
continue to operate profitably in the United States and abroad.
-30-
Tobacco Industry
1997 Results
(billions)
Sales
Operating Earnings*
$ 39.4
$ 4.3
Loews
20.1
2.2
Philip Morris
72.1
13.7
RJR Nabisco
17.1
3.4
$148.7
$ 23.6
B.A.T. Industries
TOTAL
*before unusual charges.
Figure A
Operating Earnings
Tobacco Industry*
Domestic Tobacco
340/0
International
Tobacco
27%
Non-tobacco
390/0
*Loews,
Philip Morris, & RJR Nabisco.
Figure B
Bond Yields
Compared to Market
B.A.T. Industries
+0.17%
Post-AG
+0.10 %
Loews
+0.10
+0.09
-0.01
Philip Morris
+0.04
+0.08
-0.01
RJR Nabisco
+0.16
-0.11
+0.05
Pre-AG
Post-Commerce
+0.07%
Note: Average bond yields for each of these companies were compared with indexes of corporate bonds which trade
similarly. The reference indexes were groups of corporate bonds rated by Moody's as follows: 8.A.T. (A2); Loews
(8882); Philip Morris (8883); RJR Nabisco (883).
Figure C
DEPARTMENT
lREASURY
OF
THE
TREASURY
NEWS
EMBARGOED UNTIL 1:30 P.M. EDT
Text as Prepared for Delivery
May 13, 1998
TREASURY DEPUTY GENERAL COUNSEL NEAL S. WOLIN
SENATE DEMOCRA TIC TASK FORCE ON TOBACCO
Thank you very much, Senator Conrad and distinguished members of the Task Force. I
am pleased to have this opportunity to discuss administrative and enforcement issues arising
from the implementation of new tobacco legislation, particularly those issues related to
controlling illegal domestic diversion and cross-border smuggling oftobacco products.
As we all agree, the prospect of comprehensive tobacco legislation is an issue of
enormous consequence to the health and economic well-being of the American people. That is
why the Administration looks forward to continuing to work with Congress to enact
comprehensive legislation this year.
I think we all share a common and very strong interest in assuring that the enactment of
tobacco legislation will not result in either a domestic black market or the smuggling of tobacco
into the United States. It is essential that comprehensive tobacco legislation contain provisions
that will minimize the diversion of cigarettes from legitimate domestic channels of distribution
and the smuggling of cigarettes into the United States from abroad.
Designing an effective system to combat smuggling will depend on the other provisions
that are included in tobacco legislation. For example, incentives to smuggle are likely to be
sensitive to the details of such legislation. Nonetheless, we are convinced that the creation of a
sound system -- one that will close the distribution chain for tobacco products -- will ensure that
the diversion and smuggling of tobacco can be effectively controlled and will not defeat the
purposes of comprehensive tobacco legislation.
By closing the distribution chain for tobacco products, we will be able to ensure that these
products flow through legitimate channels and that we will be able effectively to police any
leakages that do take place. Treasury already licenses tobacco manufacturers and export bonded
warehouses in connection with the collection of tobacco excise taxes. We believe that such
licensing should be extended to the other entities at the upper end of the tobacco distribution
chain -- wholesalers, exporters, importers and distributors. We are comfortable with a system
that places primary responsibility for licensing retailers on State governments, as provided in the
Commerce Committee bill. To be effective, a system must include the following elements:
RR-2440
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•
First, as I have described above, all entities in the distribution chain for tobacco products
-- manufacturers, wholesalers, exporters, importers, distributors and retailers -- should be
required to hold a license or a permit. Licensing of retailers can be done at the State
level. Licenses would be issued based on certain clearly specified criteria and could be
revoked or suspended for specified violations. Those conducting business without a
license would be subject to penalties. Licensed entities would only be authorized to sell
tobacco products to other licensed entities or purchase tobacco products from other
licensed entities. The sale or distribution to any entity that is unlicensed would be
unlawful.
•
Second, legislation - and this is a critical point- should require the effective marking,
branding and identification of packages of tobacco products intended for domestic
distribution and for export so that they may not be diverted or smuggled in circumvention
of the legitimate channels of distribution.
•
Third, any regulatory system should include penalty and administrative provisions that
will deter would-be smugglers and will allow for effective, efficient and uniform
enforcement of controls over distribution. Simply stated, those contemplating entering
the black market must believe that the chances of being caught are high, and that the cost
of getting caught will exceed the profits from smuggling.
Under such a system, tobacco products would move through legitimate channels. Most
importantly, such channels would not be open to America's youth.
A licensing system for tobacco products such as that I have just described would be
similar to the way the Federal Government has effectively regulated alcoholic beverages for over
sixty years and would incorporate the years of experience we have in administering that system.
In addition, all states currently regulate their alcohol retailers. The system in place has allowed
for commerce in alcoholic beverages while effectively curtailing trafficking in illicit, non-tax
paid products.
Current federal laws regulating tobacco are aimed at collecting the Federal excise tax and
assisting states in their efforts to collect excise taxes imposed on certain tobacco products, not at
regulating the distribution of tobacco products and preventing smuggling. For example, the
Contraband Cigarette Trafficking Act, or CCTA, was designed solely to assist states in enforcing
their tax laws. It does not address or ensure a closed national distribution system and was only
intended to proscribe domestic diversion as it applies to State taxes. The CCTA does not address
cross-border smuggling, and it applies only to cigarettes, and not to any other tobacco products.
We support amendments to the CCTA that would, among other things, expand the scope of the
law to several tobacco products in addition to cigarettes, reduce the quantity of tobacco products
necessary for a violation, apply the CCTA to states that do not require a tax stamp, and provide
2
for forfeiture of proceeds of CCTA violations. These amendments would enhance the Treasury
Department's mandate to control the unlawful trafficking in tobacco products to avoid State
tobacco taxes.
With the necessary regulatory provisions in place to deal with potential smugglers, we do
not expect a large-scale smuggling problem for several reasons. First, the "closed" distribution
scheme I just described would limit drastically smugglers' ability to enter products into a
legitimate distribution channel. Potential black marketeers will not be able to move products
through legitimate wholesalers or distributors. Nor will they be able to sell products to retail
consumers at the local convenience stores or other licensed retail outlets. Instead, without a way
to place contraband products in the market legally, smugglers would have to sell cigarettes
outside channels of legitimate distribution. This would be a risky proposition and one we do not
believe will represent a significant problem.
Second, U.S. cigarette manufacturers would have great incentives not to become
complicit in any smuggling operation, as they would encounter enonnous legal risks (such as the
possibility of losing their license or losing their cap on liability risk) and public opprobrium.
Indeed, it is hard to imagine that in the context of comprehensive tobacco legislation, large scale
smuggling could occur without the manufacturers' knowledge.
Third, the U.S. Customs Service has the expertise and the experience to deal with
imported contraband products and already has made a substantial investment in the introduction
of non-intrusive inspection systems and other equipment needed to detect the smuggling of
contraband. The organic nature of tobacco and the distinctive shape of cigarettes makes them
readily detectable by equipment that Customs currently has in place.
Some have cited current levels of interstate smuggling as a reason for suggesting that
comprehensive tobacco legislation would lead to wide-scale smuggling. Such arguments fail to
account for the fundamental difference between interstate diversion and cross-border smuggling.
Commerce between states is not controlled in the same way or to the same extent as commerce
across the United States' international borders. The Customs Service simply does not monitor
the movement of products across State borders, while it does effectively monitor our
international borders. More importantly, the current levels of interstate smuggling, and this is a
critical point, exist without having in place a closed distribution system like the one I described
earlier. If anything, the introduction of such a closed distribution system would be expected to
have the collateral benefit of substantially reducing existing interstate diversion of tobacco
products.
The Canadian experience is frequently highlighted by those who predict the emergence of
a large black market. There are several reasons to believe, however, that the Canadian
experience is not an appropriate predictor of what would occur if tobacco legislation such as that
supported by the Administration were to become law.
3
First, the size of the Canadian population, as well as its concentration along the border
with the United States, makes the Canadian example not particularly instructive for the United
States. Because of its smaller population, the total number of cigarettes sold in Canada is only
one-tenth as large as the number sold in the U.S., so small amounts of smuggling have a
noticeable impact on their tobacco market and would have none on ours. That is, it would take
ten times as much smuggling by volume to have an equivalent proportional effect on the U.S.
market for tobacco products. Moreover, smuggling became a problem in Canada because of the
ease of access to alternative markets. Eighty percent of the Canadian population lives within a
two-hour drive of the U.S. border, placing it within easy reach of smugglers transporting
cigarettes from the United States. The U.S. population is more dispersed, making the logistics of
a nationwide black market in smuggled cigarettes more complex and expensive for organized
smugglers. The dispersal of the U.S. popUlation also means that a U.S. resident is less likely than
a Canadian resident to be able to cross the border routinely for casual cigarette smuggling.
Second, and most importantly, Canada did not have in place the type of effective
licensing and enforcement regime that is advocated by the Administration. For example, Canada
did not mark its cigarette packaging with "For Export Only" labels until after the smuggling
problem of 1992-93. Canadian law enforcement had very few personnel devoted to tax evasion.
The vast majority of enforcement with respect to Canadian taxes was done at the provincial level
and there was little or no coordinated enforcement effort at the national or inter-provincial levels.
In addition, Canada does not license the distribution chain with respect to tobacco products, with
the exception of manufacturers. Finally, Canada's laws on tax evasion did not contain strong
penalties and there were inadequate resources to enforce these laws.
We are confident that a proper regulatory enforcement system will minimize the
diversion of tobacco products from legitimate channels and the development of cross-border
smuggling. Indeed, the International Association of Chiefs of Police and the Major Cities Chiefs
of Police believe that with the proper regulatory scheme in place, tobacco smuggling can be
controlled. The International Association of Chiefs of Police have stated that "[p]reventing the
creation of a tobacco black market will be a difficult task, but one that federal, State, and local
law enforcement can achieve if we work closely with one another." As ATF Director Magaw
testified on April 30 before the Senate Judiciary Committee: "The fear of potential unlawful
trafficking in tobacco products should not be a reason for failing to act on these issues because
there are workable solutions .... [O]ur experience in regulating alcoholic beverages shows that
unlawful trafficking can readily be controlled."
As the President has said, "we stand on the verge of one of the greatest public health
achievements in our history -- an historic triumph in our fight to protect America's children from
the deadly threat of tobacco." We look forward to working with Congress on this legislation in a
general and its anti-smuggling provisions in particular.
Thank you, Senator.
-30-
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Introduction of the Series 1996 Currency
The Series 1996 U.S. currency series incorporates new features designed to improve the security of
our currency. The Series 1996 $20 note will be introduced in the fall of 1998. The new $50 note
was introduced in October 1997, and the $100 note was introduced in March 1996. Lower
denominations will follow. There will be no recall or devaluation of U.S. currency already in
circulation; the United States always honors its currency at full face value, no matter how old.
The issuance of the Series 1996 $20 note has special importance because it is the first redesigned
note that is widely used in the United States. It is the most often used of the larger denomination
notes, and is commonly distributed through Automated Teller Machines (ATMs). All users of U.S.
currency should be familiar with the appearance and new security features of the new notes. People
who use U.S. currency are the first line of defense against counterfeiting; cash handlers and
consumers should examine all notes carefully to guard against counterfeits.
The new Federal Reserve $20 notes will be phased into circulation, replacing older notes as they
reach the banking system. This multi-year introduction of the new series is necessary because of the
time-intensive printing process and because a sufficient inventory of new notes must be available
when the new note is issued to ensure its worldwide availability.
In 1996, the Federal Reserve System and the U.S. Treasury Department began a worldwide public
education campaign with two primary objectives: (1) to communicate to the general public that there
will be no recall or devaluation; and (2) to provide information that will enable the pUblic, law
enforcement personnel, central banks, depository financial institutions, and other cash handlers to
authenticate the new series notes.
History of the New Series
Until the late 1920s, U.S. currency was redesigned frequently. There also were several types of notes
in circulation: United States Notes, National Bank Notes, and Silver Certificates. Since the
introduction of the Series 1928 Federal Reserve Notes, changes in the design have not affected the
overall architecture of U.S. currency. This includes the use of microprinting and a security thread in
Series 1990 and later notes.
The counterfeit-deterrent features added in Series 1990 were the first step in responding to advances
in reprographic technologies. Although these features have proved effective and will be retained,
additional measures are necessary to protect U.S. currency against future threats posed by continued
RR-2W
improvements in copy machines, scanners, and printers. The new design, beginning with Series
1996, is the culmination of a five-year study aimed at staying ahead of the counterfeiting threat and
is part of a continuing process to protect U.S. currency. At the same time, the redesign process has
provided an opportunity to incorporate features that will make U.S. currency more readily
identifiable, especially by the low-vision community.
The process began with the New Currency Design Task Force, which comprised representatives of
the U.S. Treasury Department, Federal Reserve System, U.S. Secret Service, and the Bureau of
Engraving and Printing (BEP). The Task Force made its recommendations to the Advanced
Counterfeit Deterrence Steering Committee, also composed of representatives of the Treasury
Department, Federal Reserve, Secret Service and BEP. Based on a comprehensive study by the
National Research Council (NRC) issued in 1993, the Steering Committee then made
recommendations for the new design and security features to the Secretary of the Treasury, who has
statutory authority to approve such changes.
More than 120 security features were examined and tested, including those submitted in response to
a BEP solicitation, those used in other currencies, and those suggested by the NAS. Evaluation
criteria included impact on security, proven reliability, ability to be manufactured in large quantities,
and durability over time. Among the features evaluated were holograms, color shifting films, thread
variations, color patterns, and machine-readable enhancements. The strategy of the Design Task
Force was to incorporate as many features as are justifiable. The security features ultimately
selected have proved successful in other countries as well as in test environments at BEP and the
Federal Reserve, and since their incorporation into U.S. currency have been an effective deterrent to
counterfeiters.
In its second report, the NAS evaluated features to help those with low vision differentiate between
currency denominations. These included variations in size and shape, holes and other tactile features
that the Task Force deemed were not sufficiently durable to be practicable for U.S. currency at this
time. The Task Force agreed that a high-contrast feature, such as a large numeral on a light
background, would be useful to the approximately 3.5 million Americans with low vision, and could
be easily incorporated into the new series design without compromising the improved security of the
new notes or adding cost. In addition, a new machine-readable feature was incorporated on the $20
note for the blind. It will facilitate development of convenient scanning devices that could identify
the note's denomination.
The Design Task Force will continue to seek and test new features to make U.S. currency even more
secure and more readily usable as technology further evolves.
The New Design
The new currency has the same size, color, and feel as the old notes, with the same historical figures
and national symbols. "In God We Trust" and the legal tender wording also remain on the new bills.
This continuity facilitates public education and universal recognition of the design as genuine U.S.
currency--an important consideration since there will be dual circulation of the old and new
currencies around the world.
The $20 bill includes several important security features. These features also appear in the $100 and
the $50, with some variations:
•
A larger, slightly off-center portrait is the most noticeable visual change. The larger portrait
incorporates more detail, making it easier to recognize and more difficult to counterfeit. Moving
the portrait away from the center, the area of highest wear, will reduce wear on the portrait. The
$20 bill features a portrait of President Andrew Jackson.
•
Shifting the portrait off center provides room for a watennark, which is created during the papermaking process and is difficult for counterfeiters to reproduce. The watennark depicts the same
historical figure as the engraved portrait.
•
The background of the portrait incorporates the technique of fine-line printing, as does the
background of the picture on the reverse side. This type of fine-line printing is difficult to
replicate accurately on scanning equipment or by other means of printing.
•
Color shifting ink changes from green to black when viewed from different angles. This feature
is used in the numeral in the lower right-hand comer of the bill front.
•
The use of a unique thread position for each denomination guards against counterfeiting. In the
$20 bill, the thread is to the far left of the portrait and glows green when held under ultraviolet
light; in the $50 bill, it is found to the right of the portrait and glows yellow; in the $100 bill, it is
found to the left of the portrait and glows red. The denomination of the note is also printed on
each thread; for example, "USA TWENTY" and a flag are repeated along the thread in the $20
note. The number "20" appears within the star field of the flag.
•
The numeral in the lower left-hand comer of the $20 and the $100 and the side border design of
the $50 incorporates microprinting, a printing technique using lettering that can be read with a
low-powered magnifier. Extremely small print appears as a thin line to the naked eye and yields
a blurred image when copied. On the new $20 bill, microprinting can also be found on the lower
edge ornamentation of the portrait's oval frame. On the $50, similar microprinting is used in
President Grant's collar, and on the $100 bill it is found on the lapel of Benjamin Franklin's coat.
•
Serial numbers on the new currency differ slightly from old currency. The new serial numbers
consist of two prefix letters, eight numerals, and a one-letter suffix. The first letter of the prefix
designates the series (for example, Series 1996 will be designated by the letter A). The second
letter of the prefix designates the Federal Reserve Bank to which the note was issued. In
addition, a universal Federal Reserve seal replaces individual seals for each Reserve Bank.
Although all denominations of currency will have security features, the number of features will vary
according to denomination. While the $20, $50 and $100 notes have a full package of features,
lower denominations may have fewer and less sophisticated features.
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NEW DESIGNS FOR YOUR MOl\EY
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Technical Background
Security Features
The Department of the Treasury's Bureau of Engraving and Printing (BEP) is responsible for
producing the new series currency, which, like other United States currency, is issued through the
Federal Reserve System. The new features found in the Series 1996 $20, $50 and $100 notes-including enlarged off-center portrait, watermark, fine-line printing patterns and color-shifting ink-were selected after extensive testing and evaluation of approximately 120 bank note security devices,
many of which are used successfully by other countries with lower production and circulation
demands. Other pre-existing security features, such as the security thread and microprinting, are
included in the new notes and have changed only slightly.
In December 1993, the National Research Council (NRC), funded by the Department of the
Treasury, published Counteifeit Deterrent Features for the Next Generation Currenc,V Design. This
report analyzed and recommended overt counterfeit deterrent features that could be incorporated into
a redesign of U.S. banknotes. The developmental costs for the new series were $265,376 to fund the
NRC study, and approximately $500,000 to purchase test quantities of features and carry out internal
BEP analyses.
Evaluation Criteria
Effectiveness
Counterfeit deterrent effectiveness was tested by reprographic
equipment manufacturers and government scientists. They also
considered the ease of public and cash handler recognition.
Durability
Durability was tested rigorously. Tests included crumpling,
folding, laundering, soiling and soaking in a variety of solvents
such as gasoline, acids and laundry products.
Production Costs
Research and production expenses will increase the cost of each
note by about two cents. The Federal Reserve System has
funded the development and introduction of the new currency
through earnings the Federal Reserve receives primarily from
interest on its holdings of U.S. government securities.
Appearance
The currency still has a familiar American look. The size of the
notes, basic colors, historical figures and national symbols are
not changing. New features were evaluated for their
compatibility with the traditional design of U.S. currency.
The New Security Features
Watermark
The watennark is fonned by varying paper density in a small
area during the papennaking process. The image is visible as
darker and lighter areas when held up to the light. Since the
watennark does not copy on color copiers or scanners, it makes
it harder to use lower denomination paper to print counterfeit
notes in higher denominations and is a good way to authenticate
the note. It depicts the same historical figure as the engraved
portrait.
Color-Shifting Inks
These inks, used in the numeral on the lower right comer of the
face of the note, change color when the note is viewed from
different angles. The ink appears green when viewed directly
and changes to black when the note is tilted.
Fine-Line Printing
Patterns
This type of line structure appears nonnal to the human eye but
is difficult for current copying and scanning equipment to
resolve properly. The lines are found behind the portrait on the
front and around the historic building on the back.
Enlarged Off-Center
Portrait
The larger portrait can incorporate more detail, making it easier
to recognize and more difficult to counterfeit. It also provides an
easy way for the public to distinguish the new design from the
old. The portrait is shifted off center to provide room for a
watennark and unique "lanes" for the security thread in each
denomination. The slight relocation also reduces wear on most
of the portrait by removing it from the center, which is
frequently folded. The increased image size can help people
with visual impainnents identify the note.
Low-Vision Feature
The Series 1996 $20 and $50 notes have a large dark numeral on
a light background on the lower right comer of the back. This
numeral, which represents the denomination, helps people with
low vision, senior citizens and others as well because it is easier
to read.
Also, a machine-readable feature has been incorporated for the
blind. It will facilitate development of convenient scanning
devices that could identify the note as a $20.
Pre-Existing Security Features
Security Thread
A security thread is a thin thread or ribbon running through a
bank note substrate. All 1990 series and later notes, except the
$1, include this feature. The note's denomination is printed on
the thread. In addition, the threads of the new $20 and new $50
have graphics in addition to the printed denomination. The
denomination number appears in the star field of the flag printed
on the thread. The thread in the new notes glows when held
under a long-wave ultraviolet light. In the new $20 note it glows
green, in the new $50 note it glows yelIow. and in the new $100
note it glows red. Since it is visible in transmitted light. but not
in reflected light, the thread is difficult to copy with a color
copier which uses reflected light to generate an image. Using a
unique thread position for each denomination guards against
certain counterfeit techniques, such as bleaching ink off a lower
denomination and using the paper to "reprint" the bilI as a higher
value note.
Microprinting
This print appears as a thin line to the naked eye, but the
lettering easily can be read using a low-power magnifier. The
resolution of most current copiers is not sufficient to copy such
fine print. On the newly designed $20 notes, microprinting
appears in the lower left comer numeral and along the lower
edge ornamentation of the oval framing the portrait. On the $50
notes, microprinting appears on the side borders and in Ulysses
Grant's collar. On the $100 notes, microprinting appears in the
lower left comer numeral and on Benjamin Franklin's coat. In
1990, 1993 and 1995 series notes, "The United States of
America" is printed repeatedly in a line outside the portrait
frame.
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NEW DESIGNS FOR YOUR MONEY
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Advanced Copier and Printer Technology
Advanced reprographic technology improved dramatically during the 1990s. The technology is
expected to continue to improve into the next century. Some types of equipment can accurately
reproduce the colors and fine-line detail of security documents and are seen as a threat to currency.
Market surveys indicate that as quality, affordability, and availability increase, advanced equipment
is becoming the standard in offices, copy centers, and printing facilities. The color copier/printer of
the '90s has been compared with the color television of the '70s, when color became the standard,
rather than the exception.
Sophisticated copiers, printers, electronic digital scanners, color workstations, and computer
software, which today can interface with each other, can present threats to currency. This equipment
does not require extensive expertise to operate and is becoming widely accessible through copy
centers, corporate offices, and even home use. For this reason, it is important to incorporate security
features in U.S. currency that will be effective in countering this type of threat.
Advanced Full-Color Copiers
Advanced full-color copiers use a digital electrophotographic process to produce high quality plain
paper copies. Some of these copiers interface with personal computers, allowing the user to scan an
image directly into the computer or print an image from the computer.
Digital Scanners
Scanner equipment electronically scans an image or text from an original document and digitizes it
into a computer-readable form. With the proper software, a user can display and edit an image onscreen, store it electronically, print the image in color or use it to make offset, letterpress or gravure
printing plates.
Color Ink Jet Copiers and Printers
Color inkjet copiers utilize scanner technology to digitize an image. They can produce good quality
reproductions on plain paper, are widely available and inexpensive. The machines then can be used
to scan an image into the computer or to output an image. A typical counterfeit note printed from an
inkjet printer/copier can be detected fairly easily by properly examining the note for security
features.
NEW DESIGNS FOR YOUR MONEY
"USA·US'"
Recent Studies
United States Currency Security Features
Counterfeit Deterrence
Counteifeit Deterrent Features for the Next Generation
Currency Design, December, 1993. National Research Council,
funded by the Department of the Treasury.
To analyze and recommend overt counterfeit deterrent features
that could be incorporated into a redesign of U.S. bank notes.
Starting in with the 1996 series, U.S. paper currency is being
redesigned to incorporate anti-counterfeiting features. Features
recommended included color-shifting ink, a watennark,
microprinting, a security thread and other features that are
difficult to copy.
Advanced Reprographic Systems: Counteifeiting Threat
Assessment and Deterrent Measures, June 1986. National
Academy of Sciences, funded by the Bureau of Engraving and
Printing.
To assess counterfeit threats from specific advanced
reprographic equipment and recommend counterfeit deterrents.
Confinned threat and recommended action. For near tenn,
suggested combination of conventional deterrent devices,
including a security thread.
Features for the Visually
Impaired
Currency FeaTUres for Visually Impaired People, January] 995.
National Research Council, funded by the Bureau of Engraving
and Printing.
To analyze and recommend overt counterfeit deterrence features
that could be incorporated into a redesign of U.S. currency for
use by the visually impaired. Recommended long-range
systematic planning as a regular part of the mission within the
Department of the Treasury.
DEPARTMEI'\JT OF THE TREASURY
WASHINGTON, D.C.
5ECRETARY OF THE TREASURY
May 13, 1998
The Honorable Newt Gingrich
Speaker
u.'S. House of Representatives
Washington, DC 20515
Dear NIT. Speaker:
The Administration supports the goal of financial modernization. However, the Administration
strongly opposes H.R. lOin the fonn it is being presented to the House for a vote. I will
recommend that the President veto the bill if it is passed in this fonn or as modified by the
Manager's amendment. I urge you to vote against the bill.
In its present fonn, H.R. 10 would substantially weaken the national banking system. Because
supervising national banks is the primary means through which the Executive Branch has a role in
fonnulating and implementing financial institutions policy, H.R. 10 would significantly diminish
the role of the Executive Branch in this key area of economic policymaking.
The bill would also weaken the effect of the Community Reinvestment Act, and impose needless
costs on small banks. \Ve have detailed a number of other concerns with the bill that have not
been addressed in the current version of this legislation
None of the amendments made in order by the Rules Committee fully resolve the Administration's
objections to the bill. However, the LaFa1ce-Vento Amendment, if adopted, would significantly
improve the bill.
. An amendment proposed by Mr. Baker contains a provision that would substantially weaken the
Community Reinvestment Act, by exempting banks with assets of less than $100 million. I will
recommend a veto if the bill is passed with such an amendment.
Sincerely,
Robert E. Rubin
RR 2442
O=:PARn,l =:NT OF TH E TREASURY
W.l.SHI,~GTOI'-.j.
D.C.
May 13, 1998
The Honorable Richard A. Gephardt
~Iinority Leader
U.S. House of Representatives
Washington, DC 20515
Dear Dick:
The Administration supports the goal of financial modernization. However, the Administration
strongly opposes H.R 10 in the form it is being presented to the House for a vote. I ~ill
recommend that the President veto the bill if it is passed in this form or as modified by the
~fanager' s amendment. I urge you to vote against the bilL
In its present form, H.R 10 would substantially weaken the national banking system. Because
supef'\ising na~ional banks is the primary means through which the Executive Branch has a role in
iormulating and implementing financial institutions policy, HR 10 would significantly diminish
the role of the Executive Branch in this key area of economic policymaking.
The bill would also wea~en the effect of the Community Reinvestment Act, and impose needless
costs on small ban.l.(s \Ve have detailed a number of other concerns \vith the bill that have not
been addressed in the current version of this legislation.
:\'one of the amendments made in order by the Rules Committee fully resolve the Administration's
objections to the bill However, the LaFalce- Vento Amendment, if adopted, would significantly
improve the bilL
An amendment proposed by ;yrr. Baker contains a provision that \vould substantially weaken the
Community Reinvestment Act, by exempting banks with assets of less than 5100 million. I will
recommend a veto if the bill is passed with such an amendment.
Sincerely,
~--C?u)
Robert E. Rubin
RR-2442
SUBSIDIARIES v. AFFILIATES
Treasury Response to Federal Reserve Paper
About Subsidiaries of Banks
May 12,1998
Table of Contents
Introduction ........................................................... 2
Background ........................................................... 2
Main Points ............................................................ 3
I.
Conducting financial activities in a subsidiary is consistent with safety
and soundness. Opposing arguments ignore the significant protections
in the op-sub proposals. . ........................................... 3
II.
Limiting a bank's ability to fund a subsidiary resolves any concerns
about the bank transferring to the subsidiary any funding advantage it
derives from the federal safety net.................................... 7
III.
Subsidiaries of U.S. banks have for decades -- safely, soundly, and with
Fed approval -- engaged overseas in investment banking and
merchant banking. . ............................................... 8
IV.
Accounting principles do not determine a bank's exposure to a
subsidiary and do not justify limiting the subsidiary's activities. . ........ 10
V.
Allowing banks to conduct financial activities through subsidiaries
would not disrupt the Federal Reserve's role in the financial system.
VI.
11
Other corrections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Conclusion ........................................................... 13
RR-2444
2
Introduction
Much debate has arisen over whether H.R. 10, the financial modernization bilL
should allow companies that include banks to conduct financial activities in both affiliates
and subsidiaries of banks, or only in affiliates.
BANK HOLDING COMPANY
I
BANK
AFFILIATE
SUBSIDIARY
("OP-SUB")
The Treasury would allow a subsidiary or affiliate to conduct any financial
activity. The Banking Committee bill would do the same, except that it would not permit
subsidiaries to engage in merchant banking and most insurance underwriting. As
currently drafted, H.R. 10 -- reflecting the position of the Federal Reserve -- would
prohibit subsidiaries from conducting any financial activity as principal (except those that
could also be done in the bank). The LaFalce-Vento amendment would restore to the
operating subsidiary all financial activities except insurance underwriting.
In a May 4, 1998 letter to Representative Dingell, Chairman Greenspan transmitted
a Federal Reserve paper on the operating subsidiary and other issues. Set forth below is a
response to the portion of the Fed paper concerning the op-sub issue.
Background
Each of the op-sub proposals starts with the premise that companies that include
banks, like other companies, should have the option of conducting their activities in the
corporate structure that makes the most business sense for them (whether through
subsidiaries or affiliates of banks). Choice is appropriate so long as each structure
provides sufficient protections for the bank (and thereby for the deposit insurance funds
and the taxpayers who stand behind them). Existing protections include sections 23A and
23B of the Federal Reserve Act, which prohibit a bank from lending more than 10 percent
3
of its capital to anyone affiliate, prohibit a bank's combined loans to all affiliates from
exceeding 20 percent of the bank's capital, and require that all loans and other
transactions between a bank and its affiliates be fully collateralized and on market terms.
Each of the op-sub proposals would apply these protections to credit extended to
subsidiaries, with one exception. Rather than applying the 10 and 20 percent limits to a
bank's equity (stock) investment in a subsidiary, the op-sub proposals would instead
require that the bank deduct the entire amount of such investments from the bank's
regulatory capital and remain well-capitalized even after the deduction. In other words,
the proposals require that the bank be able to lose its entire stake in the subsidiary and still
remain well capitalized. (Thus, whereas sections 23A and 23B would allow a bank that is
barely well capitalized to invest up to 10 percent of its capital in a subsidiary, the op-sub
proposals would allow no investment.)
It is against this backdrop that objections to subsidiaries must be considered. Set
out below are responses to the major points made in the Fed paper.
Main Points
I.
Conducting financial activities in a subsidiary is consistent with safety and
soundness. Opposing arguments ignore the significant protections in the opsub proposals.
The Fed staff paper warns of dangers to the safety and soundness of the American
banking industry ifbanking organizations are permitted to engage in financial activities
through subsidiaries (pp. 5-6).
Putting the Argument in Context
Until recent weeks, the Federal Reserve has not suggested that its objections to
operating subsidiaries included safety and soundness concerns.
•
Indeed, only a year ago (in response to a question from Representative Bentsen
during a House Banking Committee hearing), Chairman Greenspan stated
unequivocally -- twice -- that the federal subsidy, not safety and soundness, was
his concern with the subsidiary structure:
"Mr. BENTSEN. But your point is ... the inequity of allowing the subsidy
to be transferred is more your concern than the potential risk?"
4
"Mr. GREENSPAN. My concerns are not safety and soundness. It is the
issue of creating subsidies for individual institutions which their
competitors do not have. It is a level playing field issue. Non-bank holding
companies or other institutions do not have access to that subsidy, and it
creates an unlevel playing field. It is not a safety and soundness issue:"
The FDIC, which has a strong interest in protecting the deposit insurance funds,
likewise believes that the subsidiary structure raises no safety and soundness concerns.
•
Chairman Helfer of the FDIC testified last year that:
"From a safety and soundness standpoint, both the holding company model
and the bank subsidiary model are viable approaches to expanding the
powers of banking organizations. The safeguards that are necessary to
protect the insurance funds are similar for either structure. If these
safeguards are in place and enforced, either approach will work to protect
the insured bank and the deposit insurance funds.,,2
•
FDIC Acting Chairnlan Hove reiterated this message in a letter this week:
"With appropriate safeguards, the operating subsidiary and holding company
structures both provide adequate safety-and-soundness protection."3
The Fed paper's safety and soundness argument not only contradicts the
Chairman's earlier statements on this issue, but runs counter to the common
understanding of the relative risks of financial products. As Chairman Greenspan has
explained in another context:
"[T]he pressures unleashed by technology, globalization, and deregulation
have inexorably eroded the traditional institutional differences among
financial firms. Examples abound ... , On the bank side, the economics of
'Transcript (p. 136) from Hearing on Financial Modernization, Committee on Banking and
Financial Services, U.S. House of Representatives, May 22,1997 (emphasis added).
2Testimony of Ricki Helfer, Chairman, Federal Deposit Insurance Corporation, Committee on
Banking and Financial Services, U.S. House of Representatives, May 22,1997.
3Letter from FDIC Acting Chairman Andrew C. Hove, Jr. to the Honorable John 1. LaFalce.
Ranking Member, Committee on Banking and Financial Services, U.S. House of Representatives, May 11,
1998.
5
a typical bank loan syndication do not differ essentially from the economics
of a best-efforts securities underwriting. Indeed, investment banks are
themselves becoming increasingly important in the syndicated loan market.
With regard to derivatives instruments, the expertise required to manage
prudently the writing of over-the-counter derivatives, a business dominated
by banks, is similar to that required for using exchange-traded futures and
options, instruments used extensively by both commercial and investment
banks. The writing of a put option by a bank is economically
indistinguishable from the issuance of an insurance policy. The list could go
on. It is sufficient to say that a strong case can be made that the evolution
offinancial technology alone has changed forever our ability to place
commercial banking, investment banking, insurance underwriting, and
insurance sales into neat separate boxes."4
New financial activities thus do not pose new or greater risks than those that banks
are already managing.
Equivalent Protections for Subsidiaries and Affiliates
Under a fundamental, longstanding and uniform rule of corporate law, a parent
corporation is not liable for the obligations of a separately incorporated subsidiary in
excess of its investment in that subsidiary; in other words, the parent is treated like any
other shareholder in a corporation. This so-called "corporate veil" can be pierced (for
subsidiaries as well as affiliates) only under extraordinary circumstances, such as fraud by
the parent.
Although a parent would not then be liable for the subsidiary's obligations, it
would of course stand to lose its own stake in the subsidiary if the subsidiary failed -- that
is, any investment in, or loans to, or guarantees made on behalf of the subsidiary. As
noted above, however, each of the op-sub proposals expressly limits this exposure.
•
Whether conducting new financial activities through op-subs or affiliates, the bank
would have to be and remain well capitalized and well managed, and would face
sanctions for failing to meet these standards.
4Remarks by Chairman Alan Greenspan at the Annual Convention of the American Bankers
Association, Boston, Massachusetts, October 5, 1997 (emphasis added).
6
•
The amount of any equity investment made by a parent bank in a subsidiary would
have to be deducted from the bank's capital in determining whether it satisfied the
'"well capitalized" standard. Thus, if the subsidiary were to fail, the bank's
regulatory capital would not be affected and the bank's economic loss could not
exceed the amount of its investment.
•
Each of the op-sub proposals would apply the funding restrictions of sections 23A
and 23B (described above) to credit extended to subsidiaries as well as holding
company affiliates. Thus, the bank's ability to provide funding for a new activity
would be subject to absolutely the same strict limits regardless of where the new
financial activities were conducted.
The Fed paper briefly dismisses these protections (p. 10, ~2) by stating that '"in a
world of rapid financial transactions, a subsidiary could lose multiples of its capital intra
day before the OCC is even aware of it, and all that loss would fall on the parent bank's
capital. That means that any loss of the subsidiary -- and especially its failure -- can
cause the capital position of the parent bank to fall dramatically .... " An illustration of
how the above protections would function demonstrates that this is simply not so.
•
Suppose, for example, that a broker-dealer subsidiary of a national bank sustained
catastrophic trading losses during the day and could not meet its obligations. The
funding limitations contained in the op-sub proposals would prohibit the bank
from rescuing the subsidiary if the investment would leave the bank less than well
capitalized~ any loan to the subsidiary would be limited to 10 percent of the bank's
capital and would have to be collateralized and on market terms. Pursuant to SEC
rules, the assets of the broker-dealer would be liquidated that day. The parent bank
would lose its capital investment in the subsidiary but would remain well
capitalized -- because it had already deducted that investment from its capital (as
required by each of the op-sub proposals). If the parent bank also loaned the
maximum of 10 percent of its capital to the subsidiary, it could lose some portion
of that 10 percent (depending on the collateral and the recovery rates in the
liquidation). Other than that, there would be no effect on the bank's capital.
The Fed paper (p. 4) also claims that the restrictions in the LaFalce amendment
(which allows subsidiaries to engage in some new financial activities as principal) are less
strict for subsidiaries than affiliates because the section 23A limitations would not include
equity investments in subsidiaries -- in other words, a bank could invest more than 10
percent of its capital in a subsidiary. This statement ignores two key facts:
7
•
All of the op-sub proposals, including the LaFalce amendment, would require that
such an investment be deducted from the bank's capital for purposes of meeting
regulatory capital requirements. .
•
A bank could, under either current law or H.R. 10, pay dividends to its holding
company for investment in a new activity without being subject to sections 23A
and 23B. Notably, the Banking Committee bill and the LaFalce amendment not
only would require a capital haircut for an investment in a subsidiary, but also
would not allow a bank to make a downstream investment in excess of what it
could legally payout as a dividend. Treasury supports this step.
The Emerald Isle
Searching for examples of how the bank subsidiary structure can cause problems,
the Fed paper cites only "an incident that occurred several years ago in Ireland" (p.6.'1).
A more relevant example would be our own country's long experience with Edge Act
subsidiaries of U.S. banks, which as noted below, have for decades engaged in investment
and merchant banking overseas -- without safety and soundness problems or subsidy
leakage unacceptable to the Fed.
One may find a more relevant foreign experience with subsidiaries in Canada.
whose banks operate under a legal regime similar to our own except in one respect: in
1987, Canada amended its version of the Glass-Steagall Act and allowed securities
activities to be conducted in subsidiaries ofbanks. 5 We are aware of no resulting safety
and soundness problems.
II.
Limiting a bank's ability to fund a subsidiary resolves any concerns about the
bank transferring to the subsidiary any funding advantage it derives from the
federal safety net.
The safety and soundness protections above are also a complete answer to the Fed
paper's argument that allowing bank subsidiaries to conduct financial activities would
cause an unacceptable leakage of the federal subsidy that banks supposedly enjoy. Even
assuming that a subsidy exists. the same allegedly subsidized funds that the bank could
invest in a subsidiary could as readily be paid out as dividends to the holding company in
order to capitalize new affiliates. If there is, as the Fed paper claims, "an enormous
5 Task
1997.
Force on the Future of the Canadian Financial Services Sector, Discussion Paper, June 10,
8
advantage in funding a subsidiary of a bank," there is exactly the same enormous
advantage in funding an affiliate. There is no evidence to show that funds paid upstream
to affiliates would carry any less of a subsidy than the same funds invested downstream. 6
And the bank's ability to provide such funds would be the same for affiliates as for
subsidiaries: it would depend on the bank's capacity to remain well-capitalized after
deducting the capital invested in the subsidiary or channeled to the holding company.
There is reason to question whether a net subsidy of any significance actually
exists.
•
If a measurable subsidy existed, banks would tend to locate activities under the
bank to reap a competitive advantage. Yet where banks are free to choose their
organizational form, no clear pattern emerges.
•
•
For example, banks can locate their mortgage banking operations in the
bank, in bank subsidiaries, or in bank holding company affiliates.
Currently, of the top 20 bank holding companies, six conduct mortgage
banking operations in a holding company affiliate, nine conduct mortgage
banking activities in the bank or in bank subsidiaries, and five conduct
mortgage lending through a combination of the bank and bank holding
company. This pattern suggests either that any net subsidy is minimal. or
that it is the same for both sorts of organizational arrangements.
In addition, if a safety net subsidy were substantial and created a large competitive
advantage, banks -- even more than their subsidiaries -- would tend to dominate
the market in activities that they can conduct within the bank. This has not
occurred, however. For example, in the markets for government securities that
banks can undenvrite and deal in, banks are anything but dominant.
6 T he Federal Reserve has argued elsewhere that dividends paid by banks have largely gone
directly to shareholders as dividends, rather than to capitalize new affiliates. But this provides no evidence
of what would happen ifbank holding.companies were permitted to have broad new activities and
affiliations. If a material safety net subsidy existed and were capable of transmission, holding company
management would have strong incentives to utilize bank resources to capitalize new affiliates that would
benefit shareholders.
9
III.
Subsidiaries of U.S. banks have for decades -- safely, soundly, and with Fed
approval -- engaged overseas in investment banking and merchant banking.
The Federal Reserve's denunciation of subsidiaries is inconsistent with its own
administration of the Edge Act. Pursuant to that Act, the Federal Reserve has permitted
subsidiaries of national banks to engage overseas in investment and merchant banking -the very activities that it now demands be prohibited to domestic, OCC-regulated
subsidiaries. 7
Edge Act subsidiaries can be extremely large -- one Edge Act subsidiary, for
example, has over $73 billion in assets, or approximately 28 percent of the total assets of
the bank and its subsidiaries. If a subsidiary's securities activities did pose a danger to a
parent bank, the Edge Act would represent a grave threat to the banking system -particularly as the Fed generally does not apply the restrictions of sections 23A and 23B
to bank funding of an Edge Act sub (even though in the domestic context the Fed
contends that such application is not only vital but insufficient protection).
The Fed paper (pp. 10-11) argues that when Congress authorized Edge Act
subsidiaries in 1919, it did so to allow U.S. banks to compete against universal banks
abroad. Thus, the Fed paper argues, its support of conducting overseas securities
activities through subsidiaries is not inconsistent with its opposition to conducting the
same activities in domestic subsidiaries. However:
•
No amount of improved foreign competitiveness would justifY a risk to safety and
soundness, and the Federal Reserve has never suggested there was such a tradeoff.
•
With respect to the safety net subsidy that the Federal Reserve believes that banks
receive, the Fed's defense of the Edge Act is a plain acknowledgment that this
subsidy can be outweighed by a need to make our banking system competitive
overseas.
•
If the need for U.S. banks to compete against foreign banks can outweigh the
adverse consequences of an alleged subsidy abroad, the need to compete in global
markets would outweigh the concern over a subsidy no less at home. The U.S.
7Since 1979, the Fed's Reg K has permitted foreign subsidiaries of both U.S. banks and bank
holding companies to underwrite and deal in equity securities outside the United States, subject to certain
restrictions and limitations. Foreign subsidiaries of U.S. banking organizations have been permitted broad
authority to underwrite and deal in debt securities for over 25 years.
10
banking system now competes on a global basis. According to recent Federal
Reserve data, foreign-related institutions account for almost 14 percent of
commercial bank assets in the U.S. Domestic banks compete against foreign
banks in credit markets worldwide, as corporate customers can choose each day to
raise funds in U.S., European, or Asian markets.
11
IV.
Accounting principles do not determine a bank's exposure to a subsidiary and
do not justify limiting the subsidiary's activities.
The Fed paper argues (pp. 5-6) that generally accepted accounting principles
(GAAP) justify a prohibition on conducting as principal those financial activities in
subsidiaries of banks that banks cannot conduct directly. The paper claims that because
GAAP requires consolidation of the bank's and subsidiary's financial statements, national
banks would have strong incentives to prop up troubled subsidiaries. Furthermore, it
claims that losses at a subsidiary, which would be reflected in the banks's consolidated
financial statements prepared under GAAP, could cause depositors and investors to lose
confidence in the bank. There are serious problems with this argument.
•
Accounting does not dictate liability. As described above, a parent is not generally
liable for the obligations of its subsidiaries -- notwithstanding that the assets of the
subsidiary are consolidated with the parent for accounting purposes.
•
The most heavily relied upon, publicly reported GAAP-based financial statements
are those of the holding company, which consolidate the financial statements of
the bank with all of its affiliates as well as subsidiaries. Thus if banks have a
GAAP-induced incentive to prop up subsidiaries, banks have the same incentive to
prop up affiliates, and bank holding company statements that reflect poor
performance of an affiliate could just as easily concern investors and depositors.
•
While it is true that subsidiary losses appear in a bank's GAAP-based financial
statements, the Fed paper neglects to point out that these losses would disappear
from the bank's balance sheet when the subsidiary is liquidated or sold. At that
point, the bank's financial statements will again reflect its actual economic loss,
which would be limited to the bank's investment (for which it has already taken a
capital deduction and remained well-capitalized) and credit exposure within
section 23A limits. 8
Fed asserts (p. 10) that "to the extent the bank's capital depends on accumulated retained
earnings of the subsidiary -- which are treated ambiguously under the [LaFalce] Amendment and mayor
may not be deducted from the bank's regulatory capital under the Amendment -- the capital of the parent
bank would be inflated and allowed to support a wider base of bank assets and would be more susceptible
to sharp regulatory and economic declines should the operating subsidiary incur losses."
8The
This assertion is incorrect. There is nothing ambiguous about the regulatory capital treatment of a
op subsidiary's retained earnings. The LaFalce Amendment and all other op-sub proposals provide not
only that a subsidiary'S "assets and liabilities shall not be consolidated with those of the national bank" but
also that the parent national bank must deduct its'''equity investment" in the subsidiary from its assets and
12
•
The Fed paper asserts that a parent bank will be inclined to rescue its subsidiary.
The op-sub proposals, however, would expressly prohibit the bankfrom doing so if
the new investment would leave the bank less than well capitalized or if any new
loans would exceed section 23A limitations. The potential exposure is thus the
same as with a holding company affiliate, where the bank can channel dividends
through the holding company to capitalize an affiliate.
V.
Allowing banks to conduct financial activities through subsidiaries would not
disrupt the Federal Reserve's role in the financial system.
The Fed paper (p. 7) asserts that "this is not a fight for 'turf by the Federal
Reserve," yet it goes on to oppose the op-sub proposals on the ground that they would
diminish the Fed's regulatory jurisdiction. However the Fed's concerns are phrased, the
Treasury Department has consistently recognized the importance of the Fed's role. While
some on Capitol Hill and elsewhere have proposed to eliminate the Fed's bank holding
company umbrella supervision role, it was the Treasury Department that began this round
of financial modernization with a proposal maintaining the Fed's role. Nothing in the opsub proposals would deprive the Federal Reserve of the jurisdiction it seeks to maintain.
Rather, H.R. 10 as currently drafted would tip the regulatory balance sharply and
unalterably toward the Federal Reserve.
Prospects for Holding Companies
The Fed paper (p. 8) expresses vague concerns that any growth in subsidiaries
would "undermine the holding company structure" and the Fed's ability "to monitor
emerging problems that could threaten our financial structure [and] our ability to manage
crises." These concerns are misplaced.
Any bank of significant size would continue to maintain a Fed-regulated holding
company under the op-sub proposals:
•
Any bank wishing to dissolve its holding company would have to de-register all of
its outstanding shares with the SEC and then re-issue stock through the acc. We
believe that no large bank would undertake such a step, given the shareholder
relations problems it would cause.
tangible equity. The combination of these provisions ensures that the regulatory capital of the parent bank
would never be inflated by the retained earnings of the subsidiary and that the bank would never be subject
to sharp economic or regulatory capital declines due to subsidiary losses.
13
•
Each bill that would allow a bank holding company to engage in nonfinancial
activities has required it to do so through a holding company affiliate. and not in a
bank or its subsidiary. Thus, any bank that wished to use H.R. 10's commercial
basket to engage in a nonfinancial activity would have to maintain a bank holding
company.
•
The Banking Committee bill and the LaFalce amendment would require insurance
underwriting (except credit insurance) to be conducted in a bank affiliate. Thus.
any bank that wished to underwrite insurance would have to maintain a bank
holding company.
Finally, the Fed paper's suggestion that moving a broker-dealer from a holding
company affiliate to a subsidiary would reduce the Federal Reserve's ability to monitor
the risks of the broker-dealer's activities is simply unfounded. The SEC is the functional
regulator of broker-dealers, and would supervise and regulate that activity regardless of
where it is housed within the bank holding company. In either case, the Fed would rely
on SEC reports.
National v. State Charter
The Fed paper (pp. 7-8) argues that the state bank charter is threatened, stating. "It
is widely recognized that the national bank charter is far superior to the state bank charter
for interstate banking and provides national banks with significant ... advantages in
doing business on an interstate basis." This statement is difficult to reconcile with recent
history not mentioned in the paper.
•
Under H.R. 1306, the Riegle-Neal Amendments Act of 1997, a state-chartered
bank may offer a uniform menu of products and services when it branches across
state lines. State-chartered banks operating in other states can engage -- at a
minimum -- in whatever activities a national bank can engage in, so long as the
bank's home state authorizes the activity. In addition, a state-chartered bank can
engage in activities beyond those permissible for a national bank if they are
allowed by the host state and authorized by the home state.
•
The FDIC, the Conference of State Bank Supervisors, and the Fed in late 1996
agreed to provide a single regulatory point of contact at both state and federal
levels for state-chartered banks that branch across state lines. Under the
agreements, home state law will apply in almost every area; state-chartered banks
must comply with host state laws governing intrastate branching and consumer
protection.
14
Finally, the most tangible consideration a bank faces when choosing between a
state and federal charter is its examination fees. Whereas the OCC recoups the
examination costs of national banks through fees, the federal taxpayer subsidizes
the examination of state member banks, as the Fed deducts those costs from money
it would otherwise remit to the Treasury. The Fed has consistently opposed
charging state banks for their examinations in the same way that national banks are
charged. With national and state banks now having comparable advantages in
interstate banking, examination costs may become a more dominant feature in
bank charter choice.
VI.
Other corrections.
Scope of Operating Subsidiary Activities
The Fed paper states, "The only activities that the Amendment would prohibit
operating subsidiaries from conducting are underwriting non-credit related insurance, real
estate investment and development, and merchant banking." The paper argues that the
financial-in-nature standard for subsidiaries would allow them to "conceivably engage in
a variety of commercial activities," including the ownership of television stations.
This assertion is simply incorrect. The Treasury proposal (and the LaFalce
Amendment) WQuid prohibit a subsidiary from conducting non-financial activities, and
the financial-in-nature standard is no broader for subsidiaries than for affiliates. What the
Treasury proposal seeks is parity infinancial activities between subsidiaries and holding
company affiliates. Even if Congress decides to permit bank holding companies to
engage to any extent in non-financial activities -- either through a basket or a unitary
thrift structure -- none of the proposals would extend this authority to subsidiaries.
Oversight
The Fed paper argues (p. 4) that while the Federal Reserve must defer to the SEC,
state insurance authorities and other functional regulators in supervising functionally
regulated holding company affiliates, comparable provisions do not exist in the LaFalce
amendment with respect to OCC's authority over functionally regulated subsidiaries of
national banks. We strongly support, and our proposal provided for, functional regulation
of securities and insurance activities, regardless of whether these activities are housed in
subsidiaries or affiliates of banks.
Conclusion
15
On May 8, 1998, Chairman Greenspan told the Wall Street Journal that the question of
subsidiaries "appears to be a very small issue, but it will determine the financial
regulatory structure of the United States for the next generation." We wholeheartedly
agree.
DEPARTMENT
OF
THE
TRE'ASURY
NEWS
OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 14, 1998
Contacts:
Hamilton Dix, Treasury (202) 622-2960
Bob Moore, Federal Reserve (202) 452-3215
Alyson Grunder, Foreign Press Center (212) 317-8325
RUBIN AND GREENSPAN TO UNVEIL NEW $20 BILL DESIGN ON MAY 20
Treasury Secretary Robert E. Rubin will join Federal Reserve Board Chairman Alan
Greenspan, U.S. Treasurer Mary Ellen Withrow, and Treasury Under Secretary for Domestic
Finance John D. Hawke, Jr., to unveil the new $20 note designed to deter counterfeiting at
11 a.m. EDT on Wednesday, May 20, at the Bureau of Engraving and Printing Auditorium,
14th (east side) and C Streets, S. W., Washington, D.C.
The new $20 note design will also be unveiled at Federal Reserve banks and branches
around the country and in a briefing at the New York Foreign Press Center at 2:30 p.m. EDT
on May 20. The new note, the third of the Series 1996 currency to be redesigned with new
and modified anti-counterfeiting features, will be issued in the fall of 1998.
A satellite feed including portions of the unveiling and B-roll of the new notes in
production will be transmitted via MEDIALINK as follows:
DISTRIBUTION:
FEED TIME:
FEED COORDINATES:
DOWNLINK:
Technical assistance contact:
Wednesday, May 20
2:30p.m. - 3:00p.m. EDT
C-Band Galaxay 3/Transponder 18
4060 MHz, Audio 6.2 and 6.8
(800) 232-0894
Press planning to attend should call (202) 622-2960 by 6 pm, Tuesday, May..l9, with
name and affiliation. Specimen notes will be available at the event for photographs and television
cameras. Cameras may set up for the event beginning at 9 a.m.
-30-
RR-2445
For press releases, speeches, public schedules and official biographies, call our 24.JlOur fax line at (202) 622-2{}-10
PUBLIC DEBT NEWS
Department of the Treasury. Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR
CONTACT:
IMMEDIATE RELEASE
Office of Financing
202-219-3350
May 13, 1998
RESULTS OF TREASURY'S AUCTION OF 10-YEAR NOTES
Interest Rate:
Series:
CUSIP No:
STRIPS Minimum:
Issue Date:
Dated Date:
Maturity Date:
5 5/8t
C-200a
912B274F6
May 15, 1998
May 15, 1998
May 1S, 2008
$320,000
RANGE OF ACCEPTED COMPETITIVE BIDS:
Low
High
Average
Yield
Price
5.638t
5.653t
99.902
99.788
99.841
5.646'1;
Tenders at the high yield were allotted
AMOUNTS TENDERED
AND
ACCEPTED (in thousands)
$
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
TOTAL
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
66t.
$
28,559,000
114,532
$
11,887,500
114,532
28,673,532
12,002,032
2,720,000
2,720,000
50,000
50,000
31,443,532
RR-2446
http://www·pubUcdebLtreu.loV
$
14,772,032
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt· Washington, DC 20239
FOR IMMEDIATE RELEASE
May 14, 1998
Contact: Office of Financing
(202) 219-3350
TREASURY'S INFLATION-INDEXED SECURITIES
JUNE REFERENCE CPI NUMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPI) numbers and daily
index ratios for the month of June for the following Treasurf inflation-indexed securities:
(1) the 3-3/8% 10-year notes due January 15. 2007, (2) the 3-5/8% 5-year notes due July 15,
2002. (3) the 3-5/8% 10-year notes due January 15, 2008, and (4) the 3-5/8% 30-year bonds due
April 15.2028. This information is based on the non-seasonally adjusted
City Average All
Items Consumer Price Index for All Urban Consumers (CPI-U) published by the Bureau of Labor
Statistics of the U.S. Department of Labor.
u.s.
In addition to the publication of the reference cpr s (Ref CPI) and index ratios. this
release pro\·ides the non-seasonally adjusted CPI-U for the prior three-month period.
This information is a\"ailable through the Treasury's Office of Public Affairs automated fax
system by calling 202-622-20-W and requesting document number 2-1--1-8. The information
is also a\"Jilable on the Internet at Public Debt's \\eb site (http://www.publicdebureas.go\").
The infon11ation for July is expected to be released on June 16. 1998.
000
Attachment
PA-350
RR-2448
h up://w,,"w. pu blicdcbt. treas.gov
TREASURY INFLATION·INDEXED SECURITIES
Ref CPI and Index Ratios for
June 1998
Security:
Description:
CUSIP Number:
Datod Date:
Original Issue Date:
Additional Issue Date:
3·3/8% 10·Year Notes
Serlos A·2007
9128272M3
January 15, 1997
February 6,1997
April 15, 1997
3·518% 5·Year Notos
Sorlos J·2002
9128273A8
July 15, 1997
July 15, 1997
October 15, 1997
3·518% 10·Year Notes
Serlos A·2008
9128273T7
January 15, 1998
January 15, 1998
3·518% 30·Year Bonds
Bonds of April 2028
912810FD5
April 15, 1998
April 15, 1998
Maturity Date:
Ref CPI on Dated Dato:
January 15, 2007
158.43548
July 15, 2002
160.15484
January 15, 2008
161.55484
April 15, 2028
161.74000
Date
June
June
June
June
June
June
Juno
June
June
June
June
June
June
June
June
June
June
June
June
June
June
June
June
June
June
June
June
Juno
June
Juno
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
CPI·U (NSA) for:
Ref CPI
Index Ratio
Index Ratio
Index Ratio
Index Ratio
162.20000
162.21000
162.22000
162.23000
162.24000
162.25000
162.26000
162.27000
162.28000
162.29000
162.30000
162.31000
162.32000
162.33000
162.34000
162.35000
162.36000
162.37000
162.38000
162.39000
162.40000
162.41000
162.42000
162.43000
162.44000
162.45000
162.46000
162.47000
162.48000
162.49000
1.02376
1.02382
1.02389
1.02395
1.02401
1.02408
1.02414
1.02420
1.02427
1.02433
1.02439
1.02445
1.02452
1.02458
1.02464
1.02471
1.02477
1.02483
1.02490
1.02496
1.02502
1.02509
1.02515
1.02521
1.02528
1.02534
1.02540
1.02546
1.02553
1.02559
1.01277
1.01283
1.01289
1.01296
1.01302
1.01308
1.01314
1.01321
1.01327
1.01333
1.01339
1.01346
1.01352
1.01358
1.01364
1.01371
1.01377
1.01383
1.01389
1.01396
1.01402
1.01408
1.01414
1.01421
1.01427
1.01433
. 1.01439
1.01446
1.01452
1.01458
1.00399
1.00406
1.00412
1.00418
1.00424
1.00430
1.00436
1.00443
1.00449
1.00455
1.00461
1.00467
1.00474
1.00480
1.00486
1.00492
1.00498
1.00505
1.00511
1.00517
1.00523
1.00529
1.00536
1.00542
1.00548
1.00554
1.00560
1.00566
1.00573
1.00579
1.00284
1.00291
1.00297
1.00303
1.00309
1.00315
1.00322
1.00328
1.00334
1.00340
1.00346
1.00352
1.00359
1.00365
1.00371
1.00377
1.00383
1.00390
1.00396
1.00402
1.00408
1.00414
1.00420
1.00427
1.00433
1.00439
1.00445
1.00451
1.00458
1.00464
,
Fobruary 1998
----------
161.9
March 1998
162.2
April 1998
I
I
162.5
DEPARTl\'IENT
OF
THE
TREASURY
NEWS
OFFIC£ OF FVBLIC AFFAIRS· 1500 PENNS 'r LVANI", AH NU£, N.W. e WASHINCTON. D.C.e 20120. (102) 611-2"0
~GOED
CON'TAc;.-r:
UNTIL 2:30 P.M.
May 15, 1998
Office of Financ~g
202/21'-3350
TRI:ASORY'S S2-\oot:E.K BILL OFFERING
The Treasury ~ill auction approximately $10,000 million of 52-week Treasury
c::ls to ref~~d 515,343 million of p~licly held 52-week bills maturing May 28.
1998. 7his offering will result i~ a paydown for the Treasury of about $5,350
~~l:lO~In addition to the mat~ring 52-week bills, there are $14,149 =illion
c: maturi~g p~licly held 13-week ~,d 26-week bill~.
In acidition to the p~lic holdi~gs, Federal Reserve Banks for their own
ac=o~C. hold 513,463 r~llion o! tbe ~t~ri~g bills.
These acco~ts are eons!cered to hold S5,490 million o! ~he ~aturing 52-week issue, which may be
rc!~~ced a~ the weigtted average disco~~t rate of accepted competitive tenders.
k.o'...:..~ts issue:;' to ':.hese accounts will be in additio:::. to the o:feri:::.g amo~t.
Fede~al
Reserve Ba~~s hold $6,059 nillio~ of tbe ~turi:::.g issues as ~gents
anc ~nterna:ional ~o~eta~y ~uth~=ities. These may be refunded
W~~~~O ~he o!te~ins a=.ounc at the we1shted average discount rate of accepced
c==~e~ltlve te~ce~s_
Ad:;'itional ~o~:s ~y be issued for such acco~'ts if the
~=;~ega:e ~.o~,~ of new bids exceeds t~~ aggregate ~ount of maturing bills.
Fo~ p~rposes ot ceterr.~n~g such accltlonal amo~:s, foreign and ~nterDational
=o~etary a~thor:t~es a~e considered to hold $1,470 ~llion of the ~aturi~g
:cr
S~
fore:~
-\.leek ~c&\,;e.
T.nde~s
!or the bills will be
rece~ved
at Federal Reserve Banke and
This offering
0: Treasury securities is governed by the terms ~,d co:::.ditions set forth in the
t~~~o~ C!!erlng ClTcular (31 erR Par: 356, as amended) for the sale and issue
!:j' the 'Ireas\.!:-y to the public o! r.arketable Treasury bills, notes, and bonds.
~~ar.cbe~
And at the BurG&u of the
~ctAil£
about the new
publl~
£ecur~:y
Debt, Washington, D.C.
are glVQn in the attached offering
!l:'~:.:l!:b:s .
000
A::ach:nent
RR-2450
Fo, ",ess u/~aslS, spncJus, public sc"~J,,'es and offinal biograph;~s, call Dur 24-/.Dur fa lin~
III
(101) 622-2040
HIGHLIGHTS OF TREASURY OFFERING OF 52-~
TO BE ISSUED KAY 28, 1998
B~LLS
Hay 15, 1998
Offering Amount .•••••••.•.. $10,000 million
Description of Offering:
Term and type of security ..
CUSIP number ••••••••••.....
Auction date •..•..•..••..•.
Issue date •..•.....••.•....
Maturity date •.......••....
Original issue date ••••....
Maturing ~unt ......•.....
Minimum bid amount ..•••....
Mul~iples .....•..........•.
364-day bill
912795 ax 8
May 21, 1998
May 28, 1998
May 27, 1999
May 28, 1998
$20,833 million
S10,000
$1,000
of Bids:
bids .••..... Accepted in full up to $1,000,000 at the
average discount rate of accepted
coz:t?etitive bids
Co~petitive bids ....... (1) Must be expressed as a discount rate with
three decimals, in incr~ents of .005\,
8.g., 7.100%, 7.105\.
(2) Net long position for eacb bidder must be
reported when the sum of the total bid
amount. at all discount rates, and the net
long position is Sl billion or greater.
(3) Net lo~g POSition must be deter.mined as of
one hal!-bo~r prior to the closing time for
receip~ of co~petitive t~~ders.
SuI~ssio~
No~co~etitive
~ay::~·~
at a
~ ax
J(£>~oani%ec
S:'~Slf?
:. m:.:.:n ~wac~
ReC:~l?t
Bid
.. .
.. . . .. . ... .
Yle:d
35\
o~
p~::c:
o!!ering
35\ of public:
o~fering
0; lence=s:
NOi.CO:r.pG t 1. t 1. ve
te."'lders
Co~?e::tlv~ ~eDder£ . . . . . . . .
Prior to :2:00 noon Eastern Daylight Saving
time on auction day
Prio= to 1:00 p.m. Eastern Daylight Saving
time on auction day
Payment Te~s ..•..•..••.... Full p~yme~t with tender or by charge to
a funds account at a Federal Reserve Bank
on issue date
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
l\t1EDIA ADVISORY
May 18, 1998
Contact: Beth Weaver
(202) 622-2960
SECRETARY RUBIN AND ATTORNEY GENERAL RENO TO l\1AKE
MAJOR LAW ENFORCEMENT ANNOUNCEMENT
Secretary Robert E. Rubin and Attorney General Janet Reno will make a major law
enforcement announcement today at 3:30 p.m. in the Diplomatic Reception Room, Room 3311,
at the Treasury Department.
Media without Treasury, White House, State, Defense, Justice or Congressional press
credentials must call (202) 622-2960 with the following information: name, date of birth and
social security number, by 2:30 p.m. today to be cleared into the building. This information can
also be faxed to (202) 622-1999.
-30RR-2451
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED FOR DELIVERY
May 18,3:30 PM, EDT
CONTACT:
Beth Weaver, Treasury (202) 622-2960
Michael Gordon, Justice (202) 616-2777
u.s. CUSTOMS SERVICE TAKES DO\VN MAJOR DRUG
TRAFFICKERS. CORRUPT BANKS AND BANKERS IN LARGEST
DRUG MONEY LAUNDERING CASE EVER
Treasury Secretary Robert E. Rubin and Attorney General Janet Reno announced today
the culmination of the largest, most comprehensive drug money-laundering case in the history of
U.S. law enforcement, representing the first time in which Mexican banks and bank officials have
been directly linked to laundering the Cali and Juarez cartels' U.S. drug profits.
The nearly three-year undercover operation, known as Operation Casablanca, was led by
the U.S. Customs Service in cooperation with federal, state and local agencies. The investigation
spans 6 countries and prior to this weekend's arrests resulted in 112 arrests and seizures of $35
million dollars in illegal proceeds from drug money laundering and more than two tons of cocaine
and four tons of marijuana.
"By infiltrating the highest levels of this international drug trafficking financial
infrastructure, Customs was able to crack the elaborate financial schemes the drug trat1ickers
developed to launder the tremendous volumes of cash acquired as proceeds from their deadly
trade," said Secretary Rubin. "Today, we have hurt the drug cartels where it hurts the most -- in
their pocket books."
Indictments were unsealed today in US. District Court in Los Angeles. One indictment
charges 26 Mexican bank officials and three Mexican banks: CONFIA, BANCOMER, and
BANCA SERFfN. Both BANCOMER and BANCA SERFIN have branches in the U.S.
The indictment alleges that otlicials from 12 of Mexico's 19 largest banking institutions
were involved in money-laundering activities. Bank employees were implicated in meetings with
implicated in meetings with undercover law enforcement ot1icials The second and third
indictments cover money launderers from the Juarez and Cali cartels.
Since Saturday, May 16, Customs Service agents and other assisting law enforcement
officers have arrested 14 Mexican banking otlicials as well as 14 members of the Juarez cartel of
Mexico and 2 members of the Cali cartel.
RR-2452
For press releases, speeches, public schedules and official biographies, call our 24.Jzour fax line at (202) 622-2040
"We set out to disrupt the money laundering networks that fuel the international drug
trafficking trade, and we succeeded," said Attorney General Janet Reno. "Operation Casablanca
built a road map that tracked the structure of the international dnlg cartels from the kingpins to
the couriers and the bankers in between."
Operation Casablanca was initiated in November 1995, when the Customs Los Angeles
Office learned that drug cartel members were laundering proceeds of U. S. dnlg sales through
branches of Mexican banks along the border. The investigation expanded to include the financial
infrastructure of the Juarez Cartel, including its money manager Victor Alcala Navarro and a
principal in the Juarez Cartel, Jose Alvarez Tostado.
During the course of this investigation, undercover agents posed as middlemen for cartel
brokers and bankers who agreed to launder their funds. The bankers would establish bogus
accounts and use bank drafts to dodge money laundering regulations.
The investigation found that nearly 100 U.S. bank accounts were used in the money
laundering activities by the drug traffickers and their cornlpt banking partners. No evidence to
date has been found that officials from those U S. banks were aware of the source of the money
that was transferred from Mexican to U.S. banks. At the conclusion of Operation Casablanca,
U. S. customs agents reasonably expect to seize $1 10 million from Mexican investment accounts
and other accounts at U.S. banks used by the traffickers.
These bank accounts can be forfeited under federal law as proceeds and means of
facilitation of the drug trafficking and money laundering and as assets of the criminal enterprise.
The Federal Reserve has provided cnlcial assistance to federal agents and prosecutors
throughout this lengthy investigation Today, the Federal Reserve has initiated enforcement
actions against those foreign banks under the Federal Reserve's supervision involved in this
investigation. These actions will require the banks to ensure that there is no recurrence of money
laundering in their banks.
The case is being prosecuted by the U.S Attorney's Office for the Central District of
California. The efforts of the Drug Enforcement Administration and the U.S. Attorney's offices
in Chicago, New York and Miami have also been integral to the case.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
FOR IMMEDIATE RELEASE
May 18, 1998
UNDER SECRETARY FOR ENFORCEMENT RA YMOND KELLY
I am pleased to be here to share with you the results of Operation Casablanca. I want to
thank the Department ofJustice, the Federal Reserve, the Drug Enforcement Administration, and the
many state and local law enforcement agencies for their invaluable assistance. I also commend the
great work of the men and women of the United States Customs Service in this case.
I particularly want to recognize the leadership of Acting Customs Commissioner Sam Banks,
Customs Assistant Commissioner for Investigations Bonni Tishcler; from the Justice Department,
Deputy Assistant Attorney General Mary Lee Warren, and in Los Angeles, First Assistant US
Attorney Rick Drooyan and his staff
This past Saturday and Sunday, 22 Mexican banking officials from 12 commercial Mexican
banks were arrested in California and Las Vegas on charges of money laundering. The bankers had
been lured there as part of an elaborate US Customs undercover operation that began almost three
years ago.
This case is extremely significant because of the sheer volume of the amounts of money
involved. Second, it has uncovered a systemic scheme to launder money via a large number of
Mexican financial institutions and third, because it exposes a link between the Cali and Juarez cartels
and their relationship with Mexican banks.
Over the past 3 years up until this weekend, this investigation has resulted in the seizure of
35 million dollars from money launderer and two tons of cocaine, four tons of marijuana and the
arrest of 112 individuals.
Today, seizure warrants will be served on more than 100 bank accounts throughout the united
states and in Europe controlled by the cartels. We estimate that this will result in the seizure of an
additional 122 million dollars from those accounts.
Today, approximately 70 more individuals have been or will be arrested for various money
laundering and drug violations. Three Mexican financial institutions, Bancomer. Banco Serfin and
Confi'L were indicted for participating in the drug money laundering scheme. The Federal Reserve
will take enforcement action against these and all other Mexican banks under their supervision
involved in this case.
For press releases, speeches, public schedules and official biographies, call our 24·llOur fax line at (202) 622-2040
The case was made possible because the Cali and Juarez cartels were infiltrated by infonnants
and undercover agents of the us customs service.
The money laundering scheme worked like this:
• Undercover agents picked up drug proceeds on the streets of major US cities and
deposited those funds into undercover bank accounts controlled by the US Customs service.
• The funds were transferred electronically to Mexican banks that employed the arrested
individuals.
• Banks drafts drawn on the us accounts of Mexican banks were delivered back to
undercover agents in the US.
• The funds were then disbursed at the direction of the launderers.
According to the indictment, the Mexican bankers arrested over the weekend knew that this
money was the proceeds of drug trafficking and collected a commission for their services.
Cartel operatives are being taken into custody in Chicago, New York, El Paso and Los
Angeles. Moreover, two Colombian money launderers have been arrested in Aruba. In Mexico,
arrest warrants are being issued for Jose Alvarez Tostado, the financial manager of the Juarez cartel.
In Colombia, warrants are also being issued for two major drug suppliers to the Juarez cartel in
Colombia indicted in this case.
Today, we tapped into the lifeblood of the drug lords and though we did not destroy the
cartels, we left them significantly weaker and much less secure. Thank you.
-30-
RR- 2453
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
May lB, 1998
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
!H-Day Bill
May 2~, 1998
August 20, 1998
9127944Y7
Term:
Issue Date:
Maturity Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
------
Low
High
Average
5.050%
5.080%
5.080%
Investment
Rate 1/
Price
----------
------
96.723
98.716
98.716
5.168\
5.217%
5.217t
Tenders at the high discount rate were allotted
32%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
$
Competitive
Noncompetitive
32,317,041
1,306,088
$
4,360,554
1,306,088
PUBLIC SUBTOTAL
33,623,129
5,666,642
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
3,164,564
3,164,564
150,894
29,106
150,894
29,106
TOTAL
$
36,967,693
1/ Equivalent coupon-issue yield.
RR-2454
http://www.puhllcdehtrreu.gov
$
9,011,206
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
CONTACT:
May 18, 1998
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26 -WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
182-Day Bill
May 21, 1998
November 19, 1998
912795AR2
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
Low
High
Average
------
5.140t
5.160%'
Investment
Rate 1/
Price
---------5.351t
------
97.401
S.373%'
5.160t
97.391
97.391
5.373t
Tenders at the high discount rate were allotted
40%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
$
$
4,366,584
1,153,305
1,153,305
31,252,701
5,519,889
3,745,000
3,745,000
1,740,006
1,740,006
335,494
335,494
TOTAL
1/
30,099,396
Accepted
37,073,201
Equivalent coupon-issue yield.
RR-2455
bttp:llwww.publl~ebt.trea&gov
$
11,340,389
D EPA R T ~I E N T
0 F
THE
T R E .-\ S II R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C•• 20220. (202) 622-2960
FOR IM:MEDIATE RELEASE
May 18, 1998
Contact: Beth Weaver
(202) 622-2960
STATEMENT OF SECRETARY ROBERT E. RUBIN
Good afternoon. It gives me great pleasure to be here today with Attorney General Janet
Reno and Under Secretary Ray Kelly to announce the culmination of the largest and most
comprehensive drug money laundering case in the history of U.S. law enforcement. In
conjunction with other federal. state and local agencies, the U.S. Customs Service has
successfully conduded Operation Casablanca. which for more than three years targeted the
primary financial systems utilized by the Juarez and Cali cartels.
Indictments have been brought against three major Mexican financial institutions. two of
which have branches in the United States. In addition, officials from 9 other major Mexican
financial institutions were directly involved in laundering millions of dolIars in drug money for the
cartels. Customs expects the arrest of close to 200 individuals as part of this operation.
By infiltrating the highest levels of this international drug trafficking financial
infrastructure. Customs was able to crack the elaborate financial schemes the drug traffickers
developed to launder the tremendous volumes of cash acquired as proceeds from their deadly
trade.
As of this morning, Customs has frozen many of the accounts utilized in this country by
these traffickers. Based upon these actions, the traffickers will be unable to recover or transfer
any funds we have identified as proceeds from their illegal activities.
Money laundering is the process that enables drug traffickers to convert illegal and
unusable proceeds into usable funds. It is the lifeblood of organized crime.
But, it is also the "Achilles heel," because it gives us a way to attack the leaders of
criminal organizations. While the drug kingpins and other bosses of organized crime may be able
to separate themselves from street level criminal activity. they cannot separate themselves from
the profits of that activity.
It has long been a priority of this Administration to close off the channels narcotraffickers
use to move their i1l-gotten gains into the economy, to put the traffickers themselves behind bars
and to seize their assets.
RR-2456
For press releases, speeches, public schedules and official biographies, caU OUT 24~OUT fax line at (202) 622-2040
This investigation demonstrates that priority. Today we have hurt the drug cartels where
it hurts the most -- in their pocket books. I want to take a moment to praise the men and women
of the Customs Service and the other law enforcement agencies who undertook the important and
dangerous task of cracking this case. I would also like to thank the Federal Reserve for their
crucial assistance throughout this lengthy investigation.
Thank you and it is my pleasure to introduce the Attorney General of the United States,
Janet Reno.
-30-
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlllNGTON, D.C .• 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
May 18, 1998
Contact: Kelly Crawford
(202) 622-2960
STATEMENT OF THE U.S. TREASURY DEPARTMENT
Following consultations with their shareholders, including the G7, management of both the
Asian Development Bank and the World Bank have postponed board consideration of several loans
for Indonesia previously scheduled for discussion early this week. The United States concurs with
and fully supports this decision.
-30RR-2457
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040
() E P .\ I{ T l\ lEN T
0 F
T ({ E .\ S II I{ \"
NEWS
'IREASURY
..
~
T 1-1 E
-~~-
oma OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.. !OuO. (202) 622-%960
EMBARGOED UNTIL 2:30 P.M. EDT
Text as Prepared for Delivery
May 19, 1998
TREASURY DEPUTY ASSISTANT SECRETARY FOR FEDERAL FINANCE
ROGER L. ANDERSON
SENATE JUDICIARY SUBCOMMITTEE ON
ADMINISTRATIVE OVERSfGHT AND THE COURTS
I appreciate the opportunity to appear before this subcommittee to present the Treasury
Depanrnent's views on improving the U.S. legal regime governing netting and termination of
certain financial contracts in insolvency situations. Improvements in this area can help to
reduce systemic risk in financial markets.
The President's Working Group 011 Financial Markets realized the importance of this
issue and directed the staffs of the variolls agencies involved in the Working Group to develop
a legislative proposal. As a result, staffs of the Treasury Department (including Departmental
Offices and the Office of the Comptroller of the Currency). the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System. the Federal Reserve Bank
of New York, the Securities and Exchange Commission. and the Commodity Futures Trading
Commission began an intensive effort, which lasted ~')Ver two years. to craft a legislative
proposal. The goals were (I) to eliminate uncertainty in the interpretation of certain
provisions of the Jaw, (2) to harmonjz~; where appropriate, provisions under the Bankruptcy
Code and the bank insolvency Jaws. and (3) to update laws to reflect changes in the market.
On March 16, 1998, Secretary Rubin. as Chairman of the Working Group, transmitted
the agencies' legislative proposal to Congr~ss. In his transmittal letter, Secretary Rubin stated:
"The proposed legislation, which amends the banking laws and the Bankruptcy Code, is
important to the achievement of systemic risk reduction in our financial markets. The
Working Group respectful1y urges the COllgrt:ss promptly to consider and pass this important
legislative propoSal this year."
_
For prms rekasa, speechn. public ,c:hedules and official biographies, call OUT 2~ fax line at (202) 622.2fHO
I)
The legal regime in the U.S. in this area has in general provided more reassurance to
market participants than the regimes in many other cOllntries. This is not to say, however, that
important improvements in this highly technical area are not necessary. In fact, general
recognition of the need to improve the legal regime in this area was expressed in the G-7
finance ministers' final report to the G-7 heads of state and government in Denver last
summer.
The finance ministers agreed ~to introduce, where necessary and appropriate, legislative
ensure the enforceability of sound netting agreements in relation to insolvency and
bankruptcy rules to reduce systemic risk in international transactions. The Working Group's
legislative proposal, though initiated before the Denver Summit, is also our fulfillment of this
agreement to introduce necessary legislative improvements in this area.
m~ures to
It
Since its adoption i~ 1978, the Bankmptcy Code has been amended several times in
order to provide that, upon the tiling of a bankruptcy petition, certain financial transactions are
treated differently from the general treatment for commercial contracts and transactions. For
example, in 1982 the Code was amended so that "the exercise of a contractual right of a
stockbroker, financial institution, or securities clearing agency to cause the liquidation of a
securities contract" is not subject to the automatic stay provision of the Code. Absent an
exception, the automatic stay prohihits the exercise of certain creditors' rights until lifted by a
court. A similar provision was also adopted in 1982 for commodity brokers and forward
contract merchants with respect to commodities and forward contracts. In 1984. the
exemption from the automatic stay was extellded to repurchase agreements, which are an
important financing tool in the government securities market. and in 1990. in recognition of
the increasing importance of the over-the-counter derivarives market, to swap agreements.
The benefits of these last two provisions are t:ffectively not limited to certain types of
counterparties.
Creditors who can benefit from these provisions have an obvious advantage over other
types of creditors whose contracts and transactions are subject to the automatic stay. In
general, the automatic stay n01 only serves to protect the debtor's estate until matters can be
sorted out but also serves to protect crt'!ditors from t:ach other. Absent the automatic stay,
creditors would all rush to satisfy their claims against the debtor in a situation where not all
creditors can be repaid in full. Consequently. it is ollr view that exceptions (0 the automatic
stay should not be written into the law exct:pt when there is an overriding public policy
purpose to confer this advantage on certain creditors.
In the case of certain tinancial contracts. tile exception from the automatic stay is
justitied in order to minimize systemic risk to the tinancial markets. These markets are vast.
have numerous interconnections, and move very quickly. If counterparties to an insolvent
entity cannot satisfy the claims arising from financial contracts with that entity, the resulting
general uncertainty, particularly the payment difticlliries. could have a domino effect on other
financial market participants. In such a sill/alion, the freezing of collateral could result in
2
entities that are fundamentally sound having difficulties making payments they owe because
funds they expect to receive are not forthcoming. This disruption could have significant
spillover effects on financial markets generally and, hence, on the economy.
The efficient operation of financial markets is extremely important to this country and
our economy. It is the government's responsibility to make rules affecting these markets
which serve to minimize systemic risk. Therefore, there is an overriding public policy interest
in making limifed exemptions to the normal treatment of creditors in bankruptcy proceedings
in order to protect markets important to the operation of the economy as a whole.
The amendments to the Bankruptcy Code that the Working Group has proposed are
designed to minimize further systemic risk by strengthening the provisions of the Code relating
to termination and close-our netting and related provisions for certain financial agreements and
transactions. Close-out netting results in the monetary obligations stemming from a variety of
financial contracts between a particular creditor and the insolvent entity to be reduced to a
single amount. In crafting these amendments. we attempted to limit the applicability of these
prOVisions to areas where the public policy goal of reducing systemic risk in financial markets
provided the justification for making exceptions to the general bankruptcy treatment. We are
seeking to protect markets, not particular typc:s uf creditors. For example, in the definitions of
the types of instruments to which these provisions might apply, we were careful to exclude
transactions that are in substance commercial luans. We do not want to create a situation
whert~ what is actually a loan receives special trc!atll1~nt just becaLlse the documentation calls
the transaction a swap.
One of the most important changes to the Code that oLlr proposal makes is to clarify
that cross-product close-oU[ netting for c~rtaill tlnancial contracts is permitted.· Thus, under
our proposal, a master netting agreement would a\luw positions in securities contracts,
commOdity contracts, forward contracts. r~pllrchase agreements, and swaps to be netted
against each other. However. because of the concerns outlined above about not creating
exceptions to the automatic stay unless the llVerriding goal of minimizing systemic risk justifies
it, uur proposal preserves the Iilllitmiolls OIl the types of entities that can benefit from the new
provisions, which limitations are contained currently in the provisions relating to securities,
cOI1lJnlWities. and forward contracts.
Also, the proposal is written «l r~[ain the provisions of Subchapters III and IV of
Chapter 7 of the Code relating to the protection of customer property held by a stockbroker or
commodity broker. These Subch;!plt!rs C(lncern th~ .Iiquidation of stockbrokers and commOdity
brokers.
Another important provision of the proposal claritIes that. in the case of a municipality
filing for bankruptcy under Chapter 9 of the Cock. the provisions of the Code relating (0
termination and close-out netting of certain financial contracts are applicable. Whether or not
this is current law became a subject of dispute in the Orange County bankruptcy .
.,
.1
Other provisions of our legislative proposal amend the banking laws. These provisions,
along with the proposed amendments to the Bankruptcy Code, harmonize the definitions of
financial contracts receiving special treatment under the two insolvency regimes. SOlne of the
provisions relating to bank insolvency differ from the Bankruptcy Code regime. Generally,
the differences are designed to protect the federal deposit insurance funds which have exposure
in the case of a depository institution insolvency. For example, under the proposed
amendments, we clarify that the conservator or receiver of a failed insured depository
institution has one business day to transfer qualified financial contracts from the failed
institution to another financial institution. The right of counterparties to terminate, liquidate,
or net qualified financial contracts cannot be exercised during this period.
We believe our legislative proposal will reduce systemic risk in ollr financial markets
and serve to maintain our leadership in the world in providing a legal regime with respect to
termination and close-out netting which will provide an example and encouragement for other
countries to improve their laws in this area. We are gratitied that this subcommittee has
addressed the issue. and we are hopeful that the banking cOlTImittees will consider the portions
of our proposal which fall under their jurisdiction. We have met with both majority and
minority staff of this subcommittee to discliss S. 19 14 and the differences between it and the.
Working Group proposal, and we are very t!J1c()uraged by these disclissions. We look forward
to continuing to work on this important maHer with this subcommittee.
Mr. Chairman, that concludes Illy prepared statement and I will be happy to answer
any questions you and the other l1lemh~rs of the slIhcommittee might have.
·JO·
D EPA R T 1\1 E (\ T
0 F
THE
T REA S (j R Y
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N. w.
EMBARGOED UNTIL 2: 3 0 P.M.
_WASHINGTON,
CONTACT:
May 19, 1998
D.C.- %0210 _ (202) 622.1"0
Office of Financing·
202/219-3350
TREASORY·S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills totaling approximately $13,000 ~llion, to be issued May ~8, 1998. This offering will result iD
a paydown for the Treasury of about $1,150 million, as the maturing publicly
held 13-week and 26-week bills are outstanding in the amount of $14,149 million.
In addition to the maturing 13-week and 26-week bills, there are $15,3'3 million
of maturing publicly beld 52-week bills. The disposition of this latter amount
was announced last week.
In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $13,463 million of the maturing bills. These accounts are
considered eo hold $7,973 million of the maturing 13-week and 26-week issues,
which may be refunded at the weigbted average discount raee of accepted
competitive tenders. Amount6 issued to these accounts will be. in addition to
the offering amount.
Federal Reserve Banks hold $5,261 million of the maturing issues as agents
for foreign and international monetary authorities. Up to $3,000 million of
these securities may be refunded within the offering amount in each of the
auctions of 13-week bills and 26-week bills at the weighted average discount
rate of accepted competitive tenders. Additional amounts may be issued in each
auc~ion tor such accounts to the ex~ent that the amount of new hids exceeds
$3,000 million.
Foreign and international monetary authorities are considered
to hold $3,791 million of the original 13-week and 26-week issues.
Tenders for tbe bills will be received at Federal Reserve Banks and
!ranches and at the Bureau of the Public De~e, Washington, D. C. This o~ferin9
of Treasury securities is governed by the eer.ms and conditions set forth in the
Onifor.m 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-2459
H~GHLXGHTB
or TRKASUKY O.PBRXNQS or
~
~LY
BILLS
81 ISSUBD MAY 28, 1991
llay 19, 199'
Offering Mount . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,750 .Ulion
$7,250 _111ion
p •• eriptiop of Offering'
T.r. .nel t)"lte of ••eur! ty .•. • • • . • • • • . .. • . .. 91-day bill
evln nUlRb.r • • . • • • • • • • • • • • . . • • • • • • • • • . • . • .• 912795 AG G
Auction date ••..•••.•.......•••••..•....... May 26, ~998
%•• u. date •••••••••••.••••••••••••••.••.••• May 28, 1998
M.turity el.t••••••••••••.••••••••••••.•••.• Augu.t 27 I 1998
Origin.l i •• u. date •.•.•.••.•••••••••••••.• February 26. 1998
Currently out. tanding ••••••.• ~ ...•..••••••• $10,8'. million
Minilllum bid _ount .••••••...•.•..........•• $10.000
Multipl •••••.•.........•.••.•••...•.......• $ 1,000
lal-day bill
9In9S AS 0
May 26, 1"8
Nay
38, lna
November 27, 19'8
May 28, 1998
$10,000
$ 1,000
Tb. following rule. apply to all ,.cur1tie. mentioned above I
Subnd •• ion of Bidsl
to $1,000,000 at the average
discount rate of accepted competitive bids.
Competitive bid, .•.......••...•..••..•....• (1)
Must be expressed.8 a discount rate with thr •• deciDal, in
increments of .005\, e.g., 1.100\, 1.105'.
(2)
Net long position for each bidder must b. reported when the
sum of the totel bid ~ount, at all di.count rate., and the
net long position is $1 billion or greater.
(3)
Net long position must be dete~ined a. of one halt-hour
prior to the closing time for receipt of conpetitive tenders.
Noncompetitive bid ••••••••••••••..••••••••• Accepted in full up
Maximum Recognized Bid
at a Singla Yield ..............•........ 35\ of public
off.~ing
Mlzilllua Award •••••••••••.••••••••••••••••.• 35\ of public offedng
Receipt of TenQers:
Noncompetitive tenders . . . . . . . . • . . . . . . . . . . . . Prior to 12,00 noon Bistern Dayllght Saving time on
auclion day
Competitive tenders . . . . • . . . . . . . . . . . . . • . . . . . Prior to 1:00 p.m. Eastern Daylight Saving tim. on
auction day
Payment Term4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pull payment with tender or by charge to • funds account
at a Federal Re8e~ve Bank on issue date
DEPARTIVIENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASIllNGTON, D.C•• 20220. (202) 622-2960
EMBARGOED UNTIL 11 A.M.
May 20,1998
REMARKS BY TREASURY SECRETARY ROBERT E. RUBIN
PREVIEW OF THE NEW $20 BILL
Thank you. I am pleased to be here today to celebrate the unveiling of the new twenty
dollar design and the next phase of our public education campaign.
As you well know by now, the new twenty is the third in a series, following the very
successful introduction of the hundred dollar note in 1996 and the fifty last fall. The introduction
of this particular note, however, is especially vital-- it represents our continued commitment to
doing all.we can to keep our currency secure, but it also may the first time most Americans will
use newly designed notes with any regularity.
The twenty dollar note is the most popular of the higher-denomination notes. It is the
note delivered from Automated Teller Machines into our hands, the note we use every day to pay
for groceries, gasoline, or a restaurant meal. Millions and millions of twenties change hands
every day. And for that same reason, the twenty is the note most often counterfeited in this
country.
It is testimony to the strength of our nation's economy and reputation that our currency
continues to be respected throughout the world as a store of value and a means of exchange. And
while statistics show the new features are effective, we cannot afford to take this progress for
granted. We still face enormous challenges if we are to stay ahead of the technology curve in the
commg years.
Each introduction marks a new stage in the government's assault on would-be
counterfeiters. But it also give us a fresh opportunity to convey an important message to people
who use U.S. currency -- the role that the public must play in keeping our currency secure.
Unless everyone who uses U.S. currency assumes responsibility to examine it, the security
features of which we are so proud cannot stop counterfeiting. The public is the first line of
defense against counterfeiting and we are asking for your help in keeping our currency secure.
RR-2460
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-204-0
2
Let me take a moment to talk about a few of the improved security of these new notes and
how they work. Take note of the larger portrait of Andrew Jackson, with the added detail and
fine line patterns behind. If you tilt the note back and forth, you will see the color-shifting ink
change from green to black, and back again. And by holding the note up to the light you will see
a watennark on the right, and a security thread on the far left with its own tiny lettering and
graphics. These are simple things each and every one of us can and should do.
In this new design you will see strong hints of the old. The new twenty still has a familiar
American look and feel-- the same paper, the same buildings and statesmen represented, even the
same color scheme. It is the same easily recognizable "greenback" known around the world. But
we believe that our citizens and businesses will appreciate the useful features we have
incorporated to keep our currency secure.
Our designers, engravers, and everyone here at BEP and around government -- and others with
whom we have consulted during this arduous process -- fully appreciate that it takes time to get
used to something new, particularly something so familiar to us as our money. In the coming
months, we will provide messages of reassurance, we will train cash-handlers and other members
of the public across the country, and we will do all in our power to ensure a smooth transition to
the new', improved twenty. And even as we once again raise the hurdle even higher for criminals,
we ensure that our currency remains respected and trusted around the globe.
Let me now introduce the Chairman of the Federal Reserve System, Alan Greenspan.
-30-
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PURUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 _ (202) 622-2960
EMBARGOED UNTIL 11 A.M.
May 20, 1998
REMARKS BY U.S. TREASURER MARY ELLEN WITHROW
PREVIEW OF THE NEW $20 BILL
Thank you, Tom. You know I never get tired of talking about money. In the two and a
half years since we first let the public peek at our new series joined by Ben Franklin himself, I
have spoken to countless people around the country and the world about the redesign. Bankers,
small business men and women, Rotary Clubs, and especially schoolchildren are eager for
information about the new series, and about the notes to come, the ones we use every day. I
often remind people that the twenty represents the things we buy all the time, like a tank of gas.
It's not just because my signature is on the money that this job stays exciting. It's also a
chance to participate in a worldwide education campaign that has successfully reached the far
comers of the globe, ensuring a smooth transition and the continued trust of all those who use our
money. And we have an important message for the public-- LOOK AT YOUR MONEY -- take
the time to look for the security features in your currency. We've made it very easy, and it only
takes a moment, and it is important.
This year we redouble our efforts to get practical information into the hands of all those
who need it. And we are ambitious. We'd like to see tent cards in local banks and businesses;
brochures in the hands of tellers, travel agents and shopping mall security chiefs; and posters in
elementary school classrooms to encourage kids to learn more about our monetary system.
Already, the National Association of Meal Programs has pledged to disseminate one million
placemats to its constituents, and we will provide pamphlets and posters to every post office in
the country. And we'll keep looking for partnerships with companies and organizations that can
help us deliver information to hard-to-reach audiences and those who need it most.
Last fall I traveled around the country to spread the word about the new fifty and about
the new feature that is making our currency more readily identifiable to millions of visuallyimpaired Americans. But this new twenty dollar note marks the first time we have included a
new kind of capability -- a machine-readable feature that holds promise for the creation of
affordable and portable devices to "read" the currency's denomination. This is a simple feature
that easily can be carried over into future generations of currency, regardless of design.
RR-2461
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
So as time passes and new notes replace older ones, our currency will more and more be
readily identifiable to those who are blind. We've already begun to reach out to machine
manufacturers and organizations, and are confident such devices will emerge to meet this need. I
am proud to be a part of that effort.
Later on in the program we will discuss the many new and improved features of the new
currency series in more detail. The Series 1996 design, with its beautiful engravings of Andrew
Jackson and the White House and its new security features, is a great accomplishment, and I
think you will be pleased with the results of our work.
Now, I am very pleased to introduce the Secretary of the Treasury, Robert Rubin.
-30-
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
omCE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 _ (202) 622-2960
EMBARGOED UNTIL 11 A.M.
May 20,1998
REMARKS OF JOHN D. HAWKE, JR.
UNDER SECRETARY FOR DOMESTIC FINANCE
UNVEILING OF THE NEW $20 NOTE
One of my most interesting assignments in the three years I've been at Treasury has been to chair
the Advance Counterfeit Deterrence Steering Committee, an interagency group with representatives of
the Bureau of Engraving and Printing, the Secret Service, the Federal Reserve System, and Main
Treasury. Since the new currency series was first conceived, this Committee has been examining our
own progress in combatting counterfeiting, considering the threats posed by emerging technologies, and
examining the possibilities for future changes in our currency design. We get regular reports from the
Fed and the Secret Service on the amount of counterfeit U.S. currency that has been passed and seized
before passage, both here and abroad, and by this means we are able to identify trends that enforcement
authorities need to respond to.
Several months ago the Secret Service called our attention to a significant increase in the
incidence of computer generated counterfeiting. The availability of cheap scanners, color inkjet printers
and publishing-grade software has encouraged some criminals to go high-tech. We have even seen
incidents involving students, who think it is just fun to run off some counterfeit currency. We are taking
steps to get out the message that we take ALL counterfeiting very seriously. The Attorney General and
the Secretary ofthe Treasury have jointly been urging heightened enforcement and stiffer penalties for
computer generated counterfeiting, and we need to keep reminding the public that counterfeiting is a
serious federal crime punishable by fines and prison.
Let me be very clear-- the amount of counterfeiting is still remarkably small. Bogus notes passed
on the public represent less than three-one hundredths of one percent of the currency in circulation. But
as we have introduced the new series of currency, some counterfeiters have sought to take_advantage of
the public's unfamiliarity with the new notes. Very often the attempts to counterfeit the new series are
not of good quality, and our new anti counterfeit protections have stood up extremely well. It is
essential, however, not only that people look at their money - since many counterfeits can be readily
identified through careful examination - but that people know what to look for.
To help educate people - particularly cash handlers and people in retail businesses - we have
prepared a video training film that is available on request. We have also prepared a wonderful
interactive CD-ROM description of the anticounterfeit features of the new currency, which is also
available on request as a training aid. 'I would like to give you a short demonstration of this neat
product.
-30RR-2462
F(W press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
c
ORDERFORM
NEW DESIGNS FOR YOUR MONEY
Educational Materials - The New $20 Note
...
USA.USA
...
Educational materials about the new U.S. currency are available for training, education, and consumer
information purposes in reasonable quantities at no charge. Unless specified, materials are in English. For
individual copies of posters and brochures, please contact your local Federal Reserve Bank.
• Brochures (available in packets of 100)
• Tent Cards
• Posters
• Training CD-ROM - to be shipped separately
• Training video (VHS) - to be shipped separately
• Camera-Ready Package (letter for managers. tri-fold
B&W brochure, newsletter article, paychecklbank
statement insert, poster)
• Kit for Small Businesses (one each of brochure, large
and small posters, tent card)
To order your materials, please fill out all of the information below and mail or fax to:
NEW DESIGNS FOR YOUR MONEY
Federal Reserve Bank of Kansas City - Omaha Branch.
P.O. Box 3958
Omaha, NE 68103-0958
Fax Number: (800) 215-2939
Please send the following (indicate quantities for each language desired):
Packets of 100 brochures, for a total of __ brochures.
__ English
__ Spanish
Chinese
Korean
__Vietnamese
Korean
__ Vietnamese
Folded 17" x 22" full-color posters.
__ English
__ Spanish
FIat 8-1/2" x 11" black & white posters.
__ English
__ Spanish
FIat 8-112" x 11" full-color posters.
__ English
__ Spanish
Tent Card
Chinese
_ _ Camera-ready package
Small business kit
Video
CD-ROM
SHIPPING INFORMATION - Please type or print.
Name ___________________________________________________________________
Company or Organization
Street Address _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
City _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ State _ _ _ _ _ _ _ _ _ _ Zip _ _ _ _ _ __
Phone (-> _ _ _ _ _ _ _ _ _ _ _ _ __
RR-2463
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C•• 20220. (202) 622.2960
FOR IMMEDIATE RELEASE
May 19, 1998
Contact: Hamilton Dix
202-622-2960
TREASUR Y ESTABLISHES DOLLAR COIN ADVISORY COMMITTEE
Treasury Secretary Robert E. Rubin Tuesday announced the members of the Dollar Coin Advisory
Committee established to recommend a design concept for the heads (obverse) side of the new dollar coin.
The nine members ofthe committee are: Chairman, U.S. Mint Director Philip N. Diehl (non-voting
member); The Honorable Michael N. Castle, U.S. Representative from the State of Delaware and Chairman
of the House Subcommittee on Domestic and International Monetary Policy; Constance Berry Newman,
Under Secretary of the Smithsonian Institution; Peggy Cooper Cafritz, Vice Chair, President's Committee on
the Arts and the Humanities; Arthur Houghton, President, The American Numismatic Society; Hilario
Candela, Fellow and President of Spillis, Candela and Partners, Inc., architects, and member of the
President's Committee on the Arts and the Humanities; artist and sculptor Edward Vega; Gail Shaffer,
Executive Director, Business and Professional Women, U.S.A., and Ms. Patricia McGuire, President of
Trinity College.
The United States Dollar Coin Act of 1997 (Public Law 105-124) requires the Treasury Department
to place into circulation a new dollar coin similar in size to the Susan B. Anthony dollar coin, golden in color
with a distinctive edge. The law requires the Treasury Secretary, in consultation with Congress, to select the
designs for both sides of the new coin, although the design on the tails (reverse) is required under the statute
to depict an eagle.
The statute directs the Treasury Secretary to decide on the image to be depicted on the heads
(obverse) side of the coin, and Secretary Rubin has determined that the design should be a representation of
one or more women and cannot depict a living person.
The advisory committee will meet June 8 from II a.m. until 5:15 p.m. EDT and June9 from 8 a.m. to
2 p.m. EDT at the Federal Reserve Building, 10 Independence Mall, Philadelphia. The committee will make
its recommendation to Secretary Rubin at the conclusion of their meeting. The meeting will be open to the
public. However, due to limited space, seating will be on a first-come basis.
Members of the public wishing to schedule an oral presentation for the meeting on June 8 should
submit their request in writing no later than noon EDT, on Monday, June 1 to Michael White, U.S. Mint
by facsimile at (202) 874-4083 or bye-mail through the U.S. Mint's web site at . . vww.usmint.gov or by mail
at 633 third Street, N.W., Washington, D.C. 20220.
RR-2464
For press releases, speeches, public schedules and official biographies, call our 24-huur fax line at (202) 622-2040
The request should identify the name of the individual and/or organization who will make the·
presentation and include an outline of the merits, background and historical significance of the concept that
will be advocated. Presentations will be limited to five minutes each. Presenters will be notified by no later
than June 5, if they have been selected for presentation. An additional thirty minutes will be set aside during
the flrst day of the meeting for unscheduled presentations. Members of the public who have not been
selected in advance for presentation may sign up on the flrst day of the meeting on June 8, between the hours
of 11 a.m. and noon EDT, in the back of the meeting room. Requests for an unscheduled presentation will be
reviewed on a first-come baSis.
Members of the public also are invited to send their design suggestions to Michael White at the above
mailing address, bye-mail or by calling (202) 874-7565 by June 1.
The law requires the new dollar coin to go into circulation once the supply of Susan B. Anthony
dollar coins is depleted, estimated to be after 1999.
-30-
DEPARTMENT
OF
THE
TRE'ASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C .• 20220. (202) 622-2960
TREASURY DEPARTMENT PHOTO POOL ANNOUNCEMENT
May 20,1998
FOR NEWS PLANNING ONLY, NOT FOR DISTRIBUTION
May 20, 1998, 11:30 a.m.
Photo Pool Spray: B-roll of the new $20 bills during printing, packaging and inspection at the
Bureau of Engraving and Printing.
Treasury Department Contact: Hamilton Dix (202) 622-2960
Network TV Pool: CNN
Photo Pool: High resolution 300 dpi jpeg photos available at www.ustreas.govlpresslphotosl
Treasury Secretary Robert E. Rubin will join Federal Reserve Board Chairman
Alan Greenspan to unveil the new $20 note designed to deter counterfeiting at 11 a.m.
EDT on Wednesday, May 20, at the Bureau of Engraving and Printing Auditorium, 14th
(east side) and C Streets, S.W., Washington, D.C., this event is OPEN TO ALL .MEDIA.
THE PHOTO POOL will assemble immediately following the event for B-roll
coverage. To receive a video feed of the B-roll footage, you must bring a deck a video DA
will be available in the Bureau of Engraving and Printing Auditorium at approximately
Noon EST.
A satellite feed including portions of the unveiling and B-roll of the new notes in
production will also be available and will be transmitted via MEDIALINK as fe.J]ows:
DISTRIBUTION:
FEED TIME:
FEED COORDINATES:
DOWNLINK:
Technical assistance contact:
-30-
Wednesday, May 20
2:30 p.m. - 3:00 p,m. EDT
C-Band Galaxy 3/Transponder 18
4060 MHZ, Audio 6,2 and 6.8
(800) 232-0894
PHOTO POOL IS MANDATORY POOL, POOL ONL Y.
RR-2465
Far press releases, speeches, public schedules and official biographies, call our 24.Jtour fax line at (202) 622-2040
DEPARTl\IENT
o.~
THE
TREASURY
TREASURY
NEWS
on'ICE OF PUBLIC AFFAIRS .1500 PENNSYLVANIA AVENUE. Jto;.W.• WASHIS(:1·ON. D.C.. 2U220 .'20211'12%.1'1611
!KBARGOED UNTIL 2: 30 P. M.
May 20, 1998
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $24,000 MILLION
The Treasury will auction $l3,OOO million of 2-year notes and $11,000
million of 5-year notes to refund $3l,032 million of publicly held securities
maturing May 31, 1998, and to pay down about $7,025 million.
In addition to the public holdings, Federal Reserve Banks hold $2,436
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 $3,9l8 million held
by Federal Reserve Bank£
agents for foreign and international monetary
authorities. Amounts bid for these accounts by Federal Reserve Banks will
be added to the offering.
a.
Both the 2-year and 5-year note auctions will be conducted in the singleprice auction format. All competitive and noncompetitive awards will be at
the highest yield of accepted competitive tenders.
The 2-year and 5-year notes being offered today are eligible for the
STRIPS program,
Tenders will be received at Federal Reserve Banks and Branches and at
Che Bureau of the Pub1ic Debt, Washington. D. C.
This offering of Treasury
securities is governed by the te~ and conditions set forth in the Uniform
Offering Circular (3l CFR Part 356, as amended) for the sale and issue by
the Treasury to the public of ~rketable Treasury bills, notes, and bonds.
Details about each of the new securities are given in the attached
offering highlights.
000
Attachment
RR-2466
For press releases, speeches. public schedules and official biogrflpllies, call ollr 24-11 Oil r lax lint! al (202) 621.20010
or TREASURY 0 ...ERXJCG9 TO TUB PUBLXC OF
2-YKAR AND 5-T8AR NOTKS TO BK XSSUBD ~UNB 1, 1'98
IIIOIiLIOMrS
Nay 20,
OCftrioo AIIIouot •••••••••••••••.•••••••• $13,000 .UUon
$11.000 mllUon
D"cr1ptlon of Offerings
T.ra aDd type of •• aurity •.•••.•••••••• 2-7.ar not ••
aari ••.........................•....... A.O-2000
CUIIP D~'1r •••••••••••••••••••••••••••
Auotion dat. ••••••••••••••••••.••••••••
X•• u. ~t. .............................
Dat.d ~t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity dat. •••••••••.••••••••.•••••..•
Xnt.r•• t Ir.t ••••.•••••••••••••••••••.••
~998
912827 40 •
19' 8
Jun. 1, l' 9 8
Hay 31, 1998
May 31. :aOOO
D.t.~iD.d b •• ed OD the highest
.cc.pted competitive bid
Yielel ••..•••••••••.••••.•••.••.•••••.•• Det.rmined at auction
Int.r •• t pafm.nt dete •••••••••••.•••..• November lO and
II
111Dlaua bid . .ount . . . . . . . . . . . . . . . . . . . . . $5,000
Multiple. •••••.••••••.••••••••.•••••••• $1,000
Acorued int.r •• t p.yable
by iDYl' tor •••••••••••••••.•••••••• Det.rmin.d at auction
Premium or di.oount ••.••••••.••••.••.•• D.te~ined at auction
".1' 27,
".Y
STRIPS Jofolrm.tlonl
Mlnimum amount requllr.d •••••.•.•••...•• Determined at auction
Corpu. CUSIP Dumb.r •..•••••....•.....•. 912820 C~ 8
DUI date'.' and CUSIP number Is'
for additional TINTls) •...•............ Not Applicable
5-y.ar ootes
0-2003
912827 4" 2
Hay 28, lU8
June 1, U98
MIIY ll, 1998
May 31. 2003
Deter~ined based on the higbest
accepted competitive bid
Determined at Auction
November 30 and N~y 31
$1,000
$1,000
Determined at auction
Determined at auction
Detennined at auction
9128:10 DA J
?)28U
Hay 31,
200)
RN 2
Tb. following rules apply to all securities mentioned above:
9ub~1 •• ion of Bids:
Noncompetitive bids ......... Accepted iD full up to $5,000,000 at the highest .ccepte~ yield.
Comp.titLve bid ••.•••...••.. (1) Mu.t be expres.ed as • yiald with three deci.al., e.g., 7.123\.
(2) Net long position for eacb bidder must be reported when the sum of the total bid amount,
at all yields, and tbe net long position 1. $2 billion or graater.
(3) Net long position must be date~in.d a. of one half·hour prior to the closIng ti~e for
receipt of competitive tender •.
N'Kimum Recognised Bid
It a Single Yield •..••... 35\ of public offering
Maximum 'ward •.•.•.•.......• 35\ of public offering
Receipt or Tendersl
Nonc~atitive tender • . . . Prior to 12:00 noon Eastern Daylight Saving ~i.e on auction day
Comp.titive tend~rs ...•.. Prior to 1:00 p.~. Ba.terD Daylight Saving time on auction day
Parment Terms .0 •.••••.•••••• Full payment with tender or by charge to a funds account at a Pederal Reserve Bank on issue date
DEPARTMENT OF THE TREASURY
Department of :Justice
FOR IMMEDIATE RELEASE
May 20, 1998
Contact:
Beth Weaver, Treasury (202) 622-2960
Michael Gordon, Justice (202) 616-2777
OPERATION CASABLANCA CONTINUES ITS S\VEEP
Money Laundering Case Extends to Venezuela
The Treasury and Justice Departments today announced additional arrests in Operation
Casablanca, the largest drug money laundering case in U.S. history. The undercover operation
led by the U.S. Customs Service linked some Mexican banks and banking officials with the
laundering of Juarez and Cali cartels' drug profits, and the most recent arrests extend the
operation's reach to Venezuelan banks and banking officials.
A fourth indictment was unsealed late Tuesday in U.S. District Court in Los Angeles
. charging five money laundere,rs. The individuals, Venezuelan nationals. were charged with
laundering $9.5 million in illegal drug proceeds through four Venezuelan banks Banco Del Caribe,
Banco Industriale de Venezuela, International Finance Bank and Banco Consolidado.
Two of the five individuals named in the indictment were employees of the banks used to
launder the drug money. Esperanza de Saad served as the executive vice president for the Banco
Industriale de Venezuela agency branch in Miami, and Marco Tulio Henriquez served as a vice
president at Banco Del Caribe in Caracas
Today, Customs agents in Miami arrested Carmen Salima Yrigoyen. Customs arrested
Esperanza de Saad in Miami yesterday. On Monday, agents arrested Carlos Izurietta Valery in
Los Angeles. and the other two individuals named in the indictment. Roberto Vivas and Marco
Tulio Henriquez. are believed to be in Venezuela
Since Monday. Customs has seized more than $52 million in domestic bank accounts held
by the Mexican banks. Mexican defendants and Colombian defendants and seized $1.3 million in
cash. The United States is also seeking the fOlfeiture of $23 million in foreign accounts in 18
countries. Also, since Saturday, 48 individuals have been arrested bringing the total arrests to
160. Customs expects the arrests to reach nearly 200 as part of this investigation.
As previously announced. the Department of Justice will file civil penalty complaints
against any financial institutions whose employees were indicted.
RR-2467
Both Treasury and Justice have been in contact with their Mexican counterparts to discuss
Operation Casablanca. The Mexican government has committed to working with the United
States to continue to combat money laundering.
Copies of the unsealed indictments for this case may be found at www.usdoj.gov in the
"What's New and Hot" section under "New Additions."
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED FOR RELEASE AT 9:15 P.M. EDT
May 20, 1998
"American Economic Challenges: Building for Tomorrow"
Remarks by Lawrence H. Summers
Deputy Secretary of the Treasury
Committee for Economic Development
Chicago, Illinois
These are remarkable times to be American. In the last 300 years there has not been a protracted
period when the world's largest economy has been as great a multiple of the world's second largest
economy. And there has not been a time in the last several hundred years when a country has been
so powerful as an example around the world, from the English language, to Coca-Cola, to the
Internet, as the United States is today.
Domestically there has not been a time in our recent memory when so many of the things that
should be up were so far up: employment, real wages, national savings and investment, and when so
many of the things that should be down were so far down: inflation, crime, the welfare rolls .... All
this, and the burden of the deficit has at last been lifted.
Commentators have rightly taken note of America's renaissance and considered its lessons. But if
the very different view we take today of Asia teaches us something about the relative strengths of
our different systems, it also, surely teaches us something about the reliability of the past as a guide
to the future. It may be only a little exaggeration to say that in 1998 America has nothing to fear -except lack of fear itself.
We have come a long way -- if you'll pardon the phrase -- on that bridge to the 21st century. But we
have not yet reached the other side and we have not yet built it to last.
If we do not invest and prepare for the future, the miracle of the past decade could falter; if we do
not make sure every American takes part in it, it could prove hollow and short-lived. And if we do
not carve our place in an open and truly global economy -- our new economy will not realize its full
potential. Let me say a little about each of these critical challenges.
I. Preparing for the Future
A central fact confronting everyone who would think seriously about the future of our economy is
the aging of our society. When the first Social Security Act was passed in 1940, the average
American aged 65 could expect to live another 12.5 years. Today, the comparable figure is 17.5
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1
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years. And as the President has said, a good many children born this year will live to see the 22nd
century.
This carries major implications for the structure of our economy -- and thus for future economic
policy. In 1960 the ratio of working age Americans to retirees was 5.1 to 1. Today it is 3.3 to 1. In
a little more than 30 years' time it will be just 2 to 1, and falling.
How we prepare for this change will be important. Individuals must pay greater attention to laying
the foundation for a financially secure retirement. And for the economy as a whole, it must mean
expending much greater effort on improving the productivity of our workforce.
But even more important than how we prepare for aging will be when we prepare for it. We can do
it when the sun is shining. Or when the storm clouds are already overhead. It is obvious which is
better. As the Bible said, there, is a time to reap and a time to sow -- and now is a time to sow..
As the CEO's policy statement on Social Security laid out very clearly -- a major part ofthe answer
will be to increase saving. The good news is that thanks to our victory over the deficit, national
saving has more than doubled: from 3.4 percent in 1992 to 7.3 percent last year.
At the start of the first Clinton Administration the deficit for 1998 was projected to be $357 billion.
Today we expect a surplus. As a result of the deficit reductions we have seen in this decade, more
than one trillion dollars in capital that would otherwise have been invested in the sterile asset of
government paper has instead been invested in America's future: in our productive businesses, in
our workers, in our cities and in our homes.
And yet, we all need to save more. And if history and the efforts of other countries provide any
guide, we can save more. For example, in the 1950s and 1960s our national saving rate averaged
11 percent. Today, of the 26 largest industrialized countries, the United States presently ranks 19th
in terms of national saving rates.
In an era of surplus we have the means and opportunity to address the challenges to come. Invested
wisely, the surpluses could provide a significant down payment on the higher savings the nation
needs to equip tomorrow's workers. For example, the projected surpluses could add up to half a
percentage point per year to the national saving rate over the next few years, when the surpluses will
still not have reached their projected peak.
But the surpluses could do more than simply raise national savings. They could also be used to help
ensure that Social Security is in a position to meet its obligations to tomorrow's retirees.
If the surpluses are dissipated, they will not achieve either critical objective -- and the country will
be that much less prepared for the future and that much less able to continue the tremendous growth
record of the past decade.
That is what why the President has proposed that we put Social Security first in deciding how our
surpluses will be used. We must do it because it is the right way to ensure that the surpluses are not
wasted, but used to prepare for the challenges of tomorrow. And we must do it because it is the right
2
way to strengthen and prepare Social Security to meet its future obligations -- to ensure that it is
there for us, and it is there for our children.
It is too early for predictions or conditions. But the debate we have ahead of us will not be taking
place in a vacuum. These past years there has been an enormous amount of careful study of this
issue, by the CED, by other thoughtful people on both sides of the Congressional aisle and every
part of the academy and broader policy community.
These studies and proposals lead to many issues that will be debated, including:
1.
Should we transfer unified budget surpluses to the Social Security Trust Fund?
2.
Should we invest some of the Social Security Trust Fund's assets in private-sector equities?
3.
And should we, as the CED has suggested, create a system of individual investment
accounts, and fund them either by redirecting some of the payroll tax, by using some of the
budget surpluses, or through some other funding mechanism?
We shall be debating these and other critical issues as we go forward. Let me just make one thing
clear: the debate we will have about the reform of Social Security will not be about whether to
protect its historic achievements. It will be about finding how best to protect them.
Like the CED, like most Americans, we believe it is vital to preserve Social Security as a public
trust and preserve its role in protecting the economic security of retired Americans. By ensuring that
the surplus is reserved until Social Security is safe, we can live up to that commitment. And we can
do so in a way that strengthens the economy and promotes our hard-earned fiscal discipline. We
can. And we must.
II. Making Growth Inclusive
Goethe once said that the time when the light is brightest is when the shadows are darkest. Future
generations will judge us less by the brightness of our times than by our capacity to confront its
shadows: the problems we have not yet solved and the dangers we have not yet averted.
A little more than a quarter of a century ago Michael Harrington famously wrote about the "other
America": the one quarter of Americans that were still living in poverty; the 30 to 40 million people
who were "increasingly slipping out of the very experience and consciousness of the nation". Thanks
to Social Security, a very large element of that other America -- poverty among the elderly -- has been
dramatically reduced. In 1960 at least one half of our retired population struggled to meet their most
basic daily needs. Today, the poverty rate among the elderly is significantly lower than for other age
groups: and for 40 percent of them, Social Security is what keeps them above the line.
And yet, in other respects Harrington's description still rings disturbingly true today. Indeed, the
relative marginalization of the other America is the worse for the rising opportunities others have
enjoyed:
•
some 40 percent of Black Americans now earn middle class incomes -- but every day, 700 black
children are born into poverty and 1000 Black high school graduates do not go on to college.
3
•
opportunities for graduates have never been more plentiful, but a child born in New York today
stands a smaller chance of living to five or learning to read than a child born in Shanghai, and
fully two percent of American men in the prime of their life are in prison.
•
technology and competition are bringing more and better financial services to millions of
Americans, but 10 percent of the population still does not have a bank account and can pay as
much as 10 percent fees to pawn shops to get get their paychecks cashed.
Exclusivity is good for building a successful nightclub. It is no way to build a strong economy. Now
that American companies must work to preserve their new edge in global markets, now that issues of
capacity and full employment has become more important -- unleashing the buried talent and productive
capacity of the Other America is not just a moral necessity but an economic one.
If our success is to continue, and if our economy is to be what it has to be -- then we as a country have
to do more to ensure that all are included. None of us would say we know all the answers. Certainly,
we have learned that just throwing money at these problems doesn't work. And certainly we know that
no government program is a substitute for individual responsibility. But equally we have learned that
these problems do not and will not simply solve themselves without public action. That is why:
•
President Clinton has been the education president, pushing through historic investments in
Head Start programs; expanded public school choice; 220,000 new Pell Grant scholarships;
tax free education lRAs; an Internet connection for every school connecting every school to the
Internet and in sending college students into schools to ensure every 8 year-old can read;
•
we have worked to clear a path from welfare to work, cutting the welfare rolls by a third -- by
more than two million in 1997 alone -- and investing in the child care, training programs and
other forms of support that will be needed to make welfare reform a success;
And it is why, at Treasury, we have worked to democratize the access to capital and bring new
investments to our inner cities. As part of this effort we have revitalized our commitment to the
Community Reinvestment Act: since 1992, the private sector is estimated to have pledged $70 billion
in CRA loans, fully 85% of the loan commitments made since CRA was passed in 1977. And we have
created the Community Development Financial Institutions Fund, which has already made $75 million
in grants, loans, equity investments and technical assistance, money that will be leveraged 3-4 times
in support for our most disadvantaged neighborhoods.
We have achieved a great deal. But we have a great deal more to do. To repeat, there is no single
solution to these problems -- and is certainly no simple one. But when the sun is shining on so many
Americans we owe it to every American to work to bring as many as possible into the light.
III. Strengthening the Global Financial System
I have dwelt on the domestic challenges we face if we are to prepare for the future and ensure every
American benefits from it. But the challenges we face at home are not separable from the challenges
we face abroad. The past decade has shown how well suited we are as a nation and as an economy to
the challenges that a more global world economy presents. But ifthe world beyond our borders has
been a critical part of our current success -- it will be an even more important part of our future.
4
Since President Clinton took office, the number of export-related jobs has increased by 1.7 million.
On average, these pay 15 percent more than the average wage. One third of the growth in GOP we
have enjoyed in this expansion has come through exports.
A large part of the reason for this growth has been the unprecedented growth we have seen in recent
years in the developing world: growth that is unprecedented in human history. We have seen countries
where more than 2 billion people live are growing at rates where standards of living double in less than
a decade, something never seen in the economic history of the United States or any country in Europe.
That profound change, creating for the first time a global economy, doubling standards of living again
and again, in countries where a large fraction of the world's population lives is an event that I would
suggest ranks in economic history with the Renaissance and the Industrial Revolution.
Continuing this growth in the developing world is tremendously important for our economy and our
security. It will involve a great many things. Let me focus here on one very important part of the
growth we have already seen. This is the one quarter of one trillion dollars in global capital that has
flowed to the developing world in recent years, capital that has been a source of growth in emerging
economies as it has been a source of innovation and diversification in the industrialized world.
The recent experience in Asia -- a story that is far from over, of course -- has highlighted the dangers
that financial crises can pose to countries and to the international system as a whole. But the response
to these events cannot be to withdraw ourselves from the global economy or to somehow turn back the
clock on the global financial system. The response must be to work to strengthen the system to increase
its capacity to support growth and lessen its capacity to cause instability.
At the G8 meetings in Birmingham this weekend there was overwhelming agreement on the
importance of having a global capital market as a major contributor to growth around the world, and
on the importance of backing that global capital market with strong support from the IMF, and with
strong policy by countries that receive these capital flows to best ensure that they are used wisely and
will not become a source of instability and contagion down the road.
The long-term reform agenda has four elements. First, greater transparency. If you look at the growth
of the American stock market, no innovation in the last century has been as important as the idea of
generally accepted accounting principles. As part of the effort, IMF members are being urged to sign
up to its new special data dissemination standards -- and work is under way to expand these to offer a
more complete picture of the assets and liabilities of the public and private sector, particularly the off
balance sheet liabilities that have never been reported of certain central banks contributing to the Asian
financial crisis.
Second, we are calling on the IMF to help countries throughout the world prepare for global capital
flows by calling on the IMF both to monitor these flows, particularly short-term flows, and to provide
advice to countries on how best to manage orderly capital account liberalization.
Third, we need to work to strengthen national financial systems by encouraging all countries to adopt
and implement the Basle core principles of effective banking supervision which were an outgrowth of
the last two summits, as well as the development of international codes and guidelines for corporate
5
governance and accounting principles. Perhaps most important, we need to establish a system of
multilateral surveillance of national financial systems, much the same way that we have been surveilling
macroeconomic policy of countries for a long time.
Finally, we will need to find ways to ensure that the private sector takes full responsibility for its own
decisions in order to reduce moral hazard. In particular, that means the encouragement of bankruptcy
laws around the world and called for the IMF to make clear that in appropriate circumstances it would
lend money to countries even though they were in arrears to private creditors.
These and other reforms will be critical to seizing the opportunities and managing the risks of a 21 st
century global economy. And make no mistake: American leadership will be critical to ensuring that
these changes happen, and happen in a way that promotes our interests.
We should not forget that there has been another time in our nation's history when our companies were
enjoying unprecedented success at home and abroad; when our elected leaders vowed to shrink
government; and when, for all of economy's success, workers were fearful for their security and blamed
their insecurity on immigrants and foreign competition. That time was 1927.
There followed a series of catastrophic economic and foreign policy errors that sent the world shuttling
toward what were perhaps the darkest years in human history. History does not repeat itself. Any
historical analogy between the world today and the world of the 1920s is surely imperfect. But that
experience holds critical lessons about the importance of outward-looking international policies at a time
of enormous change in global affairs.
That is why it is so important for us to maintain our support for the IMF, so it is ready to deal not just
with today's crisis, but other crises down the road. Quite simply, to fail to support the IMF at this time
is a bit like canceling your life insurance when you have already gotten sick: it is just not a risk we can
afford to take.
I have spoken today of the many investments America needs to make iftoday's success is to be used
wisely and the sunshine is to continue. Many of these will involve difficult choices and a good few will
be expensive. Investing in the IMF is neither. What it is, is common sense.
6
DEPARTMENT
TREASURY
OF
THE
TRE'ASURY
NEWS
EMBARGOED UNTIL 10:30 AM
May 21, 1998
TREASURY SECRETARY ROBERT E. RUBIN
HOUSE AGRICULTURE COMMITTEE
Mr. Chairman, members of this Committee, let me spend a few minutes to discuss the
critical importance of approving funding for the International Monetary Fund in light of our
attempts to help restore financial stability in Asia, and examine the impact of the crisis on
American businesses, workers and farmers.
Let me make one overarching point to start. We have critical economic and national
security interests in restoring financial stability in Asia. Nearly forty percent of America's
agricultural production is exported -- and forty percent of those exports go to Asia. In general,
thirty percent of U.S. exports go to Asia, supporting millions of u.s. jobs, and we now export
more to Asia than Europe. In states like California, Oregon and Washington, exports to Asia
account for more than half of each state's total exports. Financial instability, economic distress,
and depreciating currencies all have direct effects on the pace of our exports to the region, the
competitiveness of our goods and services in world markets, the growth of our economy and,
ultimately, the well-being of American farmers and workers. Moreover, if the problem were to
spread to developing countries around the globe, the potential impact on our economy could be
severe.
The United States also has critical national security interests in seeing a restoration of
financial stability in the region. We have 100,000 troops based in Asia, 37,000 on the Korean
peninsula alone. A stable and prosperous Asia is more likely to be a peaceful Asia -- as was the
case over the last decade when Asia was experiencing dynamic growth. Economic stagjlity and
political stability, political reform and social stability are separate but closely interrelated, and they
all promote peace and our national security interests
In short, Mr. Chairman, by doing everything sensible to help these Asian countries get
back on track, we support our exports to the region, reduce the risk that financial instability will
spread to other developing countries with potentially severe effects on us, and help protect our
national security interests in the region and around the world
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Mr. Chairman, there are difficult times ahead for the Asian countries in crisis and many
challenges to be met, but a number of the countries affected by the recent crisis have committed
themselves to sustained reform and that has led to signs of progress. Moreover, the contagion risk
that threatened in the early stages of the crisis has so far largely been contained and economic
instability has not spread to other developing countries.
In Korea, newly inaugurated President Kim has acted strongly to implement the IMFsupported economic reform program and has worked effectively to reschedule Korea's debt with
Western banks. Thailand's new government has also acted strongly to implement the IMF reform
program, particularly in beginning to restructure its banking sector. Investors are starting to show
renewed confidence in these countries, though, as I said, there are difficult times and great
challenges ahead for both Korea and Thailand.
Let me say a word now about Indonesia. Although the political situation is changing
rapidly, I do want to make a couple of points. First, it is important to emphasize that it is the
economic crisis and political conditions in Indonesia -- and the Indonesian government's
mishandling of the crisis -- that have led to a loss of confidence in the government by the
Indonesian people and the global financial markets. All of this, in turn, exacerbated the current
economic problems and led to political instability. The IMF reform program was a creative
response to the economic crisis, not a cause. The IMF program did include difficult measures, but
implementing difficult measures is always necessary in restoring financial stability. There are no
easy answers to financial crisis, but there are many examples of the necessary rigors ofIMF-led
reform promoting real progress: Latin America in the 1980's; Russia, though it has many great
challenges ahead, and Poland and other ex-communist nations in the early 1990's; and Mexico in
the mid-1990's. And if a country is not successful in taking tough steps, and getting back on track,
the crisis will very likely be far deeper and far longer and conditions far worse than during the
difficult period of implementing reform. The key in all of these situations is for the government
and the people to internalize and commit to reform on a sustained basis. It is also important to
note that the IMF typically includes specific provisions in the programs to reduce impact on the
poor, and that was so in Indonesia.
Second, when the financial crisis developed in Indonesia late last year, the most immediate
and pressing issue was to restore financial stability. At the same time, the Administration has
always recognized the close links between financial stability, political stability, political reform and
pluralism. But it is also important to note that restoring financial stability in a crisis is essential
both to prevent the most vulnerable from further suffering and to lay the foundation of long-term
economic health necessary for political reform and stability. In the earlier state o.fthe Indonesian
crisis, the IMF and the international community that attaching political reform conditions to the
IMF programs would not have worked; indeed, for very important reasons, the IMF is barred in
its own charter from engaging in political conditionality. Therefore, we pursued political and
human rights objectives through other means. Moreover, significant components of the IMF-Ied
reform program were designed to undo the monopolies and price subsidies that were part and
parcel of the existing system, and this was a step to reform. Clearly, the circumstances have now
2
changed, and in addition to the President's statement last week, the United States joined with the
other nations in the G-8 this past weekend calling for political reform in Indonesia. In the short
term for Indonesia, restraint by the authorities and political dialogue and reform are necessary to
reestablish political and social stability and create a framework within which essential
IMF-supported economic reforms can be implemented to restore financial stability.
All financial crises involve enormous economic, political and social complications and
uncertainties, but those uncertainties must not stop us from acting. Instead, the international
community, through the IMF and otherwise, must make the most practical judgements as to what
is most likely to work with respect to the interrelated objectives of financial stability, economic
well-being, political stability, political reform, and human rights -- and then adapt their programs'
approaches as circumstances warrant. This is a most difficult undertaking: the results take time,
and there is no easy course, but undertaking this effort is critically in our interest.
The financial assistance mobilized by the International Monetary Fund has played a key
role in providing breathing room and developing strong reform programs for these countries.
What is important now is sustained adherence to these strong reform programs, as difficult
economically and politically as that may be. This is the best path back, and the alternative to
reform is far worse. Sound macroeconomic policies, stronger financial systems, structural reform
and more open markets are key to restoring financial stability and to the long term economic
health of these nations.
Let me now say a few words about the impact of the crisis on the US economy. We have
begun to be directly affected by events in Asia. On an annualized basis, exports to the key
countries were down about $23 billion in the first three months of this year, and that is likely to
worsen in the months ahead.
Moreover, the effects are being felt by America's farmers. As I said earlier, nearly forty
percent of America's agricultural production is exported, and forty percent of our agricultural
exports -- about $23 billion -- go to Asia. Many fishermen in Alaska are suffering because
depreciating currencies have caused their fish to be too expensive for Asian markets. For example,
Seattle-based NorQuest Seafoods, Inc, which procures much of its catch from Alaska, reports
that demand for surimi, a fish paste used in artificial crabmeat, has declined by about 30 percent.
Corn farmers in the Midwest, livestock producers in the West, are all feeling the effects. Corn
exports are expected to fall seven million tons, or 11 percent. Cattle and other livestock exports
are expected to drop to $7.5 billion this year from $8.2 billion projected before the crisis and $7.7
billion last year. American farmers have a tremendous stake in a restoration of eGonomic health in
the region, and a tremendous stake in preventing future crises or most effectively dealing with
them and containing them if they occur -- and that gives them a large stake in the future strength
of the IMF.
3
Let me point out that the recent IMF programs in Asia included significant marketopening and structural reform measures that increase the opportunities for US farm exporters.
Additionally, we are taking bilateral actions to help farmers. US bilateral export assistance has
been stepped up via more than $2 billion in additional export credit guarantees. The US ExIm
Bank has also assisted U.S. capital goods exporters with $4 billion in additional short-term trade
insurance available for sales to the countries in crisis.
The IMF has been central to the effort to restore financial stability through reform
programs to address the causes of crisis in each nation. The IMF has the expertise to shape
effective reform programs, the leverage to require a country to accept conditions that no assisting
nation could require on its own, and it internationalizes the burden.
Our contributions to the IMF have not cost the taxpayer one dime in fifty years. When the
IMF draws on our commitments, we receive a liquid, interest bearing offsetting claim on the IMF
of equal value. There are no budget outlays under CBO scoring and no increase in the deficit, or
reduction in resources for other spending priorities.
We are asking Congress to approve funding for our participation in the IMF as quickly as
possible. As a result of the recent situation in Asia, the IMF's normal financial resources are
approaching a historically low level, and the IMF does not have sufficient funds to deal with a
truly major crisis, for instance if the Asian crisis were to worsen and spread to developing
countries elsewhere, or if a new crisis were to develop. It is in our economic interest to have that
vulnerability exist for as little time as possible.
Moreover, failure to support fully the IMF now could shake confidence in American
leadership in the global economy just at a time when confidence and American leadership are so
important in reestablishing stability in Asia and once we act the rest qf the world will act very
quickly. At the last IMF replenishment, in 1992, all of the other countries acted within six days of
action by the U. S. Congress.
Some have suggested that we should not advance new monies to the IMF unless it agrees
to attach certain conditions to all its reform programs. We agree with the importance of many of
these objectives. Let me discuss a few steps we are taking to strengthen the IMF and to prevent
future crises or deal with them when they occur.
First, we are actively promoting a broad range of reforms within the IMF to make it a
more effective institution -- reforms that are directly responsive to suggestions by members of
Congress -- and many of these have been attached to the legislation passed in the Senate and
passed in the House Banking and House Appropriations Committees. Our contribution to the
IMF affords us enormous influence in the IMF, but it does not give us the capacity to control the
institution. Important changes and policy decisions require that we work with the 180 member
countries and build support for our policies. Thus, while we can and do work energetically to
achieve these objectives, some can be accomplished quickly, and others will take time.
4
Second, we have been working to develop mechanisms so that investors and creditors
more fully bear the consequences of bad decisions. In fact, many creditors and investors, have
taken large losses in Asia. However, a byproduct of programs designed to restore stability and
growth may be that some creditors will be protected from the full consequences of their actions.
That is because any action to force investors and creditors involuntarily to take losses, however
appropriate that might seem, could cause banks to pull their money out of the country involved,
and, perhaps from other emerging markets, which, in turn, could cause serious global economic
disruptions.
The United States is leading an international effort to strengthen the architecture of the
international financial system to address this question of moral hazard, and, more generally, to
better prevent financial crises and better manage those that occur. Last month, I hosted a meeting
of finance ministers and central bank governors from 22 countries to focus on this problem.
The United States believes reform of the international financial system should focus on
three areas: First, an increase in transparency and disclosure so that investors have better
information with which to make good decisions. However, investors must then use that
information well. We were struck during the Asia crisis by how little rigorous risk analysis was
done by many creditors and investors. Second, strengthening domestic financial systems, to
reduce the risk of economic and financial crises. Virtually all financial crises in developing
countries either began in or were exacerbated by badly flawed financial sectors. Finally, as I just
discussed, we must work to create mechanisms so that creditors and investors more fully bear the
consequences of their actions.
Mr. Chairman, let me conclude by reiterating how important it is to secure full IMF
funding now, even as we work to improve the IMF and strengthen the international financial
architecture. We live in an interdependent world, where the conditions in one country or a group
of countries can dramatically affect the economic well-being of farmers and workers in this
country. We need the IMF to help deal with financial instability problems when they occur. The
probability of a serious reversal in the Asia situation and contagion to developing countries
around the world, or of a new crisis in the short term, is small. But these occurrences are
possible and the consequences to us could be severe. We cannot afford to take the risk that such
events could start to unfold and the IMF does not have the capacity to try to cope effectively.
Recognizing the importance of moving forward, the Senate approved funding by a vote of86-14.
I urge you to follow suit. The full IMF funding is needed now, to protect the interests of
American farmers, businesses and workers. Thank you very much.
-30-
5
Page 2 of 8
FEDERAL FINANCING BANK
MARCH 1998 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
3/2
3/2
3/2
3/2
3/3
3/3
3/3
3/3
3/4
3/4
3/4
3/4
3/5
3/6
3/6
3/6
3/6
3/9
3/9
3/10
3/10
3/10
3/11
3/11
3/11
3/12
3/12
3/12
3/12
3/13
3/13
3/13
3/13
3/16
3/16
3/16
3/16
3/17
3/17
3/18
3/20
3/20
3/20
$87,900,000.00
$575,000,000.00
$50,000,000.00
$25,000,000.00
$88,600,000.00
$275,000,000.00
$50,000,000.00
$25,000,000.00
$47,600,000.00
$100,000,000.00
$50,000,000.00
$25,000,000.00
$31,840,000.00
$18,500,000.00
$725,000,000.00
$50,000,000.00
$25,000,000.00
$42,000,000.00
$1,075,000,000.00
$39,000,000.00
$865,000,000.00
$50,000,000.00
$86,000,000.00
$725,000,000.00
$50,000,000.00
$69,300,000.00
$575,000,000.00
$50,000,000.00
$25,000,000.00
$59,600,000.00
$500,000,000.00
$50,000,000.00
$25,000,000.00
$46,400,000.00
$350,000,000.00
$50,000,000.00
$25,000,000.00
$41,700,000.00
$150,000,000.00
$24,400,000.00
$29,200,000.00
$600,000,000.00
$50,000,000.00
FINAL
MATURITY
INTEREST
RATE
AGENCY DEBT
U.S. POSTAL SERVICE
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
Postal Service
Postal-Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
Postal Service
S/A is a Semi-annual.
3/3/98
3/3/98
3/3/98
3/3/98
3/4/98
3/4/98
3/4/98
3/4/98
3/5/98
3/5/98
3/5/98
3/5/98
3/6/98
3/9/98
3/9/98
3/9/98
3/9/98
3/10/98
3/10/98
3/11/98
3/11/98
3/11/98
3/12/98
3/12/98
3/12/98
3/13/98
3/13/98
3/13/98
3/13/98
3/16/98
3/16/98
3/16/98
3/16/98
3/17/98
3/17/98
3/17/98
3/17/98
3/18/98
3/18/98
3/19/98
3/23/98
3/23/98
3/23/98
5.509%
5.444%
5.444%
5.444%
5.478%
5.384%
5.384%
5.384%
5.436%
5.353%
5.353%
5.353%
5.425%
5.402%
5.300%
5.300%
5.300%
5.364%
5.277%
5.343%
5.239%
5.239%
5.343%
5.218%
5.218%
5.332%
5.218%
5.218%
5.218%
5.340%
5.207%
5.207%
5.207%
5.374%
5.215%
5.215%
5.215%
5.395%
5.249%
5.416%
5.433%
5.300%
5.300%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
Page 3 of 8
FEDERAL FINANCING BANK
MARCH 1998 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
3/23
3/23
3/24
3/24
3/24
3/25
3/25
3/25
3/26
3/26
3/26
3/27
3/27
3/27
3/30
3/30
3/30
3/31
$950,000,000.00
$50,000,000.00
$5,700,000.00
$725,000,000.00
$25,000,000.00
$60,900,000.00
$575,000,000.00
$25,000,000.00
$17,700,000.00
$425,000,000.00
$50,000,000.00
$59,400,000.00
$325,000,000.00
$50,000,000.00
$175,000,000.00
$100,000,000.00
$25,000,000.00
$82,400,000.00
3/24/98
3/24/98
3/25/98
3/25/98
3/25/98
3/26/98
3/26/98
3/26/98
3/27/98
3/27/98
3/27/98
3/30/98
3/30/98
3/30/98
3/31/98
3/31/98
3/31/98
4/1/98
5.308%
5.308%
5.416%
5.291%
5.291%
5.426%
5.291%
5.291%
5.467%
5.301%
5.301%
5.465%
5.342%
5.342%
5.426%
5.340%
5.340%
5.405%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
3/18
3/18
3/30
3/30
$42,075.12
$3,906,768.65
$5,130.00
$1,133,282.20
4/1/99
4/1/99
7/31/25
1/2/25
5.491%
5.491%
6.061%
6.059%
S/A
S/A
S/A
S/A
3/18
$7,924,552.85
11/2/26
5.985% S/A
FINAL
MATURITY
INTEREST
RATE
AGENCY DEBT
U.S. POSTAL SERVICE
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
u.S.
U.S.
u.S.
u.S.
U.S.
U.S.
U.S.
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Chamblee Office Building
Chamblee Office Building
Foley Square Office Bldg.
Memphis IRS Service Cent.
GSA/PADC
rCTC Building
S/A is a Semi-annual rate.
Page 4 of 8
FEDERAL FINANCING BANK
MARCH 1998 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
$328,000.00
$6,500,000.00
$5,802,000.00
$609,000.00
$1,132,000.00
$3,507,468.78
$5,011,295.04
$928,688.92
$2,841,718.53
$4,115,372.93
$2,605,245.52
$3,964,522.98
$606,321.35
$34,696.43
$60,481.53
$410,460.94
$18,473.61
$5,489,026.04
$4,907,419.35
$1,761,317.51
$5,522,561.45
$3,678,013.90
$2,883,310.60
$4,213,202.71
$2,571,413.49
$2,804,299.98
$4,052,733.69
$5,888,350.46
$3,890,225.28
$4,324,667.48
$3,333,163.92
$41,025,960.77
$3,915,582.49
$3,658,597.36
$1,320,655.66
$1,624,994.65
$400,446.22
$923,653.63
$1,206,005.46
$803,123.77
$461,752.96
$442,030.77
6/30/28
12/31/29
12/31/12
12/31/31
1/2/18
9/30/98
9/30/98
6/30/98
6/30/98
6/30/98
9/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
3/31/08
6/30/98
3/31/08
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
4/1/13
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
RURAL UTILITIES SERVICE
Shelby County Elec. #465
Central Iowa Power #442
Horry Tele. Coop. #419
Coastal Elec. #460
Marshalls Energy Co. #458
*Allegheny Electric #255
*Allegheny Electric #255
*Allegheny Electric #908
*Allegheny Electric #908
*Allegheny Electric #908
*Allegheny Electric #908
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Arkansas Elec. #920
*Basin Electric #425
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electr ic #917
*Brazos Electric #917
*Brazos Electr ic #917
3/4
3/23
3/25
3/27
3/27
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
Qtr. is a Quarterly rate.
extension or interest rate reset
* maturity
6.127%
5.942%
5.706%
6.026%
6.344%
5.385%
5.385%
5.176%
5.176%
5.176%
5.384%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.301%
5.685%
5.176%
5.685%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.786%
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.
Qtr.
Page 5 of 8
FEDERAL FINANCING BANK
MARCH 1998 ACTIVITY
DATE
BORROWER
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
RURAL UTILITIES SERVICE
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
+Brazos
+Brazos
+Brazos
+Brazos
+Brazos
+Brazos
+Brazos
+Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
+Brazos
+Brazos
+Brazos
+Brazos
+Brazos
+Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
*Brazos
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
Electric
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
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
$863,284.65
$274,322.36
$1,031,268.66
$2,030,045.44
$332,551. 98
$98,579.26
$241,353.13
$410,418.90
$240,539.93
$172,340.14
$150,142.39
$82,258.87
$124,300.79
$40,007.46
$1,311,880.39
$163,986.37
$565,782.50
$2,942,641. 86
$968,266.09
$115,788.13
$264,206.54
$990,260.27
$2,966,236.97
$1,776,398.90
$1,064,595.23
$642,776.67
$58,269.79
$722,628.14
$891,773.43
$2,424,731.91
$484,685.54
$4,934,693.94
$1,134,021.83
$2,272,554.69
$22,818,920.34
$666,611.36
$456,056.84
$2,093,130.97
$1,223,605.70
$1,589,865.16
$2,613,818.90
Qtr. is a Quarterly rate.
* maturity extension or interest rate reset
+ 306C refinancing
6/30/98
4/1/13
6/30/98
4/1/13
6/30/98
4/1/13
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/04
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
4/1/13
4/1/13
4/1/13
4/1/13
4/1/13
4/1/13
4/1/13
4/1/13
3/31/08
4/1/13
6/30/98
4/1/13
6/30/98
6/30/98
6/30/98
5.176%
5.794%
5.176%
5.794%
5.176%
5.794%
5.176%
5.213%
5.213%
5.213%
5.213%
5.213%
5.213%
5.213%
5.213%
5.176%
5.176%
5.654%
5.176%
5.176%
5.213%
5.213%
5.213%
5.213%
5.213%
5.213%
5.816%
5.816%
5.816%
5.816%
5.816%
5.816%
5.816%
5.816%
5.684%
5.806%
5.176%
5.806%
5.176%
5.176%
5.176%
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 6 of 8
FEDERAL FINANCING BANK
MARCH 1998 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
$2,797,806.54
$550,790.85
$17,821.82
$1,824,177.98
$939,665.16
$2,529,798.54
$803,719.21
$3,078,471.79
$2,409,613.12
$4,500,000.00
$4,500,000.00
$4,463,000.00
$3,041,000.00
$4,367,000.00
$4,441,518.09
$8,317,142.76
$1,127,752.20
$1,663,888.73
$3,339,209.05
$2,154,789.63
$507,087.75
$766,045.52
$2,263,929.38
$5,091,095.29
$90,651. 87
$5,137,052.28
$21,143,922.36
$1,395,383.70
$3,031,531.06
$132,639.67
$581,919.69
$878,169.69
$468,281.25
$3,771,000.00
$6,974,777.98
$14,430,130.60
$786,462.57
$49,694,592.22
$5,616,180.74
$9,469,910.11
$6,829,656.05
6/30/98
6/30/98
6/30/98
4/1/13
6/30/98
4/1/13
4/1/13
6/30/98
6/30/98
4/1/13
4/1/13
3/31/08
4/1/13
6/30/98
1/3/28
6/30/98
6/30/98
6/30/98
1/2/18
1/2/18
12/31/18
12/31/18
12/31/18
12/31/19
12/31/19
3/31/99
6/30/98
6/30/98
1/2/29
1/2/29
3/31/99
3/31/99
12/31/25
9/30/98
3/31/99
1/2/18
1/2/18
12/31/19
6/30/98
6/30/98
6/30/98
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
RURAL UTILITIES SERVICE
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #917
*Brazos Electric #437
*Brazos Electric #437
*Brazos Electric #437
*Brazos Electric #437
*Brazos Electric #437
*Citizens utilities #387
*Coop. Power Assoc. #070
*Coop. Power As soc. # 156
*Coop. Power Assoc. #156
@Dairyland Power #161
@Dairyland Power #161
@Dairyland Power #161
@Dairyland Power #161
@Dairyland Power #161
@Dairyland Power #161
@Dairyland Power #173
*Farmers Telephone #399
*Hoosier Energy Elec. #901
*Hoosier Energy Elec. #901
*Johnson County Elec. #428
*Johnson County Elec. #428
*Kansas Elec. Power #904
*Kansas Elec. Power #904
*Meade County Elec. #356
*N. Pittsburgh Tele. #449
*Northwest Iowa Power #907
*Oglethorpe Power #445
*Oglethorpe Power #445
*Oglethorpe Power #445
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
Qtr. is a Quarterly rate.
interest rate buydown
* maturity extension or interest rate reset
@
5.176%
5.176%
5.176%
5.806%
5.176%
5.806%
5.806%
5.176%
5.301%
5.953%
5.953%
5.806%
5.953%
5.301%
6.052%
5.301%
5.301%
5.301%
5.969%
5.969%
5.988%
5.988%
5.988%
6.005%
6.005%
5.531%
5.176%
5.176%
6.056%
6.056%
5.530%
5.530%
6.049%
5.385%
5.406%
5.845%
5.845%
5.881%
5.176%
5.176%
5.176%
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 7 of 8
FEDERAL FINANCING BANK
MARCH 1998 ACTIVITY
DATE
BORROWER
AMOUNT
OF ADVANCE
MATURITY
$6,948,821.23
$5,556,865.12
$2,894,734.13
$862,323.48
$1,568,102.61
$557,789.83
$9,441,430.37
$9,913,612.32
$405,862.08
$866,117.26
$10,393,406.22
$2,210,639.04
$3,360,466.23
$2,831,594.42
$3,361,497.11
$3,578,658.56
$3,966,538.73
$1,112,285.64
$846,517.34
$1,004,339.56
$122,659.26
$518,614.28
$1,062,151. 87
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
1/2/18
6/30/98
6/30/98
12/31/19
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
6/30/98
12/31/19
12/31/19
6/30/98
6/30/98
FINAL
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
RURAL UTILITIES SERVICE
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*Plains Elec. #918
*San Miguel Electric
*San Miguel Electric
*Sho-Me Power #913
*United Power Assoc.
*United Power Assoc.
+United Power Assoc.
*United Power Assoc.
*United Power Assoc.
*United Power Assoc.
*United Power Assoc.
*Uni ted Power Assoc.
*Uni ted Power Assoc.
*United Power Assoc.
tUn! ted Power Assoc.
+Uni ted Power Assoc.
*Uni ted Power Assoc.
*United Power Assoc.
#919
#919
#911
#911
#911
#911
#911
#911
#911
#911
#911
#911
#911
#911
#911
#911
Qtr. is a Quarterly rate.
* maturity
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
3/31
extension or interest rate reset
+ 306C refinancing
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.814%
5.176%
5.176%
5.846%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.176%
5.846%
5.846%
5.176%
5.176%
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 8 of 8
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Export-Import Bank
Resolution Trust Corporation
U.S. Postal Service
sub-total*
March 31, 1998
$
541.9
570.7
1,082.4
2,194.9
February 28, 1998
$
549.3
738.8
1,982.6
3,270.7
Net Change
3/1/98-3/31/98
-7.5
-168.1
-900,2
-1,075.8
$
FY '98 Net Change
10/1/97-3/31/98
$
-752.7
-804.3
-8e1.1
-2,438.1
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
12,380.0
4.4
13.0
4,598.9
0,0
20,671.3
3,675.0
13,030.0
4.4
13.0
4,598.9
0.0
21,32l.3
0.0
-650.0
0.0
0.0
0.0
0,0
-650.0
-1,150.0
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*
2,938.0
1.2
34.1
1,49l.4
2,454.6
17.8
1,224.9
14,202.7
252.6
3.9
22,621.2
2,955.7
l.2
34.2
1,49l.4
2,448.8
17.8
1,224.9
14,315.0
255.7
-17.7
0.0
-0.1
0.0
5.7
0.0
0.0
-112.3
-3.1
0,0
-127.5
-110.2
0.6
-l. 9
-70.0
34.9
-0.9
-83.1
-616.1
-22.3
-0,1
-869.2
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
~·2
22,748.7
0.0
-1,150.0
0.0
0.0
0.0
O.Q
=========
=========
==========
=========
$ 45,487.4
$ 47,340.7
$ -1,853.3
$ -4,457.3
DEPARTMENT
OF
TREASURY
THE
TREASURY
NEWS
.:~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
......................................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 9:00PM EDT
Remarks as Prepared for Delivery
May 21,1998
SECRET ARY ROBERT E. RUBIN
FLEET WEEK GALA
It is a pleasure to be here this evening with the men and women of our nation's armed
forces, the Joint Chiefs of Staff and so many other distinguished guests. I am honored to accept
this award from a group that is dedicated to preserving this famed aircraft carrier, which served
our country so well for so long and is a proud symbol of our commitment to freedom. I am
especially honored to be the first Treasury Secretary to receive this award. By honoring me, you
honor President Clinton's entire national security and economic policy team, as well as the career
men and women in the White House, the Treasury Department and throughout the government
with whom I've had the privilege of working the past five years. Most importantly, you honor
President Clinton, who, has brought to the new foreign policy challenges of today a deep
understanding that the end of the Cold War does not diminish the importance of U.S. leadership
for our national security and that the rise of the global economy means that the economic wellbeing of the United States depends on strong U.S. engagement on the international stage.
My presence here symbolizes how the nation's economic and national security interests
are intertwined, a reflection of the rapid evolution of the global economy and global financial
markets and the increased interdependence of the world. As Secretary Cohen said recently,
"Security policy, very basically, cannot be separated from economic policy." For example, while
the United States has key economic interests in Asia, we also have major strategic and security
interests in the region and they are inter-related. On the Korean peninsula alone, we have thirtyseven thousand troops who have spent 45 years keeping the peace. History has shown that
economic distress and financial instability can threaten political stability and security, so when
we worked to restore financial stability in the region over the last several months, we were
working to protect American economic and national security interests.
The emergence of the global economy and global financial markets have greatly increased
this inter-relationship between our economic and national security interests and have created
critical challenges to the United States that can only be met by spreading the benefits of the
global economy and bolstering supp0l1 for forward looking international policies.
Behind the growing connection between economic and national security interests is the
RR-2471
For press releases, speeches, public schedules and official biographies, call our 24.izour fax line at (202) 622-2040
rapid development of the global economy. Over the last twenty five years, vastly increased
international flows of trade, capital, and information along with the development of new
technologies, have all contributed to increased integration amongst the world's economies. Here
in the United States, the percentage of our economy that accounts for trade has doubled in the last
twenty-five years to 30 percent.
Perhaps the changes have been the greatest in developing countries. In 1996, about $250
billion in net private capital flowed to emerging markets -- compared to roughly $20 billion ten
years ago. This has helped lift millions of people out of poverty in the developing world and
turned these countries into important economic partners of the United States; for example, they
now absorb more than 40 percent of our country's exports.
This new era of the global economy and global financial markets has brought tremendous
benefits for U.S. workers, farmers and businesses. Millions of Americans owe their jobs directly
or indirectly to trade, and all of us benefit through the lower prices and greater choice that
international competition fosters. It is no exaggeration to say that our economic well-being is
inextricably linked to the rest of the world.
To help our nation make the most of the opportunities in the global economy, President
Clinton has pursued a coordinated international economic strategy with three basic components.
First, is trade liberalization to create jobs and increase standards ofliving here at home. Second,
is to promote growth in developing countries, especially in concert with the international
financial institutions such as the World Bank and the International Monetary Fund. There is a
relationship between financial stability and political stability and political pluralism and by
helping these countries grow, we help foster the markets of tomorrow, promote political stability
and protect our national security. Third, is to address financial instability when it occurs, again
through the IMF, as in Mexico in 1995, and the current crisis in Asia, to protect and promote
U.S. interests, and in the longer term, by developing an architecture of the international financial
system that is as modem as the market.
Maintaining strong U.S. leadership on global issues is essential to our economic wellbeing and our national security and it follows on a proud tradition. U.S. leadership was critical to
the fifty year movement toward freer trade begun following World War II. U.S. leadership was
critical to the promotion of economic and political reform in developing economies over the
same period. And more recently, U.S. leadership was critical in helping Mexico work its way out
of financial crisis in 1995, just as it has been critical to the response to the Asian crisis over the
last several months. Let me just note that in Asia, difficult times and many challenges lie ahead
even in those countries where reform has taken hold, although in those countries where reform
has taken hold there is a very good beginning to reestablishing financial stability. The key now is
to sustain reform during the difficult period ahead. Our leadership during the Asian crisis, as in
all such situations, is critically in our interest.
2
However, I am deeply concerned -- and I know the President shares this concern -- that
public support for U.S. engagement in the world may be waning at a time when this country's
economic, national security and geopolitical interests require just the opposite. We have all seen
the signs over the past few years of a creeping tendency toward turning inward in America, and at
times, even a rejection of the reality that what is happening in the rest of the world affects us. As
I speak tonight, for example, the President lacks fast track trading authority to negotiate new
trade agreements, and our trading partners are now moving forward with new agreements without
us; we have failed to pay our arrears to the United Nations --losing influence when we want to
reform it; and we have failed so far to approve funding for the International Monetary Fund, at a
time when a sufficiently funded IMF that can deal with potential crises is critical to our economic
and national security interests.
This diminishing support reflects, in part, an erosion of the traditional bi-partisan base of
support for international economic engagement in recent years, and, at the same time, a reignition of one historical strain in American thought, a rejection of the outside world. This has
occurred for at least two reasons: anxiety brought by the rapidity of change in this era of the
global economy and dramatic technological developments; and the end of the Cold War, wherein
the foreign policy consensus lost its centerpiece -- the effort to contain Communist
expansionism. With the disappearance of that powerful purpose, national security issues have
become more complicated, and, questions concerning the importance of U.S. leadership have
grown.
Consequently, a great task facing this country today is to rebuild public support for
forward looking international policies. Our leadership in the world depends on it. Our economic
well-being depends on it. Our national security depends on it.
Doing so requires meeting two basic challenges.
First is broadening participation in the benefits of the global economy. Global financial
integration benefits the great majority of Americans, but one of the concerns often expressed -and it is a concern that I share -- is that those who are well-equipped to compete in the global
economy are doing better and better, and those who are not so well-equipped risk falling further
and further behind. Moreover, the rapid changes of the global economy inevitably create not only
great benefits for most, but dislocations for some.
The answer is not a futile effort to try to halt the incredible tide of globalization. Instead,
the answer is to continue to strengthen a domestic counterpart to forward looking international
economic policy, the promotion of the ability of all of our people to compete in the global
economy, through education and training, special programs for those trapped in poverty as in our
inner cities and distressed rural areas, health care, and the like.
The second critical challenge we face is to vastly improve the efforts of all of us -- public
3
sector officials, the business community, foreign policy experts -- to communicate with the
American public about the dynamics of the new global economy and the importance of U.S.
leadership in the global economy to the economic well being and national security of the
American people.
Unless there is broad based public understanding ofthe importance to U.S. interests of
strong U.S. leadership in the global economy, we will fail to support the UN and we will lose our
vote in the General Assembly at the end ofthis year; we will fail to support the IMF, and be more
vulnerable to economic crises; and we will fail to pass fast track and stand by as the rest of the
world moves forward and liberalizes trade, with us on the outside of the tent, rather than the
inside. All of this has enormous consequences to our economic well-being and our national
security.
The USS Intrepid is a testament to American leadership in the world. The need for
carriers like this and for a strong defense is as great as ever, but our national security interests are
evolving. In an interdependent world, leadership now requires an engagement in the issues of the
global economy as well as traditional national security issues. But leadership must be grounded
in public support. Making the most of the opportunities of the global economy, and minimizing
the risks -- especially the risk that we will succumb to the temptation to withdraw from the world
-- requires us all to work together to promote public support for our engagement in the world.
Our success in meeting that challenge is critical to our country's economic well-being for the
years and decades ahead. Thank you very much.
-30-
4
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
lOR IMMEDIATE RELEASE
May 21, 1998
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
364-Day Bill
Term:
IS6ue Date:
Maturity Date:
CUSIP Number:
May 28, 1996
May 27, 1999
912795BX8
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
-----Low
High
Average
Investment
Rate 1/
---------5.429%'
5.434\
5.434\'
5.145\5.150\
5.150\
Price
-----94.798
94.793
94.793
Tenders at the high discount rate were allotted 100l.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
39,370,700
1,016,404
$
40,387,104
8,759,104
5,490,000
5,490,000
1,266,000
,1,266,000
o
o
$
TOTAL
7,742,700
1,016,404
47,143,104
1/ Equivalent coupon-issue yield.
RR-2472
http://WWW.publlcdebt.treaa.gov
$
15,515,104
o
federal financing
WASHINGTON. D.C.
20220
bankNEWS
FEDERAL FINANCING BANK
May 22, 1998
Charles D. Haworth, Secretary, Federal Financing Bank (FFB) ,
announced the following activity for the month of April 1998.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $44.9 billion on April 30, 1998,
posting a decrease of $594.8 million from the level on
March 31, 1998. This net change was the result of a decrease in
holdings of agency debt of $181.9 million, in holdings of agency
assets of $425.0 million, and an increase in holdings of agency
guaranteed loans of $12.2 million. FFB made 36 disbursements
during the month of April and repriced 2 RUS-guaranteed loans.
FFB also received 17 prepayments in April.
Attached to this release are tables presenting FFB April
loan activity and FFB holdings as of April 30, 1998.
RR-2413
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Page 2 of 4
FEDERAL FINANCING BANK
APRIL 1998 ACTIVITY
AMOUNT
OF ADVANCE
DATE
BORROWER
FINAL
MATURITY
INTEREST
RATE
AGENCY DEBT
RESOLUTION TRUST CORPORATION
*Note 29 /Advance #1
4/1
$570,653,573.12
7/1/98
5.280% S/A
4/3
4/3
4/6
4/6
4/7
4/7
4/7
4/7
4/8
4/8
4/9
4/17
4/20
4/20
4/20
4/21
4/21
4/21
4/22
4/22
$300,000,000.00
$50,000,000.00
$35,000,000.00
$600,000,000.00
$6,366,000.00
$290,000,000.00
$50,000,000.00
$25,000,000.00
$19,056,000.00
$175,000,000.00
$35,350,000.00
$8,700,000.00
$61,600,000.00
$275,000,000.00
$50,000,000.00
$54,100,000.00
$100,000,000.00
$50,000,000.00
$37,500,000.00
$30,000,000.00
4/6/98
4/6/98
4/7/98
4/7/98
4/8/98
4/8/98
4/8/98
4/8/98
4/9/98
4/9/98
4/10/98
4/20/98
4/21/98
4/21/98
4/21/98
4/22/98
4/22/98
4/22/98
4/23/98
4/23/98
5.227%
5.227%
5.205%
5.205%
5.322%
5.228%
5.228%
5.228%
5.312%
5.197%
5.319%
5.298%
5.332%
5.173%
5.173%
5.322%
5.207%
5.207%
5.343%
5.197%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
4/2
4/6
4/6
4/6
4/16
4/16
4/16
4/17
$155,152.45
$575,645.21
$1,125,337.74
$340,998.70
$229,816.82
$3,524,141.14
$3,374.14
$168,242.04
1/2/25
7/31/25
7/31/25
7/31/25
4/1/99
4/1/99
1/2/25
7/31/25
6.009%
5.870%
5.870%
5.870%
5.498%
5.498%
5.987%
6.012%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
4/22
4/23
$9,151,389.13
$724,503.00
11/2/26
11/2/26
6.062% S/A
6.066% S/A
U.S. POSTAL SERVICE
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Postal
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Memphis IRS Service Cent.
Foley Services Contract
Foley Services Contract
Foley Services Contract
Chamblee Office Building
Chamblee Office Building
Memphis IRS Service Cent.
Foley Services Contract
GSA/PADC
rCTC Building
rCTC Building
S/A is a Semi-annual rate.
*maturity extension or interest rate reset
Page 3 of 4
FEDERAL FINANCING BANK
APRIL 1998 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
DEPARTMENT OF EDUCATION
Bethune Cookman
Bethune Cookman
4/7
4/8
$621,593.28
$32,113.26
9/1/27
9/1/27
5.927% S/A
5.940% S/A
1/2/18
1/2/18
12/31/31
1/3/17
12/31/98
3/31/28
5.845%
5.845%
5.982%
5.935%
5.476%
6.143%
RURAL UTILITIES SERVICE
@Cornbelt Power #094
@Cornbelt Power #094
Canoochee Elec. #461
E. Nebraska Tele. #398
Brazos Electric #437
Warren Elec. Coop. #477
SjA is a Semi-annual rate:
@
interest rate buydown
4/9
4/9
4/15
4/24
4/30
4/30
$39,614.05
$91,909.37
$598,000.00
$248,000.00
$1,476,000.00
$2,100,000.00
Qtr. is a Quarterly rate.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 4 of 4
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Export-Import Bank
Resolution Trust Corporation
U.S. Postal Service
sub-total*
Agency Assets:
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Utilities Service-CBO
Small Business Administration
sub-total*
Government-Guaranteed Loans:
DOD-Foreign Military Sales
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
April 30. 1998
$
541.9
471.1
1,000.0
2,013.0
3,675.0
11,955.0
4.4
13.0
4,598.9
0.0
20,246.3
2,935.4
1.9
34.1
1,491.4
2,468.4
17.8
1,224.9
14,207.1
248.5
~.2
22,633.4
March 31. 1998
$
Net Change
4/1/98-4/30/98
541.9
570.7
1,082.4
2,194.9
$
3,675.0
12,380.0
4.4
13.0
4,598.9
0.0
-99.5
-82.1
-181.9
0.0
-425.0
0.0
0.0
0.0
Q.O
~
20,671.3
-425.0
2,938.0
1.2
34.1
1,491.4
2,454.6
17.8
1,224.9
14,202.7
252.6
3,2
22,621.2
-2.7
0.7
0.0
0.0
13.9
0.0
0.0
4.4
-4.1
=========
=========
$ 44,892.7
$ 45,487.5
~
12.2
$
FY '98 Net Change
10/1/97-4/30/98
$
-752.7
-903.9
-9QJ·5
-2,620.1
0.0
-1,575.0
0.0
0.0
0.0
0.0
-1,575.0
-112.9
1.2
-1. 9
-70.0
48.8
-0.9
-83.1
-611.7
-26.4
-0.1
-857.0
=========
=========
-594.8
.$ -5,052.1
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
Contact: Dan Israel
(202) 622-2960
FOR IMMEDIATE RELEASE
May 22,1998
STATEMENT BY ASSISTANT SECRETARY FOR TAX POLICY
DONALD C. LUBICK ON LIQUIDATING RIC AND REIT TRANSACTIONS
We applaud the efforts of Senators Roth and Moynihan and Representative Archer to
eliminate this abusive transaction that threatens the corporate tax base. Their bill introduced
today shuts down a structure that clearly was not contemplated by the drafters of the regulated
investment company (RIC) or real estate investment trust (REIT) rules. The proposal, which
eliminates liquidating RIC and REIT transactions, is the result of collaboration between the
Treasury Department and the Congressional tax-writing staffs over the last several weeks.
-30-
RR-2474
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DEPARTMENT
FOR UvlMEDIATE RELEASE
May 26, 1998
OF
THE
TREASURY
Contact: Beth Weaver
(202) 622-2960
TREASURY NAMES FRONTS FOR THE COLOMBIAN DRUG CARTELS
The Treasury Department announced today it had added the names of fronts for two of
Colombia's leading drug traffickers to the department's list of Specially Designated Narcotics
Traffickers (SDNT), a list designed to apply ecomonic sanctions against the Colombian cartels
This represents the first expansion of Treasury's SDNT list to reach beyond the Cali cartel
The names of one of the leaders of Colombia's North Coast carteL Julio Cesar Nasser
David, and 14 businesses and 4 associated individuals that Treasury has determined are acting as
fronts for the North Coast cartel's Julio Cesar Nasser David organization were added to the
SDNT list. The Treasury Department also named 7 businesses and one individual that it has
determined are acting as fronts for the Cali cartel
"Today's action against the fronts of the Colombian narcotraftickers sends a clear message
that corporate sleight-of-hand will not enable the cartels' businesses to escape US sanctions."
said Treasury Under Secretary for Enforcement R(l~·I1Hlnd \V Kelly'
Treasury's OffIce of Foreign Assets Control has now begun identifying companies owned
or controlled by other Colombian drug cartels. in addition to the Cali carteL in order to further
expose, isolate, and incapacitate the Colombian drug car1els and their agents by prohibiting
Americans from doin(J::0 business with SDNTs and freezin~- their assets found within US
jurisdiction
This action is part of the ongoing interagency etfort to carry out President's Clinton's
Executive Order 12978, signed on October 21. 1995, \\hich applies economic sanctions against
the Colombian dru~ cartels. The 27 names released today have been added to the previous SDNT
list, bringing to a tl~tal of 451 the number of businesses and indi\·iduals with whom financial and
business dealings are prohibited and whose assets are blocked under the 1995 Executive Order
The list of 45) SDNTs includes the four Cali cartel drug kingpins named in the Executive Order.
the significant Nonh Coast narcotics tratTicker. Julio Cesar Nasser David. and 446 other SDNTs
that have been determined to be owned or controlled bv. or to act for or on behalf of persons.
designated in or pursuant to the Order
RR-2475
For press releases, speeches, public schedules and official biographies, call our 24·/wur fax line at (202) 622-2040
The 21 newly-named companies include real estate tirms. several hotel and restauranl
service companies. construction companies. and a clinic which have been determined to be owned
or controlled by persons designated in or pursuant to the Order
Today's action by Treasury's Oftice of Foreign Assets Control (OFAC) was taken in
coordination with the Justice and State DepaI1ments The list of businesses and individuals named
by Treasury today as SDNTs is attached and available electronically from OF AC. It will be
published in the Federal Re£ister later this week.
-30-
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlllNGTON, D.C. - 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
May 26,1998
Robert E. Rubin
Remarks for Opening Plenary
China - U.S. Joint Economic Committee - Eleventh Session
Mr. Minister, I would like to welcome you and your delegation to Washington for this
eleventh meeting of the JEc. These meetings are important to enable us to better understand
each others' views on a broad range of issues that reflect our mutual well-being. These give us a
framework we can use to deal with issues as they come up -- like the Asian financial crisis.
Meetings between us, the finance ministers of two of the world's largest economies, have become
-- and should be -- regular events.
The months since the last meeting have been difficult. We came to that meeting from the
IMFlWorld Bank Annual Meetings, where the Asian financial crisis was the major topic of
discussion. But none of us could have predicted then how bad that crisis would become. The
crisis underscores the importance of international cooperation and frequent consultation on
economic issues. Both the United States and China have played important roles in helping to
resolve the crisis, through provision of direct assistance, through cooperation in the Manila
Framework and the Special Meeting, and through their participation in international financial
institutions. China, by maintaining its exchange rate policy, has been an important island of
stability in a turbulent region
The crisis also brings into focus the importance of some of the issues we are here to
discuss today, for there are many lessons for us to apply to our own economies. The Chinese and
U.S. economies have remained strong. But neither of us can take this success for granted.
Rather, we should learn from the experience of the crisis countries, which have demonstrated to
us the importance of sound macroeconomic policies, strong financial sectors, and transparency.
We in the U.S. have worked hard to correct the balance of macroeconomic policies -- to the point
where we expect a budget surplus in 1998, after a long string of deficits. We have also worked
hard to strengthen our financial system, after learning a costly lesson in the savings and loan crisis
of the 1980s.
China has made excellent progress in improving the management of its macroeconomic
instruments, having ended the stop-and-go economic cycles of the early reform period and
RR-2476
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brought price stability along with a growth rate that is the envy of the world, despite its recent
moderate decline. As a result of that growth, China has lifted tens of millions of people out of
poverty. It is important that China build on that success to create a strong basis for sustainable
growth in the years to come, rather than focus on growth in any particular year, particularly this
one, in which the external environment is not so favorable.
To build this basis, your leaders have made a strong commitment to addressing some of
China's structural challenges, in areas as diverse as banking, state-owned enterprises, and
government restructuring. We look forward to hearing from you today about these initiatives.
One area in which we are particularly interested is reform of the financial sector. On the
positive side, the financial sector plays a crucial role in mobilizing savings and allocating them
efficiently. On the darker side, we have recently seen graphic demonstrations of the havoc that a
weak and inadequately-supervised banking system can wreak. We have watched with interest the
steps you have taken so far, but we want to understand them better. We have learned from our
own S&L crisis the difficulty and expense of restructuring weak financial institutions, and of
putting them on a sound basis for the future. We are interested not only in learning about the
steps you plan to take, but also in exploring how we can work with you in addressing this
problem, perhaps through sharing our expertise.
Closely tied to the issue of financial market reform is the larger issue of state-owned
enterprise reform. Last year then-vice premier Zhu indicated that within three years the problems
of state-owned enterprises would be addressed. This is an enormously challenging goal, and we
are interested to learn about progress made so far, and about plans for the future. SOE reform
necessarily involves redistribution of some of the social functions -- like pensions, housing, and
healthcare -- that employers have historically provided. While we have never had such sweeping
employer provision in the U.S., these are issues with which we, too, have wrestled. We recently
overhauled our social welfare system, and are currently grappling with the possibility -- or
necessity -- of reforming our state pension (social security) system.
The introduction of market forces over the last two decades, and the great strides you
have already taken in restructuring and opening your economy, have made China one of the
world's great trading nations, and one of the United States' most important trading partners. It
has also created tensions, particularly relating to the size and growth of our bilateral trade deficit.
Our presence here reflects the importance we attribute to China as an economic partner -- and the
respect which we have for its economic accomplishments. This importance is one factor that led
President Clinton to invite President Jiang to visit the U.S. last year, and that will bring President
Clinton to Beijing next month.
There is no doubt that the current international climate is a difficult one. We want to
discuss with you the outlooks for our economies in the areas of trade, the current account,
investment, reserves, and the exchange rate.
China's leaders have reaffirmed their exchange rate policy, which we feel is appropriate in
2
light of regional developments. While there is speculation in the press and the financial markets
suggesting that China might benefit from a devaluation, we frankly do not see the basis for their
arguments. We agree with your leaders' analysis that a devaluation would not be in China's best
interests, that it might threaten trade and investment flows and could invite a return of inflation as
well, of course, as having a major impact on the other currencies in the region, including that of
Hong Kong.
We should also discuss ways in which we can move our relationship, and China's
integration into the world economy, forward, particularly in light of President Clinton's upcoming
visit. Economic issues will playa major role in the Summit between our Presidents, and it our
job to contribute to significant achievements in this area. The core of this discussion must
logically be China's WTO accession. When I was in China last year, I stated that China belongs in
the WTO and that Chinese accession to the WTO is strongly in the United States' national
interest, as well as that of China. This is still the case. Since last year's state visit, there has been
encouraging progress on the issue, although much remains to be done. I hope that there will soon
be significant additional progress, which we will be able to report to our presidents in China.
In this respect, I would particularly like to mention the issue of financial services, whose
importance I alluded to already and which are the direct responsibility of the Treasury
Department. We feel that international financial firms -- in banking, securities, and insurance -have a great deal to offer the Chinese economy, both to its businesses and to modernizing its own
financial sector. We hope that as part of the accession we will be able to craft an agreement that
will allow these firms to supply the needs of Chinese customers, and at the same time provide
safeguards to meet your concerns.
Finally, I would like to touch upon international law enforcement issues. As international
integration has accelerated, so, unfortunately, has international crime. Such crime is a drag on all
of our economies, and it is essential that we work together to fight it. I hope that we can agree
that both sides should observe the terms of the Memorandum of Understanding and Statement of
Cooperation on prison labor and that we will finally be able to complete the negotiations on a
Customs Mutual Assistance Agreement. Other areas in which we can strengthen cooperation
include combating international organized crime, narcotics trafficking, counterfeiting and money
laundering through the JEC and other fora, including the recently-formed Joint Liaison Group for
Law Enforcement.
In our discussions today, and in the future, we will no doubt discuss areas where we
disagree, and perhaps even uncover new areas of disagreement. It would be disingenuous for us
to gloss over our differences, or to pretend that they could all be eliminated. In any relationship
of this importance and magnitude, there will inevitably be areas of disagreement. What is
important is that the issues be discussed openly and fully, and as much progress as possible be
made in resolving differences. It is important, for example, that we exchange our respective
perspectives on what is an underlying tenet of American society -- respect for human rights -- and
on our long-standing tradition of advocating human rights around the globe.
3
At this point I'd like to surrender the podium, so that Minister Xiang can make his
opening statement. Before I do this, however, I'd like to introduce the key members of the U.S.
delegation who will be participating in the discussions today. Thank you very much. I look
forward to a fiuitful and important meeting.
-30-
4
PUBLIC DEBT NEWS
Dep~rtment of the Treasury
• Buruu of the Public: Debt • Wqhington. DC 20239
TREASURY SXCURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON
DC
Office of Fin.ncing
CONTA~:
FOR IMMEDIATE RELEASE
May 26, 1998
202-;319-3350
RESULTS OF TREASURY'S AUCTION OF 13 ·WEEK BILLS
!n-Day Bill
May 28, 1999
August 27, 1998
TenTl:
Issue Date:
Maturity Date:
CUSIP Number:
91279SAG6
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
2/
------
High
5.010t
5.025t
J\Ve~age
S.o:aot
Low
Inveatment
Rate 1/
----- ....
Price
...-----
_-_.
S .143t
98.734
S.lS!!t
S.lSSt
98.730
98.73l.
Tenders at the high discount rate were allotted
7t.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Accepted.
Tendered
Tender Type
$
Noncompetitive
2.9.:2.93,BOl
s
1.:331,995
4,137,421
1,331,995
---------------~-
PUBLIC SUBTOTAL
Federal Reserve
Poreign Official Inst.
Refunded Maturing
Additional Amounts
TOTAL
30,625,186"
5,-469,406
3,993,180
3,993,180
283,000
283,000
o
o
----------------H, 901,966
9,745,586
$
1/ Equivalent coupon-issue yield.
2/ $10,258,000 ~aB accepted at rate~ below the competitive range.
RR-2477
bttp://www.publ1c:debLtrcu.gO Y
TnTAI
P.Vl1
PUBLIC DEBT NEWS
Department of the Treaaury • Bureau of the Public Debt • W~hlngton, DC 20239
TREASURY SECCRI'I"l AUCTION RE8UL'rS
BUREAU OF THR PUBLIC DEBT - WASHINGTON DC
FOR
I~OIATE
RELEASE
Office of
CONTACT ;
Financin~
20'-219-3350
May 26. 1999
}lBSULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
lB3-Day aill
Term:
May 28, 199B
Issue Date:
Maturity Date:
ct1SIP Number:
November 27, 199B
'127'SASO
RANGE OF ACCEPTED COMPETITIVE BIOS:
Investment
Rate 1/
Discount
RatA
-----5.160,"
Low
High
Average
.--------S.l?3\S.3791'
~BCOunt
--
97.377
97.374
!H .374
5.379t
S.165'
5.165\'
Tenders at the high
Price
----
rate were allotted
38t.
AMOON1'S TENDERED AND ACCEPTED (in thousands)
Tender
Type
Canpetitive
Noncompetitive
Accepted.
Tendered
----------------32,507,530
s
$
1,081,066
3,817,593
1,081,066
-----------~--~--
PUBLIC SUBTOTAL
33,598,596
4,B99,659
Federal Reecrve
Foreign Offieial InRt.
Refunded Maturing
Additional Amounts
3,960,000
3,980,000
2,416,600
2,416,600
.--~----~--------
TOTAL
l/
Equivalent coupon-iSBue yield.
RR-2478
o
o
$
$
11,295,259
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
~~/78~q~. . . . . . . . . . . . . . . .. .
..................
OffiCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 2: 3 0 P. M.
May 20. 1998
CON"l'AC'l':
Office of
F~cing
202/21'-3350
TREASURY'S WEEKLY BILL OFFElUN'G
The Treasury will auction ewo aeries of Treasury bills totaling
approximaeely $13,000 million, to be i.sued June 4, 1998. This offering will
result in a paydown for the Treasury of about $2,225 ~llion, as tbe maturing
publiely held weekly bills are outstanding in the amount of $15,231 million.
In
accounts
weighted
to these
addieion to tbe public holdings, Pederal ae.erve Ba:k. for their own
hold $7,375 ~llion of the matur~g bills, which may be refunded at the
average discount rate of accepted competitive tenders. Amounts issued
account& will be in addition to the offering amount.
Federal Reserve Bank~ hold $3,012 million &5 agents for foreign and
inte=national monetary authorities, which may be refunded ~thin the offering
~ount at tbe 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.
Tende=s for the bills will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D.C. This offer~g
of Treasury securities is governed by the te~ and conditione set forth in the
Uciform Offering Circ~la= (31 CFR Part 356, as amended) for the sale and issue
by tbe Treas~=y te the public of marketable Treasury bills. notes, and bends.
Details
highlights.
~bQut
each Qf the new •• curities
&r~
given in the attaehed Qffering
000
Attachment
RR-2479
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFBRINGS OF NBBKLY BILLS
TO BE ISSUSD Jun. 4, 1998
May 26, 1998
QCh[ing Amount •••..•..•..•...••••••.......• $5,150 IRUlion
$1,250 mill ion
Dllc~1ption
of Oftering:
Term and type ot •• curity ••••...••.••....•..
CDSI" nuab.E ••••••.••••...•••.•.••••••...•..
Auc:tlon date .••••••.•••...••..•.•••...•.....
I •• ue date •.•.••••..••...••••...•.•.••......
Maturity date •••••...•.•.••••...•...•....•..
Original iaaue date •.•••..•••.•.•..••.......
Currently out.tanding .••.••••.•••••.....•••.
Mini.um bid •• ount .••••.....•..••...••...•.•
Multiple •.••••.••••..•...•.••.•.•....••.....
91-day bill
912795 All •
June I, 1998
June ", 1998
Septemb.r 3, 1998
March 5, 1998
$10,843 nillion
$10,000
$ 1,000
182 -day bill
912795 AT 8
June 1, 199B
June ., 1998
December 3, 1998
June 4, 1998
$10,000
$ 1,000
Tbe following Jules apply to all .ecurities mentioned abovel
Submit.lon of Bid.,
Nonc:onpetitive bids •.••......••••......•.•.• Acc.pt.d in full up to $1,000,000 at the average
discount rate of accepted competitive bids.
Competitive bids . . . . . • • . . . • . . . . . . . . . . . . . . . . . (1)
Must be expre •• ed a • • diacount rate with three decimals in
incE.ments of .005\, e.g., 7.100\, 1.105%.
(2)
Net long position for Bach bidder RUst be reported when the
sum of the total bid amount, at all discount rat •• , and the
net long po.ition is $1 billion ~r greater.
(l)
Net long position ~U9t be determined as ot one half-hour
prior to the closing ti~e for r.ceipt of competitive tender •.
"'XiMUm Recognized Bid
at a Single Yield .•.....•...•...........• 35\ of public offering
MaximUJII Aw!rd ..••........••...••............ lS\ of public offering
Receipt of Tenders I
Noncompetitive tenders •..••...•.•.•..•••.... Prior to l~:OO noon Bastern Otayl1ght Saving time on ~uctlon day
Competitive tenders .•.•..•.•....•.•......... Prior to 1100 p.lII. B~stern Dlaylight. :hv1ng time on auction day
payment Terms ....•..•.••.••.....••.......... Full payment with tender or by charge to a fundi account
at a Federal Reserve Stank on issue data
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlllNGTON, D.C. - 20220 - (202) 622-2960
JOINT STATEMENT
11 TH SESSION OF THE CHINA-U.S. JOINT ECONOMIC COMMITTEE
WASHINGTON, D.C.
May 26,1998
At the invitation of Secretary of the Treasury Robert E. Rubin, Finance Minister Xiang Huaicheng
visited the United States and co-chaired the 11th session of the China-United States Joint Economic
Committee (JEC). During the meeting, senior officials from both sides held extensive discussions on
a broad range of economic issues. The two ministers noted that mutual understanding and the
bilateral relationship in the economic, financial, and law enforcement fields between the two
countries had been enhanced through dialogue on a regular basis in the JEC and other fora. They
stressed their common desire to continue deepening cooperative relations between the two countries,
which will be advanced by the upcoming state visit of President Clinton to China.
The 11 th session of the JEC addressed both domestic and international issues.
•
On domestic issues, both sides reviewed the policies that have contributed to their strong
growth and moderate inflation, and discussed the challenges they face in sustaining this
performance. The United States pointed to prudent fiscal and monetary policies on its side,
and particularly to the expected budget surplus in fiscal year 1998. China emphasized that it
will continue a prudent fiscal and monetary policy stance, while sustaining a growth rate of
8 percent and deepening economic reform. It also touched on the recent slowdown ofGDP
growth, and the steps being taken to stimulate the economy. The two sides discussed the
complex issues of social welfare policies and their relationship to the restructuring of stateowned enterprises.
The two sides also discussed financial issues, with the Chinese side noting the steps they were
taking to strengthen their banking sector and financial regulatory systems. The two sides
agreed on the importance of competition in the financial sector, and on the sector's key role
in promoting economic growth through lending on commercial terms. They also discussed
how they might increase bilateral cooperation in furthering these goals, including the
possibility of increased technical assistance by the U. S. in areas that support China's reform
objectives.
•
The discussion of international issues was dominated by the Asian financial crisis. The two
sides discussed the external positions of both countries, including trade balances, investment
RR-2480
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2
flows, reserves, debt, and exchange rate policy in the light of the crisis and of domestic
developments in each economy. The Chinese side reiterated the policy commitment to
maintaining the stability of the exchange rate of the renminbi as a responsible member of the
international community. Both sides agreed that bilateral and multilateral cooperation had
been important in dealing with the Asia crisis, and expressed the desire that such cooperation
would continue.
They also discussed the lessons to be drawn from the crisis, including the importance of
sound macroeconomic fundamentals, of transparency, and of strong financial systems. The
two sides discussed China's accession to the WTO, including the role of financial services,
and how progress can be accelerated consistent with WTO rules and obligations. Both sides
agreed on their determination to make significant progress on the financial services
negotiations before the Presidential visit.
The two sides also discussed issues of international law enforcement, including the
enforcement of their laws that prohibit exports and imports of goods made by prison labor.
They discussed what they could do to strengthen cooperation in this area and observe
existing agreements so as to enforce their laws. They expressed the intention of successfully
completing the negotiations on a Customs Mutual Assistance Agreement in the coming
months. They also reiterated their intention to strengthen bilateral cooperation in combating
international organized crime, narcotics trafficking, counterfeiting and money laundering
through the JEC and other fora, including the recently formed Joint Liaison Group for Law
Enforcement, which was envisioned in the Joint Communique issued last October in
Washington, D. C. at the end of the Summit between Presidents Jiang and Clinton.
Minister Xiang particularly drew attention to the following developments since the last JEC meeting:
•
China had reaffirmed its commitment to further reforms to move toward a market-based
economy. It had put forward a number of reform measures to restructure state owned
enterprises, the financial sector, including the role of the central bank, and the government
service. To support these broad objectives, China was also pursuing reforms in the areas of
housing, medical care, investment finance, taxation, and grain distribution.
•
Despite the Asian crisis, China had managed to keep a favorable external position; its
exports, the trade surplus, and investment flows all continued to rise through the first quarter
of 1998.
Secretary Rubin also remarked on a number of specific issues:
•
He welcomed China's active participation in the international financial system, particularly in
the context of the Asia crisis. He took particular note of China's offers of support to
countries in difficulty, and of its active participation in the Manila Framework and the Special
Meeting of Finance Ministers and Central Bank Governors, held in Washington in April.
3
•
He reiterated the hope that relations between the U.S. Treasury and the Chinese Ministry of
Finance would continue to develop, and he noted that there had been a significant expansion
of contacts between officials of the two organizations. He took note of the technical
cooperation that Treasury and other U. S. agencies had undertaken with Chinese agencies,
and expressed the hope that such cooperation could be expanded and increased. He took
note of the technical and law enforcement cooperation that Treasury and its bureaus as well
as other U.S. agencies had undertaken with Chinese agencies, and expressed the hope that
such cooperation could be expanded and increased.
Both Secretary Rubin and Minister Xiang recalled the successful visit by President Jiang to the
United States and looked forward to a successful vi·sit by President Clinton to China, agreeing that
these exchanges of visits further promote the bilateral relationship between the countries. They both
agreed that a team from the Treasury Department would visit China to discuss the possibilities for
increased cooperation. They also agreed that the next meeting of the JEC would take place in
Beijing in 1999.
The Chinese delegation to the JEC consisted of representatives of the Ministry of Finance, the
People's Bank of China, and the Chinese Embassy in Washington. The U.S. delegation included
representatives from the Department of the Treasury, the Federal Reserve Board, the Department of
State, the Office of the U.S. Trade Representative, the Council of Economic Advisors, and the U.S.
Embassy in Beijing.
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT
WASHINGTON DC
FOR IMMEDIATE RELEASE
May 27, 1998
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Interest Rate:
Series:
CUSIP No:
STRIPS Minimum:
5 1/2%
AD-2000
9128274G4
$400,000
Issue Date:
Dated Date:
Maturity Date:
High Yield:
5.530%
Price:
June 01, 1998
May 31, 1998
May 31, 2000
99.944
All noncompetitive and s'-".ccessful competitive bidders were awarded
securities at the high yield. All tenders at lower yields were
accepted in full.
Tenders at the high yield were allotted
Accrued interest of $
49%.
0.15027 per $1,000 must be paid for the period
from May 31, 1998 to June Ol, 1998.
AMOUNTS
TENu~RED
AND ACCEPTED (in thousands)
Tendered
Tender Type
Accepted
29,890,640
1,261,225
11,743,455
1,261,225
PUBLIC SUBTOTAL
31,151,865
13,004,680
Federal Reserve
Foreign Official Inst.
1,321,000
2,200,000
1,321,000
2,200,000
Competitive
Noncompetitive
TOTAL
$
$
34,672,865
$
Median yield
5.519%: =0% of the amount of accepted competitive
tenders was tendered at or below that rate.
Lew yield
5.460%:
5°5 of the amount of accepted competitive
tenders was tendered at or below that rate.
RR-2481
http://www.publlcdebt.treas.gov
16,525,680
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington. DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
May 28, 1998
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Interest Rate:
5 1/2%,
Issue Date:
Dated Date:
Maturity Date:
Series:
G-2003
CUSIP No:
9128274H2
STRIPS Minimum: $400,000
High Yield:
5.575%'
Price:
June 01, 1998
May 31, 1998
May 31, 2003
99.676
All noncompetitive and successful competitive bidders were awarded
securities at the high yield. All tenders at lower yields were
accepted in full.
Tenders at the high yield were allotted
79~.
Accrued interest of $ 0.15027 per $1,000 must be paid for the period
from May 31, 199B to June 01, 1998.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
TOTAL
Accepted
Tendered
Tender Type
$
28,830,535
310,836
$
29,141,371
11,000,216
1,115,000
1,000,000
1,115,000
1,000,000
31,256,371
$
Median yield
5.562%: 50%' of the amount of accepted competitive
tenders was tendered at or below that rate.
Low yield
5.500%:
5% of the amount of accepted competitive
tenders was tendered at or below that rate.
RR-2482
10,689,380
310,836
http://www.pubIJcdebLtreu.gov
13,115,216
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
omCE OFPUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C .• 20220. (202) 622-2960
EMBARGOED TlNTIL 2: 30 P. M.
CON"l'ACT:
Kay 29, 1998
Office of Pinancing
~c2/21'-3l50
TREASURY TO AUCTION CASH KANAGBKEN'l' BILLS
The Treasury will auction approximately $15,000 million of 12-day
Treasury casb managament bills to be issued June 3, 1"8.
Competi~ive and noncompetitive
Reserve Banks and Brancbes. Tenders
maintained on the book-entry records
('1'REAStJ'R.Y DIRECT).
Tenders will ~
Debt, Washington, D.C.
tenders will be received at all Federal
will not be accepted for bills to be
of ehe Department of the Treasury
be received at the Bureau of the Public
Addieional amounts of the bills may be iseued to Federal Reserve ~~k.
as agants for foreign and international monetary authorities at the average
price of accepted competitive tenders.
This offering of Treasury securities is governed by the ter.ma and
conditions set forth in the Unifor.m Offering Circular (31 CFR Part 356, a.
amended) for the sale and iS8ue by the Treasury to the public of marketable
Treasury bills, notes, and bonds.
Note that com=etitive bids in cash management bill auctions must be
expressed as a discount rate witb two decimalS, e.g.c 7.10%.
Details about the new security are given in the attached offering
highlights.
000
Attacbment
RR-2483
l:'
biooraphies
call our 24-hour fax line at (202) 622-2040
ror
press releases, speech es, pu bl·IC sch edies
u and olTzcial
~J'
~.
,
HIGnIGH'I'S OF TREAStTRy OI'FElUNCi
OF l~-DAY' CASH MANAGBldBN'l' BILL
Hay 28, 1998
Offering Amount ....•..•.••••. SlS.OOO million
De5cription of Offeripq:
Term and type of 8ecurity
12-clay Cash Kanagement Bill
COSIP number .•.•••..•...••... 9~~795 ~ 3
Auction date ••.••.••......••. June 2. 1998
IS5ue date ..••.•.......•..... June 3, 1998
Maturity date ••••.••..••.•••• June lS, 1998
Original issue date .•......•• June 3, 1998
Min~um bid amount ....•..•..• $10.000
Multiples •••••••••.•.•.•.••.• S 1,000
Min~ to hold amount ....... $10,000
MUltiples to hold ........... $ 1,000
Submission of Bids:
Noncompetitive bids
Accepted in full up to $~,OOO,OOO at
the average discount rate of accepted
competitive bids
Competi ti va bids ...••.... (1) Ku.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 ~ll discount ratea, and the
(3 )
Max~
net long p08ition is $1 billion or
grea1;e%'.
Net long p08i~ion must be determined ••
of one half-hour prior to the closi.ng
t~8 for receipt of competitive tender ••
Recognized Bid
at a Single Yield ••••••... 35\ of public offering
Max~um
Award ••.•••.••.......
35~
of public offering
Receipt of Tender~:
Noncompetitive teLderB •....... Prior to 12:00 noon Bastern Daylight
Saving time on auction day
Competitive tend.r •........... Prior to 1:00 p.m. Eastern Daylight
Saving time on auction day
Payment Terms •••••••••••••••• Pull payment with tender or b·' charge to
a funds account at a Federal ~ ••rve Bank
on issue date
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
Office of Financing
202-219-3350
CONTACT:
FOR IMMEDIATE RELEASE
June 01, 1998
RBSULTS OF TREASURY'S AUCTION OF I3-WEEK BILLS
91-Day Bill
June 04, 1998
September 03, 1998
912795AH4
Term:
Issue Date:
Maturity Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
-----Low
High
Average
4.930%
4.950t
4.945\
Investment
Rate 1/
Price
------
---------5.06It
98.754
98.749
98.750
5.081%
5.077%
Tenders at the high discount rate were allotted
17\.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
----------------31,261,640
$
Competitive
Noncompetitive
$
-----------------
Foreign Official Refunded
32,568,510
5,338,496
460,000
460,000
-----------------
33,028,510
5,798,496
3,479,955
3,479,955
SUBTOTAL
Federal Reserve
Foreign Official Add-On
o
----------------36,508,465
$
TOTAL
4,031,626
1,306,870
1,306,870
PUBLIC SUBTOTAL
Bid-to-cover Ratio
Accepted
Tendered
Tender Type
= 32,568,510 / 5,338,496
6.10
1/ Equivalent coupon-issue yield.
RR-2484
bttp:/twww·publlcdebt.treu.gov
o
----------------$
9,278,451
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • WashIngton, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
CONTACT:
Office of Financing
June 01, 1998
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
182-Day Bill
June 04, 1998
December 03, 1998
91279SAT8
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
Investment
Rate 1/
------
Low
High
Average
Price
------
---------5.307%
S.100\'
5.115%
S.110t
97.422
97.414
5.324\
5.318\
97.417
Tenders at the high discount rate were allotted
16%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Foreign Official Refunded
SUBTOTAL
Federal Reserve
31,131,796
1,169,452
TOTAL
1/
$
=
32,301,24B / 5,104,535
$
3,935,083
1,169,452
32,301,248
5,104,535
2,163,600
2,163,600
34,464,848
7,268,135
3,895,000
3,895,000
o
o
Foreign Official Add-on
Bid-to-cover Ratio
Accepted
Tendered
Tender Type
38,359,848
6.33
Equivalent coupon-issue yield.
RR-2485
http://www.publlcdebLtreu.gov
$
11,163,135
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
June 2,1998
Contact: Peter Hollenbach
(202) 219-3302
MISSISSIPPI,MARYLAND & TENNESSEE STUDENTS WIN
NATIONAL 1998 SAVINGS BONDS POSTER CONTEST
Will Receive $8,000 in U.S. Savings Bonds
Treasurer of the United States Mary Ellen Withrow will present the three national winners in the
7th Annual Savings Bonds Poster Contest, with awards during a ceremony at the Capital Children's
Museum, 800 Third St., NE, Washington,D.C., on Thursday, June 4, 1998 at 10:00 a.m.
The three winning posters are the work of a fourth-grader from Mississippi, and two sixth-graders
from Maryland and Tennessee. Their posters, and those of the other 48 first place winners, will be
displayed in more than 70 airports around the country this Fall. But first the posters will be
exhibited in Washington D.C., from June 4-12 at the Capital Children's Museum and then at the
Bureau of Engraving and Printing on 14th Street, SW, until the end of August.
The first place winner, Beth Alexander, a fourth grader from Alexander Academy Home School,
Little Rock, Mississippi, will receive a $5,000 U.S. Savings Bond and her poster will be used to
promote the sale of bonds nationwide in 1999. When asked what she is going to do with her award,
Beth said, "I plan on holding on to my savings bonds to help pay for college." Along with Beth's
winning poster to promote savings bonds in the 1999 campaign, will be the slogan: "Take Stock in
America with U. S. Savings Bonds."
The second and third place winners, Jessica Gonder, a sixth-grader at E. Russell Hicks Middle
School, Hagerstown, Maryland, and Sterling Boone Gray, a sixth-grader at Porter Elementary
School, Maryville, Tennessee, will receive $2,000 and $1,000 in savings bonds, respectively.
The poster contest began in 1992 as a fun way for students to learn the value of saving. "The poster
contest provides a creative way for kids to learn about savings and U.S. savings bonds, as well as a
way to possibly win valuable savings bonds to invest in their future", said V an Zeck,
Commissioner of the Public Debt. The Bureau of the Public Debt manages the savings bond
program.
Sponsor of this year's contest is Kenneth Derr, Chairman of the Board and CEO of Chevron
Corporation who chaired the 1997 U.S. Savings Bond Volunteer Committee. The trip to
Washington, D.C., for this year's winners is also being made possible by the following sponsors
who have donated their services: the Mayflower Hotel, Gray Line Tours of Washington, Planet
Hollywood, and the Hard Rock Cafe.
-more-
RR-2486
-2-
State winners were selected earlier this year. First place entries from each state and the District of
Columbia then were submitted to a panel of judges for selection of the national winners.
Savings bonds have many advantages for investors. Bonds can be purchased through financial
institutions for a minimum investment of $25 for a $50 bond. They are also available through
payroll savings plans in many private companies and other organizations. Savings bonds are safe,
backed by the U.S. government and can be replaced if lost, stolen or destroyed. Series EE bonds
are exempt from state and local income taxes and the federal income tax liability on earnings can be
deferred until the bonds are redeemed or reach final maturity. There are special tax benefits
available when bonds are used for education. Investors who qualify can exclude all or part of the
interest earned in Series EE bonds from income when the bonds are redeemed to pay for postsecondary education.
Series EE savings bonds purchased on or after May 1, 1997, earn interest based on market yields
for 5-year Treasury securities right from the start. Now, Series EE bonds increase in value every
month. The rate for new Series EE bonds is 5.06 percent from May through October 1998. For
more information on savings bonds visit our web site: www.savingsbonds.gov or
www.publicdebt.treas.gov.
000
PA-351
MEDIA ARE INVITED. CAMERAS l\1UST BE SET UP BY 9:30A.M. ON
THURSDA Y, JUNE 4, 1998, AT THE CHILDREN'S MUSEUM AUDITORIUM,
800 3RD STREET, N.E., WASHINGTON, D.C. 20002.
DEI>ARTl\1ENT
0);'
THE
TREASURY
OFFICE
TREASURY
NEWS
OF PUBLIC AFFAIRS '1500 PENNSYLVANIA AVENVE,
N.W.' WASHINGTON, D.C.' 102%0' (202) 6.:1.1960
CONTACT:
D{BARGOED UNTiL 2: 3 0 P. M.
June 2, 1998
Office of F~cing
202/219-3350
TREASURY'S WEEKLY BILL OFFERiNG
The Treasury will auction two series of Treasury bills tocaling
approximately $13,000 ~llion, to be issued June 11, 1998. This offering will
result in a paydown for the Treasury of about $1,375 million, as the maturing
publicly held weekly bills are outscanding in the amount of $14,387 ~llion.
In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $7,137 million of the maturing bills, 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 $2,643 million as agents for foreign and
international monetary authorities, which may be refunded within the offering
amount at ehe 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 eer.ms and conditions set forth in the
Unifcr.m Offering Circular (31 CFR Part 350, 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.
cOo
Attachment
RR-2487
Fo, press releases, speeches, public schedules and official biographies, call our 24·lIour fax line lit (202) 622-2040
HXGR~IGHTS
or TREASURY OPFERINGS OF
TO BB XSSUBD June 11,
WEB~Y
BILLS
1~98
June 3, 19'8
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,'50 million
De8criptiop of Offering.
Term and type of .ecurlty ..•••••••••••••••.
COSIP number •••••••••...•..•••.•.••••.•.•••
Auction date •.••••••••••••.•••...•••••••••.
I.aue date ....................................
Maturity date .•••••••••••.•••••••.•..••.••.
Original i88ue date ••••••••••••••••••••••.•
Currently outstanding •.••..••••••••••••••••
Kini1l\UDl bid amount •. . • . • . . • • • • • • . • • • • • • • • ••
Multiple ...............................................
II . . . . . . . . . .
91-day bill
912795 AJ 0
June 8, 1998
Ju.ne 11, 1998
SepteJllber 10, 1998
March 12, 1998
$11,377 million
$10,000
$ 1,000
$7,250 million
182 -day bill
912794 5C ~
June 8, 1'98
June 11, 1998
December 10, 1998
December 11, 1'97
$18,011 million
$10,000
$ 1,000
The following rules apply to all .ecurltlo§ mentioned above.
Subnia,ion of Bids •
• onc~etitive bid •••.•...••••.•••••••••••. Accepted in full up to $1,000,000 at the average
discount rat. of accepted competitive bids.
Competitive bide •••••••••.••••.•.••••...••. (1)
Must be expressed as a diacount rate with thr.e decimal a in
incrementa of .005\, e.g., 7.100', 7.105'.
(2)
Net long position for each bidder must be reported when the
sum of the total bid amount, . t .11 discount r.tes, and the
net long position is $1 billion or greater.
(3)
Net long position must be dete~ined a8 of one balt-bour
prior to the cl08ing time for receipt of competitive tend.rs.
Maximum Recognize4 Bid
at • Single yield .••••.•••..•••..•.•.... _35' of public offering
"axi~um
Award ••.••••.••••••••••••.••••••••• 35' of public offering
Receipt of TeDder':
Noncompetitive tender •••••••••••••..•••••.• Prior to 12100 noon la.tern Dayligbt Saving ti•• on auction day
Competitive tenders •.•.•.••••.•••••.•••.••• Prior to 1:00 p.~. B•• tern Daylight Saving time 00 auction day
Payment Tete' •••••••••.•••••••.•••••..••••• Full paymeDt with tender or by charge to • funds account
at a Federal Reaerve Bank on iSBue date
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESffi,TS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 02, 1998
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 12-DAY BILLS
12-Day Bill
June 03, 1998
June 15. 199B
912795EK3
Term:
Issue Date:
Maturity Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE aIDS:
Discount
Rate
------
Low
High
Average
Investment
Rate 1/
----------
price
-----99.B23
99.B23
99.823
5.39 \-
5.30 \"
5.39 t
5.31 t
5.39 \"
5.30 %
Tenders at the high discount rate were allotted
90\.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
----------------48,057,900
$
competitive
Noncompetitive
----------------48,058,900
s
TOTAL
Bid-to-Cover Ratio
1/
1,000
=
48,058.900 / 15.003,900
3.20
Equivalent coupon-issue yield.
RR-2488
http://www.pubUcdebLtreU.gOV
Accepted
----------------15,002,900
$
1,000
----------------15,003,900
$
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
EMBARGOED FOR RELEASE AT 3:00 PM
June 4, 1998
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR MAY 1998
The Bureau of the Public Debt announced activity figures for the month of May 1998, of securities
within the Separate Trading of Registered Interest and Principal of Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$1,338,262,842
Held in UnstrippedForm
$1,110,933,706
Held in Stripped Form
$227,329,136
Reconstituted in May
$11,501,5l3
The accompanying 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 the Monthly Statement of the Public Debt, entitled "Holdings of Treasury Securities in
Stripped Form."
The STRIPS data along with the new Monthly Statement ofthe Public Debt, is available on Public
Debt's Internet homepage at: nww. pu bIicdebt. treas.gov. A wide range of information about the
public debt and Treasury securities is also available on the homepage.
RR-2489
http://www.publicdebt.treas.gov
TABLE VI _ HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, MAY 31, 1998 - Continued
loan Descnpbon
Treasury Notes
Senes Interest Rate
CUSIP
9-114
912827 WN8
C
8-718
D
'NN8
8-718
A
XE7
9-1/8
XN7
B
8
XW7
C
5-314
3H3
AK
5-5/8
3K6
Al
7-7/8
YE6
D
5-5/8
AM
3P5
5-5/8
AN
3R1
Y
5-3/8
3U4
8-112
A
YN6
5-1/2
3Y6
Z
5-112
AB
4A7
AC
5-5/8
4C3
8-718
YW6
B
8-3/4
ZE5
C
8-112
ZN5
0
5-3/4
X
3M2
7-3/4
A
ZX3
5-3/8
3WO
S
8
A85
B
5-5/8
4E9
T
7-718
B92
C
7-1/2
025
0
7-1/2
F49
A
6-3/8
G55
B
5-718
M
3J9
5-314
N
314
5-314
P
303
5-5/8
3S9
0
5-1/2
3V2
C
6-114
A
J78
5-1/2
3Z3
D
5-1/2
4B5
E
5-314
F
4D1
5-314
L83
B
5-7/8
N81
A
7-1/4
P89
B
7-114
088
C
7-7/8
R87
D
7-1/2
A
S86
6-1/2
T85
B
6-112
U83
C
5-7/8
V82
D
5-5/8
WB1
A
6-7/8
X80
B
7
Y55
C
6-112
D
Z62
6-114
2JO
B
6-5/8
2U5
C
6-1/8
3EO
0
5-112
3X8
B
5-518
4F6
C
Corpus
STRIP
CUSIP
912820 AP2
AOO
AR8
AS6
AT4
CB1
CD7
AU1
CGO
CJ4
CM7
AV9
CR6
CT2
CV7
AIN7
AX5
AY3
CF2
AlO
CPO
BA4
CX3
BB2
BCO
B08
BE6
CC9
CE5
CH8
CK1
CN5
BF3
CS4
CU9
CW5
BG1
BH9
BJ5
BK2
BlO
BM8
BN6
BP1
B09
BR7
BS5
BT3
BUO
BWS
BX4
CA3
C08
CY1
Pnnopal Amount Outstanding
Total
Outstanding
08115/98
11115/98
02115/99
05115/99
0B/15/99
09/30/99
10/31199
11115/99
11130/99
12131/99
01131/00
02115/00
02129/00
03131/00
04130/00
05/15/00
0B/15100
11/15100
11/15/00
02115101
02115/01
05115/01
05/15/01
08115/01
11115/01
05115/02
08115/02
09130102
10131/02
11130/02
12131102
01131103
02115103
02128103
03131/03
04/30/03
08/15/03
02115/04
05115104
08115/04
11115/04
02115105
05/15105
08/15105
11115/05
02115106
05/15106
07/15/06
10115/06
02115107
05/15/07
08/15/07
02115108
05/15/08
Total Treasury Notes, ..
Treasury Inflation-Indexed Notes:
Senes' Interest Rate'
CUSIP
3-5/8
9128273A8
J
3-318
A
2M3
3-518
3TI
A
912820 BZ9
BV8
Cl9
07115/02
01115/07
01115/08
Total Inflation-Indexed Notes ..
Treasury Inflation-Indexed Bonds
Interest Rate
CUSIP
3-518
912810 FD5
Total Inflabon-Indexed Bonds ..
Grand Total
912803 BN2
In
Tnousands
Reconstituted
This Month
Matunty Date
04115/28
PortIOn Held In
Unstnpped Form
POrtIOn Held In
Stnpped Form
80800
92,800
12,800
11,342,646
9,902,875
9,719,623
10,047,103
10,163,644
17,487,287
16,823,947
10,773,960
17,051,198
16,747,060
17,502,026
10,673,033
17,776,125
17,206,376
15,633,840
10,496,230
11,080,646
11,519,682
16,036,088
11,312,802
15,367,153
12,398,083
12,873,747
12,339,185
24,226,102
11,714,397
23,859,015
12,806,814
11,737,284
12,120,580
12,052,433
13,100,643
23,562,691
13,670,354
14,172,892
12,573,258
28,011,028
12,955,077
14,440,372
13,346,467
14,373,760
13,834,754
14,739,504
15,002,580
15,209,920
15,513,587
16,015,475
22,740,446
22,459,675
13,103,678
13,958,186
25,636,803
13,583.412
14,775,244
7,199,446
4,954,075
6,769,223
5,920,703
6,840,319
17,269,687
16,606,347
6,852,360
16,865,598
16,647,860
17,502,026
8,072,633
17,776,125
17,206,376
15,633,840
5,545,830
7,382,406
7,095,682
16,036,088
7,975,202
15,367,153
8,785,283
12,873,747
8,830,385
19,930,982
9,828,637
22,481,415
12,771,614
11,675,684
11,920,580
12,052,433
13,100,643
22,884,163
13,626,354
14,172,892
12,573,258
27,571,828
12,761,477
14,426,772
12,826,467
14,373,760
13,834,194
14,739,504
15,002,580
15,205,120
15,509,427
16,015,475
22,740,446
22,459,675
13,043,294
13,935,786
25,616,003
13,583.412
14,775,244
4,143,200
4,948,800
2,950,400
4,126,400
3,323,325
217,600
217,600
3,921,600
185,600
99,200
0
2,600,400
0
0
0
4,950,400
3,698,240
4,424,000
0
3,337,600
0
3,612,800
0
3,508,800
4,295,120
1,885,760
1,377,600
35,200
61,600
200,000
0
0
678,528
44,000
0
0
439,200
193,600
13,600
520,000
0
560
0
0
4,800
4,160
0
0
0
60,384
22,400
20,800
0
0
0
0
0
0
0
69,568
0
0
0
0
0
119,200
2.400
0
0
0
0
0
0
0
0
0
0
0
0
0
0
807,570,790
747,447,513
60,123,277
1,313,528
17.031, lOS
16,131,435
8,443,338
17,031,105
16,131,435
8,443,338
0
0
0
0
0
0
41,605,878
41.605,878
0
0
8,427,373
8.427,373
0
0
8,427,373
8,427,373
0
0
1338.262.842
1110.933,706
227,329,136
11,501,513
84,800
90,400
0
0
129,600
0
0
0
12,400
0
0
0
0
70,560
13,200
0
120,000
0
111,000
0
99,200
69,920
40.480
94,400
Nole On the 410 wOri<day 01 eam monlO Table VI WIll be available alter 3 00 p m eastern Orne on the Commert8 Oeparvnent's EconomiC Bullebn Board (EBB) and on the Bureau of the
PubliC OeDr. weDSile al htlp l/Www puDhcdel>ttreas goy For mont I~ at>out EBB call (202) ~-'966 Th. balances 1rV!1D . . . . . . -*/ ....... _ _ "tb'eq.-nt
adfu-
TABLE VI· HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, MAY 31,1998
Loan Description
Treasury Bonds:
CUSIP:
9128100M7
008
DR6
DU9
DN5
DPO
054
OT2
DVl
DW5
DX3
OY1
DZ8
EA2
EBO
EC8
ED6
EE4
EF1
EG9
EH7
EJ3
EKO
EL8
EM6
EN4
EP9
E07
ES3
ETl
EV6
EW4
EX2
EYO
EZ7
FAl
FB9
Interest Rate:
11·518
12
10-314
9-318
11·314
11·114
10-5/8
9-7/8
9-1/4
7·1/4
7·112
8-3/4
8-7/8
9-1/8
9
8-7/8
8-1/8
8-112
8-3/4
8-314
7·7/8
8-1/8
8-1/8
8
7·1/4
7·5/8
7·118
6-1/4
7·112
7·5/8
6-7/8
6
6-3/4
6-112
6-5/8
6-3/8
6-1/8
Total Treasury Bonds..........................
Corpus
STRIP
CUSIP
912803 AS9
ADS
AG8
AJ2
912800 AA7
912803 AAl
AC7
AE3
AFO
AH6
AK9
AL7
AM5
AN3
AP8
A06
AR4
AS2
ATO
AU7
AV5
AW3
AX1
AY9
AZ6
BAO
BB8
BC6
B04
BE2
BF9
BG7
BH5
BJl
BK8
Bl6
BM4
Principal Amount Outstanding in Thousands
Maturity Date
Total
Outstanding
11115104
05115/05
08115105
02115106
11115114
02115/15
08115/15
11115/15
02115/16
05115/16
11/15/16
05/15/17
08115/17
05/15/18
11/15/18
02115/19
08/15/19
02115120
05115/20
08/15120
02115/21
05/15/21
08/15121
11/15121
08115122
11115122
02115/23
08115/23
11/15/24
02115/25
08115125
02115/26
08115126
11/15/26
02115/27
08/15/27
11115/27
Portion Held in
Unstripped Form
Portion Held In
Stnpped Form
Reconstituted
This Month
8.301.806
4.260.758
9.269.713
4,755.916
6.005.584
12.667.799
7.149,916
6.899,859
7,266.854
18,823.551
18.864.448
18.194.169
14.016.858
8.708.639
9.032.870
19.250.798
20.213.832
10.228.868
10.158.883
21.418.606
11.113,373
11,958.888
12.163.482
32.798,394
10.352,790
10.699.626
18,374.361
22.909.044
11,469.662
11.725.170
12,602,007
12,904,916
10,893.818
11.493.177
10.456.071
10.735.756
22.518.539
4.532.206
2.821.958
7.189.713
4.747,916
2.879.984
11.466.999
6,702,556
5.146,259
7.086,054
18,565.951
18,058,928
9.133.849
9.165.658
3.039,839
2.090.870
6.201.198
18.182.152
5.869.268
3.036.643
5.361.486
10,042.973
4,473.768
6.218,842
8.272,519
8,883,190
2.712.426
11,041,561
18.114.420
3.160,862
3.321.970
10.413.847
12,589,316
10,148.218
10.864.377
8.995.271
10.452.556
22.467.339
3.769.600
1.438.800
2.080.000
8.000
3.125.600
1.200.800
447,360
1.753.600
180.800
257.600
805,520
9.060.320
4.851,200
5,668.800
6.942.000
13.049.600
2,031.680
4.359.600
7.122.240
16.057.120
1.070,400
7,485,120
5.944.640
24,525.875
1.469.600
7.987,200
7.332.800
4.794.624
8,308,800
8.403.200
2.188.160
315.600
745.600
628,800
1.460.800
283.200
51.200
166400
263.550
44.800
0
138.400
307.680
15.040
94.400
355.200
0
0
1.011,520
936.000
412,800
99.200
888.000
319.360
139.200
370.720
739,040
96.000
112.000
536.640
1.587.075
55,200
177.600
603.200
54.400
21.360
129.600
32.000
0
88.800
127.200
233.600
0
32.000
480.658.801
313.452.942
167.205.859
10.187.985
DEPARTMENT
OF
TREASURY~
~
THE
TREASURY
NEWS
~/7~. . . . . . . . . . . . . ._
................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 2:45 P.M. EDT
Remarks as Prepared for Delivery
June 3, 1998
SECRETARY ROBERT E. RUBIN
HARVARD BUSINESS SCHOOL CLASS DAY
I am honored to have been invited to speak with you today. I can remember when I
graduated from Harvard College, a long time ago, and then spent three days at Harvard Law
School before dropping out. At that time, I never imagined the world in which I would be living
in the decades to follow, partly because of my limited experience and partly because of the
immense and unpredictable changes that lay ahead.
Most of you have experienced far more of the world as you graduate from the Harvard
Business School than I had when graduating from Harvard College. But I would still give long
odds that because we live in an era of unprecedented dynamic change, your experience in the
decades ahead will tum out to involve much that you have little or no sense of today.
No one has ever charted just how wrong graduation speakers are about their predictions
of the future, or how little heed graduates pay to the advice offered in graduation addresses.
Having said that, today I would like to offer a few observations based on my experiences for your
consideration as people who have a broader set of opportunities and options than most Americans
about how you conduct your lives.
I will divide this discussion into two segments: Your professional lives first, and then your
contribution as citizens.
Let me quickly add that speaking to you from my own experience is a bit awkward for
me, partly because I don't like to talk about myself and partly because I am acutely conscious of
the role of chance in the outcomes of life. I remember talking once long ago with a legendary
Goldman, Sachs senior partner about an investment position that turned out well for reasons we
had not expected. He said he would rather be lucky than be smart. He came from the old school
of trading room management, where the principle technique was yelling, and his admonitions
RR-2490
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often implied that I had better be lucky because that was my only choice. In any case, I said I
disagree, and that you need to be both. As I look at my own life, and the lives of many others
I've known, I believe that intensity in your professional life is a commonality amongst those for
whom worldly matters have turned out well. But anyone who has done well will, if they're honest
with themselves, have little difficulty identifying various points in life where chance played a
critical role -- and that should lend both to appropriate humility about their own success and to
their advice to others about the conduct of life. That said, I will nevertheless offer my own
observations.
I still well remember after starting work at a law firm in New York - I eventually did
graduate from Yale Law School -- a very successful New York lawyer advised me that intensity
in your work is a requisite for success. But he went on to say that you shouldn't wear blinders
and should be willing to take chances. It didn't take terribly long before I realized that practicing
law was not what I wanted to do. At the same time, I had kept my eyes on the world around me,
and had become somewhat intrigued by something I knew nothing about: the then-vastly less
visible world of investment banking. So, after a number of investment banking firms had turned
me down -- in those days, the idea of a lawyer working as an investment banker was viewed as
somewhat odd-- I found a job at Goldman, Sachs in an area I'd never heard of: risk arbitrage.
So, I figured I'd try and if this didn't work, I would try something else. That was the
beginning of 26 years at Goldman Sachs. And, while 26 years at one place might seem rather
narrow, I found that exactly the same principles applied inside a firm: do your best with the
utmost focus, but also reach out for opportunities to get involved in other areas and to expand
your role. In later years that was the advice I always gave to people who came to work at
Goldman, Sachs -- do your job to the fullest, but also seek out opportunity to broaden your
experience and knowledge. And I still think that approach will serve you well.
As I spent those 26 years at Goldman Sachs, I also learned a valuable lesson about the
importance of people. The management literature today emphasizes that people matter~ that
businesses are built on the ideas and energy of employees; that managers can only be as successful
as the people who work with them. Thus, to say that people matter will not sound revelatory to
you. But people matter even more than you think.
After a few years at the firm, I had developed extensive experience in the highly technical
field of risk arbitrage, and I was able to use that to get involved in other areas of my firm's
business. Then the partner I reported to retired, and I remember one of the firm's senior partners
coming to me and saying that so far, I had only needed to be good at what I did, but now I had a
whole new and different challenge of learning to help lead the broad range of people who were
going to look to me for leadership. I quickly discovered that relating to those who worked
around me and trying to help a large number of people work effectively with each other was an
~normo.us, complex an.d time consuming undertaking, but also one that was extraordinarily
mterestmg and reward mg. In later years, as I participated in decisions about peoples' careers, I
have so often been struck by how many individuals who were very good at what they did seemed
2
relatively tone deaf to the people around them, which limited both the careers of the individuals
involved and the contributions they could make to their organizations.
You learn a lot more by listening than by talking, and you accomplish a lot more with
people by stressing their strengths as well as helping them focus on their shortcomings. Also, the
more opportunity and credit you give to those working with you -- and the more authority and
recognition they have, the more they are likely to accomplish and the better that is for you. And
finally, listening respectfully to the ideas of others improves your own understanding and leads to
better decisions. I don't know what the textbooks on management say, but these thoughts that I
picked up from others as I struggled to learn how to manage have always seemed to me a pretty
good primer.
I can remember when I first talked to then-President Elect Clinton about the possibility of
being part of his administration. He said that he was looking for people who not only had
experience and skill but who also worked well with others so that the total would be greater than
the sum of the parts rather than less than the sum of the parts. He wanted to avoid what he felt
too often occurred in administrations, where vast egos focused on shoving each other aside rather
than on working together to solve problems. As I said a moment ago, having been involved in a
great number' of decisions about promoting or not promoting people, I'm absolutely convinced
that you can distinguish yourself more and do better for yourself -- as well for others by doing
your job well, and working effectively with others -- both peers and those junior to you -- than by
trying to elbow others aside.
Another thought that comes to mind is one that I learned intellectually in college and law
school, but then internalized as a matter of financial life or death on Wall Street: Decisions are
about probabilities; not absolutes. One of the brightest people I knew in my time on the Street
was an arbitrager who had great confidence in his views. Once, on what was, in fact, an extremely
attractive investment, he ignored this fundamental lesson, and committed on a vast scale to a
position that he treated as an absolute rather than a high probability. Matters took an unexpected
tum, and he ended up bankrupt. That is a lesson for everything that I've ever seen, whether it be
an investment decision or a judgment about a major national policy issue. If you can internalize a
probabilistic mindset and live by that discipline, you'll be well prepared for the uncertainties and
complexities of life and your undertakings. Alternatively, if you think in terms of absolutes and
see things in black and white, sooner or later you'll fall over a cliff, most likely sooner.
Let me turn now and make some observations about another realm: your role as public
citizens.
And here, two things come together to suggest a course of action: number one, your
country needs you, and number two, you can do well by doing good.
You are leaving school to enter the workforce at a time when our country is doing very
well. But we also face enormous challenges that must be met if we are going to continue to be
3
successful 10 or 15 years from now. I can remember an interview I had with a well respected
European magazine toward the beginning of this Administration. After the interview, the
interviewer said that our economy was very strong right now but that in 15 or 20 years we would
be a second tier economy. I said that I didn't agree, but asked why he thought that. And he said,
"Two things. Your public schools and your inner cities."
In many ways, he was right.
These are challenges that we must meet now if we are going to be productive and
competitive in the global economy in the years and decades ahead. Many of you may feel
relatively immune from these matters, but I believe that our economy will fall far short of its full
potential for all of us -- no matter where we live or what our incomes may be -- unless these
challenges are met. Just think of the difference it would make in social costs and in productivity if
our public school system was strong and if the residents of our inner cities and distressed rural
areas were successfully equipped to enter the economic mainstream. As graduates of the Harvard
Business School, you are among the most privileged members of our society, and whatever your
vocation may be, our country needs the privileged to spend time on the central issues of our
society. Each of you can contribute to facing these issues -- for example, with respect to the
specific challenges I just mentioned, by personal involvement as a mentor for inner city kids or
through working to enlist your employer in the many practical programs to help support public
schools in individual communities. And I would argue that by pitching in, you not only help your
country, but you can directly help yourself.
A relatively senior figure on Wall Street said to me years ago that many of the most
important business relationships he had were with the people he met through his other activities.
He had found that his business and non-business lives fed each other to the benefit of both. And
you will find that beyond the business value outside involvement can provide, your life will gain
entirely new dimensions that are interesting and enlarging, and thus are their own reward. In my
case, for example, in the early 1970s I participated in meetings in the 28th Precinct Community
Council in Central Harlem. From the police officer who ran these meetings, I gained a different
perspective on the lives of our urban poor, a perspective that has stayed with me ever since.
I strongly believe that in some fair measure our country's future will depend on enlisting
its most gifted and best trained in the great issues of the nation. Hopefully, the country will
continue to be fortunate enough to have some such people in public service, but in most cases it
means people who are energetically involved in the private sector also spending some time on the
public challenges to our well-being.
Moreover, everything I've said applies at least equally to those of you from other
countries, especially those from developing nations, in going back to your home countries. Over
the past 10 or 20 years, I have worked extensively with developing countries and with countries
transitioning from Communism, and I can tell you from my own experience how great the needs
and the opportunities for people with the training and skills you now have.
4
With that in mind, let me tum for a moment to the interdependent global economy. In that
global economy, the economic well-being of each nation is enormously affected by the economic
well-being of the rest of the world, and that will be even more true in the years and decades
ahead. Moreover, American engagement in the issues of the global economy, such as trade
liberalization, promoting growth and reform in developing nations, and dealing with the issues of
financial instability, such as the Mexican crisis in 1995, the current Asian crisis, and reform of the
architecture of the global financial markets, is absolutely critical to fostering prosperity in the
United States and around the globe.
Yet, based on the experience of my five and a half years in this Administration, I have
become deeply concerned -- and I can tell you the President very much shares this concern -- that
public support for forward looking international economic policy may be waning at a time when
our country's economic, national security and geopolitical interests require just the opposite. For
example, as I speak here this afternoon, the United States lacks fast track trading authority and
our trading partners are moving forward on new trading agreements without us; we have failed to
pay our arrears to the United Nations, and if we fail to pay by the end of the year, we will lose our
vote in the General Assembly; and we have failed to approve funding for the International
Monetary Fund at a time when a sufficiently funded IMF to deal with potential crises is critical to
our economic and national security interests and the rest of the world is waiting to fund once we
do.
I often speak to business groups, and say to them that the business community is uniquely
situated to address this critical problem. Business has lived this new world of the global economy,
understands its opportunities and benefits, and has the resources to convey that understanding to
the American people. You will have the opportunity to be part of businesses around the country,
and even in the early stages of your career, you can help urge your companies to play the role that
I believe only business can play in building the absolutely requisite public support for a robust
international role for our country.
At a recent meeting of finance ministers from the Pacific region, one Minister asked me
how the world was ever going to deal with the immense challenges of the new global economy
and new global financial markets if the world's major economy was going to shrink from its
appropriate role. You have an extraordinary opportunity to help us get back on the right track.
Let me conclude with a comment about government and public service. It has become
fashionable among some to denigrate public service, and to denigrate government. I believe that
the well-being of our country requires just the opposite. Whatever your views may be on the
appropriate role of government -- and that is a reasonable debate that has gone on for as long as
we have been a republic -- there is no question that there are functions central to our well-being
that only government can perform, and that our country benefits mightily from attracting and
retaining outstanding people in public service. Thus, I believe that our country's well being
~requires that each of us, especially those in positions of influence as many of you will be, respect.
5
those in public service, manifest that respect in every way possible, and reject the denigration of
public service.
Moreover, speaking for myself, the opportunity to apply my 26 years of Wall Street
involvement in economic issues, markets and the global economy to the public policy issues of our
nation has been an extraordinary experience. I had always wanted to spend some time in
government ifI could do so in a meaningful way, partly because I wanted to contribute more
broadly and partly because I wanted to see how the world worked from the perspective of
government. I would urge all of you to give thought to that possibility yourself at some point in
your career, and to involve yourself in our nation's political life in one way or another.
Graduation speeches tend not to be long remembered. But the feelings of pride that
families have in their graduating students, the feelings of gratitude that students have for the help
of their parents and families, and the feelings of respect that departing students have for those
who taught them - these feelings should never go away, and, in fact, should intensify over time.
I hope you have an opportunity to thank your families and teachers for what they have
done to lead to this special day. And, then, that you can go on to fully realize -- for yourself and
your country -- the great opportunities that this day and all that led up to it give you.
-30-
6
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. _ 20220 _ (202) 622.2960
EMBARGOED UNTIL 9:30 A.M. EDT
Text as Prepared for Delivery
June 5, 1998
TREASURY UNDER SECRETARY FOR DOMESTIC FINANCE
JOHN D. HAWKE, JR.
HOUSE GOVERNMENT REFORM AND OVERSIGHT SUBCOMMITTEE
ON GOVERNMENT MANAGEMENT, INFORMATION AND TECHNOLOGY
Mr. Chairman and Members of the Subcommittee, thank you for this opportunity to
discuss the Department of the Treasury's progress in implementing the Debt Collection
hnprovement Act of 1996 (DClA). Your continued interest in our efforts to carry out this
important program has been of great value to us, and I am pleased to report that we have made
significant progress since the last of these oversight hearings. I want to assure you again that the
Department places a high priority on the successful implementation of the DCIA.
There have been major changes in both our strategy and in the management team
assigned to the debt collection program. During the past several months our approach has been
to make the decisions that will best move the program forward -- even if that means reassessing
our approach, refocusing priorities and acknowledging past mistakes.
Analvsis of the Debt Portfolio
During our reassessm~nt of the program, it became clear that we needed a much better
understanding of the composition of the $52 billion portfolio of delinquent debts owed to the
government. In order to avoid a possible perception that the entire $52 billion would actually be
collectable, we determined that an analysis of the debt portfolios of the Federal agencies was
necessary. We have now established through internal and independent external analysis that only
about 60% of the $52 billion is referable to Treasury for collection and that a significantly
smaller amount is likely to be collectable by Treasury under the DClA.
RR-2491
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Our approach in this endeavor was twofold. First, we met v.rith the five major Federal
agencies as well as all other Chief Financial Officer agencies to assist them in analyzing the
composition and referability of their non-tax. debt. These 24 agencies hold 92 percent of all
delinquent Federal non-tax. debt. We then contracted v.rith Price Waterhouse to provide an
analysis of the composition of this debt and a ''walkdo''WIl'' from the $52 billion to the amount
that Treasury could ultimately expect to collect through its own efforts under the DCIA.
Price Waterhouse calculated that $47.2 billion of the $52 billion is older than 180 days,
and thus v.rithin the scope of the DClA. Of that amount, $18.1 billion is ineligible for referral to
Treasury for various reasons. For example, many of the debts are not legally enforceable because
the debtor has filed for bankruptcy protection or is otherv.rise legally entitled to temporary relief
from collection action; other debts are in dispute and the subject of pending litigation. In
addition, foreign sovereign debt is excluded. Of the remaining $29.1 billion that is eligible for
referral to Treasury for offset, $8.5 billion is eligible for cross-servicing. The remaining $20.6
billion is ineligible for cross-servicing due to a number ofDClA exemptions, such as those for
debt in litigation and debt that has been referred to a private collection agency.
Taking into account these limitations on cross-servicing and administrative offset, and
after examining private sector experience in collecting debt with comparable age characteristics,
Price Waterhouse has estimated that Treasury can collect between $864 million and $1 billion
annually once all eligible debts are referred and the program is fully implemented. An estimated
$661 million of this total will result from the ongoing collection activity of the tax refund offset
program, while $117 million to $225 million will result from cross-servicing, and an additional
$86 million to $142 million from administrative offset.
The Price Waterhouse analysis not only provides Treasury with a better understanding of
the composition and age oftbe body of debt owed the Federal government, but also provides a
quantitative basis upon which to establish realistic program goals, including both agency referral
and collection targets. The information allows us to verify which of the collection tools will be
the most effective and to set our priorities accordingly.
The ITOP/GTOP Svstem Choice
Another critical decision we have confronted relates to the choice ofwbich automated
system to use to accomplish administrative offsets. At the time of the last hearing we discussed
t\Vo systems: One, which we identified as the Interim Treasury Offset Program (ITOP), was
developed for us by the Federal Reserve Bank of San Francisco. This system became operational
in the spring of 1996 and remains in use today. The other, which we have called the Grand
Treasury Offset Program (GTOP), was developed by a private sector vendor starting in
September 1996, after FMS management decided that a new automated system was needed to
meet the anticipated. volume of offsets and to provide more efficient matching of payment and
debt files. It was planned that once GTOP was developed and made operational, it would replace
ITOP.
2
Our approach in this endeavor was twofold. First, we met with the five major Federal
agencies as well as all other Chief Financial Officer agencies to assist them in analyzinCT the
composition and referability of their non-tax debt. These 24 agencies hold 92 percent ;f all
delinquent Federal non-tax debt. We then contracted with Price Waterhouse to provide an
analysis of the composition of this debt and a "walkdown" from the $52 billion to the amount
that Treasury could ultimately expect to collect through its own efforts under the DeIA.
Price Waterhouse calculated that $47.2 billion of the $52 billion is older than 180 days,
and thus within the scope of the DCIA. Of that amount, $18.1 billion is ineligible for referral to
Treasury for various reasons. For example, many of the debts are not legally enforceable because
the debtor has filed for bankruptcy protection or is otherwise legally entitled to temporary relief
from collection action; other debts are in dispute and the subject of pending litigation. In
addition, foreign sovereign debt is excluded. Of the remaining $29.1 billion that is eligible for
referral to Treasury for offset, $8.5 billion is eligible for cross-servicing. The remaining $20.6
billion is ineligible for cross-servicing due to a number ofDCIA exemptions, such as those for
debt in litigation and debt that has been referred to a private collection agency.
Taking into account these limitations on cross-servicing and administrative offset, and
after examining private sector experience in collecting debt with comparable age characteristics,
Price Waterhouse has estimated that Treasury can collect between $864 million and $1 billion
~ually once all eligible debts are referred and the program is fully implemented. An estimated
$661 million of this total will result from the ongoing collection activity of the tax refund offset
program, while $117 million to $225 million will result from cross-servicing, and an additional
$86 million to $142 million from admjnistrative offset.
The Price Waterhouse analysis not only provides Treasury with a better understanding of
the composition and age of the body of debt owed the Federal government, but also provides a
quantitative basis upon which to establish realistic program goals, including both agency referral
and collection targets. The information allows us to verify which of the collection tools will be
the most effective and to set our priorities accordingly.
The ITOP/GTOP Svstem Choice
Another critical decision we have confronted relates to the choice of which automated
system to use to accomplish administrative offsets. At the time of the last bearing we discussed
two systems: One, which we identified as the Interim Treasury Offset Program (ITOP), was
developed for us by the Federal Reserve Bank of San Francisco. This system became operational
in the spring of 1996 and remains in use today. The other, which we have called the Grand
Treasmy Offset Program (GTOP), was developed by a private sector vendor starting in
September 1996, after FMS management decided that a new automated system was needed to
meet the anticipated volume of offsets and to provide more efficient matching of payment and
debt files. It was planned that once GTOP was developed and made operational, it would replace
ITOP.
2
DEPARTMENT
IREASURY
OF
THE
TREASURY
S" NEW S
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL 9:30 A.M. EDT
Text as Prepared for Delivery
June 5, 1998
TREASURY UNDER SECRETARY FOR DOMESTIC FINANCE
JOHN D. HAWKE, JR.
HOUSE GOVERNMENT REFORM AND OVERSIGHT SUBCOMMITTEE
ON GOVERNMENT MANAGEMENT, INFORMATION AND TECHNOLOGY
Mr. Chairman and Members of the Subcommittee, thank you for this opportunity to
discuss the Department of the Treasury's progress in implementing the Debt Collection
Improvement Act of 1996 (DCJA). Your continued interest in our efforts to carry out this
important program has been of great value to us, and I am pleased to report that we have made
significant progress since the last of these oversight hearings. I want to assure you again that the
Department places a high priority on the successful implementation of the DCIA.
There have been major changes in both our strategy and in the management team
assigned to the debt collection program. During the past several months our approach bas been
to make the decisions that will best move the program forward -- even if that means reassessing
our approach, refocusing priorities and acknowledging past mistakes.
Analvsis of the Debt Portfolio
During our reassessm~nt of the program, it became clear that we needed a much better
understanding of the composition of the $52 billion portfolio of delinquent debts owed to the
government. In order to avoid a possible perception that the entire $52 billion would actually be
collectable, we detennined that an analysis of the debt portfolios of the Federal agencies was
necessary. We have now established through internal and independent external analysis that only
about 60% of the $52 billion is referable to Treasury for collection and that a significantly
smaller amount is likely to be collectable by Treasury under the DCJA.
RR-2491
For press releases, speeches, public schedules alld official biographies, call our 24-hour fax line at (202) 622-2040
One of the top priorities of the new management at FMS has been to evaluate these two
systems to determine which can best move the debt collection program forward, based on an
assessment of the requirements and circumstances that exist today. After carefully assessing the
technical data processing issues, as well as the merits from a business perspective, FMS
management has concluded, and the Department agrees, that the best approach is to use the ITOP
system for the administrative offset program. lTOP is a proven system; it has been in operation
for approximately two years; it has recently been successfully enhanced to accommodate the FY
1998 modified tax refund offset program; and it can be further enhanced to handle greater
volumes of debts and additional payment streams, and to accomplish all the functions required
under DCIA in a manner that is faster, less uncertain, and at a lower cost than the other system.
FMS management believes that the lTOP system provides us the best opportunity to
maximize the collection of delinquent debts for the foreseeable future. While our decision not to
pursue GTOP means that approximately $5 million invested in that system will have been spent
without benefit to the Government, that decision avoids the expenditure of even greater amounts
that would be necessary to pursue GTOP further - and even then the outcome would still not be
certain. I believe this was a sensible and responsible decision.
DClA Progress
I would like to turn now to Treasury's progress in implementing the DCIA.
•
In the November hearing, we testified that more than 29,000 debts, having a dollar value
in excess of $460 million, had been referred to FMS for cross-servicing. Over the last six
months, total referrals have more than tripled, to over 97,000 debts, totaling $1.8 billion.
•
We also testified that cumulative cross-servicing collections totaled $1.1 million,
excluding private collection agencies, which were not active in November of
1997. This total has increased to almost $5.5 million., which includes collections
by PCAs. In addition, repayment agreements, which are voluntary agreements by
debtors to make scheduled installment payments, have increased from $2.7
million to $31.1 million. Much of this progress is attributable to our increased use
of demand letters, on Treasury letterhead, to delinquent debtors. In addition, the
successful implementation of the government-wide private collection agency
(PCA) contract in January of this year is beginning to yield results. We have
begun assigning a large percentage of cross-servicing referrals to 12 peAs, and
they have collected over $600,000 as of May 15th •
•
In November we testified that the Treasury Offset Program database contained
2.4 million referred debts totaling almost $16.7 billion in delinquent receivables.
To date, the database has almost 4.5 million debts totaling approximately $23.5
billion. This represents an increase since our last hearing of 2.1 million referrals
and an additional $6.8 billion in receivables.
3
•
As of the last hearing, cumulative administrative offset collections totaled more
than $936,000. Today, collections are almost $2 million.
Treasury has made significant progress in other areas as well:
•
In January, FMS and IRS completed processing and loading agency debt files to
the Treasury Offset Program and Tax Refund Offset Program databases for the
1998 transition year process, the precursor to complete merger of the two offset
programs in January 1999. This increased the database of delinquent Federal nontax debt available for administrative offset from $9.4 billion to $16.7 billion and
represents an increase from 17 to 36 participating agencies. Tax refund offsets
were higher this year than they were last year, increasing from $1.39 billion in
May 1997 to $1.74 billion in May 1998. Commissioner Gregg will provide more
details in his testimony of our work in this area.
•
We are working closely with the National Finance Center to incorporate their
Federal salary payments into the administrative offset program, and with the
Social Security Administration to develop a joint implementation plan for
inclusion of SSA benefit payments into the program.
•
In compliance with the President's Executive Order mandating that Treasury
support collection of delinquent child support debt through administrative offset,
we are working with the Department of Health and Human Services and the States
to bring more delinquent child support debts into the system for offset. The
number of States and territories participating has increased from 8 to 15, with
referrals totaling over $6.8 billion as of May 15th.
•
In order to increase and strengthen agency compliance with DCIA referral
requirements, FMS has implemented an outreach effort that focuses on the
transfer of all eligible delinquent non-tax debt to FMS. Through this effort, we
are working with approximately 50 agencies which carry the majority of
delinquent debt receivables. FMS has worked out the terms for debt referral with
the five major credit agencies (Department of Education, Department of
Agriculture, Department of Veterans Affairs, Small Business Administration, and
Department of Housing and Urban Development), which hold 70 percent of all
delinquent Federal non-tax debt We have also met with al124 CFO agencies and
have obtained commitments for debt referral. We plan to complete meetings with
all remaining agencies and expect to have referral schedules in place by July 31,
1998.
In this regard, I would like to thank you, Mr. Chairman., and Congresswoman
Maloney, for your efforts to assure that agencies understand the importance of
4
•
As of the last hearing, cumulative administrative offset collections totaled more
than $936,000. Today, collections are almost $2 million.
Treasury has made significant progress in other areas as well:
•
In January, FMS and IRS completed processing and loading agency debt files to
the Treasury Offset Program and Tax Refund Offset Program databases for the
1998 transition year process, the precursor to complete merger of the two offset
programs in January 1999. This increased the database of delinquent Federal nontax debt available for administrative offset from $9.4 billion to $16.7 billion and
represents an increase from 17 to 36 participating agencies. Tax refund offsets
were higher this year than they were last year, increasing from $1.39 billion in
May 1997 to $1.74 billion in May 1998. Commissioner Gregg will provide more
details in his testimony of our work in this area
•
We are working closely with the National Finance Center to incorporate their
Federal salary payments into the administrative offset program, and with the
Social Security Administration to develop a joint implementation plan for
inclusion of SSA benefit payments into the program.
•
In compliance with the President's Executive Order mandating that Treasury
support collection of delinquent child support debt through administrative offset,
we are working with the Department of Health and Human Services and the States
to bring more delinquent child support debts into the system for offset. The
number of States and territories participating has increased from 8 to 15, with
referrals totaling over $6.8 billion as of May 15th.
•
In order to increase and strengthen agency compliance with DCIA referral
requirements, FMS has implemented an outreach effort that focuses on the
transfer of all eligible delinquent non-tax debt to FMS. Through this effort, we
are working with approximately 50 agencies which carry the majority of
delinquent debt receivables. FMS has worked out the terms for debt referral with
the five major credit agencies (Department of Education, Department of
Agriculture, Department of Veterans Affairs, Small Business Administration, and
Department of Housing and Urban Development), which hold 70 percent of all
delinquent Federal non-tax debt We have also met with all 24 CFO agencies and
have obtained commitments for debt referral. We plan to complete meetings with
all remaining agencies and expect to have referral schedules in place by July 31,
1998.
In this regard, I would like to thank you, Mr. Chairman, and Congresswoman
Maloney, for your efforts to assure that agencies understand the importance of
4
One of the top priorities of the new management at FMS has been to evaluate these two
systems to determine which can best move the debt collection program forward, based on an
assessment of the requirements and circumstances that exist today. After carefully assessing the
technical data processing issues, as well as the merits from a business perspective, FMS
management has concluded, and the Department agrees, that the best approach is to use the ITOP
system for the administrative offset program. ITOP is a proven system; it has been in operation
for approximately two years; it has recently been successfully enhanced to accommodate the FY
1998 modified tax refund offset program; and it can be further enhanced to handle greater
volumes of debts and additional payment streams, and to accomplish all the functions required
under DCIA in a manner that is faster, less uncertain, and at a lower cost than the other system.
FMS management believes that the ITOP system provides us the best opportunity to
maximize the collection of delinquent debts for the foreseeable future. While our decision not to
pursue GTOP means that approximately $5 million invested in that system will have been spent
without benefit to the Government, that decision avoids the expenditure of even greater amounts
that would be necessary to pursue GTOP further - and even then the outcome would still not be
certain. I believe this was a sensible and responsible decision.
DCIA Progress
I would like to turn now to Treasury's progress in implementing the DCIA.
•
In the November hearing, we testified that more than 29,000 debts, having a dollar value
in excess of $460 million, had been referred to FMS for cross-servicing. Over the last six
months, total referrals have more than tripled, to over 97,000 debts, totaling $1.8 billion.
•
We also testified that cumulative cross-servicing collections totaled $1.1 million,
excluding private collection agencies, which were not active in November of
1997. This total has increased to almost $5.5 million, which includes collections
by peAs. In addition, repayment agreements, which are voluntary agreements by
debtors to make scheduled installment payments, have increased from $2.7
million to $31.1 million. Much of this progress is attributable to our increased use
of demand letters, on Treasury letterhead, to delinquent debtors. In addition, the
successful implementation of the government--wide private collection agency
(PCA) contract in January of this year is beginning to yield results. We have
begun assigning a large percentage of cross-servicing referrals to 12 PCAs, and
they have collected over $600,000 as of May 15th •
•
In November we testified that the Treasury Offset Program database contained
2.4 million referred debts totaling almost $16.7 billion in delinquent receivables.
To date, the database has almost 4.5 million debts totaling approximately S23.5
billion. This represents an increase since our last hearing of 2.1 million referrals
and an additional $6.8 billion in receivables.
3
referring debt. Your recommendation last November for a \Vhite House directive
on this matter resulted in a communication from OMB Director Raines to all
Departments and Credit Agencies to accelerate their compliance in referring
delinquent debt.
•
Since our last hearing, we have published six regulations to implement the
provisions of the DeIA. Commissioner Gregg will provide details on our
progress in this area, but I want to point out that the critical regulations are in
place.
I would like to conclude by emphasizing that Treasury recognizes, despite recent
progress, that there is still much work to be done. The Price Waterhouse analysis has provided
us with a realistic target, and we are working diligently to achieve the projected potential
collections.
Mr. Chainnan, that concludes my testimony. I would now like to ask Commissioner
Gregg to discuss FMS's implementation of the DClA in greater detail.
-30-
5
Cross Servicing Performance Summary
Referrals (in millions)
2200 r2000
1800
'1600 ...
Collections (in millions)
----.
$7.-'- - - - $6
'",,'
.. :
1400 .1200
1000
$5
$4
$3
800
$1.1
$2
600
400
200 ..
'1,.
,<
$1
.A
$0 ,--'-
0'
Cross-Servicing Referrals
[J.'
Novembcr
May
1997
". 1998
CrossnServlclng Collections
r
n
Novembcl'
May
1997
LJ1998
Nom: Refcll'al and collection figures are cum ulativc from the date of program inccption.
Private Collection Agencies (peA)
Performance Summary
Referrals (in millions)
Collections (in thousands)
1000r----------------------~
$1,000 . --.- - - - - - - - - - - - - - ,
800 .-
$800 .-
600 .-
$600 .-
400
$400 .-
200
$200
$0
o1 . _ _ _ _ _ _ .
r:
Cross"Servlcing Referrals
~._..
.
NovembeI'DMnY
1997
.
. 1998
,
$0
$0'
r
Cross-Servicing Collections
D
November
May
1997
..... 1998
NOTE: Rcfcrral and collection figures are cumulative from the date of program inception.
Treasury Offset Performance
Federal Non-tax Debt
Referrals (in billions)
25
Collections
r - .- - - - - - - - - - - - - ,
20
15
$1,800,000
$1,600,000
0--
$1,400,000
5
0
0-
$1,200,000
10
0--
$1,000,000
0-
0-
0-
$800,000
0
-
$600,000
O l....._ Federal Non-tax Debt Referrals
November
1997
O·. May
1998
Federal Non-tax Debt Collections
Novembe."
1997
0' May
1998
NOTE: CoJlectioll figures are cumulative from the date of program inception.
Treasury Offset Performance
Child Support
Number of Participating StatesfTerritories
Collections
20 . - - - - - - - - - - - - - - - - - - - - ,
$400,000
'18
0-
'16
$300,000
'14
12
10
8
r - .- - - - - - - - - - - .
$200,000
0
-
0-
0
-
0
-
6
$100,000
4
2
$0'-
0''-Voluntary Participation
November
1997
D
May
.' 1998
Child Support Collections
Novembc.
1997
o
D·
' 1998
May
NOTE: Collection figures are cumulative from the date of program inception.
Treasury Offset Performance Summary
(l?ederal Non-tax Debt & Child Support)
Referrals (In billions)
Collections
30~,----------------------~
$2,500,000 .....-.--~~
25
$2,000,000
20
$1,500,000
15
$1,000,000
10
5
o
$500,000
0
-
$0
1-1_ _
Treasury Offset Referrals
NovcmberO·· May
1997
1998
L - I- '
Treasury Offset Collections
NovemberDMa y
1997
.. 1998
NOTE: Collection figures are cumulative from the date of program inception.
r-rax Refund Offset Performance
Federal Non-tax Debt
Referrals (in billions)
Collections (In millions)
25 .....
$1,000 '-'- - - - - - - - - - ,
1
- - -
----------.....
20
$800 .-
'15
$600 .-
"' 0 .-
$400
5
$200
o .- -
$0
L
Federal Non-tax Debt Referrals
MayDMay
1997 .. 1998
1"-----'
Federal Non-tax Debt Collections
Mayr;1May
1997U1998
Tax Refund Otafset Performance
Child Support
Referrals (in billions)
Collections (in millions)
50
40 "-
30
20 "10 1
o
- "
-
IL-----I
$1,200
$1,100
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
r
"
"-"-
"-
"-""---...I
1.-'
Child Suppot't Collections
Child Support Referrals
MayD'May
1997 '. 1998
MayDMay
1997' 1998
b
.... .. _ __
~
I
Tax Refund Offset Performance Summary
(Federal Non-tax Debt & Child Support)
Referrals (in billions)
Collections (In billions)
70~1----------------------~
$2.5 .--,- - - - - - - - - - - - ,
60
0
-
$2
50
0
-
$1.5
40
30 "-
20
10
$1 "-
0
-
$0.5
0-
0
0'
-
$0
''------oJ
I'
Treasury Offset Referrals
May
0-
May
1997, 1998
n"eaSlII"Y Offset Collections
MayDMa y
1997 -. 1998
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
EMBARGOED UNTIL 9:30 A.M. EDT
STATEMENT FOR THE RECORD
Text as Prepared for Delivery
June 4, 1998
TREASURY DEPUTY ASSISTANT SECRETARY (TAX ANALYSIS)
JOHN KARL SCHOLZ
SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES
Mr. Chainnan and Members of the Committee, I appreciate the opportunity to discuss
with you today the Administration's climate change tax incentives.
As you know, a few months ago, in the Administration's budget for FY 1999, the
President presented to the Congress his plan to begin addressing climate change. That plan
includes $3.6 billion of tax incentives that will encourage energy efficiency and renewable energy
sources. The proposed tax incentives are part of a larger package of technology initiatives. In
addition to the $3.6 billion of tax incentives, the Administration proposed $2.7 billion for R&D
and deployment of energy efficiency, renewable energy, and carbon-reducing technologies. These
provide a total of$6.3 billion in new funding and tax incentives over five years. We believe that
these initiatives will stimulate the development and use of technologies that can help to improve
energy efficiency and reduce greenhouse gas emissions.
My comments today will focus on an explanation of the Administration's proposed tax
incentives.
DISCUSSION
Individuals and businesses underinvest in energy-saving technologies because the private
returns from those investments are lower than the benefits to society. Private incentives may be
too low because the market prices that serve as the signals that influence investment decisions do
not take into account the benefits to society attributable to energy savings. Investments in
energy-saving technologies can reduce dependence on oil imports and slow the buildup of
greenhouse gases in the atmosphere. Tax incentives are an appropriate method for addressing the
failure of market prices to achieve the desirable level of investment in energy-saving technologies
because they can increase the private return from the investment by reducing its cost.
RR-2492
For press releases, speeches, public schedules and official biographies, call our 24./tour fax line at (202) 622-2040
The proposed tax incentives are intended to reduce energy consumption and greenhouse
gas emissions by encouraging the deployment of technologies that are highly energy efficient
and that use renewable energy sources. Tax incentives can only be claimed for items that meet
high standards for energy efficiency, use renewable energy sources, or reduce emissions of
certain highly potent greenhouse gases. If the incentives are successful and are claimed by
taxpayers, there will be energy savings and reductions in greenhouse gas emissions. If taxpayers
do not take advantage of the incentives, however, there will be no revenue loss.
Specifically, we designed the incentives to take into account the following considerations:
(1) Superior energy efficiency compared to conventional equipment. The eligible
items must meet high standards for energy efficiency or use renewable energy sources. This helps
to ensure that scarce public resources are being used for the intended goal of reducing
greenhouse gases.
(2) High threshold for eligibility. The eligible items must presently account for a small
share of the market. This minimizes windfalls for purchases that would have been made anyway.
(3) High up-front costs compared to conventional equipment. The targeted
technologies have significantly higher purchase prices than conventional equipment and, at current
market prices, are not universally cost-effective. These high up-front costs are another reason not
many would be purchased without the credit.
(4) Commercially available. The items must be commercially available or near
commercialization. This ensures that the incentives encourage the deployment of new
technologies that private markets have already developed.
(5) Ease of administration. The items must be able to be defined precisely enough so
that the Internal Revenue Service can administer the incentives. This helps to ensure that
incentives are claimed only for items for which they are intended.
We also targeted tax incentives to address certain emissions of highly potent greenhouse
gases that in some cases have atmospheric lifetimes of thousands of years and a global warming
potential as much as several thousand times greater than carbon dioxide, the most abundant
greenhouse gas.
The tax incentives the Administration has proposed cover the four major greenhouse gasemitting sectors of the economy: buildings, industry, transportation, and electricity.
Buildings
Buildings currently account for about one-third of energy consumption and the related
greenhouse gas emissions. The proposed tax incentives for the buildings sector would encourage
2
investment in a new generation of energy-efficient building equipment, highly energy-efficient new
homes, and rooftop solar systems.
Tax credit for highly energy-efficient building equipment
A 20 percent tax credit would be provided for the purchase of certain highly energyefficient building equipment. This credit encourages the purchase of equipment that wilI improve
the energy efficiency of both residential and commercial buildings. The items covered are certain
fuel cells, electric heat pump water heaters, natural gas water heaters, electric heat pumps, natural
gas heat pumps, and advanced central air conditioners. Only very energy efficient equipment of
each type would be eligible. The credit would be temporary -- for equipment purchased between
January 1, 1999 and December 31, 2003 (fuel cells would be delayed one year). The revenue cost
of this incentive is estimated to be $1.4 billion for FY 1999 - 2003.
The proposed tax credits reflect the considerations noted above. Eligible items embody
new, cutting edge technologies, generally capturing less than 1 percent of market sales.
Therefore, few of the credits would go for purchases that would have been made anyway. These
top-tier technologies have substantial purchase prices and are not universally cost-effective, but
offer superior energy efficiency compared to conventional equipment. For example, compared to
typical units on the market, the eligible advanced air conditioning systems and electric heat pumps
are 40 percent more efficient, and eligible electric heat pump water heaters and natural gas heat
pumps are about twice as efficient. Eligible items are currently available. Energy efficiency
standards are available for the eligible equipment so that items could be defined precisely enough
for IRS to administer the credit.
Through 2008, we estimate that over 7 million taxpayers will purchase energy efficient
equipment eligible for the credit. As noted above, eligible units are substantially more energy
efficient than the typical units on the market.
Tax credit for new energy-efficient homes
Residences account for about one-sixth of US greenhouse gases and offer one of the
largest sources of energy saving potential. Almost one miIlion new homes and manufactured
homes are built and sold each year. Some states and certain Federal programs require new houses
to meet Model Energy Code standards for insulation and related construction standards, and for
heating, cooling and hot water equipment. But the energy efficiency of new homes could be
improved by 50 percent or more through the use of energy efficient building practices and more
efficient heating and cooling equipment.
To encourage the purchase of new highly energy-efficient homes, a tax credit would be
provided equal to one percent of the purchase price (up to a maximum credit of $2,000) of new
homes that use at least 50 percent less energy for heating, cooling and hot water than the Model
3
Energy Code. The full credit would be available for homes purchased between January 1, 1999
and December 31,2003, and would phase out in 2006. The revenue cost of this incentive is
estimated to be $0.2 billion for FY 1999 - 2003.
Again, we have set a high threshold for eligibility for the credit. Eligible houses would be
very energy efficient compared to present standards. Energy used in housing eligible for the
credit would be reduced by 75 percent to 85 percent compared to existing housing and by over 50
percent compared to new housing.
Tax credit for rooftop solar systems
Solar energy systems, which accounted for .02 percent of electricity generation in 1996,
have the potential to reduce greenhouse gas emissions and energy costs for businesses and
individuals. The tax credit for the purchase of rooftop photovoltaic (PV) systems and solar water
heating systems solar systems would make these systems more affordable and encourage their
purchase. The credit would be 15 percent of qualified investment up to a maximum credit of
$2,000 for PV systems and $1,000 for solar water heating systems. The credit would be available
from January 1, 1999 to December 31, 2003 for solar water heating systems, and to December
31, 2005 for rooftop PV systems. The revenue cost of this incentive is estimated to be $0.1
billion for FY 1999 - 2003.
This tax initiative will help to achieve the President's goal of one million solar roofs by
2010. Heat and electricity produced from solar energy systems produce no greenhouse gases.
Industry
The proposed tax incentives for industry would promote energy efficiency by encouraging
investments in combined heat and power systems that make effective use of energy that is
otherwise wasted in producing electricity by more conventional methods. Tax credits are also
provided to encourage the replacement of certain electricity circuit breakers that are prone to leak
a potent greenhouse gas and the purchase of equipment that recycles certain greenhouse gases
used in the semiconductor industry.
Tax credit for combined heat and power (CHP) systems
CHP systems use thermal energy that is otherwise wasted in producing electricity by more
conventional methods. These systems increase energy efficiency, lower the consumption of
primary fossil fuels and reduce carbon emissions as compared with conventional methods.
To encourage and accelerate investment in CHP equipment, a 10 percent tax credit would
be provided for investments in CHP systems that meet certain energy efficiency requirements. A
qualified system would be required to produce at least 20 percent of its t'Jtal useful energy in the
4
form of both thermal energy and electric or mechanical power, and would have to meet certain
efficiency standards. The credit would apply to property placed in service between January 1,
1999 and December 31, 2003. The revenue cost of this incentive is estimated to be $0.9 billion for
FY 1999 - 2003.
Current cogeneration capacity is nearly 45 gigawatts. The credit should increase that
capacity by about ten percent. Eligible CHP systems should reduce input energy requirements by
about one-third compared to conventional systems. This saving is achieved by capturing the
current waste heat that is created during the generation of electrical energy and using that waste
heat in a thermal application. This saves fuel costs and generates fewer greenhouse gas emissions.
Tax credit for replacement of certain circuit breaker equipment
Certain older, large power circuit breakers used in the transmission and distribution of
electric power are particularly prone to leak sulfur hexafloride (SF6). This equipment, using a
dual pressure technology that was no longer produced after 1985, is particularly prone to leak as
the seals corrode over time. The purpose of the tax incentive is to encourage utilities to replace
the old equipment with new equipment. To prevent the old equipment from being sold to another
utility in the US or abroad, the old equipment must be certified by an appropriate third party to
have been destroyed.
To encourage the replacement ofleaky circuit breakers, a 10 percent credit would be
provided for the cost of new equipment. The credit would apply to new equipment placed in
service between January 1, 1999 and December 31, 2003. The revenue cost of this incentive is
estimated to be less than $50 million for FY 1999 - 2003.
Tax credit for perfluorocompound (PFC) and hydrofluorocarbon (HFC) recycling equipment
PFCs and HFCs are among the most potent greenhouse gases because of their extreme
stability in the atmosphere and strong absorption of radiation. Because of the rapid anticipated
growth of the semiconductor industry, the use of these gases is expected to grow at rates of20 to
30 percent per year for the next ten years. A 10 percent tax credit would be provided for the
purchase of equipment to recycle and recover PFCs and HFCs used in the production of
semiconductors. The credit would apply to equipment placed in service between January 1, 1999
and December 31, 2003. The revenue cost of this incentive is estimated to be less than $50
million for FY 1999 - 2003.
These two tax credits are targeted toward emissions of very potent greenhouse gases that
in some cases have atmospheric lifetimes of thousands of years and a global warming potential as
much as several thousand times greater than carbon dioxide.
5
Transportation
The proposed tax initiatives in the transportation sector include tax credits for the
purchase of highly fuel-efficient cars and light trucks, and an incentive to encourage public
transportation and vanpools.
Tax credits for highly fuel efficient vehicles
Cars and light trucks (including minivans, sport utilities, and pickups) currently account
for 20 percent of greenhouse gas emissions. Tax credits for highly fuel efficient vehicles will help
to move vehicles that are ultra efficient from the laboratory to the highway. Thus this credit
complements the research Partnership for a New Generation of Vehicles (PNGV program) that
will develop a production prototype ofa family car with three times the fuel economy oftoday's
comparable car (about 80 miles per gallon) by 2003-2004.
Two tax credits would be provided:
A $4,000 credit for a vehicle with triple the base fuel economy for its class. This
credit would be available for purchases of qualifying vehicles beginning January I,
2003. The credit amount would be phased down to $3,000 in 2007, $2,000 in
2008, and $1,000 in 2009, and would be phased out in 2010.
A $3,000 credit for a vehicle with twice the base fuel economy for its class. The
$3,000 credit would be available for purchases of qualifying vehicles beginning
January 1,2000. The credit amount would be phased down to $2,000 in 2004,
$1,000 in 2005, and would be phased out in 2006.
These credits would be available for all qualifying vehicles, including cars, minivans, sport
utility vehicles, pickup trucks, and electric vehicles. The revenue cost of this incentive is
estimated to be $0.7 billion for FY 1999 - 2003.
Again, we have set a very high threshold for obtaining these credits. Eligible vehicles
must be two or three times as efficient as today's comparable vehicles. Tripling a car's fuel
economy reduces its emissions of carbon dioxide by 67 percent; doubling a car's fuel economy
reduces its emissions of carbon dioxide by 50 percent.
Equalize the tax treatment of parking and transit benefits
Under present law, qualified transportation fringe benefits provided by an employer are
excluded from income. Qualified transportation fringe benefits include parking, transit passes,
and vanpool benefits. Beginning in 1998, parking is excludable from gross income even when
provided in lieu of other compensation payable to an employee. Transit passes and vanpool
6
benefits, however, are only excludable if provided in addition to, and not in lieu of, any
compensation othetwise payable to an employee. In 1998, the amount of employer-provided
benefit that is excludable from income per month is $175 for parking and $65 for vanpool and
transit benefits.
This initiative would equalize the tax treatment of parking benefits and transit and vanpool
.benefits. To encourage public transportation and vanpools, employers would be allowed to
provide tax free transit and vanpool benefits in lieu of compensation, up to the same amount that
they can provide for parking beginning January 1, 1999. The revenue cost of this incentive is
estimated to be $0.1 billion for FY 1999 - 2003. A similar provision is contaifted in the Surface
Transportation Revenue Act of 1998.
Electricity
Extension of tax credit for electricity produced from wind and biomass
Wind energy systems accounted for about .09 percent of electricity generation in 1996.
What is deployable today is the result of successful R&D in the past. To encourage the
production of electricity from wind and certain biomass, a 5-year extension is proposed for the
present 1.5 cent per kilowatt hour tax credit (adjusted for inflation after 1992). The present
credit, which applies to facilities placed in service before July 1,1999, would be extended for five
years. The revenue cost ofthis incentive is estimated to be $0.2 billion for FY 1999 - 2003.
This tax credit helps to make electricity from these systems competitive with other forms
of electricity generation. Electricity produced from wind energy systems produces no greenhouse
gases.
CONCLUSION
Our goal has been to design a package of tax incentives to achieve reductions in
greenhouse gases and to increase energy efficiency. The tax incentives have well-defined goals.
Eligible items offer superior energy efficiency, use renewable energy sources, or reduce emissions
of some of the most potent greenhouse gases. If taxpayers claim a credit, it is for items that
produce energy savings and reductions in greenhouse gas emissions. If taxpayers do not take
advantage of the credits, there is no revenue loss.
The impact of the incentives in this package on greenhouse gases will likely increase
significantly in the years beyond the ten-year budget window, and those distant effects, by their
very nature, are the most difficult to predict. That is why the Administration has chosen not to
make speculative estimates about the potential benefits. I would like to illustrate this point with
one example. I stated earlier, with respect to the tax credit for highly energy-efficient building
equipment, that the affected equipment presently captures less than one percent of market sales.
7
With the credit in place, we expect this fraction to increase significantly in the short-run. We also
expect that after the credit has expired the share of the market for highly efficient building
equipment will be much larger as a result of the credit. But whether it will double, or triple, or
increase by a factor of lOis unclear. The estimated impact on emissions reductions will hinge on
assumptions about the long-term increase in market share which is very difficult to predict.
In conclusion, Mr. Chairman, we believe that the Administration's proposed tax incentives
represent sound policy that will have long-term benefits. We look forward to working with the
Congress on this matter.
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T REA SUR Y
NEWS
-
omCE OF PUBUC AFFAIRS • 1500 PENNsYLVANIAAVENUE, N.W. • WASHINCTON, D.C•• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
Remarks as Prepared for Delivery
April 24, 1998
Treasury Assistant Secretary for Financial Markets Gary Gensler
to the President's Commission to Study Capital Budgeting
Good. morning. I would like to thank the Commission for inviting me here today. I would
also like to introduce Roger Anderson. Deputy Assistant Secretary for Federal Finance. Before
he joined Treasury, Roger was Deputy Comptroller for Finance for The City of New York, where
he had extensive experience in municipal finance.
I will begin by describing the goals and principles that guide Treasury debt management.
Then, I will discuss municipal fmance and its use of capital budgeting. After laying that
groundwork, I will make some comparisoDS between Federal and municipal finance. Lastly, I will
tum to the question at hand, whether the methods utilized by many mwricipalities to finance capital
budgets could be adapted and incorporated into the Federal Government's debt management.
Treasu[Y Debt Manaaement
Treasury debt management has three principal goals. The first is sound cash management
- assuring that Treasury cash balances are sufficient at all times. The second is achieving the
lowest cost fInancing for the taxpayers.
And the third is the promotion of efficient capital
markets.
In achieving these goals, a number of interrelated principles guide us.
First is maintaining the "risk free" status of Treasury secwities. This is accomplished
through prudent fiscal discipline, and lest we forget the budget crisis of three years ago, timely
increases in the statutory debt limit. Ready market access at the lowest cost to the Government is
an essential component of debt management
RR-2493
Fot' pres, releases; speeches, public schedules and official biographies, call our 24-hOUT fax line at (202) 622·2040
From: TREASURY PUBLIC AFFAIRS
To: 20009
7-10-98
3:24pm
p. 13 of 19
Second. is maintaining the consistency and predictability in our financing program. Treasury
issues securities on a regular schedule with set auetion procedures. This reduces uncenainty and
helps minimize our overall cost of borrowing. Related to this principle, Treasury does not seek to
time markets.
Third, Treasury is committed to ensuring market liquidity. The U.S. capital markets are the
largest and most efficient in the world. Treasury securities are the principal hedging instruments
across the markets. Liquidity promotes both efficient capital markets and lower Treasury borrowing
costs.
Fourth, Treasury finances across the yield curve, appealing to the broadest range of investors.
A balanced maturity structure also mitigates refunding risks. In addition, providing a pricing
mechanism for interest rates across the yield curve further promotes efficient capital markets.
To promote the goals and to follow the principles that I've just described, Treasury
employs unitary financing. That is to say, we aggregate all of our financing needs and borrow for
one account. While we have many internal accounts t all cash receipts and payments and all
borrowings are made through the Treasury. Debt proceeds are DOt earmarked or segregated.
They are used interchangeably with taX receipts to fund all the activities of government
operating expenses. refunding of maturing debt, and funding of capital expenses.
Municipal Finance
Let me now tum to the world of municipal finance. Many of you are more familiar than
r am with municipal finance. Let me outline a number of issues, however. as I understand them.
The majority of states, as well as many localities, have two budgets: an operating budget
and a capital budget. Operating budgets are funded by tax and other revenues and are used to fund
operating expenses. Typically, state laws or constitutions require operating budgets to be balanced
every year. Some states are required to have their operating budgets balanced as proposed or
enacted. Others are required to take steps to insure that their operating budgets are in balance at
the end of each fiscal year.
Capital budgets are used to fund capital projects t as defined by state and local laws and are
usually funded with bond proceeds. Capital spending, therefore. is not directly included in
operating budgets. The principal on the debt is usually amortized and debt service (both prinCipal
and interest) is treated as an operating expense.
Capital budgets allow municipalities to finance multi~year projects outside the annual
balance constraints of their operating budgets. Capital budgets are not required to be balanced
each year. Debt issued to finance the capital budgets. however, is generally subject to caps.
These caps often cannot be changed except by voter referendums. In addition. debt issued to fund
2
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From: TREASURY PUBLIC AFFAIRS
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capital construction typically cannot have a maturity beyond the expected useful life of the project
being constructed.
The municipal bond market has numerous different instruments. General obligation bonds
are backed by the taXing authority of a jurisdiction. Revenue bonds are backed by a particular
revenue stream, either from a lending authority or a specific project. Among the many rypes of
Jending authorities, the most common include: Water & Sewer authorities, Housing authorities,
and Public Utility authorities. To meet seasonal borrowing needs, mUnicipalities also issue
Anticipation notes backed by furore tax, grant, or other revenues.
Comparison of federal and Municipal Finance;
As I have outlined, there are many differences between Federal Finance and municipal
finance. As I noted earlier the three goals of Federal finance are (i) sound cash management, (li)
lowest cost fmancing, aDd (ill) the promotion of efficient capital markets. While States and
municipalities share the first two of these goals, they pursue them in a legal framework that does
not apply to the Federal Government. In addition, we have a unique role in the promotion of
efficient· capital markets.
The market for U.S. Treasury securities is the deepest. mo,st liquid, most efficient market
in the world. Last year, Treasury issued $2.2 trillion of securities. In contrast. gross issuance
in the municipal market was approximately one tenth of this volume. Treasury securities appeal
to the widest array of investors spanning the globe. Municipal securities appeal to a narrower
range of investors, those domestic investors able to take advantage of the taX characteristics of
these securities.
Conclusion
As outlined earlier, the most significant difference between Federal and Municipal finance
is that we employ unitary fmancing for the federal govermnent. Unitary financing allows us to
best meet our goals and abide by the principles previously outlined. Through unitary financing,
we are able to issue large liquid issues across the yield curve. Through unitary financing, we are
able to be consistent and predictable. Through unitary financing, we preserve the "risk free"
status of Treasury securities.
Municipalities use segregated fmancing largely due to the legal framework in which they
fmance. In addition, many municipal bond investors seek diversification through owning bonds
issued by different authorities. These factors are not relevant to the Federal Government.
It may be interesting to share with the Conunission a particular aspect in the history of
Federal finance. Prior to 1973, the Federal Govenunem actually had multiple issuing authorities.
3
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In this envirOJUl'lCntt many federal agencies issued their own securities to fund their programs. At
the time, we bad agencies competing in the market with each other and with the Treasury. This
an inefficient use of Federal credit. Federal agency debt and federally guaranteed debt
carried higher interest rates than that issued by the Treasury, sometimes carrying interest as much
as twO percentage points higher than OIl comparable Treasury securities.
led
[0
To address these concerns, the Treasury requested that Congress create the Federal
Financing Bank. All agencies are now required to borrow from the Federal Financing Bank and
no longer issue securities directly to the market. This allows the various programs to be fmanced
at the Treasury's lower cost of funds. This important innovation in federal fmance was actually
initiated by a young Treasury official named Paul Voleur. He later went on to hold a slightly
more important post for the nation.
In conclusion. While there may be aspects of capital budgeting that are applicable to tbe
Federal Government, we do not believe that this would include any form of segregated financing.
We would now be happy to answer any questions that you may have.
-30-
4
TOTAL P.04
DEPARTMENT
lREASURY
OF
THE
TREASURY
<W} NEW S
178<)
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 8, 1998
CONTACT: Paul Elliott
(202) 622-2960
TREASURY CALLS FOR LARGE POSmON REPORTS
The Treasury is calling for Large Position Reports from those entities whose reportable position in the
51/2 % Treasury Notes of February 2008 equals or exceeds $2% billion as of close of business Friday, June
5, 1998. This call fOJ La]ge Position Reports is a test. Entities with reportable positions in this 10-year note
equal to or exceeding this $21/2 billion threshold must report these positions to the Federal Reserve Bank of
New York. Entities with reportable positions below $2% billion are not required to fIle Large Position
Reports. Reports, which must include the required position and administrative infonnation, must be received
by the Market Reports Division of the Federal Reserve Bank of New York before noon Eastern time on
Friday, June 12, 1998. Large Position Reports may be med by facsimile at (212) 720-8028 or delivered to
the Bank at 33 Liberty Street, 4th floor.
Details on Call for Large Position Reports
Security Description:
5 1h % Treasury Notes of February 2008, Series B-2008
CUSIP Number:
912827 3X 8
CUSIP Number of STRIPS Principal Component:
912820 CQ 8
Maturity Date:
February 15, 2008
Date for Which Information Must Be Reported:
June 5, 1998 as of COB
Large Position Reporting Threshold:
$2 1h Billion (par Value)
Date Report Is Due:
June 12, 1998, before noon Eastern time
This call for large position information is made under Treasury's large position reporting rules (17 CPR
Part 420). The notice calling for Large Position Reports is also being published in the Federal Register. This
press release and a copy of a sample Large Position Report, which appears in Appendix B of the rules at 17
CPR Part 420, can be obtained from Treasury's automated fax system by calling (202) 622-2040 and requesting
document number 2494. These documents are also available at the Bureau of the Public Debt's Internet site
at the following address: http://www.publicdebt.treas.gov.
Questions about Treasury's large position reporting rules should be directed to Public Debt's
Government Securities Regulations Staff at (202) 219-3632. Questions regarding the method of submission of
Large Position Reports may be directed to the Market Reports Division of the Federal Reserve Bank of New
York at (212) 720-8021.
RR-2494
Fur press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Appendix B to Part 420 - Sample Large Position Report.
Formula for Determining a Reportable Position
($ Amounts in Millions at Par Value as of Trade Date)
Security Being Reported:
Date For Which Information is Being Reported:
$ _ _ _ __
1.
Net Trading Position
(Total of cash/immediate net settled positions; net when-issued positions; net forward
positions, including next day settling; net futures contracts that require delivery of
the specific security; and net holdings of STRIPS principal components of the security.)
2.
Gross Financing Position
(Total of securities received through reverse repos (including forward settling reverse
repos), bonds borrowed, collateral for financial derivative transactions and for other
securities transactions which total may be reduced by the optional exclusion described
in § 420.2(c).)
+
$ _ _ _ __
3.
Net Fails Position
(Fails to receive less fails to deliver. If equal to or less than zero, report 0.)
+
$_ _ _ _ _
4.
TOTAL REPORTABLE POSmON
=$-----
Memorandum: Report one total which includes the gross par amounts of securities delivered through repurchase
agreements, securities loaned, and as collateral for financial derivatives and other securities transactions. Not to be
included in item #2 (Gross Financing Position) as reported above.
$_---Administrative Information to be Provided in the Report
Name of Reporting Entity:
Address of Principal Place of Business:
Name and Address of the Designated Filing Entity:
Treasury Security Reported on:
CUSIP Number:
Date or Dates for Which Information Is Being Reported:
Date Report Submitted:
Name and Telephone Number of Person to Contact Regarding Information Reported:
Name and Position of Authorized Individual Submitting this Report (Chief Compliance Officer; Chief Legal Officer;
Chief Financial Officer; Chief Operating Officer; Chief Executive Officer; or Managing Partner or Equivalent of the
Designated Filing Entity Authorized to Sign Such Report on Behalf of the Entity):
Statement of Certification: "By signing below, I certify that the information contained in this rep3rt with regard to
the designated filing entity is accurate and complete. Further, after reasonable inquiry and to the best of my
knowledge and belief, I certify: (i) that the information contained in this report with regard to any other aggregating
entities is accurate and complete; and (ii) that the reporting entity, including all aggregating entities, is in compliance
with the requirements of 17 CFR Part 420."
Signature of Authorized Person Named Above:
To: 20009
From: TREASURY PUBLIC AFFAIRS
DEPARTMENT
OF
TilE
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TI~EASl!I{\
NEWS
omCE OF PUBUC AFFAlRS • 1500 PENNsYl.VANIAAVENUE, N.W.• WASHINGTON, D.C •• 20220. (202) 622.2960
EMBARGOED UNTIL 8:30 pm
Remarks as Prepared for Delivery
Jooe 4,1998
Secretary Robert E. Rubin
Washington International Trade Association
Washington, DC
It is a pleasure to be with you tonight and to be honored alongside Senator Roth, who has
been a strong advocate for free trade and America's leadership in the global economy. I have
worked closely with Senator Roth on a number of important domestic and international issues
and he has shown real leadership on a broad array of such issues. By honoring me, you honor
President Clinton's entire economic policy team, as well as the career men and women in the
White House, the Treasury Department and throughout the government with whom I've had the
privilege of working the past five years. Most importantly, you honor President Clinton, who
deeply understands that we live in a global economy and that our economic well-being depends
on strong U.S. leadership and engagement in the global economy.
Yet at a time when our country's economic~ national security and geopolitical interests
require forward looking international economic policies, public support for such policies may be
waning. At the end of last year, for example, Congress failed to grant the President fast track
trading authority, even though we risk being left behind as other countries liberalize trade and
investment without the United States, failed to approve payment of ol.LI'dues to the United
Nations, even though we risk losing our vote in the General Assembly by the end of this year,
and failed to provide funding for the IMP, even though the resources of the IlVlF are dangerously
low as a result of the recent financial crisis in Asia.
Tonight, I want to speak about the importance of building support for forward-looking
international policies. The context for my discussion is the emergence of a globa~ economy)
which has brought tremendous benefits for workers and businesses, but which has also produced
risks and challenges -- challenges that can only be met by spreading the benefits of the global
economy and bolstering support for forward looking international policies.
RR-2495
_
FurJrre$$ reletJSes, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
"
To: 20009
From: TREASURY PUBLIC AFFAIRS
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3:28pm
p. 18 of 19
the effort to contain Communist expansionism. In this new environment, questions concerning
the importance ofD.S. leadership have grown.
A great task facing this country today is to rebuild public support for forward looking
international policies. Doing so requires meeting two basi!; chullenges.
First, is broadening participation in the benefits of the global economy. The global
economy benefits most, but there is a risk that those who are not well-equipped to compete will
fall behind. Moreover, the rapid changes of the global economy inevitably create dislocations for
some. But the answer to these problems is not a futile effort to try to halt the incredible tide of
globalization that has benefited so many. Instead, the answer is to continue to strengthen a
domestic counterpart to a forward looking international economic policy that helps to equip all of
our people to compete in the global economy, through edllcation and training, special programs
for those outside the economic mainstream in our inner cities and distressed rural areas, health
care, and the like.
Early in the first tenn of the Clinton Administration, a reporter from a well-respected
European newsmagazine interviewed me. At the end, he said that our economy was doing very
well but that ten or twenty years from now we'd be a second tier economy. I said I disagree, but
asked why he thought tha~ and he said because of the state of our public schools and our irmer
cities. And r believe that these are critical issues that, particularly at a time when the U.S.
economy is doing well, we must address.
The second critical challenge we face is to vastly improve the efforts of all ofus -- public
sector officials, the business community, foreign policy experts -- to communicate with the
American public about the dynamics of the new global economy and the importance of U.S.
leadership in the global economy to the economic well being and national security of the
American people.
Unless there is broad based public understanding 0 f the importance to U.S. interests of
strong U.S. leadership in the global economy, we will fail to support the lJN and we wiillose our
vote in the General Assembly at the end of this year; we will fai 1 to support the IMF, and be more
vulnerable to economic crises; and we will fail to pass fast track and stand by as the rest of the
world moves forward and liberalizes trade, with us on the outside of the tent, rather than the
inside. All of this has enormous consequences to our economi!; well-being and our national
security.
Here's where business can play an important role -- you have the understanding of the
importance of the global economy and the means with which to convey that understanding. Our
leadership in the global economy must be grounded in public support, and what we all need to do
is build that public support.
DEPARTMENT
lREASURY
OF
THE
TREASURY
NEWS
~~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . ..
............................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
June 5, 1998
Contact: Kelly Crawford
(202) 622-2960
SECRETARY RUBIN TRAVELS TO AFRICA IN JULY
Treasury Secretary Robert E. Rubin will travel to Africa in July to advance President
Clinton's Partnership for Economic Growth and Opportunity hy addressing important financial
sector issues. The Secretary plans to travel to Ivory Coast South Africa, Mozambique and Kenya
July 10-19.
Secretary Rubin has noted the United States' shared interest in African growth and
development. "A growing, democratic and dynamic Africa providing higher standards of living
for its people, and more political and social stability is very much in Africa' s interest," Rubin
said. "It is also very much in America's economic and national security interest. That is why we
must now come together to meet our respective challenges."
During the trip, Secretary Rubin will seek to establish closer working relationships with
several African countries working to reform their economies and learn more about problems
confronting these reform efforts, particularly the obstacles to establishing more effective
financial markets in Africa. In addition, the delegation will explore ways in which the
international financial institutions, the Treasury Department and the private sector can assist in
the development of financial markets and support more effective African regional integration.
The Secretary will also discuss efforts to combat money laundering. encourage micro credit
finance and improve economic governance.
To support the objectives of the mission. the delegation will include a limited number of
executives from private U.S. financial institutions. such as representatives of money management
firms, commercial banks and investment banks. We anticipate this group would engage
representatives of African governments and the African pri\'ate sector to consider ways the
financial sector can support faster grO\vth in Africa and stronger ilwestment relations with the
United States.
Private sector representatives interested in being considered for inclusion in this limited
group should contact Sarah Forciney. Office of Business and Public Liaison at (202) 622-1660.
Consideration of private sector representatives for this trip will begin Friday. June 5. and
conclude Friday, June 12. Private sector representatin:s \\ill he responsible for their own travel
expenses.
RR-2497
For press releases, speeches, public schedules and official biographies, call our 24·lzour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
June 5, 1998
Monthly Release of U.S. Reserve Assets
The Treasury Department today released U. S. reserve assets data for the month of May
1998.
As indicated in this table, U. S. reserve assets amounted to $ 70,722 million at the end
of May 1998, up from $ 70,328 million in April 1998.
End
of
Month
Total
Reserve
Assets
Gold
Stock II
Special
Drawing
Rights
'21 3.1
Foreign
Currencies 11
ESF
System
Reserve
Position
in IMF 2.1
1998
April
70,328r
1l,048r
10,188
13,821
17,053
18,218
May
70,722p
1l,048p
10,296
13,514
16,907
18,957
II Valued at $42.2222 per fine troy ounce.
Z.I
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.
JI Includes allocations of SDRs by the IMF plus transactions in SDRs.
41 Includes holdings of Treasury and Federal Reserve System; beginning November 1978,
these are valued at current market exchange rates or, where appropriate, at such other
rates as may be agreed upon by the parties to the transactions.
p Preliminary
r
Revised
RR-2498
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 2: 30 P. K.
CONTACT:
Office of Finaneing
June 9, 1998
202/219-3350
TREASURY'S WEEKLY BILL OFFBRING
The Treasury will auetion two series of Treasury bills totaling
approximately $13,000 million, to be issued JUne 18, 1998. This offering will
result in a paydown for the Treasury of about $1,225 million as the ma~uring
publicly held weekly bills are outstanding in the amount of $14,235 million.
l
In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $6,549 million of the maturing bills, 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 $2,413 million as agents for foreign and
international monetary authorities, whicb may be refunded within the offering
amount at tbe ~eighted 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. ~his offering
of Treasury securities is governed by the terms and conditions set forth in the
Dnifor.M 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-2499
For press releases, speeches, public sch~dult:s and olfic'ial biographies, call our 24-hollr /tu line at (202) 622-2040
HIGHLIGHTS
or
TRXASURY
TO BK
OPPB.~HGS
~SSUBD
OP WBBKLY BILLS
June 18, 1998
June 9, 1998
Offering Amount ••.••••..••.••••••••••.•.••• $5,750 million
$7,250 million
me.eriDtion of Offeringl
'arm and type of security •..••.•••••••••••• 91-day bill
182-day bill
Ct1SIP number ••..•.••..•..•.•.•••.••••.•.••• 912794 4Z ..
Auction date ••..•.•..•..••..••.••••.••••••• June 15, 1998
JUne 15, 1998
188ue date •••...•••..••.••••••••.••••.•••••
Xaturity date ..•••••.•••••.••••••••••••••••
Original i.8ue date ..•••••.••••..•.••••••.•
Currently outstanding .••.•.•••••.••••••..••
lIinimum bid amount •••••.•.••••.•.•••••••.••
1(ultiples ................•...•.•.•.••...•..
June 18, 1'98
Septeml:ler 17, 1998
September 18, 1997
$29,179 million
$10,000
$ 1,000
91l79S AU 5
JUne 18, 1998
December 17, 1999
June 18, 1998
$10,000
S 1,000
The following rules apply to all securities mentioned above:
JUbmi!sion of Bi4s:
bids •....•....•....•••.•.... Accepted in full up to $1,000,000 at the average
~oncompetitive
discount rate of accepted competitive bids.
Must be expressed ;,s a discount rate with three decilnals in
increments of .005%, e.g., 7.100%, 7.105%.
(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 $1 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.
:ompetitive bids . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
Kaximum Recognized Bid
a Single Yield ••.•..••••••...••.•••.. 35% of public offering
,t
Maximum Award ••..•••....••.•••••.•..••.••.• 3511 of public offering
Receipt of Tenderll
50ncompetitive tenders .••..•.•.•.•..•.••••. prior to 12,00 noon BAstern Daylight saving time on Auction day
Competitive tenders •...•••••••••.•..••••••. Prior to 1:00 p.m. i.stern Daylight saving time on auction day
payment Term••...••.•...•.•••••.••.•••••.•• Full payment with tender or by charge to a funds account
at a Federal Reserve Bank on iS8ue date
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
~~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . .1I. .
..............................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED FOR RELEASE AT 1:30 P.M. EDT
June 8, 1998
"Equity in a Global Economy"
Remarks by Lawrence H. Summers
Deputy Secretary of the Treasury
International Monetary Fund
Washington, DC
June 8,1998
It was 150 years ago this year that Marx and Engels wrote the Communist Manifesto. They turned
out to be wrong in a number of respects. But they were surely right to stress the enormity of the
change in human affairs that a global market economy would represent. It would be difficult to
think of a time when the "colossal productive forces" of capitalism they wrote about have been
more palpable -- to more of the world's peoples.
When history books are written about the last two decades of this century, it is possible that the
end of Soviet-style communism will be the second story. The first story could well be the
appearance of emerging markets -- the fact that developing countries where more than three
billion people live have moved to embrace capitalism. And for the first time in human history,
living standards for huge populations have quadrupled or more in a single generation.
Few doubt that a global economy based on market forces offers enormous potential. In different
ways -- our sense of ideology, our sense of common interests. our sense of what promotes global
stability -- all point us toward a world of changing technologies, increased market forces and
increased globalization. There is no question that this is good for many and good for the size of
the pie. But there is a real question as to whether it leaves too many people behind.
This is an important moral issue and an important issue for the political viability of this approach
-- because. as we are learning. \vherever economic reality lies. it will be that much more difficult
to follow if too many people doubt that it \\'orks for them. Necessarily, it presents itself
differently in developed and developing countries:
•
in developing countries. the question is whether the adoption of market-based approaches
can support rapid gro\\1h. but only at the cost of rising inequality and harsh adjustment
programs that impose excessive costs on the poor and vulnerable.
RR-2S01
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
•
in developed countries, the issue is less about the merits of markets than about
globalization -- and the fear that it poses a threat to the well-being of the less skilled that
cannot be countered by sound domestic policies.
•
finally, and at the broadest international level, there is the belief that the mobility of
capital, and the leverage which that mobility provides, affords it too much lever~ge and
democratic governments too little -- to the detriment of ordinary people everywhere.
I would like today to offer some observations about these critical issues and the best wav that
policy makers might seek to address them going forward.
.
I. Does market-led development breed inequality?
Forty years ago Simon Kuznets suggested there was a negative relationship between growth and
income equality in the early stages of development, and for a long time that proposition went
unchallenged. Partly as a result, the belief persisted that growth with equity was impossible -and that development and poverty reduction could often be at odds. Time, and a mountain of
empirical evidence has given ever weaker support for these claims.
First -- as Klaus Deininger and Lyn Squire have sho\\TI in recent work at the World Bank -- more
rigorous empirics and better data, covering 91 countries over more than 30 years, suggests scant
evidence of a Kuznets-type rise in inequality over the early stages of growth. Indeed, periods of
rapid growth have come with a rise in income equality at least as often as a decline.
Second, we have seen enonnous reductions in poverty as a result of rapid growth. Consider
Japan, or the "Asia Tigers", or China and Vietnam -- all cases in which many millions were lifted
out of poverty in scarcely a decade. Once again, the World Bank evidence is powerful: Deininger
and Squire found that growth produced rising incomes for the bottom fifth of the popUlation in
all but 15 percent of the economies represented.
Third, we have seen rising evidence that, far from being the handmaiden of growth, certain kinds
of inequalities can actively impede it. Specifically, there seems to be quite a strong negative link
between a highly unequal starting distribution of assets and subsequent rates of growth. Of the
15 developing countries with the most unequal distribution of land in the Bank sample -- only
two grew by more than 2.5 percent a year between 1960 and 1992.
The bottom line for policy makers is that we now know that no given path of inequality is an
unavoidable consequence of macroeconomic adjustment and market refonn. Just as government
has enormous power to shape how fast a society grows -- it has enonnous scope to influence how
equitably it grows. The challenge is to put in place policies and institutions that will not just
increase the size of the pie but help include more in its benefits.
Eight years ago when John Williamson first summarized the gospel according to Washington,
there was a place on the list for the re-ordering of public spending priorities away from
2
unproductive expenditures -- and into win-win investment in basic education and social sen"ices
and critical infrastructure.
This element of the Washington Consensus has not entirely fallen by the wayside in the course of
market reforms in Latin America, the Former Soviet Union, and elsewhere. But if most now
agree that macroeconomic reforms took precedence over microeconomic in the earlier stages of
reform, and reducing the size of government took precedence over improving its quality -- then it
is fair to say that education and other basic social investments were especially ill-served by these
biases.
Today, the lessons about the links between equity and growth find deeper expression in the
policies of the International Financial Institutions -- policies which increasingly recognize that
austerity is no substitute for adjustment. We see this:
•
in the IMF's increased emphasis on the needs of the poor in designing adjustment
programs, and encouraging governments to improve the quality of public spending and
shift more resources to primary education, health care and critical investments. Since
1990 military spending has declined from 5.5 percent to 2.2 percent of GDP in IMF
program countries and has declined as a share of public spending while social spending
has risen;
•
and in the sharply increased shares in social lending of the development banks. The
World Bank, for example, is now the single largest source of external financing for
education in developing countries. Since 1980 its lending for education has tripled and
education's share in the total has more than doubled.
I am confident that whatever consensus exists ten years from now will give more weight still to
these issues. But there should continue to be a presumption that issues of poverty and equality
are best addressed directly, rather than indirectly, through more pervasive forms of protection,
intervention and state controls.
That means, above alL investing in education. In 1990 around 130 million primary-school age
children were not enrolled in a school, 60 percent of them girls. Yet years of development
history show us that a dollar spent on education pays for itself many times over -- and a dollar
toward female education most of all, in reduced fertility, healthier populations and higher wages.
And it must mean working to democratize access to finance. The world over, private financial
markets fail when it comes to the very poor. Yet if you deprive poor people of the chance to lend
or save then they are a good deal more likely to stay that way. The success of micro credit
institutions the world over -- from South Africa to South Central -- shows how much can be
achieved here, at what small cost. The First Lady likes to say it takes a village to raise a child.
Equally, it takes capital to build a prosperous and cohesive village.
3
II. Does Integration Impoverish the Unskilled?
For all the dramatic rise in integration we have seen in the past decade, the share accounted for
by imports from low-wage countries has increased by only one and a half percentage points. In
the last 30 years, it has risen by only about three percent ofGDP.
Compare that to the eight percentage point rise in the share of health care that has occurred
during that period; to the 11 percentage point rise in the female share of the workforce; to
changes in the levels of education attainment and in the mix of occupations due to changing
technology -- and it is difficult to believe that increased trade with developing countries could
account for more than a fraction of the rise in wage inequality we have seen in the United States
in the past twenty years. In fact, most studies have concluded that it could account for 10
perhaps 20 -- percent of the problem.
Yet to absolve globalization from the blame will not make the problem of rising inequality go
away. And it is scarcely a phenomenon that is now well understood.
My guess is that it has its roots in two primary trends. First, technologies that have tended to be
skill-reinforcing, and second, greater market forces that have tended to make everyone be paid
more like salesman -- on the basis of what they produce. The implication is that the dispersion of
wages within a given occupation or company may have moved closer toward that of people who
are paid on commission. Differing tax and benefit structures and labor market institutions in
Europe have seen these things manifest themselves in higher unemployment more than rising
inequality. But it seems clear that similar underlying forces have been at work.
Will these trends continue? No one should forecast confidently. When I went to graduate school
two propositions in this area were central. The first was that the returns to education were
declining, Americans were in danger of becoming over-educated and social investment in
education could be excessive. The second was that the income distribution was remarkably stable
in postwar America, despite a whole set of policies directed at addressing it.
These were mistakes of extrapolation. One needs to be careful about extrapolating from the last
20 years. While the bulk of attention has focused on skill-reinforcing technologies, and while
these are clearly a major element of the story, it is worth noting that supennarket scanners, spellcheckers, cash registers with pictures instead of numbers -- all these are information
technologies that reinforce those with less skill. Equally, computers will replace radiologists
reading X-rays before they replace nurses. Equity traders will be replaced before gardeners -credit analysts before hairdressers.
Nor can the march of market forces in compensation be thought to be ineluctable. Just as
countries, in a world in which everything else moves, are coming to realize that their most unique
asset is their people, so companies, in a world in which everything, including their people, can
move, are coming to realize that their most distinctive resource is their culture. With teamwork
4
an increasingly important value in business, companies are recognizing the benefits of a loyal
workforce -- and likewise the possible costs to downsizing and invidious comparisons between
personnel.
We should note, too, that the last two years have shown some signs, if not of a reversaL then at
least of an important pause in the long-run trend here in the United States. Between 1996 and
1997 the hourly wages of the bottom fifth of US workers rose by 3.2 percent in real terms -- more
than twice as fast as the wages of those at the top.
As in the developing countries, governments are not powerless. It is a feature of the successful
move to more market-b~ed strategies that all of the elasticities have increased -- small changes
in incentives can reap very large changes in behavior, and the burden of a given intervention can
shift far from the initial target. That means that the deadweight losses associated with direct
redistributions have increased. But it also enhances the effectiveness of more supply-based
strategies for reducing inequality.
This has been reflected in a much greater emphasis on the quality and quantity of education,
including -- in this country -- a major expansion in pre-school programs, proposals for universal
testing to maintain school performance and expanded college tax subsidies. Equally we have
seen it in a welfare reform bill which stresses both motivating greater work effort and improved
preparation for work.
III. Are Governments Powerless Before a Global Market?
It is often said that governments today have less power, but in a sense they hold a society's fate in
its hands more than ever before. The right policies are now better reinforced and the wrong policies
are more swiftly punish~. Thus, the impact of policies has never been greater. The element of truth
in this statement about the powerlessness of governments is that certain things thought important for
government to do are becoming more difficult.
There is no question that increased economic integration -- be it of the 50 American states, the
European Union or other less well-developed regional trade arrangements --- requires a careful
balancing act between the benefits of mobility and competition within jurisdictions, and the need
to avoid a damaging race to the bottom.
The implication is that the plane of global integration cannot fly on the single wing of freer trade
and capital mobility. It must be complemented by the second wing of global cooperation on the
range of challenges that integration brings -- from fair treatment of labor to global warming, from
preventing money laundering to food safety and other consumer protections.
As President Clinton said last month at the 50th Anniversary of the WTO in Geneva, our goal as
we integrate and conve~e must be leveling up, not leveling down:
that is why we are working to open up the WTO to ensure that capital is not the only
5
factor of production that gets a hearing;
•
that is why we are working with other countries to promote global cooperation against
corporate and legal tax havens, and working actively in the OECD on the issue of tax
competition;
•
that is why we have worked, within the IMF and the other IFIs to ensure that labor and
environmental concerns are given due weight in devising reform programs and sustainable
development strategies -- and why we have called on the WTO to step up its environment
efforts and work with the International Labor Organization to ensure that open trade respects
the rights of workers;
•
and that is why we have given such strong encouragement to the World Bank and the IMF in
their efforts to place governance issues at the top of their agenda, and have worked at the
OECD to attack the supply-side of corruption with the criminalization of foreign bribes.
These are all international imperatives. But the vital domestic complement to this approach must
be ensuring that the globat economy works well for those at home. Just as the GI Bill of Rights
was an integral part of the strategy behind the Marshall Plan, just as our interstate highway
system was partly the result of an effort to marshal our Cold War defenses -- we must work to
make both real and apparent the connection between our pursuit of stability and prosperity abroad
and our pursuit of stability and prosperity for every American.
These are important issues substantively and they are also important issues politically. Indet:d. it
may well be that the biggest threat to our national security is economic insecurity -- and the
backlash it produces at home.
So this conference could not be more timely or
subject more important. History teaches that
internationalism cannot be a goal pursued by elites for its own sake. Domestically and
collectively, we need to invest in policies and institutions that can realize the opportunities of this
new global era, and a large part of that will be about investing in pol icies to ensure that everyone is
included. You might say -- as Marx did not -- that we have nothing to lose but the false choice
between growth and equity, and a world to win. Thank you.
-30-
6
6-06-98
To: Pub11c Affa1rs
1:50pm
p,
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 08, 199B
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
June 11, 199B
September 10, 1998
91279SAJO
Term:
Issue Date:
Maturity Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
-----Low
High
Average
Investment
Rate 1/
Price
------
----------
98.741
98.736
98.737
5.114%
4.980%
5.000\
4.995%
S.BS\-
5.131%
Tenders at the high discount rate were allotted
14%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
----------------$
competitive
Noncompetitive
Foreign Official Refunded
689,101
6B9,101
33,573,026
5,799,926
3,291,780
155,999
3,291,780
155,999
----------------$
TOTAL
3,871,687
1,239,138
----------------5,110,825
-----------------
Federal Reserve
Foreign Official Add-On
32,883,925 / 5,110,825
37.020.805
6.43
1/ Equivalent coupon-issue yield.
RR-2502
$
32,883,925
SUBTOTAL
=
31,644,787
1,239,138
-----------------
PUBLIC SUBTOTAL
Bid-to-Cover Ratio
Accepted
Tendered
Tender Type
http://www.pubUcdebl.treu.gov
$
9,247,705
at 2
6-08-98
To: PubliC Affairs
1:50pm
p. 2
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BPREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 08, 1998
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26 -WEEK BILLS
182-Day Bill
June 11, 1998
December 10, 1998
9127945C4
Term:
Issue Date:
Maturity Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
-----Low
High
Average
5.140%
5.155%'
5.155%
Investment
Rate 1/
Price
----------
-----97.401
97.394
97.394
5.351%
5.366%
5.366%
Tenders at the high discount rate were allotted
82%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
$
TOTAL
Bid-to-cover Ratio
Accepted
Tendered
Tender Type
=
28,003,184 / 5,463,354
26,859,795
1,143,389
$
4,319,965
1,143,389
28,003,184
5,463,354
1,826,783
1,826,783
29,829,967
7,290,137
3,845,000
413,217
3,845,000
413,217
34,088,184
5.13
1/ Equivalent coupon-issue yield.
RR-2503
http://www.publlcdebt.trea.s.gov
$
11,548,354
of 2
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
June 9, 1998
Contact: Peter Hollenbach
(202) 219-3302
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN SOUTH DAKOTA
The Bureau of Public Debt took action to assist victims of tornadoes in South Dakota 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 South Dakota affected by the stonns. These procedures will remain in effect
through July 31,1998.
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.
South Dakota counties involved are Clark, Day, Hanson, Marshall, McCook and Spink. Should
additional counties be declared disaster areas the emergency procedures for savmgs 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, available at most financial institutions or by writing the
Minneapolis Federal Reserve Bank's Savings Bond Customer Service Department, 250
Marquette Avenue, Minneapolis, MN 55480; phone (612) 340-2345. This form can also be
downloaded from Public Debt's website at: www.publicdebt.treas.gov. 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 "STORMS" on
.
the front of their envelopes, to help expedite the processing of claims.
000
RR-2504
http://www.publicdebt.treas.gov
DEPARTMENT
OF
THE
TREASURY
ornCE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASIDNGTON, D.C .• 20220. (202) 622.2960
EMBARGOED UNTIL 9 P.M. EDT
Remarks as Prepared for Delivery
June 9, 1998
TREASURY SECRETARY ROBERT E. RUBIN
INSTITUTE FOR EAST WEST STUDIES
WALDORF ASTORIA HOTEL
NEW YORK CITY
It is a pleasure to be with you tonight to honor three men from different countries and
backgrounds, but who are all working to transform their respective nations into stable,
prosperous, democracies.
President Constantinescu was elected at a time of profound political and economic
challenges in Romania. He has worked tirelessly over the past 18 months for economic and
political reform and transformation in Romania so that Romania may take its place among the
growing economies of the region. President Constantinescu has also been an effective advocate
of inclusion within the political process.
President Shevardnadze is a man of extraordinary vision and has shown great personal
courage in his efforts to create a prosperous and democratic Georgia. President Shevardnadze
has had to lead his country back from abject economic collapse resulting from the ethnic and
civil strife that accompanied Georgia's re-birth as a nation. Under his leadership, Georgia has
become one of the few countries of the former Soviet Union that can boast of strong growth, low
inflation, and a democratic government.
And Mr. Alekperov is a business leader whose company--LUKOil-- offers a good
example of the benefits that Russia can derive from one critical area of reform, the privatization
of state-owned enterprises in the energy sector. His company has demonstrated foresight and
business acumen in setting up constructive partnerships with Western firms that will help
LUKOil develop Russia's natural resources.
Now, I would like to expand briefly on the opportunities and challenges presented by the
transition of the economies of Central Europe and the former Soviet Union and what the rest of
the world, especially the United States, can and should do to help them.
RR-2505
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The ongoing transition of these nations is an unprecedented event in global economic and
political history. These are countries attempting a peaceful revolution: the fundamental
transformation from one political and economic system -- authoritarianism and state-planned
economies -- to another -- democracy and free market economics. Although progress varies from
nation to nation, we all should acknowledge the tremendous gains that have been made from
where these nations started, while at the same time recognizing the enormity of the challenges
ahead.
This transformation is very much in the economic and national security interest of the
United States. In the course ofIess than a decade, the East-West enmity has ended, replaced by
economic and political cooperation which hold great promise for the people of both Eastern and
Central Europe and the United States.
However, the transition of these countries is far from complete. The nations that took the
largest steps towards reform early on, such as Poland, Hungary and the Czech Republic, are the
nations that are now performing best. Others have moved-more slowly and are not doing as well.
But all face difficult challenges ahead in continuing on the path of reform. Georgia and
Romania, for example, both face tremendous challenges in building an environment in which
private enterprise can flourish.
At the same time, the fmancial crises in Asia have buffeted Central and Eastern Europe,
including Russia, making the challenge of economic reform all the more difficult. With the
situation in Russia currently receiving much attention, let me make a couple of overarching
points.
First, Russia's recent fmancial turmoil and continuing problems should not divert
attention from the key, which is to continue building on the reform that Russia has already made.
That means implementing further fiscal reforms, including revision of the tax code and effective
tax collection, completing the privatization program, strengthening the banking sector,
strengthening property rights (such as for land), rationalizing the regulatory system, and very
importantly combating corruption.
Second, the United States has a strong stake in Russia's economic success. That success
would increase Russia's market for our exports, would prompt political stability and political
reform and thus our national security, and would contribute to economic growth and political
stability in the region.
At a time when so many developing and transitioning countries around the world are
turning to democracy and free market economics, the United States has a critical leadership role
to play in helping these countries. Yet I am deeply concerned that public support for forwardlooking international economic policies may be waning at a time when our country's economic,
national security and,geopolitical interests require exactly the opposite. At the end of last year,
for example, Congress, failed to provide funding for the International Monetary Fund, even
though the resources of the IMF are dangerously low as a result of the recent financial crisis in
Asia, failed to grant the President fast track trading authority, and we are now being left behind
2
as other countries liberalize trade and investment without the United States, and failed to approve
payment of our arrears on dues to the United Nations, and we will lose our vote in the General
Assembly by the end of this year if these arrears are not paid.
In recent years, we have seen both an erosion of the traditional bi-partisan base of support
for international economic engagement and, at the same time, a re-ignition of one historical
strain in American thought, a rejection of the outside world. This has occurred for at least two
reasons: anxiety brought by the rapidity of change in this era of the global economy and dramatic
technological developments; and the end of the Cold War, which caused the foreign policy
consensus to lose its centerpiece -- the effort to contain Communist expansionism.
_The response to all of this, however, oUght not to be to tum inward, or to futilely try to
dismantle the global economy that has benefited so many. Instead, the response should he for the
United States -- and all nations -- to provide education and training to equip citizens with the
tools to prosper in the global economy; to help the dislocated re-enter the economy successfully
quickly and successfully; and to provide an appropriate social safety net.
At the same time, all of us -- public sector officials, the business community, and foreign
policy experts-- must work to build broad public understanding of the importance to our
economic well being and national security interests of strong U.S. interests of strong U.S.
leadership in the global economy. Leadership in the global economy must be grounded in public
support for the leadership at home.
And it is critically important that Congress now approve our contribution to the
International Monetary Fund. As I said a moment ago, the IMF does not have sufficient funds to
deal with a truly major crisis, for example, if the Asian crisis were to worsen or if anew crisis
were to develop. Although the probability of~uch events occurring is low, the effects of such
events would be severe and we should not taI(e the risk of inadequate IMF resources to try to
respond effectively.
Poland provides a good example of how effective the IMF has been in Central Europe.
The IMF helped Poland slash inflation and sustain growth and, with the World Bank, provided
almost $5 billion of loans to help it through the harsh years of adjustment that set the stage for its
subsequent recovery. GDP in Poland has risen by more than 35 percent in real terms in the past
six years. Private investment has now overtaken official sources of finance as the leading source
of capital and Poland has repaid all of its outstanding IMF loans of nearly $2 billion.
Our success in providing leadership on critical international issues through the IMF and
the UN and on doing our share to fund these institutions, and our success in continuing to
liberalize trade while we work to broaden participation in the benefits of the global economy, and
on the underlying requisite for all of this of building broader public support for international
economic policies, is critical to our country's$conomic well-being and our national securjty for
the years and decades ahead. We must all wcirk together to meet those critical challenges. Thank
you very much.
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DEPARTlVlENT
TREASURY
OF
THE
TREASURY
NEWS
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 11, 1998
STATEMENT OF ELISABETH A. BRESEE
NOMINEE FOR ASSISTANT SECRETARY OF THE TREASURY (ENFORCEMENT)
SENATE FINANCE COMMITTEE
Mr. Chainnan, Senator Moynihan, and members of the Committee: I am honored to
appear before you as you consider my nomination to be the Assistant Secretary of the Treasury
for Enforcement.
I want to thank Secretary Rubin for recommending me to the President, and I thank
President Clinton for his nomination.
On a personal note, I would like to recognize my mother, Georgia Couden of Oneonta,
New York, who is here with me today. My mother earned her Masters Degree in social work
when I was in grade school and by her example I have learned the value of serving others. She
has also given me her unwavering support and has always believed in my abilities and potential.
From my family and my work as a federal prosecutor I have learned that public service is
not only a privilege but a responsibility, and one of the highest callings to which a citizen can
aspire. Because of this, I look forward to the challenges of serving as Assistant Secretary if
confinned.
I would like to provide the Committee with a sense of my professional background. I
have worked directly on law enforcement matters since 1989, when I was appointed as an
Assistant United States Attorney for the District of Columbia. While serving in that office, I
prosecuted a wide variety of cases including Public Corruption and Violent Crime cases. The
District of Columbia office is an extremely challenging place to work, given the multitude of crime
problems that face our nation's capital. While serving as a prosecutor, I gained valuable
experience and learned firsthand about many of Treasury's enforcement responsibilities from my
work with agents and officers from the Secret Service and ATF.
In 1994, I joined the Department of the Treasury first as Assistant Director of the White
House Security Review, and then as the Director. The Security Review represented the most
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comprehensive assessment of air and ground security ever conducted at the White House
Complex. Following the review, I was appointed Deputy Assistant Secretary for Law
Enforcement, with responsibility for assisting in oversight of the Department's law enforcement
bureaus and offices. Shortly after my appointment as Deputy Assistant Secretary, I carried out
the duties of the Under Secretary and Assistant Secretary for Enforcement while Assistant
Secretary Johnson and Under Secretary Kelly were awaiting confirmation.
In my position, I have been involved in the Department's continuing effort to provide
greater oversight to its law enforcement bureaus, and its effort to ensure that our bureaus
maintain the highest standards of professionalism. Because of the sensitive nature of our law
enforcement missions, I worked with the Under Secretary and Assistant Secretary to enhance our
oversight of Treasury's law enforcement bureaus in numerous areas, including integrity and
internal affairs matters, training, and equal employment opportunity issues. I have also assisted in
guiding a comprehensive review of Treasury's Federal Law Enforcement Training Center -- an
entity that trains nearly 80% of new federal law enforcement officers -- and in improving our
continuing efforts to safeguard our Southwest Border against the influx of drugs and contraband.
Indeed, just this week I was in Laredo, Texas where I had an opportunity to view the innovative
efforts that Customs is employing at that very challenging port of entry.
My work at Treasury over the past four years has allowed me to understand the important
missions of our enforcement bureaus and how these missions complement each other. Together,
Customs and ATF collect nearly $37 billion in revenue. Customs also protects our nation from
narcotics smuggling, maintains the integrity of the border, and enforces international trade laws.
ATF targets violent criminals, firearms traffickers and arsonists. The Secret Service protects our
nation's leaders and combats fraud. And OFAC and FinCEN enforce trade sanctions and help
fight money laundering, respectively. These responsibilities help finance the govemment~ protect
our financial system from fraud, abuse, and instability~ and ensure the safety of our nation and its
people.
The Treasury agents, inspectors, and officers who carry out these missions embody the
highest ideals of commitment, professionalism, and genuine public service. It will be a privilege to
continue to serve Treasury and assist with the leadership of these women and men.
I am acutely aware of the broad and important responsibilities of the Office of
Enforcement. I also believe my experience at Treasury, at the U.S. Attorney's Office, and as a
lawyer in private practice will serve me well as Assistant Secretary, if confirmed. With the
guidance of this Committee and the support of Secretary Rubin, I believe I am ready to meet the
challenge. Thank you very much.
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D EPA R T 1\11 E N T
TREASURY
0 F
THE
T REA SUR Y
NEWS
OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared For Delivery
June 11, 1998
STATEMENT OF JAMES E. JOHNSON
NOMINEE FOR UNDER SECRETARY OF THE TREASURY (ENFORCEMENT)
SENATE FINANCE COMMITTEE
Mr. Chairman, Senator Moynihan, and members of the Committee: I am honored to
appear before you today as you consider my nomination to be Under Secretary of the Treasury
for Enforcement.
At the outset, I wish to thank Secretary Rubin both for recommending me to the President
and for his support during the last two years. I thank President Clinton for my nomination.
On a personal note, I would like to recognize my family: My wife, Sigrid Gabler; one of
our two daughters, Abigail (at five months, Amalya is not quite ready for such a gathering); and
my mother, Birdie Johnson. It is as a result of the continued support of my family and friends-many of whom are here -- that I sit before you again this morning.
First, I would like to tell you a bit about my professional background. From 1990 to
1996, I served as an Assistant United States Attorney in the Southern District of New York.
During the last two and one-half of those years, I was privileged to serve as a Deputy Chief of the
Criminal Division under United States Attorney Mary Jo White. During my tenure as an Assistant
U.S. Attorney, I personally prosecuted or supervised the prosecution of criminal cases brought by
the United States Secret Service, the Bureau of Alcohol, Tobacco and Firearms, the United States
Customs Service, and the Internal Revenue Service. For approximately four months, beginning in
November of 1994, I was detailed by the Department of Justice to serve as Assistant Director of
the Treasury Department's White House Security Review.
As you know, I began serving as the Treasury Department's Assistant Secretary for
Enforcement in March of 1996. Since he joined the Department in June of that year, I have
assisted Under Secretary Kelly in the oversight of the United States Customs Service, the United
States Secret Service, the Bureau of Alcohol, Tobacco and Firearms (ATF), the Federal Law
Enforcement Training Center (FLETC), the Financial Crimes Enforcement Network (FinCEN),
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and the Office of Foreign Assets Control (OFAC). Since June of 1996, I have also served as the
co-chair of the National Church Arson Task Force, which was created by President Clinton to
coordinate the federal law enforcement response to church fires.
During these last two years, I have had the privilege of working with an array of talented
and dedicated individuals. Starting from the top, I would like to take this opportunity to
acknowledge my colleagues, Under Secretary for Enforcement, Raymond W. Kelly, and Deputy
Assistant Secretary, Elisabeth A. Bresee, who are also here before you today. I look forward to
continuing to work with them as members of Treasury's team. I also wish to extend my
compliments to the heads of Treasury's law enforcement bureaus; they are exemplary public
servants and are a source of tremendous strength for the Department. Indeed, during my tenure
as Assistant Secretary, I have consistently observed that the commitment and professionalism
demonstrated by the men and women of our bureaus are nothing less than impressive. If
confirmed as Under Secretary, I look forward to the privilege of heading this gifted team.
The range of issues handled by Treasury's law enforcement bureaus and the Department's
Office of Enforcement is broad: From the Secret Service's protection of the American president
to OFAC's enforcement of economic sanctions; from Customs' protection of our borders to
FLETC's training of the majority of federal law enforcement officials; and from ATF's work on
the President's Youth Crime Gun Interdiction Initiative to FinCEN's continued efforts to build a
regulatory regime that will curtail the laundering of the illicit proceeds of crime. The reach of
these bureaus, and our ability to work together for good in the life of this Nation, is tremendous.
This breadth of responsibility provides both opportunity as well as challenge. As Assistant
Secretary, under the leadership of Secretary Rubin and Under Secretary Kelly, I have had the
honor of helping to design, develop and implement policies aimed at advancing the missions of
Treasury's law enforcement bureaus. As Under Secretary, I look forward to moving forward
with our enforcement agencies as they carry out these missions. I look forward to working with
each as it shapes a strategy that will carry it into the 2111 Century and expect to work closely with
the Congress as we carry this work forward.
While the challenges before us are considerable, I believe that Treasury law enforcement
personnel have consistently demonstrated the capacity to meet those challenges. As Under
Secretary, I look forward to continuing in that tradition and to maintaining the high standards of
oversight practiced at the Department of the Treasury.
Thank you.
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DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
omCEOFPUBUCAFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIllNGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
T ext as Prepared for Delivery
June 11, 1998
STATEMENT OF RAYMOND W. KELLY
NOMINEE FOR COMMISSIONER OF THE U.S. CUSTOMS SERVICE
SENATE FINANCE COMMITTEE
Mr. Chairman, Senator Moynihan. The last time I appeared before the Senate Finance
Committee for a confirmation hearing it was as the nominee for Under Secretary of the Treasury
for Enforcement. I had come to the post with some familiarity with Treasury's enforcement
bureaus, having worked with them during my career in the New York City Police Department.
That relationship, obviously, has become much closer since coming to Treasury. My
tenure as Under Secretary has given me a greater appreciation for both the ability and the
potential of the Bureau of Alcohol, Tobacco and Firearms, for the Secret Service and for the
Customs Service, as well as the other arms of Treasury enforcement.
It has also reinforced for me the importance of cooperation among Federal and local law
enforcement generally, and between the Treasury and Justice Departments in particular. There
will always be a healthy spirit of competition among the best practitioners of law enforcement.
But in the interest of public safety, we must set the rivalries aside and work toward a common
end. That has happened between the Treasury and Justice Departments in recent arson and
bombing investigations, in counter narcotics efforts, in airline safety, and a whole host of ways
that has made for better law enforcement. I encouraged that kind of cooperation at the Treasury
Department, and I will continue, given the opportunity to do so, at the Customs Service.
The Customs Service is the nation's oldest law enforcement arm. And it remains, first and
foremost, just that -- a law enforcement agency. But much has changed in two centuries -- not
the least of which is America's emergence as the world's economic giant, with trade and
commerce relationships the world over. America's wealth, and the opportunity that wealth has
afforded millions of Americans, is inexorably linked to the free flow of goods and services across
borders.
The Customs Service has worked closely with the trade community. I want to strengthen
the relationship. I want to make it even closer. It is essential for both the free flow of trade and
RR-2S08
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our enforcement mission. There has been progress. But we can do more. I want to improve the
information flow between us, and work out any glitches in the modernization process that may
have impeded us in the past. The Customs Service is duty-bound to stop drug dealers, illegal
arms merchants and others who traffic in death and addiction for profit. The sheer volume of
modem trade makes the inspection of every item entering the United States impossible. We can't
do it, and we wouldn't want to even if we could. We need the trade industry's cooperation, and
the Customs Service needs to cooperate with it. The Customs Service must also continue to
invest in technology -- such as advances in x-rays and other means of inspection to do what
human eyes and hands cannot do alone.
The Customs Service, at its core, must be vigilant. We have seen criminal organizations,
particularly in narcotics, put entire societies at risk by assaulting and corrupting law enforcement,
by manipulating financial systems, and by undermining democratic institutions. It is unimaginable
for the same thing to happen in the United States. But one oflaw enforcement's responsibilities is
to plan for unimaginable things; to pursue wrongdoers so the unimaginable remains unimaginable.
The Customs Service needs to stay ahead of the technological curve -- the same
technology that organized crime is eager to exploit. The drug cartels would prefer to move their
profits as data over fiber optic highways instead of cash over interstate highways. We seize a lot
of their money that way. Customs has done some remarkable work in stopping the cartel's latest
money laundering activity. Operations Wire Drill, El Dorado and Casablanca were great
successes in taking down some of the underworld's most sophisticated money laundering
schemes. That kind of good, effective law enforcement needs to continue and expand as criminal
organizations seek new ways to move their ill-gotten gains.
I want to compliment the fine men and women of the Customs Service. I look foward to
working with these professionals on a daily basis. The Customs Service has done very good law
enforcement work. But it can do it better. It can do better by recruiting the best candidates
possible for agents and inspectors; by improving training; by investing in and deploying the best
technology available, and by building the strongest alliances possible with the trade community.
Above all, the Customs Service must be persistent. It must be dogged in its determination
to bring smugglers and other law breakers to justice. That really is the secret to the success of
American enforcement -- persistence. We persist. We spend resources in persisting. We provide
for a peerless criminal justice system that guarantees everything from a fair trial to humane prison
conditions. We tend to spend the money to do it right. We stay the course. That combination of
resources and commitment puts law breakers in considerable peril. Criminals in America who are
not caught in the act, tend to be caught sometime thereafter.
The fate of any criminal who tries to defeat the Customs Service should be captured -sooner or later. I envision the Customs Service -- at its best -- as ever vigilant and doggedly
persistent. I see the Customs Service making drug smuggling, arms trafficking a~d money
laundering the riskiest of high risk activities, prone to frequent and spectacular fallure.
2
Given the opportunity, I will work very hard to make it so. My professional career has
been devoted to law enforcement. I am, therefore, privileged to be nominated as Customs
Commissioner and want to publicly thank President Clinton and Secretary Rubin for their
confidence in me to take on this important new role. I am happy to answer any questions the
Committee may have.
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DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
omCE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 _ (202) 622-2960
EMBARGOED UNTIL 9:30 A.M. EDT
Text as Prepared for Delivery
June 11, 1998
TREASURY UNDER SECRETARY (ENFORCEMENT)
RAYMOND W. KELLY
HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES
Chairman Leach, Mr. Lafalce, members of the Committee, it is a pleasure to be here
today to speak about a top priority of President Clinton, SecretaryRubin, Attorney General Reno,
and the Congress -- the federal government's efforts to combat money laundering.
Treasury Department enforcement bureaus and offices are responsible for significant
elements of this fight. The U.S. Customs Service, the Criminal Investigation Division of the
Internal Revenue Service (IRS-CI), the U.S. Secret Service and the Bureau of Alcohol, Tobacco
and Firearms are charged with investigating money laundering in cases where the underlying
criminal act lies within their core jurisdiction. The Financial Crimes Enforcement Network -FinCEN -- is charged with administering the Bank Secrecy Act, which prescribes transaction
reporting and record-keeping requirements for financial institutions designed to insulate those
institutions from money laundering, and to provide a paper trail for investigators. FinCEN also
serves as the central point for collection and analysis of Bank Secrecy Act data, providing case
support to law enforcement investigations. The Office of Foreign Assets Control is responsible
for implementing sanctions against nations determined to be a threat to the national security,
economy or foreign policy of the United States, pursuant to the International Emergency
Economic Powers Act (IEEPA), including sanctions aimed at the Colombian drug cartels.
Treasury enforcement agencies work closely with one another, other law enforcement agencies,
the Department of Justice, and with the Federal Reserve, the Office of the Comptroller of the
Currency and other regulators as part of a comprehensive attack on money launderers and their
underlying criminal activities.
Operation Casablanca
The impact these entities can have on money laundering is reflected in the Customs
Service's recently concluded Operation Casablanca, the largest drug money laundering
investigation in U.S. history. Although I cannot discuss the case in detail because the
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investigation and prosecutions are ongoing, I will provide a brief description of the operation
based on information which has already been made public.
Prior to 1995, agents in Customs' Los Angeles Office had information that drug cartel
members were laundering narcotics proceeds through branches of Mexican banks along the
border. Operation Casablanca began in earnest in November 1995, after undercover agents
participated in a money laundering transaction involving high level money launderers for the Cali
and Juarez cartels. The investigation then expanded to include the financial infrastructure of the
Juarez Cartel, including its money manager Victor Alcala Navarro, and a principal in the cartel,
Jose Alvarez Tostado.
The investigation targeted both the financial infrastructure of the Juarez and Cali cartels
and the financial systems used by these cartels to launder their U.S. drug proceeds. During the
course of this investigation, undercover agents posed as money launderers for the cartels and met
with Mexican and Venezuelan bankers who were willing to launder the cartels' illicit funds. These
bankers established bogus accounts and would issue bank drafts to avoid anti-money laundering
regulations. As a result of this investigation, indictments were brought against members of the
Juarez and Cali Cartels and their financial brokers and bankers. One indictment charged 26
Mexican bank officials and three Mexican banks -- CONFIA, BANCOMER, and BANCA
SERFIN - with money laundering.
To date, Operation Casablanca has resulted in the arrest of 167 individuals and the seizure
of approximately $100 million. We expect further arrests and seizures in this investigation.
We believe that Operation Casablanca represents a significant step forward to curb money
laundering. However, it is only the most recent example oflaw enforcement's efforts to close off
U.S. and foreign money laundering systems used by drug traffickers and other criminals. Today, I
want to speak about all aspects of Treasury's fight against money laundering -- a three-pronged
strategy aimed at preventing money laundering through regulation, detecting money laundering
through investigation, and deterring money laundering through international efforts. Before I
discuss our efforts, however, I want to briefly discuss the challenges we are confronting.
The Money Laundering Threat
Money laundering is the life support system of sophisticated international criminal
enterprises. The ability to sanitize ill-gotten gains permits drug trafficking and other criminal
groups to perpetuate, and live lavishly from, their illegal activity. But, as Casablanca
demonstrates, money laundering provides a point of vulnerability for these organizations. Indeed,
the steps which criminal groups must take to lend the appearance of legitimacy to their illicit
profits, provide us with an invaluable opportunity to attack the criminal organizations themselves.
The better we are at tracking dirty money, the better our ability to bring down the leaders of drug
trafficking and other criminal groups. For while the drug kingpins can separate themselves from
street-level sales, they cannot separate themselves from the profits those sales generate.
-2-
The money laundering problem we face today is increasingly international in character.
The greater integration of the world economy, and the removal of barriers to the free movement
of capital, have combined to create new commercial opportunities. Unfortunately, the efficiency
and convenience that the global economy affords to legitimate commerce, make the job of
disposing of criminal proceeds easier.
Late last year, this Committee held hearings on a money laundering system that serves as
an excellent example of the scope and complexity of money laundering today -- the Colombian
Black Market Peso Exchange. This system works as follows: Cocaine is shipped from Colombia
to the United States where it is sold. The narcotics proceeds are then deposited by the Colombian
drug cartels into U.S. bank accounts belonging to a black market peso broker in Colombia. The
peso broker then sells these dollars to Colombian businessmen for pesos which are paid to the
drug trafficker in exchange for the dollars. The Colombian businessmen use the dollars to
purchase goods in the U.S. which are shipped to Colombia. This method permits the drug
trafficker to convert dirty money -- the drug proceeds -- into clean money -- the Colombian pesos
-- which can be spent legitimately.
TreasUly's Response: Regulatory and Enforcement Efforts
To address this increasingly complex money laundering threat we must continue to focus
our anti-money laundering efforts on both prevention and enforcement. In so doing, we cannot
stop at our borders, but must promote an aggressive international campaign to ensure that all
nations are vigilantly pursuing the money laundering problem.
Domestic Efforts - Regulatory and Enforcement
Domestically, our goal is to combine effective prevention of money laundering with
proactive aggressive enforcement. Leveraging Treasury's unique regulatory authority in concert
with its enforcement capabilities (and those of other agencies), we seek a comprehensive
approach to the money laundering problem -- one that both insulates financial institutions from
criminal proceeds, and enhances the prospects for identifying launderers and disrupting their
illegal schemes.
Domestic Re~ulatory Efforts
We are accomplishing this objective in several ways. To enhance our ability to prevent
money laundering, for example, we are developing more intelligent, targeted regulations for
banks and other financial institutions. In the last several years, FinCEN has been engaged in
an effort to streamline regulations while actually increasing the utility of the information
provided to law enforcement.
As part of the continuing process of reform~ng the BSA~ w~ ha~e introdu~ an
.
invigorated system of suspicious transaction reportmg. Our ObjectIve IS to permIt the finanCIal
-3-
sector to redirect its resources from mechanical compliance to more proactive detection
methods. We are building our alliance with the U.S. financial services community, utilizing
its expertise to identify potential criminal conduct within its midst.
We are also working to revitalize anti-money laundering controls for institutions other
than banks. To that end, FinCEN recently issued proposed regulations expanding suspicious
activity reporting to casinos and will soon add securities firms. FinCEN also is in the process of
finalizing regulations requiring the registration of issuers and sellers of traveler's checks and
money orders, money transmitters and other "money services" businesses. These regulations will
also require certain of these institutions to report suspicious activity. Finally, FinCEN has
proposed regulations that would impose a special currency reporting rule on certain outbound
currency transfers stemming from Treasury's use of Geographic Targeting Orders, which I will
talk about below.
Domestic Enforcement Efforts
In addition to our regulatory efforts, which are geared toward preventing the placement of
illicit proceeds in our nation's financial institutions, Treasury's investigative bureaus have been
working to enhance the detection and investigation of money laundering. Customs and IRS-CI in
particular are aggressively pursuing investigations in which the disruption of a money laundering
operation, and the arrest and prosecution of the launderers, are the primary objectives. Together,
these agencies have approximately 1,100 expert financial investigators and staff dedicated to
"pure" money laundering investigations. Last year alone, Customs conducted nearly 4,500 money
laundering investigations. IRS-CI conducted almost 2,500.
Just last week, Customs seized more than S15 million in cash believed to be illegal drug
proceeds in four separate incidents in Houston, San Diego, Newark, and Chicago. The money
was destined for Colombia, Venezuela and Mexico.
Domestic Efforts -- The Comprehensive Approach
As I stated earlier, we believe our efforts are most successful when we combine
prevention with enforcement to shut down entire money laundering systems. This comprehensive
approach can be seen in Operation Casablanca and in Treasury's use of Geographic Targeting
Orders, or GTOs.
The Comprehensive Approach - Casablanca
On its face, Casablanca may appear to be strictly an enforcement action. In light of its
own regulatory authority, Treasury understands how law enforcement can benefit by working
with regulators. In the case of Casablanca, the involvement of the Federal Reserve Board made it
possible for it to immediately issue temporary cease and desist orders to six banks (Banamex,
Banca Serfin, Bital, Bancomer and Banco Santander, Banco Industrial de Venezuela). The orders
require these banks to describe their current anti-money laundering programs, to tell the Federal
-4-
Reserve their understanding of what broke and to submit an acceptable plan to fix what was
broken.
More broadly, Treasury is reviewing its regulations to see what, if any, changes are
needed to better prevent and detect money laundering schemes such as those utilized in
Casablanca.
The Comprehensive Approach -
Gros
Another example of Treasury's comprehensive approach is its use of Geographic
Targeting Orders -- GTOs. In 1996 and 1997, Treasury, working with the Department of Justice,
issued a number of GTOs mandating additional record-keeping and reporting requirements for
certain money transmitters sending money to Colombia and the Dominican Republic. As with
Casablanca, in the case of the GTOs, investigative work led to regulatory action. With the GTOs,
however, the regulatory action also spawned enforcement activity.
Through the work of a Treasury-led task force, Operation EI Dorado, it became apparent
that Colombian drug traffickers were using certain money remitters in the New York City area to
launder drug cash. The evidence demonstrated that 12 remitters had funneled approximately
$800 million a year to Colombia. To account for this money legitimately, each Colombian
household in the area would have had to wire $30,000 to Colombia each year -- an amount which
exceeds the $27,000 average annual income for this community.
To address this problem, Treasury invoked a previously little-used statutory provision
which grants the Secretary of the Treasury authority to require special reporting and record
keeping by financial institutions in specific geographic areas where necessary to fulfill the
purposes of the Bank Secrecy Act.
In August 1996, Treasury issued a GTO aimed at remittances from the New York City
area to Colombia. It required 12 New York area money remitters and their approximately 1,600
agents to obtain and report identifying information on all cash remittances of $750 or more to
Colombia. A second GTO was signed in October 1996, extending the heightened reporting
requirements to 10 additional remitters and their agents. The GTOs were extended by Treasury
several more times before expiring in October, 1997. Following the Colombian GTOs, Treasury
issued a series of similar GTOs covering money remittances sent to the Dominican Republic by
certain remitters in New York, New Jersey and Puerto Rico.
While we are still reviewing the effect of the Dominican Republic GTOs, it is clear that the
Colombian GTOs had a significant impact on the flow of drug proceeds through the targeted
remitters. Several of the remitters targeted under the GTOs stopped sending funds to Colombia
altogether, while many others sent significantly lower amounts. Thirteen individuals and two
corporations have been indicted or have pled guilty to structuring transactions to avoid the GTOs.
Several others are under investigation.
-5-
The GTOs also forced the traffickers to resort to other, more difficult tactics to move their
profits back to Colombia. In the first six months after the Colombian GTOs went into effect,
Customs' currency seizures at East Coast ports of entry increased approximately four hundred
percent as traffickers were forced to move money in bulk.
The Colombian GTOs represent the model for intelligent money laundering control.
Beyond using traditional law enforcement techniques to address discrete instances of criminal
activity, the GTOs marshaled Treasury's regulatory authority to identify and correct a weakness
that had penetrated a small but important part of the money transmitter industry. This
preventative effort, in turn, triggered a wave of enforcement activity, as money launderers were
forced to resort to riskier means of moving their funds once the vulnerabilities in the transmitter
industry had been remedied. Finally, the evidence gleaned through the GTO experience prompted
Treasury to propose a more permanent solution to the problems it sought to address. FinCEN is
in the process of finalizing the three regulations it proposed last May to deal with money services
businesses. The regulatory process has emphasized frank and full discussions with industry in five
open meetings and the review of more than 80 comments. The final rules will build on the GTO
experience by dealing with abuse in sectors of the money remitter industry and giving us the tools
to carry on the work begun by the EI Dorado Task Force.
International Efforts
Through innovation in regulation and enforcement, then, we are working to make U.S.
financial channels less user friendly to criminal enterprises. Indeed, as our experiences in
Casablanca and with the GTOs demonstrate, we have been successful at forcing drug traffickers
to alter their money laundering schemes. But these are only two fronts in the battle.
Drug traffickers and other criminal organizations will continue to search for the path of
least resistance to launder their money. Thus, no country's individual efforts -- whether in the
legal, regulatory, or law enforcement arena -- will be sufficient given the relative ease with which
money flows across borders.
In this regard, important strides have been made through multilateral initiatives. Chief
among those have been the Financial Action Task Force, or "FATF." The FATF is an
independent, international group formed in 1989 by the G-7 nations to cultivate the development
of effective anti-money laundering controls and enhance cooperation in investigations among its
membership and around the globe. In the nine years since its inception, the FATF has made
significant progress. The FATF 40 Recommendations, issued originally in 1990 and updated in
1996, serve as the principal benchmark for governments addressing the legal, financial and
regulatory aspects of money laundering. Moreover, prior to the establishment of the FATF ,
money laundering was a criminal offense only in the U.S. and a couple of other nations.
Today, all 26 F ATF member nations have such laws in place.
-6-
Over the next several years, the FATF will expand its membership to include
strategically important countries from under-represented parts of the world, and foster the
development of FATF-style regional bodies, such as the Caribbean Financial Action Task
Force and the Asia Pacific Group_
A related initiative designed to build upon the FATF's success in the Western Hemisphere
has begun under the auspices of the Summit of the Americas. As a follow up to the 1994
Summit in Miami, Secretary Rubin convened a conference of Finance and Justice Ministers
representing 29 of the 34 democracies of the region in Buenos Aires in December 1995. The
purpose of the Buenos Aires conference was to develop a coordinated, hemispheric strategy to
combat money laundering. The conference produced an agreement on the basic elements of such
a strategy, including the need to: criminalize the laundering of the proceeds of drug trafficking and
other serious crimes; adopt reporting and record keeping regulations to protect financial
institutions; take steps to enhance international cooperation in money laundering investigations;
and create financial intelligence units that specialize in the collection and analysis of pertinent
financial records in order to help track criminals' financial activities.
The Summit process has yielded promising results. Overone third of the Summit nations
have passed legislation criminalizing money laundering, or have issued anti-money laundering
regulations. Many others are considering doing so. Four Summit countries have established
financial intelligence units and a fifth, Paraguay, is expected to have a financial intelligence unit in
place by July 1, 1998.
In addition to multilateral efforts, Treasury -- in conjunction with our partners at the
Departments of Justice and State -- works bilaterally with a number of countries to strengthen the
global fight against money laundering. In so doing, we provide assistance in a wide-range of
areas. Treasury and Justice have assisted Mexico, Panama, EI Salvador and others in drafting
anti-money laundering legislation and regulations. FinCEN has provided technical assistance to
Canada, Venezuela, Argentina, and other countries regarding the establishment of financial
intelligence units and has trained analysts staffing such units. In the last year, IRS-CI has trained
foreign investigators and prosecutors from, among other places, Russia, El Salvador, Trinidad and
Tobago, and Brazil. In fact, just last week, IRS-CI and Customs participated in a training session
for Colombian prosecutors and investigators sponsored by the Department of Justice. Through
these multilateral and bilateral efforts we will continue to make it more difficult for criminals to
launder their illicit funds in all countries.
IEEPA
The final component of Treasury's international strategy is the IEEP A Specially
Designated Narcotics Traffickers program directed against the Colombian drug cartels. This
economic sanctions program against the Colombian narcotics traffickers was imposed by
President Clinton through Executive Order 12978 issued under authority of the International
Emergency Economic Powers Act. The principal tool for implementing the IEEP A narcotics
trafficking sanctions is the list of Specially Designated Narcotics Traffickers ("SDNTs")
-7-
developed by Treasury's Office of Foreign Assets Control ("OFAC") in close consultation with
the Justice and State Departments.
The objectives of the SDNT program are to identify, expose, isolate and incapacitate the
businesses and agents of the Colombian cartels and to deny them access to the U.S. financial
system and to the benefits of trade and transactions involving United States businesses and
individuals. For example, SDNTs are denied access to banking services in the U.S. and
Colombia, and existing SDNT accounts have been terminated. To date, OFAC has identified
nearly 400 closed Colombian bank accounts affecting over 200 SDNTs.
OF AC has issued seven lists identifying SDNTs since the inception of the IEEP A sanctions in
October 1995. As of today, OFAC has listed 451 companies and individuals as SDNTs against
which the prohibitions and blocking authorities of Executive Order 12978 apply. The SDNT list
includes the four kingpins of the Cali cartel named by President Clinton as significant narcotics
traffickers, the newly-designated significant North Coast trafficker, Julio Caesar Nasser David,
154 companies, and 292 additional individuals involved in the ownership or management of the
Colombian drug cartels' "legitimate" business empire. Work is underway on naming more
SDNTs.
Next Steps
The drug traffickers and other criminals never rest in their attempts to find new, easier
methods of laundering their dirty money. We must be ever vigilant in our efforts to stop them.
Just as we continue to hurt the criminal groups through enforcement activity, we also continue to
revise our regulations to respond to new threats. To ensure that prosecutors and investigators in
the field are informed about regulatory and other tools as they are developed, Treasury and
Justice co-sponsor a series of money laundering conferences. To date, conference attendees,
which include nearly 200 federal investigators and prosecutors from across the country, have
discussed Geographic Targeting Orders, FinCEN's Suspicious Activity Reporting System, and
money laundering trends including the use money orders and bulk cash shipments.
Additionally, our efforts to continually improve our anti-money laundering regime include
reviewing relevant law to see if changes need to be made. In this regard, I would like to
encourage the Committee to support President Clinton's International Crime Control Act. The
new authorities contained in the Act would give Treasury more weapons to fight a wide-range of
international crimes, including money laundering. I particularly want to highlight the provision
permitting Customs to search outbound mail.
Currently, the Customs Service conducts legal, warrantless border searches in virtually
every situation in which merchandise crosses the border. The one exception is outbound
international mail sent through the U. S. Postal Service.
We are certain that this fact has not gone unnoticed by international criminals and terrorists, who
are only too happy to take advantage of this relatively safe and inexpensive means of transporting
contraband and cash out of the United States. Express mail parcels can accommodate up to
$90,000 in $100 bills, making it one of the most efficient and cost-effective means of smuggling
-8-
currency out of the country. Similarly, a single international letter class parcel can hold as much
as $180,000 in $100 bills. The outbound mail provision of the President's International Crime
Control Act would make it easier for Customs to interdict such shipments.
In addition to the President's International Crime Control Act, I also want to take a
moment to comm~nt on your bill, Mr. Chairman, as well as the bill introduced by Representative
Velazquez. In domg so, however, I would only note that I must limit my comments to technical
matters pending a more detailed analysis and formal position by the Administration on each of the
bills.
The money laundering problem is complex and extends across the country and beyond our
borders, and potentially involves different sectors of the financial services industry. The
Department of the Treasury appreciates the efforts made by this committee and its members to
help us in the fight against money laundering, including the development of legislation to enhance
anti-money laundering measures.
"Money Laundering Deterrence Act of 1998" (Leach Bill)
The Money Laundering Deterrence Act contains a number of provisions with objectives
that could further our fight against money laundering.
In particular, we appreciate the attempt the bill makes to address the use of form 8300 to
assist law enforcement investigations of money laundering and financial crimes. This form is
essentially the equivalent of a Currency Transaction Report (CTR) for non-financial businesses
such as car dealerships. Changing the status of this form so that it is required by the Bank
Secrecy Act rather than the Internal Revenue Code could provide valuable information to federal,
state, and local law enforcement organizations conducting financial crime investigations and
tracking down the laundering of drug profits and other criminal proceeds.
We also appreciate the effort made in this bill to extend a "safe harbor" from liability for reporting
suspicious financial activity. As we view it, the provisions in the bill would grant immunity to
accountants who report suspicious activities and would make clear that a "safe harbor" for
suspicious activity reporting applies to arbitration.
This legislation also expands BSA summons authority, which could be used by FinCEN to
develop a modem civil enforcement program with easier access to important information. This
provision would clarify the scope oflaws covering BSA administrative summons to cover
compliance audits and investigations related to the filing ofBSA reports for any person.
In one of its sections, the bill also attempts to clarify penalties for violations ofGTO's and
funds transfer rules. The bill would make plain that violations ofGTO's and of wire transfer rules
constitute violations of law, and that structuring violations extend to transactions that are broken
up to avoid the $3,000 floor for wire transfer record-keeping requirements. These changes solve
important technical problems.
-9-
"Money Laundering and Related Financial Crimes Strategy Act of 1998" (Velazquez Bill)
We appreciate that Congresswoman Velazquez's Money Laundering Strategy Act
recognizes the scope of the money laundering problem and attempts to develop a mechanism to
address these challenges.
An anti-money laundering strategy could prove to be useful in setting priorities and
communicating them to Congress and the public. Money laundering enforcement is complex and
resource-intensive. Enforcement of money laundering laws could benefits from proper
coordination among federal, state, and local law enforcement.
We also appreciate the bill's effort to make additional resources for anti-money laundering
activities available to the men and women fighting money laundering in State and local law
enforcement. Financial crime investigations are complex and require specialized expertise, as well
as resource commitments to follow leads that take time to develop. Like our some of recent
investigations indicate, cases themselves may span years and are infonnation-intensive. Because
... of this, State and local law enforcement can benefit from additional resources and expertise to
fully join the fight against money laundering.
"Money Laundering Act of 1998" (McCollum Bill)
The Money Laundering Act of 1998 introduced by Congressman McCollum includes
provisions that were in a money laundering bill the Administration supports. This bill could also
help us in our continuing fight against money laundering, both in the United States and abroad.
The Administration has previously supported a bill containing most, though not all, of the
provisions in this proposal. This bill was primarily designed to address international laundering of
criminal proceeds, either by criminals committing offenses in the U.S. and attempting to conceal
their gains abroad, or by criminals who commit offenses in other nations and attempt to use our
financial system to launder their profits. For example, Section 8 of this legislation would expand
the predicate offenses for money laundering to include a number of foreign crimes, such as
terrorism, fraud and corruption, and crimes of violence. Section 16 also raises the standard
necessary for successfully asserting the "innocent owner" defense if individuals buy tainted profits
on the so-called "Black Market Peso Exchange." Under this legislation, such a claim would be
subject to the legal standard applicable in drug cases, which requires a person to establish that he
or she was a bona fide purchaser who took all reasonable affinnative steps to make sure that the
money was not derived from a criminal offense.
The Justice Department took the lead in drafting the original legislation from which this
bill draws, and will likely have further comments about other significant provisions contained in
this bill.
-10-
Further collaboration
As you consider all of this legislation, we want to be of the greatest possible assistance in
giving you the best considered view regarding technical aspectS' of the bills. These anti-money
laundering bills highlight the Committee's determined support to assist federal law enforcement
and regulators in the fight against laundering of dirty money. We would like to continue to work
with each of you as you move forward with your respective bills.
Once again, I would like to thank the Committee for allowing me to speak today on this
very important issue. I look forward to continuing our work to combat money laundering in the
U.S. and abroad. Thank you.
-30-
-11-
DEPARTMENT
OF
TREASURY
THE
TREASURY
NEWS
EMBARGOED FOR RELEASE AT lOAM
Text as Prepared for Delivery
June 11, 1998
TREASURY SECRETARY ROBERT E. RUBIN
SENATE FINANCE COMMITTEE
Mr. Chainnan, members of this Committee, I think that your hearing today on the trade
deficit provides all of us a most useful opportunity to discuss many issues of great public
importance.
To begin, I would like to place the issue of the trade deficit in the broader macroeconomic
context. The United States has the strongest economy among the major industrialized countries
in the world today. Unemployment is 4.3 percent and it has been under 6 percent for nearly four
years. The economy has generated 16 million new jobs over the last five years, inflation has
remained low and real wages are rising.
At the same time, we have an expanding trade deficit. The current account deficit -- the
broadest measure of the trade balance -- is rising, but it is worth noting that, relative to the
overall size of the economy the present deficit is considerably smaller than the deficits of the
mid-I980s. We estimate it equaled around 2.5 percent of GOP in the first quarter, compared to
3.5 percent of GDP in the mid-1980s. Private forecasters estimate that it will be between 2.5 and
3 percent of GDP in 1999.
The reasons behind the rising trade deficit are many, and Chainnan Yellen will discuss
how the savings rate affects the deficit, but the most important is that the U.S. economy is
considerably stronger than the economies of almost all of our significant partners. The driving
force behind the U.S. economy's current strength has been domestic demand, while, even though
exports have been perfonning well, foreign demand for our exports has been notably weak. This
has been particularly true in Asia, which has accounted for one-third of our total exports. First
quarter data indicate that U.S. exports to the countries most affected by recent instability in Asia - Thailand, Malaysia, Indonesia, the Phillippines, Singapore, and Korea -- are currently on pace
to fall between $17 billion and $21 billion (annualized) since the crisis began, depending on how
one does the seasonal adjustment, and the decline could be larger if further contraction occurs. If
you include Japan, the figure is between $23 and $29 billion.
RR-2510
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
That takes us to the industrialized nations, most of whose economies have also been
relatively weak compared to ours. Most troubling, the Japanese economy still fails to show signs
of recovery, and Japan's economic difficulties and weak currency are having substantial adverse
impact on the East Asian countries. Obviously, the worse these conditions in Japan, the greater
that adverse impact on the region. We, the IMF, the OECD, and the G-7 -- in our case for well
over a year -- have strongly urged the Japanese government to undertake the necessary steps to
stimulate domestic demand-led growth, including fiscal stimulus, an effective program to address
the problems of the banking sector, and deregulation and market opening. In this regard, we have
in the past several months said on many occasions that we share the Japanese government's
growing concern about the weakness of the yen, because of its implications for economic
recovery in Asia and Japan's growing external surplus. In tum, the weakness of the yen reflects
the economic conditions in Japan, and can only be remedied by restoring economic strength in
Japan.
In short, Mr. Chainnan, the recent rise in our trade deficit, and the trade deficits of the last
few years, reflect the strength, not the weakness of the U.S. economy. Even with the rise in the
trade deficit, we estimate the most likely scenario for the U.S. economy for the period ahead is
sustained growth, low inflation, and low unemployment.
Let me now begin a discussion of the impact of the trade deficit on our economy. One
thing that is clear is that the trade deficit has not undermined our strong economic performance.
Having said that, let me focus on two dynamics regarding the trade deficit. On the one hand, it
means we are attracting foreign investment, which does create claims from abroad that, at some
point, have to be repaid. On the other hand, if we use that investment in areas that promote
higher productivity in the long tenn, it will result in higher growth, and, on balance, increase, not
drain, future income, assuming the return to the economy on the investment exceeds the foreign
obligations. Currently, the United States is experiencing record levels of business investment,
and thus, the probability is strong that higher productivity gains and growth will occur in the
United States. It is also important to note that increased trade deficits and increased claims
against our country, even if the capital inflows on balance promote long term growth, do create
greater vulnerabilities to changes in global financial markets' views toward investment in the
United States and they give rise to greater sectoral dislocations in our economy. All of this
underscores the importance of having strong economic policies at home.
Mr. Chairman, trade contributes importantly to the economic health of this country.
Millions of Americans owe their jobs directly or indirectly to trade, and all of us benefit through
the lower prices and greater choice that international competition fosters. Our economic wellbeing truly is inextricably linked to the rest of the world.
Moreover. trade with developing countries, which absorb 43 percent of our exports, is
increasingly important to the United States. Trade deficits with low wage countries, such as most
developing countries, are often seen by Americans as evidence that the United States cannot
compete with 100v wage nations. While low wage countries are able to produce a range of low-
2
wage, low-skill items at lower cost than U.S. firms -- to the benefit of U.S. consumers -- this is
not true across the board because the productivity of American workers allows them to compete,
even given their higher wages. Moreover, the developing countries buy American goods such as
airplanes, construction equipment, entertainment products, and hi-tech goods produced by highwage, high-skill American jobs. Indeed, studies have shown that over the last several years, six
out of ten of the jobs created have been high-wage jobs. As a highly productive and competitive
economy, the United States can -- and does -- export to low wage countries, and increasing trade
with these countries benefits our economy.
To put the same thing in conceptual perspective, trade is not a zero sum game. A nation
does not "win" by exporting, and "lose" by importing. If a nation produces its relatively most
competitive goods and services and then exchanges with other nations to obtain the relatively
less competitive goods and services, the nation will be better off than it would be without trade.
In the natural course of trade, some industries will be buffeted by foreign competition.
That means there will be dislocations for some, although I think it is worth observing that
technology contributes far more to dislocations than trade. Thus, while trade benefits most, there
is a risk to some. The answer to these problems is not to try to haIt the inevitable tide of
-technology or globalization that has benefited so many. Instead, the answer is to equip all of our
people to compete in the global economy, very much including those outside the economic
mainstream in inner cities and distressed rural areas, through education and training; to help the
dislocated re-enter the economic quickly and successfully through adjustment programs such as
the North American Development Bank; and to have an appropriate social safety net where
needed. Having said that, we all need to continue to focus on how best to help those who are hurt
by the dynamic changes in our economy including trade and technology that greatly benefits the
whole.
A forward-looking international economic policy to derive the full potential from trade
and to best promote our exports of goods and services includes three components: First,
continuing an aggressive effort to open markets and liberalize trade, as this Administration has
done through Nafta, the WIO agreement, scores of other trade agreements and through strong
enforcement of our trade laws. We estimate that U.S. exports have accounted for one-third of our
nation's real growth during the recent economic expansion. The President has made clear he is
committed to working with Congress to secure fast track negotiating authority so that we can
pursue a trade policy that creates jobs and promotes higher standards of living and that, as the
President said recently, will "harmonize our goals of increasing trade and improving the
environment and working conditions."
Second, is promoting growth and reform in developing countries. By helpin~ them
continue on the path of reform, we help to build markets that already have been buymg 40
percent of our exports.
3
Third, is to address financial instability, both when it occurs, and in the long tenn. by
developing an architecture of the international financial system that is as modem as the market.
The IMF is critical both to promoting growth in developing countries and addressing
financial instability. Those who are most concerned about the trade deficit ought to be among
the strongest advocates of IMF funding. As its core mission, the IMF works to promote or
reestablish financial stability and economic growth, helping to create the conditions where other
countries have the economic strength to buy our goods, as well as solid currencies that do not
provide undue competitive pressure for our goods and services in countries around the world.
The IMF is especially critical to our economic well-being in countries experiencing severe
financial instability and economic difficulty, both by helping those countries and by preventing
contagion to other developing nations. Moreover, IMF programs, including the recent Asia
reform programs, have long included significant trade liberalization measures which have the
effect of opening foreign markets to U.S. goods and services.
Yet, as a result of the recent situation in Asia, the IMF's normal financial resources are
approaching a historically low level, and the IMF does not have sufficient funds to deal with a
truly major crisis, for instance if the Asian crisis were to worsen or if a new crisis were to
develop. The probability of such events occurring is low, but if they occurred, the effect on our
economy would be severe and we should not take the risk that such events could start to unfold
and the IMF not have the capacity to try to cope effectively.
Mr. Chainnan, with the help of your leadership, the Senate approved funding for the IMF
by a vote of 84 to 16. We urge the House to follow suit as quickly as possible. The full IMF
funding is needed now, to protect our economic and national security interests.
The key to prospering in the global economy is to maximize our productivity and
competitiveness. That requires fiscal responsibility to keep interests rate down and maximize
savings for investment, and investing in our people through education, training and other areas
critical to future productivity. Ifwe put all of these pieces together -- fully funding the IMF to
promote financial stability, continuing to open markets to U.S. goods and services, promoting
growth and refonn in developing countries, and maintaining our strategy of fiscal discipline and
investment in people -- all of which constitutes the basic economic strategy for the past five and a
half years -- we have a recipe for economic growth, and for containing the trade deficit to a
sustainable level over time. Thank you very much.
-30-
4
DEPARTl\:lENT
OJ'
THE TREASURY
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS 11500 PENNSYLVANJA AVENUE, f'.W .• WASHINGTON, D.C.- :ZDZZO. (ZDl) 63%-:'60
EMBARGOED ON'I'IL 2: 3 0 P. M.
CONTACT:
June 12, 1998
Offiee of Financing
202/219-3350
TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $~O,OOO =dllion of 52-week Treasury
bills to refund $14,515 million of publicly held 52-week bills maturing June 25,
1998. This offering will result in a paydown for the Treasury of about $4,525
million. In addition to the maturing 52-week bills, there are $12,939 million
of maturing publicly held 13-week and 26-week bills.
In addition to the publie holdings, Federal Reserve Banks for their own
accounts hold $11,769 ~llion of the maturing bills. These accounts are considered to hold $4,915 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 $5,847 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 diseount rate of aceepted
competitive tenders. Additional amounts may be issued for such aecounts if the
ag~egate amount of new bids exceeds the aggregate amount of maturing bills.
For purposes of determining Bueh additional amounts, foreign and international
monetary authorities are considered to hold $2,719 million 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 Publie Debt, Washington, D.C. This offering
of Treasury securities is governed by the terms and conditions set forth in the
Unifor.m 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.
Details about the new security are given in the attached offering
highlights.
RR-2511
AttaC!hment
000
For press releases, speeches, public schedul~s and official biographies. call our 24-hour fllX line ar (201) 622-1040
HIGHLIGHTS OF TREASURY OFFERING OF 52 -WEEK BILLS
TO EE ISSUED JUNE 25, 1998
June 12, 1998
Offering Amount ............ S10,OOO million
Description of Offering:
Term and type of security ..
CUSIP number •.......•.•....
Auction date •..............
Issue date .................
Maturity date ....•..•......
Original issue date ••.•.••.
Maturing amount •.•...•...•.
Hin~um bid amount ••.•...••
Multiples ••.••.••...•••....
364-day bill
912795 BY 6
June 18, 1998
June 25, 1998
June 24, 1999
June 25, 1998
$19,430 million
$10,000
$1, 000
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
three decimals, in increments of .005%,
e.g., 7.100\, 7.105%.
(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 $1 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing t~ 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 Daylight Saving
t~e on auction day
Competitive tenders .•....•. Prior to 1:00 p.m. Eastern Daylight Saving
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
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
CONTACT:
June 15, 1998
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
91-Day Bill
June 1B, 1998
September 17, 1998
9127944Z4
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
Investment
Rate 1/
---------5.135\'
S.lS1%'
5.143\
-----Low
5.000%'
5.015\
5.010\
High
Average
Price
------
98.736
98.732
9B.734
Tenders at the high discount rate were allotted
23\.
AMOUNTS TENDERED AND ACCEPTED (in t!lousands)
Tender Type
Tendered
s
Competitive
Noncompetitive
PUBLIC SUBTOTAL
26,240,433
1,275,527
Federal Reserve
Foreign Official Add-On
$
TOTAL
Bid-to-cover Ratio
=
27,515,960 /5,323,BOO
$
4,04B,273
1,275,527
27,515,960
5,323,900
450,693
450,693
27,966,653
5,774,493
2,859,310
65,007
2,859,310
65,007
Foreign Official Refunded
SUBTOTAL
Accepted
30,890,970
5.17
1/ Equivalent coupon-issue yield.
RR-2512
hltp:/lwww.publlcdebLtreaa.IOV
$
8,69B,810
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
&UREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 15, 1998
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
lS2-Day Bill
June 18, 1998
December 17, 1998
912795AU5
Term:
Issue Date:
Maturity Date:
CUSIP Number:
RANGE
OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
-----Low 2/
High
Average
5.060\
Investment
Rate 1/
price
------
----------
97.442
5.265\
S.271\,
5.271\
5.065\'
5.065\
97.439
97.439
Tenders at the high discount rate were allotted
72t.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
$
Competitive
Noncompetitive
PUBLIC SUBTOTAL
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
25,405,355
1,105,594
1,105,594
1,913,907
1,913,907
28,424,856
7,254,336
3,690,000
3,690,000
276,093
276,093
$
= 4.96
Equivalent coupon-issue yield.
2/ $1,255,000 was accepted at rates below the competitive range.
RR-2513
4,234,835
5,340,429
----------------32,39;),949
Bid-to-cover Ratio; 26,510,949 / 5,340,429
$
26,510,949
$
TOTAL
1/
Accepted
Tendered
Tender Type
http://www.pubUcdcbLlreU.goY
11,220,429
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
June 16, 1998
Contact: Office of Financing
(202) 219-3350
TREASURY'S INFLATION-INDEXED SECURITIES
JULY REFERENCE CPI NUMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPI) numbers and daily
index ratios for the month of July for the following Treasury inflation-indexed securities:
(1) the 3-3/8% 10-year notes due January 15, 2007, (2) the 3-5/8% 5-year notes due July 15,
2002, (3) the 3-5/8% 10-year notes due January 15, 2008, and (4) the 3-5/8% 30-year bonds due
April 15, 2028. This information is based on the non-seasonally adjusted U.S. City Average All
Items Conswner Price Index for All Urban Consumers (CPI-U) published by the Bureau of Labor
Statistics of the U.S. Department of Labor.
In addition to the publication of the reference CPI's (RefCPI) and index ratios, this
release provides the non-seasonally adjusted CPI-U for the prior three-month period.
This information is available through the Treasury's Office of Public Affairs automated fax
system by calling 202-622-2040 and requesting document number 2514. The information
is also available on the Internet at Public Debt's web site (http://www.publicdebt.treas.gov).
The information for August is expected to be released on July 14, 1998.
000
Attachment
PA-354
RR-2514
http://www.publicdebt.treas.gov
TREASURY INFLATION-INDEXED SECURITIES
Ref CPI and Index Ratios for
July 1998
--
Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Addltionall•• ue Date:
3-318% i0-Vo.r Notes
Series A-2007
9128272M3
January 15, 1997
February I, 1991
April 15, 1997
3..5/B% 5-Voar Notes
Serl•• J-2002
9128273A8
July 15, 1997
July 15, 1997
October 15, 1997
3-518". 10·Ve.r Notes
Serlo. A-200B
t128273T7
January 15, 1998
January 15, 1998
l..s/8% 30-Vear Bonds
Maturity Cate:
Ref CPI on Dated Date:
January 15, 2007
158.43548
July 15, 2002
160.15484
January 15, 2008
161.55484
April 15, 2028
161.14000
Bond. of April 2028
912810FD5
April 15, 1198
April 15, 1198
I
Data
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
July
1
2
:I
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
2"
25
26
21
28
29
30
31
1198
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
1998
19V8
1998
1998
1998
1998
1188
1998
1998
1998
1998
1998
CPI-U (NSA) for:
RefCPI
Index Ratio
Index Ratio
Index Ratlo
162.50000
162.50968
162.51935
1&2.52903
162.53871
162.54839
162.55806
162.56174
162.57142
162.58110
162.59677
162.60645
162.61613
162.62581
162.63548
162.64516
162.65484
162.66452
162.67419
162.68387
162.69355
162.70323
162.71290
162.72251
162.73226
162.74194
162.75161
162.76129
162.77097
162.78065
162.79032
1.02565
1.02572
1.02578
1.02584
1.02590
1.02596
1.02602
1.02608
1.02614
1.02620
1.02626
1.02633
1.02639
1.02645
1.02651
1.02657
1.02663
1.02669
1.02675
1.02681
1.02688
1.02614
1.02700
1.02706
1.02712
1.02118
1.02724
1.02130
1.02136
1.027"3
1.02749
1.01464
1.01410
1.01416
1.01482
1.01488
1.01495
1.01501
1.01507
1.01513
1.01519
1.01525
1.01531
1.01537
1.01543
1.01549
1.01555
1.01561
1.01567
1.01573
1.01519
1.01585
1.01591
1.01597
1.01603
1.01609
1.01615
1.01621
1.01627
1.01634
1.01640
1.01646
1.00585
1.00591
1.00591
1.00803
1.00609
1.00615
1.00621
1.00627
1.00633
1.00639
1.00645
1.00651
1.00657
1.00863
1.00669
1.00615
1.00681
1.00681
1.00893
1.00699
1.00705
1.00711
1.00717
1.00123
1.00729
1.00735 .
1.007"1
1.007"1
1.00753
1.00759
1.00165
March 1998
162.2
April 1998
162.5
Ind.x Ratio
1.00470
1.00476
1.00482
1.00488
1.00494
1.00500
1.00506
1.00512
1.00518
1.00524
1.00530
1.00536
1.00542
1.00548
1.00554
1.00560
1.0056&
1.00572
1.00578
1.00584
1.00590
1.00596
1.00602
1.00608
1.00613
1.00619
1.00625
1.00631
1.00637
1.00543
1.00649
May
1t'~
162.8
From: TREASURY PUBLIC AFFAIRS
To: 20009
D EPA R T 1\1 E N T
0 F
T II E
7-30-98 2:03pm
T I{ E A S II
I{
p. 3 of 32
Y
NEWS
-
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANlAA'VENUE, N.W.• WASHINGTON, D.C•• 20220. (202) 622-2960
EMBARGOED UNTIL 2:00PM EDT
Text as Prepared for Delivery
June 17, 1998
TREASURY UNDER SECRETARY FOR DOMESTIC FINANCE
JOHN D. HAWKE, JR.
SUBCOMMITTEE ON FINANCIAL INSnnmONS AND CONSUMER CREDIT
OF THE
HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES
Madam Chairman, members of the Subconunittee, it is a pleasure to speak with you today
about the Corrununity Development Financial Institutions (CDFI) Fund. I am pleased to be joined
by Ellen Lazar, the new Director of the CDFI Fund.
The CDFl Fund is a critical component of our strategy to promote private sector-led
growth in economically distressed areas. I am here today to ask for your help in replenishing the
Fund. and in working with us to continue to improve the Fund's operations, so that we can
maximize its benefits to America's communities.
CDTh are specialized financial institutions that serve economically distressed communities
and underserved populations. They include credit unions, microenterprise funds,
development banks~ and equity or loan funds that share this common mission: providing financial
services to people and communities typically overlooked by traditional financial providers. For
many years. institutions such as these have defied conventional wisdom by making loans to people
that could not get financing elsewhere, and these borrowers have repaid with interest. CDFIs are
often the pioneers in their communities, making leading edge investments based on their local
knowledge, and demonstrating to traditiona11enders that these are viable markets. CDFIs are
expanding the reach of the private sector marketplace.
The Tole of the CDFI Fund is to further strengthen these institutions and to help new ones
to grow. The Fund provides equity, loans, grants and technical assistance to CDFIs so that they
can attract. more investors and depositors, and make more investments and loans to hard working ~
Americans who have been for too long left behind.
RR-2516
-
-
For frre# releases, speeches, public schedules and official biographieN, call t)U'1' 24-hour fttx line at (202) 622-2040
To: 20009
From: TREASURY PUBLIC AFFAIRS
7-30-98 2:03pm
p. 4 of 32
With CDFI, I beli~e we have a new, more market-driven approach to community development.
By filling market ruches and drawing mainstream financial institutions into low income
communities through partnerships, CDFls help to make our financial system work better for more
Americans, no matter where they live or what their incomes might be.
The CDF! Fund has two main programs: the core CDFI program, which assists CDFIs
'
demonstrably increase-their lending and other financial services in distressed communities. The
two programs are comple~entary and mutually reinforcing. By working through local
institutions. both programs respond to communities individual needs, whether it is helping families
to buy a house, or a budding entrepreneur to start a business, or a community to provide the child
care facilities working families need.
and the Bank Enterprise Award (BEA) program, which funds financial institutions that
The program is still young, but we are already seeing signs of success. The CDFI Fund is
expanding access to credit and financial services in low income urban, rural, and Native American
communities, areas where one of the biggest obstacles to economic growth is a lack of access to
private sector capital.
Thus far) the F~nd has awarded nearly S80 million to 81 CDFIs around the country. The
leveraging of the federal investment is strong. The CDFI Fund investment must be matched at
least one--to--one with non-Federal dollars. Though actual leverage numbers vary from institution
to institution, let me give you one example how leverage works in a community development
Gredit umon: The Fund's investment and the match become part of the credit union's capital base,
which enables it to raise additional customer deposits, all of which become credit union resources
available for lending to its members. Industry-wide, community development credit unions have
a loan-to-capital ratio of 6. 6S to L In other words, each dollar of capital supports $6.6S of loans
by the credit union. Because each federal dollar must be matched by a non-federal dollar, a 51
Uivestment by the Fund has the capacity to generate $13 .30 in loans by the credit union.
These investments are making a difference. The Fund is still in the process of developing a
systematic approach to quantifYing impact, but anecdotal evidence of the Fund's impact is
available. For example, Bethex Federal Credit Union in the South Bronx, a smaI1 financial
institution originally.founded in 1970 by former welfare recipients, received a $100,000 grant
from the CDFI Fund to expand its financial services and increase its business lending. Over the
past 18 months; Bethex's membership has grown from 1,270 to 3,000 and its assets have
increased from $1.6 million to $3 million. In addition, Bethex has launched "School Banking," to
encourage savings among students.
I recently visited Self Help of North Caro1ina, which operates a credit union and a venture
capital fimd. The CDFI Fund"s February 1997 $3 million investment has already enabled Self
Help to effectuate $24 million in home mortgage and commercial lending transactions. Over the
next five years, Self Help estimates that the CDFI Fund s award and m~tching funds wilt. enable
Self Help to provide more than S100 million to finance affordable houslDg and small busrness
loans over and above what Self Help could have done without the Fund's investments.
I
2
To: 20009
From: TREASURY PU8LIC AFFAIRS
7-30-98 2:04pm
p. 5 of 32
I saw first hand how a young man who had been running a marginal fresh fish business
was able to get a $1,000 micro-loan from Self Help to buy a fish fryer and thereby offer a fast'
food menu to his customers. His business began to grow, and now he employs two full-time and
two part-time workers. He has expanded by buying another fryer and a stove, and now he wants
to borrow $15,000 to buy a refrigerated truck that will enable him to pick up his own fish. This is
only one example of how much difference even a very small loan can make for a small business
entrepreneur with creativity and drive to be financially successful, and that is one of the things that
CDFIs can do very well.
I also had the opportunity to visit a distressed neighborhood in Durham, where Self Help
was rehabilitating rental properties and selling them back to former tenants. I spoke to a minister
there who told me that just a few years ago, no one dared to sit on their front steps or go down
the street to the store for fear of becoming victims to drug-trafficking violence. But with funding
from Self-Help and other sources, the neighborhood is now beginning to tum around. Houses are
being repaired, and families have been given the opportunity to own their own homes for the first
time. It has made the neighborhood safer, and has encouraged the homeowners to become more
involved in their community.
Under the Bank Enterprise Awards program, more banks and thrifts than ever before are
reaching out to their communities and are investing in CDFIs. This year, the Fund received 104
applications, a 40 percent increase over last year's applications. The Fund's $30 million in BEA
investments have already leveraged $273 million in bank investments and support. Moreover,
many of the awardees are choosing to reinvest the awards they receive for past performance back
into community development projects. In this way, the CDFI Fund is getting increased private
sector leverage for federal dollars.
In Kansas City, ~sso~ for example, Central Bank. was awarded nearly $100,000 for
increasing its loans and sil"vices in distressed neighborhoods by more than $8.3 million during the
first halfof 1996. In addition to loans for housing, the bank made a significant loan to help a
major m.anufacturer and employer remain in the community.
Though the CDFI Fund has accomplished much in a short time, as with any new
organization, there have been some growing pains. In my judgment. we have dealt with those
problems thoroughly and effectively, and they are behind us.
Let me make just make a few points about the past:
First, we have had the benefit of extensive congressional oversight of the. Fu?d' s activities
for more than a year. We have read Mr. Bachus's report on the CDFI Fund, which IS a
professional and thorough report. Although we disagree with cert~n a~pects ?f the report. let me
emphasize that congressional oversight has been useful and productIve m helpmg the Department
and the Fund to improve. program operations.
Second, the Fund has significantly strengthened itself over t.he last year. It has strong
internal controls) and we will continue to improve procedures as thIS program grows and matures.
3
From: TREASURY PUBLIC AFFAIRS
To: 20009
7-30-98 2:02pm
p. 2 of 32
comprehensive assessment of air and ground security ever conducted at the White House
Complex. Following the review, I was appointed Deputy Assistant Secretary for Law
Enforcement, with responsibility for assisting in oversight of the Departmene s law enforcement
bureaus and offices. Shortly after my appointment as Deputy Assistant Secretary, I earned out
the duties of the Under Secretary and Assistant Secretary for Enforcement while Assistant
Secretary Johnson and Under Secretary Kelly were awaiting confirmation.
In my positio~ I have been involved in the Department's continuing effort to provide
greater oversight to its law enforcement bureaus, and its effort to ensure that Our bureaus
maintain the highest standards of professionalism. Because of the sensitive nature of our law
enforcement missions. I worked with the Under Secretary and Assistant Secretary to enhance our
oversight of Treasury's law enforcement bureaus in numerous areas, including integrity and
internal affairs matters, training, and equal employment opportunity issues. I have also assisted in
guiding a comprehensive review of Treasury's Federal Law Enforcement Training Center - an
entity that trains nearly 80% of new federal law enforcement officers - and in improving our
continuing efforts to safeguard our Southwest Border against the influx of drugs and contraband.
Indeed, just this week I was in Laredo, Texas where I had an opportunity to view the innovative
efforts that Customs is employing at that very challenging port of entry.
My work at Treasury over the past four years has allowed me to understand the important
missions of OUT enforcement bureaus and how these missions complement each other. Together,
Customs and ATF collect nearly $37 billion in revenue. Customs also protects our nation from
narcotics smuggling, maintains the integrity of the border, and enforces international trade laws.
ATF targets violent criminals. firearms traffickers and arsonists. The Secret Service protects our
nation's leaders and combats fraud. And OFAI:, and FinCEN enforce trade sanctions and help
fight money laundering, respectively. These responsibilities help finance the government~ protect
our financial system from fraud, abuse, and instability; and ensure the safety of our nation and its
people.
The Treasury agents, inspectors, and officers who carry out these missions embody the
highest ideals of conunitment, professionalism, and genuine public service. It will be a privilege to
continue to serve Treasury and assist with the leadership of these women and men.
I am acutely aware of the broad and important responsibilities of the Office of
Enforcement. I also believe my experience at Treasury, at the U.S. Attorney's Office, and as a
lawyer in private practice will serve me wen as Assistant Secr~tary, ~ confirmed. With the
guidance of this Committee and the support of Secretary RubUl, I beheve I am ready to meet the
challenge. Thank you very much.
.30.
TOTAL P.02
From: TREASURY PUBLIC AFFAIRS
To: 20009
7-30-98 2:05pm
p. 6 of 32
The Fund has instituted a series of changes since the first round of awards in 1996, including a
numeric scoring system, reviewer training, detailed application, review, and awards policies and
procedures, documentation of awards files, clear conflict of interest policies, and other
procedures. The Fund was recently given an unqualified audit for its activities since inception.
The audit also confirmed the findings of the Fund's management that material weaknesses had
existed in the past, and that the Fund had corrected or was in the process of correcting each of
those weaknesses. (I am attaching a chart showing exactly where CDFI stands in its efforts to
cure those deficiencies.)
Third. the CDFI Fund's award decisions have been based on the merits, after a rigorous
review of track record, financial strength, the management team's skills and experience, the
quality of the b~siness pl~ the abiljty to raise non-federal matching funds, and the potential for
making a difference in their conununities. From the beginning, I emphasized to Fund management
that the Fund was to make its award decisions independently, on the merits. And that is the way
the Fund's decisions were in fact made.
Finally~ we are moving this program forward with the new leadership of Ellen Lazar and
her new team, who I believe brings to the job the dedication, the many years of experience in
community development, t!'te discipline, and the energy needed to strengthen the CDFl Fund in
the years ahead. In sum, Madam Chainnan, we have a strong management team in place with the
necessary skills and experience to ensure that the program meets high standards of accountability
and perfonnance, the Fund has strict awards procedures and sound infrastructure in place, and I
believe that the Fund is well positioned to serve low income communities across the country.
Madam Chainnan, the Fund's vision for stimulating private sector investment in
distressed areas.
makes sense
'and the Fund t s investments are .~beginning to make a difference in
people's lives.· Since its inception, CBFI has enjoyed bipartisan support. I look forward to
working with all of you to enact the CDFl Fund reauthorization, so that CDFI can help more
local communities across the country rebuild neighborhoods, create jobs, and restore hope. CDFl
is a solid investment in the long-term economic well being of not only those communities, but all
of us.
Thank you very much.
-30·
4
TOTAL P.04
DEPARTl\fENT- OF
THE
TREASURY ~'
TREASURY
NEW S
OFFICE OF PUBLIC AFFAIRS '1500 PENNSYLVANIA AY~NtI£. N.W.' WASHINGTON. D.C.' 20220 • (.~02) 622.2960
EMBARGOED UNTIL 2: 30 P.M.
June 16, 1998
CONTACT:
Office of Fmancing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury w~~~ auction two series of Treasury bills tota~~q approx~
mately $13,000 ~~lion, to be issued June 25, 1998. This offering will provide
about $50 million of new cash for the Treasury, as the maturing publicly held
13-week and 26-week bills are outstanding in the amount of $12,939 ~llion.
In
addition to the maturing 13-week and 26-week bills, there are $14,515 million of
maturing publicly held 52-week bills. The disposition of this latter amount was
announced last week.
In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $11,769 million of the maturing bills. These accounts are
considered to hold $6,854 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 offeri.ng amount.
Federal Reserve Banks hold $5,624 million of the maturing bills as agents
for foreign and international monetary authorities. These may be refunded
within the offering amount at the weighted average di~count 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 $2,905 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.
Thi.s offeringof Treasury securities is governed by the terms and conditions set forth in the
Uniform Offer~nq 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.
Detai.~s
about each of the new securities are given in the attached offering
highlights.
RR-2517
000
Fur prr:n releases, speeches. public schedilies alld official hi"grapllies, call/HI,. 24·/lDur fax
/illt: 0/
(202) 622.20-10
HIGHLIGHTS OF TREASURY OF~RINGS OF WEEKLY BILLS
TO BE ISSUED JUNE 25, 1998
June 16, 1998
Offering Amount . . . . . . . . . . . . . . . . . . . . . . • . . . . . . $5,750 million
Description of Offering:
ferm and type of aecurity .....•....•.•.•....
CUSIP number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . . . . . . . . . . . . " . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Haturi ty date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Original isaue date . . . . . . . . . . . . . . . . . . . . . . . . .
Currently outstanding . . . . . . . . . . . . . . • . • . . . . . .
ItinimUIl bid amoun t . . . . . . . . . . . . • . . . . • . . . . . . . .
Uul tiples . . . . . . . . . . . . . . . . . . . . . . . . . . • . • . . . . . .
91-day bill
912795 AI< 1
June 22, 1998
June 25, 1998
September 2.s, 1998
March 26,1998
$10,383 million
$10,000
$ 1,000
$1,250 million
182-day bill
912'795 AV 3
June 22, 1998
June 25, 1998
December 24, 1998
June 25, 199B
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
lloncompetitive bids . . . . . . . . . . . . . . . . . . . . . . . . . Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids.
Competl~ive bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (i)
Must be expressed as a discount rate with three decimals in
lncrements of .0eSt, e.g., 7.100~, 7.105~.
(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 $1 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.
~~Kimum
Recognized Bid
at a Single yield . . . . . . . . . . . . . . . . . . . . . . . . 35% of public offering
~~Kimum
Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35\ of public offering
Receipt of Tenders:
Noncompetitive tenders . . . . . . . . . . . . . . . . . . . . . . Prior to 12:00 noon Eastern Daylight Saving time on
auction day
Competitive tenders.
. . . . . . . . . . . . . . . . . . . . Prior to 1:00 p.m. Eastern Daylight Saving time on
auction day
Payment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Full payment with tender or by chargu to a funds account
at a Fedora! Reserve Bank on issue date
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SECRETARY OF THE TREASURY
June 16, 1998
The Honorable Newt Gingrich
Speaker
U. S. House of Representatives
Washingto~ DC 20515-4005
Dear Mr. Speaker:
I am writing to express my grave concern over H.R. 3097, the "sunsetting lt bill that would
effectively repeal the Internal Revenue Code without providing for its replacement. If presented
to him, I would recommend that the President veto the bill.
The President stands ready to consider carefully.all proposals to reform the tax system. He will
evaluate these proposals by using four criteria: fairness, fiscal responsibility, impact on economic
growth, and simplification. In contrast, it would be irresponsible for the Congress to enact
legislation to terminate the tax code without haVing already provided a reform plan to replace it.
Moreover, none of the proposals currently under discussion by Members of Congress meet the
President's four criteria. At a time when the country is experiencing the strongest economy in a
decade, we simply cannot allow that economy, the nation's fiscal discipline, and the well-being of
its families to be put at risk.
Proposing to sunset the tax code is a deeply flawed idea that, if enacttP, would harm our strong
economy. Many families, for example, would refrain from buying homes because of the uncertain
tax treatment of mortgage interest and property taxes (as well as other State and local taxes), that
would harm current homeowners. Many businesses would hire fewer workers and make fewer
capital investments because of uncertainties in how taxes would affect the return on productive
assets. Furthermore, the uncertainty of the size of future receipts would raise the specter of
increased Federal deficits which in turn would raise interest rates and weaken or destroy
economic growth.
Adoption of this legislation would have many other harmful effects on the well-being of families.
A family's health insurance would be threatened because the tax status of employer-provided
health benefits would be uncertain. Hope Scholarships that make higher education more
affordable for students would be in jeopardy as would child tax credits that help families with the
costs of child-rearing. The structure of employer-provided pensions and tax incentives for
retirement saving could be altered in ways that could harm retirement income security. In short,
enactment of this legislation would create substantial risks to our ecofJomy and the American
people.
RR-2518
From: TREASURY PUBLIC AFFAIRS
To: 20009
J)
EPA R T 1\ lEN T
0 F
TilE
7-30-98 2:08pm
p. 11 of 32
T R E ;\ S l: R Y
NEWS
oma OF PUBUC AFFAIRS
• 1500 PENNSYLVANlAAVENUE, N.W•• WASHINGTON, D.C•• 20220. (202) 622.2960
EMBARGOED UNTIL 2:00PM EDT
Text as Prepared for Delivery
June 17", 1998
DIRECTOR FOR THE COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS
FUND
ELLENW. LAZAR
SUBCOMMITTEE ON FINANCIAL lNSTITUTIONS AND CONSUMER CREDIT
OF TIlE
HOUSE COMMITI'EE ON BANKING AND FINANCIAL SERVICES
Chairwoman Roukema, Congressman Vento and distinguished Members of the
Subcommittee, it is a distinct pleasure to be before you today and represent the Community
Development Financial Institutions Fund. I am Ellen I..uar and I have been the Director of
the Fund since January of this year. .Before I begin my testimony, I would like to introduce
you to other members of the Fund who are with me: Paul Gentille, Deputy Director for
Management/Chief Financial Officer of the Fund and Maurice Jones, Deputy Director for
Policy and Programs at the Fund.
I would like to begin by thanking Chairwoman Roukema , Ranking Member Vento and
other Members of the Committee for your interest in the Community Development Financial
Institutions Fund. The funding you provide is malcing a difference in the lives of people that
are often left out of the economic mainstream.
The CDFI Fund was" created to address the critical prOblems of urban, rural and Native
American communities that often lack adequate access to capital. The Fund's mission is to
promote access to capital and local economic growth by directly investing in and assisting
cOmmunity development fmancial institutions (CDFIs) and expanding financial service
organizations' lending, investment, and services within underserved markets. Access to
capital is an essential ingredient for creating and retaining jobs, developing affordable housing,
revitalizing and maintaining neighborhoods, building local economies, and enabling people to
realize their hopes and dreams.
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To: 20009
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There are significant capital gaps in distressed communities, and this market is not often
recognized or well understood. This makes it difficult for convennonal sources of capital to
effectively serve low income people.
Despite the great strides that have been made in promoting access to credit in
underserved neighborhoods, market imperfections still keep capital out of these communities.
Today, low income communities are faced with many challenges: moving families from
welfare to work,providing basic financial literacy skills, and training unskilled workers to
become job ready and CDFIs help to serve the unmet needs of these communities.
The CDFI Fund represents a new direction in community development. The Fund's
programs leverage limited public dollars to build the capacity of private sector institutions to
flIlallce community development needs, and the programs help forge partnerships between
communities and mainstream financial institutions. The Fund's efforts are designed to help
distressed communities become well functioning local economies.
The President and Congress working in partnerShip created the Fund in 1994. The
Fund's vision, to create an America in which aU people have fair and equal access to capital
and financial services, and its market-oriented approach, represent a true innovation as a
Federal initiative. We are now beginning to see the first glimmer of what the Fund can
accomplish by assisting citizens and communities as they seek to realize their full potential.
The Fund is making a difference in the lives of real people. In Charlotte, North
carolina, for example, the Fund has given a single mother of three the wherewithal to leave
her abusive spouse and the money to service the debts caused by one of her children t s past
medical expenses. Through the School Workers Federal Credit Union, this woman -- a
teachers aide who survives on a modest salary ~ received a debt consolidation loan and has
begun savings program. She has now been able to make a $1500 down payment on a house.
The Credit Union t thanks to the $150,000 grant from the CDFJ Fund it received last year, is
now poised to help many others work their way out of debt and build assets for their future.
BUlLDING STRONG AND EFFECTIVE MANAGEMENT SYSTEMS
Madame Chairwoman, let me now tum our efforts to strengthen management, and
internal systems and procedures, and build in accountability at the Fund. All of us at the
Fund and the Treasury Department are committed to developing and implementing the
necessary improvements to the Fund's fmancial and program management, reporting systems,
internal controls, operating procedures, and awards monitoring. The Fund's new leadership is
committed to improving financial management and awards monitoring by ensuring strong
program and financial structure, effective internal controls, and increasing the use of
information technology.
To date, we have already made significant strides toward achieving these objectives. In
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the Fund's first financial audit for Fiscal Years 1995 through 1997, it received an unqualified
opinion from its outside independent auditors, KPMG Peat Marwick. As expected. the audit
confirmed our previous fmdings that the Fund had material weaknesses in prior fiscal years.
Attached as Exhibit 1 to this testimony is a matrix describing each material weakness, KPMG
Peat Marwick's recommendations, our conective action plan and the current status of these
actions. Under separate cover we"have provided the Subcommittee with the relevant
documentation regarding the steps we've taken to address the material weaknesses. Using the
Fund's Federal Managers Financial Integrity Act and audit processes and corrective action
plans, we will correct all material weaknesses and findings during FY 1998.
As noted in our Annual Report, the Fund is taking critical steps to strengthen and build
its management structure and staff. In the first quarter of 1998, we appointed a Deputy
Director for ManagementlChief Financial Officer, with significant financial management
experience in government, was appointed. The Fund has also moved swiftly to fill other
management positions that are critical for ensuring proper internal controls and accountability
including an awards manager, an accountant, a Deputy Director for Policy and Programs and
program managers for each program. We have also begun hiring individuals to work with the
program managers and to support our research and evaluation efforts.
A priority for the Fund during FY 1998 and FY 1999 will be to recruit, develop and
retain highly qualified staff. Due to the unique and complex nature of the community
development' finance industry, the Fund requires a well trained and highly specialized staff.
As we build and enhance our in-bouse capacity and expertise to meet the needs of the
community development field, we will reduce our reliance on outside contractors. We will not
employ management consultants in the future. With respect to future contracts, the Fund will
be workiitg closely with Treasury"s Office of Management to ensure careful monitoring of all
contracting, including contracting under Subsection 8(a) of the Small Business Act of 1958, as
amended.
The Fund has begun to expand its post-award monitoring procedures to ensure
compliance with the assistance agreements entered into between the Fund and Awardee and
evaluate the impact of the Fund's awards. The Awards Manager will focus on audit and
compliance monitoring. The program staff will focus on performance monitoring and review
all fmance status and perfonnance reports. Exhibit 2 provides a fuller status discussion on
post-award monitoring.
The Fund's management is (fOnducting a rigorous review of the Fund's current five
year strategic plan, goals and performance measures. I intend to show an important linkage
between the Fund's goals and measures and those goals and measures we require from our
awardees. OUf strategic plan will be accomplished with appropriate Congressional
consultation and consultation with the General Accounting Office and other stakeholders, as
required by the Government Performance and Results Act, and I look forward to working with
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the Subcommittee on this important planning process.
PROGRAM OVERVIEW AND PRINCIPLES
The Fund seeks to promote economic revitalization and community development
through investment in and assistance to community development financial institutions (CDFIs)
and through encouraging insured depository institutions to invest in CDFIs and increase
lending, investment and services within distressed communities. The Fund's programs are
built on several key principles:
•
stimulation of private markets is critical for rebuilding economically distressed areas;
•
building the capacity of community based institutions is essential for providing
•
localities with the tools necessary to serve many underserved communities; and
an initiative that promotes private sector strategies to achieve public policy goals must
be based on performance and maximizing impact.
The Fund has five progIaIIlS that collectively address these principles: Its two main
programs - the Community Development Financial Institutions (CDFI) Program and the Bank
Enterprise Award (BEA) Program; and its other initiatives, the Training Program, Technical
Assistance Program, and the Presidential Awards for Excellence in Microenterprise
Development.
Stimulatini P..tivate Markets
The CDFI Program seeks to stimulate markets and spark economic activity by funding
organj 7a tions that emphasize private sector market discipline. The Fund makes investments in,
and provides technical assistance to, CDFIs. CDFIs are private for-profit and nonprofit
financial institutions with community development as their primary mission. CDFIs include
community development banks, community development credit unions, non-profit loan funds,
micro-enterprise loan funds, and community development venture capital funds.
The Fund began making awards in 1996. Exhibit 3 outlines obligations and
disbursements under the CDFI and BEA Programs. During its 1996 and 1997 rounds, the
Fund awarded a total of $77.6 million through the CDFI Program to over 81 CDFts serving
uroan, rural and Native American communities. These investments will leverage new capital
and generate new community development activity over the next several years. Awards for
FY 1998 rounds will be made in September. Most of the unObligated funds discussed in
Exhibit 3 are reserved for our FY 1998 awards.
To facilitate the development of a national network of financial institutions that are
dedicated to community development, the Fund has also provided significant support to start·
up CDFIs. To date, 18% of the CDPI Program Awardees have been start up organizations
that had been in existence for two years or less. In 1997, the Fund made more than $7 million
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awards to three intermediary organizations to support the development of nascent CDFIs.
Furthermore, the Fund has certified 233 organizations as CDFIs and has a pipeline of 48
applicants from organizations seeking to become CDFIs.
The Fund evaluates all organizations using the criteria established in the CDFI Program
regulations -- track record, financial strength and current operations, capacity, skills and
experience of the management team, quality of the business plan, and potential community
development impact. In evaluating every applicant, the Fund conducts its analysis taking into
consideration each applicant's performance and prospects given its stage of organizational
development. In the case of start up organizations with no or minimal track records, the Fund
places greater emphasis on the capacity, sldlls and experience of the management team.
ACCION Texas is an example of a start up with promise. ACCION, Texas was
launched based on the findings of a 1993 market study of entrepreneurs in San Antonio which
highlighted their critical need for credit. Though a start up organization, ACCION Texas
clearly demonstrated that the capacity, skills and experience of its management team would
result in a solid, successful' CDFI. The Fund's $500,000.00 grant is assisting ACCION Texas
in its efforts to expand service to more than 1.500 borrowers through loans totaling more than
$3.8 million over a five year period. Approximately 70% of ACCION Texas' borrowers are
Mexican-American and have businesses located in San Antonio's low-income neighborhoods.
. The CDFI Program also stimulates private investment by requiring that all financial
assistance be matched on at least a one-to-one basis from sources other than the Federal
government. As a result, the vast majority of all matching funds are raised from private sector
sources. For example, during the 1996 funding round~ nearly three·quarters of our awardees
derived all of their matching funds from private sources including banks, corporations,
foundations and individuals.
Collectively, 1996 and 1997 CDFI Program awardees are located in 30 states and the
District of Columbia. Half of the awardees serve predominantly urban areas, one-third serve
predominantly rural areas, and the balance serve a combination of the two. These
organizations provide a wide range of lending products, investmenu and services within their
communities. They finance affordable housing projects, small businesses, microenteIprises,
and community facilities. Awardees are selected based on factors including potential
community development impact t financial strength, organizational capacity, and quality of
their business plan.
The Fund's 1996 investment in Northeast Ventures of Duluth, Minnesota illustrates
how the.Fund sparks economic activity. Larry Van Iseghem is a chemist with an
environmental mission. Larry's company, located in a rural and declining region of eastern
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Minnesota, ~eloped and brought to market an environmentally benign, water based coating
for heating and cooling equipment which adds energy efficiency to furnaces and air
conditioners while preventing corrosion. An early investment by Northeast Ventures allowed
Mr. lseghem to start his company and to expand and move into development of new products.
"Some potential investors were wary of my ideas, because they weren't sure environmental
benefits and economic viability could go together," Larry explains, "Northeast Ventures
Corporation didn't consider this a liability, but a plus. Environmental responsibility is one of
their criteria. "
In addition to CDFIs, traditional financial institutions playa key role in .community
development lending and investing. The Bank Enterprise Award (BEA) Program stimulates
private markets by providing incentives for banks and thrifts to invest in CDFls and to increase
their community development lending, investment and service activities within distressed
communities. In 1996 and 1997, the CDFI Fund made 92 awards totaling $30 million under
the BEA Program. During these rounds, BEA awardees collectively provided $130 million in
financial and technical assistance to CDFIs and generated $140 million in loans, investments
and services within high poverty neighborhoods. The Program has served awardees in 24
states and the District of Columbia. The Program has awarded funds to banks and thrifts as
small $21 million in tOtal assets to as large as $320 billion in total assets .. Program
participants represent a broad spectrum of the industry including national banks, State
chartered commercial banks, Federal savings banks and thrifts, mutual savings banks and
credit card banks.
as
The Bank of America Community Development Bank (B of A) was awarded $1.6
million in the 1996 funding round for increasing its multifamily housing, commercial real
estate and business loans in distressed communities across California. The Bank made nearly
$25 million in loans in targeted neighborhoods meeting the BEA Program's distress criteria,
including $9.5 million in commercial real estate loans, $13.2 million in multifamily loans, and
$2.2 million in business loans. The Bank projects that these loans will generate more than 185
units of affordable housing and 300 jobs. B of A's increased multifamily lending activity has
helped provide a vital source of affordable housing for low-income families in targeted
neighborhoods in San Francisco, Modesto, and Los Angeles, including the projects described
below: .
•
•
a $2.6 million construction loan to support the acquisition and rehabilitation of a
deteriorated residential hotel in San Francisco's Tenderloin neighborhood into 58 units
of quality affordable housing for formerly homeless individuals; and
a $6.8 million loan to support construction of a new 79-unit apartment building located
in Downtown Los Angeles. The building serves households earning less than 60 % of
Los Angeles County's median income.
6
TOTAL P.06
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
EMBARGOED UNTIL 9:30 A_M. EDT
Text as Prepared for Delivery
June 17, 1998
TREASURY SECRETARY ROBERT E. RUBIN
SENATE BANKING COMMITTEE
Mr. Chairman, Senator Sarbanes, Members of the Committee, I welcome this opportunity
to discuss financial modernization and its effects on our nation's economy and our citizens.
This Administration has been a consistent proponent of financial modernization. From the
beginning, our overall objective has been to do what best serves the interests of consumers,
businesses and communities. However, we oppose the bill that very narrowly passed the House,
HR 10, because it does not meet that standard. Before I describe our concerns, let me make a
couple oflarger points regarding our financial system and financial modernization.
The nation's financial system is at the very heart of our economy. It accou nts for 7.5
percent of our GOP and employs 5 percent of our workforce. It performs a critical function as an
intermediary between savers and borrowers, between buyers and sellers of securities, and among
insurance policyholders.
I should also note that the U.S. financial services industry is now as competitive as ever in
recent memory. Abroad, the United States is dominant in investment banking and strongly
competitive in other segments of financial services
While our financial services industry is adapting and competing, with good financial
modernization legislation that evolution could occur in a more coherent and orderly way But
without legislation, our financial services industry will continue to adapt and U.S. firms will
remain competitive abroad. It is worth noting that they can already engage abroad in the activities
at issue in financial modernization legislation here at home. Thus, we have an important issue, but
we are currently competitive and the crucial thing is to get the solution right. Because financial
services are so important to our economy, legislation in this area should be adopted with broadbased support and address the full range of concerns surrounding financial modernization as fully
as possible.
RR -2520
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Two recent developments need to be taken into account as legislation is crafted to meet all
of the various concerns surrounding financial modernization. First, despite agreement on some
issues, H.R. 10 has given rise to enormous controversy. It has pitted one industry against another.
It is opposed by every major organization of banking institutions, and consumer and community
groups have significant concerns, which I will return to in a few moments. While we must
recognize that we will never achieve unanimity, we must build broad-based support for
fundamental changes to a sector that is so central to the U. S. economy.
The second development is the announcement over the last several months of major
mergers in the financial services industry. Each of these mergers should be judged by the
appropriate regulators, but crafting the best possible legislation requires Congress to consider the
impact of what may be a trend toward consolidation on the various concerns surrounding financial
modernization.
In writing financial modernization legislation, you are, in effect, writing the constitution
for the financial system of the next century. With that in mind, we believe any financial
modernization proposal must meet five principles: it must protect the safety and soundness of our
financial system; provide adequate consumer protection; reduce costs and improve access for
consumers, businesses and communities; promote innovation and enhance the competitiveness of
the financial services industry; and, finally, permit financial services firms to choose the corporate
structure that makes the most business sense.
Mr. Chairman, in the context of these principles let me turn first to specific concerns the
Administration has regarding HR 10 Then I will say a word about the more general concerns of
others about financial modernization which I believe need to be addressed as fully as possible to
improve the legislation and build broad-based support for legislation.
First, the bill discriminates against banks and in favor of insurance companies. For
example, the bill would deprive the Office of Comptroller of the Currency of the judicial deference
accorded to all other federal agencies whenever the DCC was considering an insurance question.
Such discrimination would impede competition and innovation and would fail to serve the
interests of consumers. That's one reason why all major bank organizations are on record in
opposing this bill.
Second, the bill expands the Federal Home Loan Bank system without resolving that
system's fundamental problems. We are in favor ofa FHLB that helps communities, but this bill
would not curtail the System's use of subsidized capital to earn arbitrage profits, and could
expand the System's funding with subsidized capital of activities that have nothing to do with
fostering home ownership or helping small and distressed communities.
Third, it would prompt the shifting of assets out of national banks and into holding
company affiliates. This would reduce resources covered by the Community Reinvestment Act, a
key tool in the effort to expand access to capital in economically distressed areas. HR. 10 would
undermine the remarkable progress that has been made in the areas of urban economic
2
revitalization and financing for affordable housing and small businesses -- nonprofit community
groups estimate that since 1992 the private sector has pledged over $397 billion in loans for
community development. As we work to modernize the financial system, we need to make sure it
works for all communities.
Fourth and most significantly, the bill would force organizations that include banks to
conduct new financial activities in bank holding company affiliates, and prohibit using subsidiaries
of banks. We believe financial service firms here ought to be able to organize themselves in the
way that makes the most business sense, just as businesses do across the economy, and not in a
government dictated, one-size-fits-all structure. By restricting business choice, HR 10 would limit
the ability of market participants to make their own judgments about how best to lower costs,
improve services and provide benefits to consumers.
There are good business reasons why one firm may prefer operating through a subsidiary
instead of an affiliate. Holding companies can be expensive to form, particularly for small banks,
and restrictions on the activities of subsidiaries could therefore discriminate against such banks. In
addition, bank management may wish to retain the earnings flows from a new venture generated
by an existing line of the bank's business, or use the new venture to diversify earnings. Moreover,
for reasons of corporate culture, management may wish to organize new financial services
activities in subsidiaries.
If a bank should choose the subsidiary structure, that choice could have benefits for safety
and soundness and the taxpayer. First, a bank wishing to commence a new activity would not
have to deplete its resources by paying out its retained earnings in dividends for the holding
company to use in capitalizing a new affiliate. Second, if the bank were to fail, the FDIC would
have a claim on the bank's interest in the subsidiary -- something that is not true of an affiliate.
In short, to best serve the interests of consumers, businesses and communities, it is
important that we avoid needlessly -- for no purpose -- restricting the choices businesses can
make about how they structure their activities. Allowing business choice would not confer a
competitive advantage or impair safety and soundness. There are safeguards that would ensure
that a subsidiary structure and an affiliate structure are absolutely equivalent with regard to safety
and soundness and use of the bank's funding subsidy, if such a subsidy exists. The bill reported
out by the House Banking Committee included a number of such safeguards, including the
following:
First, requiring the bank to be well capitalized and well managed, and to face sanctions if it
fails to do so.
Second, requiring one hundred percent of the bank's equity investment in the subsidiary to
be deducted from the bank's capital -- and requiring the bank to remain well capitalized even after
the deduction.
3
Third, prohibiting the bank from making an equity investment in a subsidiary that would
exceed the amount that the bank could pay as a dividend.
Finally, requiring that any loans by the bank to a subsidiary be subject to exactly the same
limits as loans by the bank to an affiliate. Such loans would also have to be on market terms and
fully secured by high-quality collateral.
With these safeguards in place, there is zero difference between conducting an activity in a
subsidiary and in an affiliate with respect to safety and soundness or competitive advantage from
any bank funding subsidy that may exist. That is why the FDIC has consistently concluded that the
subsidiary structure poses no threat to safety and soundness. In fact, as to safety and soundness,
under the Edge Act, many U.S. banks have long engaged overseas in investment and merchant
banking through subsidiaries -- some of them very large -- and Edge Act subsidiaries are
chartered and regulated by the Federal Reserve Board. Furthermore, for the reasons already
discussed, the subsidiary is actually stronger than an affiliate from a safety and soundness
perspective.
Our final objection to the bill is that the elected Administration is accountable for
economic policy -- and bank policy is a key component of economic policy. Under H.R. 10,
banks would gravitate away from the national banking system, and the elected Administration
would lose its nexus with the banking system, thereby losing its capacity to affect bank policy.
Let me be clear: supervision of banks is -- and should be -- apolitical. Indeed, capital
standards, reporting requirements, and examination procedures are already uniform regardless of
which federal agency regulates the bank. But banking policy is a different matter. It is essential
that any elected Administration have a voice in this important area of economic policy, and that
they be held accountable to the public.
Mr. Chairman, let me tum now to the concerns that others have raised about this bill and
financial modernization legislation in general. I believe that these concerns should be addressed as
fully as possible to build broad-based support for this effort. Also, in addressing these concerns, I
believe that Congress should take into account the possible impact of recent merger activity on
the financial services industry. Many smaller, community-based banks are concerned about the
growth of financial conglomerates, and the threat they pose to community banking. These
concerns are exacerbated by the costs imposed by requiring community banks to form a holding
company in order to conduct new non-banking financial activities. Community groups have raised
concerns that concentration of the financial services industry could have an adverse impact on
access to capital for lower-income communities. These groups have also expressed concerns
regarding the impact on CRA, which I discussed earlier. Consumer groups are concerned about
the adequacy of consumer protection against misuse of personal information and against overly
aggressive marketing that would take advantage of consumers. Let me add that some have also
expressed concern that the recent merger activity may raise new questions about the implications
of concentration of economic and political power, which Congress may wish to consider in
putting together financial modernization legislation.
4
Before concluding, let me say a word about the differences between Treasury and the
Federal Reserve Board on the subsidiary issue. It is important to emphasize that Treasury and the
Fed enjoy a remarkably positive working relationship on a broad array of issues, and that has been
of enormous benefit to the nation. We have agreed to put this issue aside and not allow it to
interfere with the very good cooperation between the Treasury and the Fed on other issues.
Mr. Chairman, we are committed to working with Congress and all of the relevant parties
to thoughtfully and fully address the many serious issues that need to be resolved in order to have
good legislation with broad-based support. Thank you very much.
-30-
5
DEPARTMENT
OF
THE
TREASURY
~/78~9~. . . . . . . . . . . . . . . .. .
....................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASIDNGTON, D.C. • 20220 • (202) 622·2960
EMBARGOED UNTIL 10 A.M. EDT
Text as Prepared for Delivery
June 17, 1998
TREASURY DEPUTY SECRETARY LAWRENCE H. SUMMERS
SENA TE COMMITTEE ON FINANCE
Mr. Chainnan. it is a pleasure to testify before you today on proposals to forge a ne\\'
trade and development relationship between the United States and the countries of Africa. The
Partnership for Economic Growth and Opportunity in Africa which the President announced last
year, and the Africa Growth and Opportunity Act passed by the House of Representatives. and
now introduced in the Senate. have as their basic objectives supporting faster gro\'v1h through
expanded private investment and trade. The Administration fully supported that imp0l1ant
legislation in the House. and is doing so in the Senate. We look forward to continuing this work.
in a collaborative spirit. with your Committee and the entire Senate.
The Administration' s initiative draws from ideas that were developed in the Congress and
in Africa itself. More importantly. it is inspired by the profound changes that have been under
way on the African continent since the beginning of this decade. These changes have altered the
basic assumptions that previously underlay US policy in Africa:
•
Markets can work in Africa as they do everywhere else, but the conditions and the
policies must be right.
•
We want to move from a donor-client relationship to one based on trade and investment
ties for mutual advantage.
•
We will be supportive of changes initiated by the African countries themselves. \\'e \\ant
to offer Africans a "hand up" rather than a "handout".
Let us be clear: America has a powcrf\Ii commercial and security interest in building
stronger trade and inn'stlllent ties \\ith Sub-Saharan Africa. Those tics arl' not ne~lrly ~lS strong
RR-1511
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040
as they could be. Only 1 percent of our trade is with Africa. and slightly less than 1 percent ()j
our direct investment abroad. With developinu countries makinu a larue contribution tl.) our
economy -- in a typical year buying around 40~ percent of our ex~ports. ~for example -- the largely
undeveloped market of 660 million Africans represents an exciting opportunity. \\ith great
potential benefits to both sides.
We are convinced that the key to unlocking Africa' s potential lies in helping Ali'ican
countries achieve higher levels of grovvth through trade and private investment. Bringing those
countries into the global economy would give US firms and workers a wealth of marketing and
supply opportunities. and offer reforming African countries themselves a path out of conditions
that foster poverty. conflict. disease. and environmental degradation.
The Africa Growth and Opportunity Act enjoyed bipartisan backing in the House because
it makes sense for America and for Africa. By offering expanded trade opportunities as well as
specific congressional backing of this change in policy direction. it makes an important contribution to Africa's emergence as a continent with which we can do business. We support the
market-opening provisions of this bill because the United States has a great deal to gain hom a
stable. prosperous Africa. and nothing to lose. This truly is a "win/win" opportunity for us. In
my comments today I would like to focus on three points:
o
First. on the changes that are taking place in sub-Saharan Africa. and the historic
opportunity it presents for Americans as well as Africans.
o
Second. on some of the lessons of past development success stories -- and failures -showing how they point the way for our current efforts: and
o
Third. I will talk in a more detailed way about the specific initiatives we are pursuing.
I. Africa: Change and Opportunity
Americans' views of Africa still are largely shaped by banner headlines telling us of yet
another war or natural disaster. Such catastrophes are sobering reminders of how bad things can
get in circumstances of economic and political despair. But they are far from the whole story.
President Clinton' s visit to Africa in March went far toward showing America a different
picture of Africa. It was an Africa that is eager for closer relations with the United States. It was
an Africa where an enthusiastic crowd estimated at half a million turned out to hear him in
Ghana - reportedly the largest such event in Ghana' s history. 11 was an Africa that welcomed US
involvement in areas as diverse as conflict resolution. education. and microcredits. The President
and other American visitors have found reason to be encouraged. Parts of the continent are far
more prosperous, vibrant. and forward-looking than they were just live years ago. A growing
number of uovernments are takin!.! concrete steps to encourage market-oriented. private sector~
~
led growth. US investment banks that would not ha\'e been around ti\'e years ago arl? nt)\\ an
active presence.
In the south. the end of apm1heid and of the vvars ravaging the region ha\(: creatl?d a
remarkable change of atmosphere. South Africa has ioined its nei!!hbors in thl? Southern
Africa Development Community (SADC) to work to~\ard greater r~gional integration.
Nearly as many US firms are present in South Africa as were there prior to thl? antiapartheid boycott. Mozambique ended its devastating civil war. made a commitment to
market-oriented reform. and has completely privatized its bankin!!. sector. We were \I?r\
excited to hear. Mr. Chairman. that Mozambique·s growth was 1:2.8% in 1997. while .
inflation fell to 2%.
In the west. the francophone countries. led by Cote d·Ivoire. ended the long-standing (and
debilitating) overvaluation of their currencies in 1994 and undertook supporting changes
in trade policy. the banking industry. and commerciallmv and practice. These eight
countries now are on the \vav'" to creatinf.! a true economic community., of nearly'" 60 million
people based on a common currency. a single central bank. a regional stock exchange.
and a customs union. The agricultural economy has rebounded and 11ew industries. such
as oil and gas. are growing. Over 50 US firms are represented in these countries. Growth
in Cote d·Ivoire and others is in the 5-7% range.
"-'
In the east. Uganda. Kenya and Tanzania have revived their regional association. representing a combined market of about 70 million. Uganda has been gro\ving at an awragc
rate of about 8% in recent years: Nairobi is East African home base for 75 US firms.
Central Africa is a more difficult proposition. \vith the legacies of ethnic strife and
corruption still to be overcome. Even here. however. US and other private investors have
been pursuing opportunities to develop the region' s enormous mineral resources. A more
supportive US trade policy would be an important part of any effort to encourage
economic and political reforms.
In Nigeria. following the recent death of Gen. Abacha. the country has another chance to
fulfill its great promise as an ""African Giant.·· The new leadership has an opportunity to
pull together all ofNigeria's people in support ofa credible and open transition to
democratic civilian government that respects the rights of its people. We urge the ncw
leadership to make a sustained commitment to political and economic reform. and \\c
pledge American support if they do.
Changes like these -- in outlook as well as events on the ground -- gi ve reason to believe
that democracv and economic reform can take root in sub-Saharan Africa. In recognition of the
changes and the opportunities that lie ahead. Secretary Rubin is planning a visit to the region ./uly
11-19. He expects to stop in Cote d·Ivoire. South Africa. Mozambique. and Kenya. The purpose
of the trip is to advance the initiatives put tc))'\\ard by thc Prl?sidenL especially in the financial
sector, and to convey America's willingness to do what we can to help inte!!rate :\ti-ican
reformers into the global economy_
~
Yet the roots of democracy and reform are YOUll!!. and continued uw\\'th is far ii-om
guaranteed_ The question is. how can we help cou;1tries~that have beuun ~o uro\\ to continuc
their upward climb -- and thereby show the way to others?
~
~
II. Lessons on Development
Some would say there is little or nothing we can do. Africa. in their yiew. is different:
somehow incapable of achieving the same kind of economic take-off we'w seen in other rc!!ions
of the world. It is worth recalling that in 1961 Gunnar Myrdal. the Nobel-Prize \\"inning eCt:nomist. wrote a 2,200-page book bemoaning his subject's poor export prospects. \\"hich. in turn
could be traced to factors such as heavy dependence on trading primary goods. All wry much in
line with the prevailing thinking_ And all very wrong. For the region he was talking about \\as
not Africa. but East Asia.
Africa's perfonnance in the '60s. '70s. and '80s certainly was poor. In 1960. Korea was
no richer than Sudan. and Taiwan \vas as poor as Zaire. By 1995. per capita incomes in Korea
and Taiwan were more than 25 times higher than in sub-Saharan Africa. Today. on the brinK of
the new millennium. at least 40 percent of Africans still live on a dollar a dav or less. In some
parts of the continent. a child is more likely to be malnourished than learn to read. and more
likely to die before the age of 5 than go to school.
But are the "Afro-pessimists" right that to say this dismal outcome was inevitable'?
Careful studies of Africa' s growth performance suggest not. They find that slow African growth
can be traced to three broad factors. all of which have afflicted the region to a greater degree than
elsewhere. but none of which could be said to be an immovable part of the landscape.
The first problem is political instability. Nearly 15 percent of the sub-Saharan population
lives in countries that were severely affected by civil war during the ·90s. A much larger fraction
lives in countries where investors cannot be confident of a stable political environment and
property rights are insecure_ It is noteworthy that Africa's standing has deteriorated both
relatively and absolutely on international scales of political risk.
The second major factor impeding growth has been chronic macroeconomic instabil ity.
While inflation has cO;lle down in the last seyeral years. int1ation rates in many Ali-ican countries
have been well into double digits for much of the last t\'.o decades.
Third. and. c1earlv related to the first two impediments to gro\\1h. have been policies that
grossly distort the alloca;ion ofAfrica's resources. These include export taxes: high tariff and
non-tariff trade barriers: excessive. and mismanaged_ gO\ernmcnt inten'ention in the economy:
and corruption. The evidence suggests that by far the most damaging of such policies are those
that distort or cut off African countries' economic relations with the outside world.
Economies cannot work well in these kinds of environments. Nor can (or should) foreign
aid make up the difference. Assistance to governments pursuing the wrong policies actually can
be counterproductive. by encouraging public investment that crov.ds out private imestment and
allowing governments to postpone painfuL but necessary. structural reforms. A recent \\'nrld
Bank study found that aid in fact slows grO\vth in such distorted environments. But where
policies are sound. the same study found aid had made a real difference.
III. The Administration's Partnership
The Administration' s Partnership for Economic Grow1h and Opportunity in Africa
represents a concerted effort to respond to the recent changes in the region. the lessons of the
development record, and our knowledge of the tools we have to help accelerate a transition to
economic vitality. We are pursuing an approach with four main components:
1.
2.
3.
4.
Expanded market access
Strengthened assistance programs and debt relief to restore tinancial viability.
Concerted efforts to nurture private sector development and investment
Enhanced dialogue with African countries.
I should stress that these four elements comprise an integrated whole. It makes little
sense to provide assistance to Africa's private sector in our aid programs if we deny Ali'ican
business access to our market. Likewise. we cannot credibly urge African governments to
liberalize their trade regimes for the private sector's benefit if we are unwilling to liberalize our
own. But taken together, these four elements provide an attractive package of incentives to
reform. If any are omitted, the package is less compelling and less useful.
I.
Expanded .\1arkel Access
The Administration fully supports the Africa trade legislation now before the Senate. It
will put us in a position to make the best use of the most potent development tool we have: our
private sector and its ability to create productive investments. The bill would be fully consistent
as well with the U.S. economic strategy of promoting trade with Emerging Market countries. In
the last four years. one-third of our economic growth has come from exports. 40% of \vhich
typically go to developing countries.
At present. the United States has only a 7% share of Africa's markets -- far smaller than
in other areas of the developing \\orld. We have a long way to go to improve that position. given
Europe's overwhelming market share (over 41 °lc») arising from its historical tics with A.frica. Yct
the potential is substantial: exports to sub-Saharan African countries already exceed $6 hillion.
5
and support 100.000 American jobs -- more trade than we haw with all the countries of the
former Soviet Union combined.
To encourage further trade with the United States. while promoting opportunities for
growth in Africa. the legislation would offer better access to US markets for AtI'ican npons
under a renewed and expanded GSP program. For countries willin1! to embark on more
aggressive trade reforms. the bill would provide authority for the President. atter consultation
with the U.S. International Trade Commission. to grant GSP treatment for some products \\hich
are currently excluded. such as textiles and leather goods. These industries are \'itally important
to developing countries. which typically use them as the first stepping stones toward
industrialization.
Critics have raised fears that this step would facilitate illegal transshipment of textiles and
apparel. especially from Asia. through Africa. to the US market. But the bill contains a number
of safeguards that are designed to deal with the problems of transshipment.
Another issue raised by critics is that of job losses. A recent study by the International
Trade Commission found that US textile and apparel imports from sub-Saharan Africa represent
only 0.62%. less than two-thirds of one percent. of our total imports of such goods. The ITC
estimates that the proposals in the Africa Growth and Opportunity Act would increase this tigure
by 25-50%. yet the resulting total still would be only about 1% of our imports. Direct job losses
due to such increased imports might total approximately 650. Of course. this figure excludes net
job gains we would be likely to achieve by increased exports to a more prosperous Africa. ()nce
again. the legislation contains safeguards against import surges. including a prominent ITC role.
While the U.S. economy would not be harmed by the trade provisions in the legislation.
the gains to African countries. even from these small amounts of trade. can be significant. In
Mauritius. for example. per capita income has more than doubled in the fifteen years since
creation of the export processing zone. and much of that gain resulted from textile production.
Clearly. Mr. Chairman. the trade provisions in this legislation are practical examples of
the power of competitive markets to produce effective development. We have a chance in this
legislation to put market forces more fully into play in sub-Saharan Africa.
I should note also that. owr the long term. we would expect market-opening initiatives
on both sides to culminate in negotiations for the creation of free trade areas. We fully agree
with the authors of the House bill that trade liberalization with such an objective in mind can be a
strong catalyst for market liberalization.
2.
Targetedjinancial ([ssistance ([l1d deht relief
Targeted Support h\ International Financial Institutions. E\'l~n \\ith greater trade
opportunities. external finance on concessional terms remains vital for a continent that lacks
6
sufficient savings of its O\\'n, and that depends heavily on trade taxes to finance government
operations. The concessional financing available through the IMF's Enhanced Structural
Adjustment Facility, the World Bank's IDA. and the African Development Fund pnwides sLlch
support to reforming countries, leveraging our own contributions at a ratio of ahout 6 to I \\ ith
those of other donors.
As with our own approach to African trade policy, the IFIs are recognizing that tinancial
support must be conditioned on reforms and allocated more selectively to countries committed to
doing the most to help themselves. Such reforms must be market-oriented, designed to reduce
the intrusive role of the African state and create an environment in which domestic and foreign
private investment can work. High on the list of priorities for the IFIs at making such
determinations are the quality of governance, the level of transparency, and the attention giwn to
combating corruption. We are gratified that both the IMF and World Bank are pursuing these
issues with real vigor.
These institutions already are directing a larger share of their programs to the better
economic performers. In the World Bank's fiscal years 1994-96, for example, its concessional
lending window, the International Development Association (lOA), committed about 60% more
funding on a per capita basis to the strongest performers than it did to average performers. In the
previous three-year period, that differential was only 20%. IDA's goal is to limit the average per
capita allotment to its worst-performing borrower countries to one-third the normal level for poor
borrowers.
The point has been made in Congress on other occasions but let me say it again: the
United States must meet its financial obligations to the institutions that we have asked to join us
in this extraordinary effort to help Africa. With last month's historic agreement to reform the
governance of the African Development Bank, we now have an excellent opportunity to deploy
this uniquely African institution in support of the same reform objectives.
Debt relief for strong reformers: Despite reforms in Africa and reformed practices within
the International Financial Institutions, there is a heavy burden of debt from past mistakes. The
US has taken a stand at the World Bank, the IMF, and other multilateral organizations to ensure
that deep relief is provided to eligihle bold reformers within the framework of the Paris Club and
the new program for Heavily Indebted Poor Countries (HIPC). I want to stress that conditional
relief is key: debt relief is ineffective unless countries pursue sustained reforms necessary f()r
growth.
The international community, both public as well as private sectors, has provided debt
reduction totaling $35-40 billion over the past decade for the poorest countries, most of them in
Africa. An additional $40 hillion in relief is expected under current mechanisms, including Paris
Club action under "Naples Terms"" and action hy all creditors under I-IIPC.
In addition, President Clinton is seeking appropriations that \\-ould make possible not just
7
the reduction, but the extinction of eligible reformers' bilateral concessional debt to the l'nited
States. We are calling on all donors to join us in this etTort.
As you know. we agreed last year that Uganda -- a country with an impressi\'c track
record of sustained reform -- \vill be the first to bendit from the HIPC program. The agreement
means that about $650 million in nominal tax revenues that \vould otherwise be owed to creditors
will now be available for investment. such as in universal primary education -- a major goal
President Museveni. Cote d'Ivoire. Burkina Faso. and Mozambique also have heen declared
eligible. and we expect Mali and possibly others to follow this year.
or
We have structured debt relief in order to leverage reform. But to encourage a sustained
political commitment to reform. we have encouraged other donors and the international tinancial
institutions to provide interim relief as a reward for reforms under way. until the HIPC relief
becomes fully effective.
3.
Nurturing private sector del'e/opment and investment
The Administration is developing a range of measures designed to encourage maximum
private sector development in reforming countries at minimum budgetary cost. Foremost among
these will be two new funds supported by the Overseas Private Investment Corporation (OPIC).
which had their origins in proposals in the Africa Grow1h and Opportunity Act. The first.
launched in December. is a $150 million fund designed to invest in productive enterprises.
drawing on $100 million of OPIC-guaranteed private crcdits and another $50 million of pri\'ate
equity funds that are fully at risk. The second will be a $500 million infrastructure fund that still
is being put together. Countries pursuing the deepest market-oriented reforms are likely to
capture the lion' s share of investments supported by these funds.
USAID also is implementing its Initiative for Southern Africa. designed to support trade
and private investment. This program devotes up to $30 million annually to promoting trade and
transportation protocols. harmonization of investment policies. and strengthening of regional
business associations within the Southern African Development Community (SADC),
We are particularly interested in building on the very promising experiences that USAID
and other organizations have had with micro-credit programs, These are often a very cheap and
effective way to spur the development of small-scale businesses. particularly among groups -notably women -- who would not otherwise have access e\'en to very small amounts of credit. I
myself have seen the results in South Africa. visiting a home in Soweto \\-'hich the family had
bought on the proceeds of a very fast-growing auto fender repair business, It all started with a
very modest USAID loan,
In addition. USAID is providing technical assistance to African governments to help
them take advantage of the new trade preference programs that \\ mild be uvai lable to them. and
help reforming countries hecome more fully engaged in the WTO,
The Export-Import Bank is tailoring its programs to the challenges many African
countries present. In the first such visit in many years. Chairman Harmon recently went to
Africa to underline the Bank's readiness to work with creditworthy pri\'ate companies to
structure asset-backed and project finance deals even in countries where the public sector is not
deemed creditworthy, I would also note that the Chairman of the Bank's new Adyison
Committee on Africa is a former member of Con~ress. the Rev. Flovd
. Flake. This committee
also was first suggested in the Africa Gro\\1h and Opportunity Act.
~
-I,
Enhanced dialo~lI(!
To focus high-level official and public attention on the African countries that arc taking
bold reforms. and to exchange views about what is working well and what is not. the legislation
before you suggests. and the Administration is planning. annual cabinet-level meetings with the
strongest-performing sub-Saharan countries. The first such meeting is being planned this coming
December in Washington.
This kind of high-level dialogue. backed by continuing discussions at the technical k\'e1.
will help ensure tilat the Partnership is achieving its objectives. We at the Treasury have been
experimenting with such a dialogue at the sub-Cabinet level for the last two years \\'ith a number
our African counterparts. and we are encouraged at the possibilities.
IV. Conclusion
Mr. Chairman. the Administration and many in Congress have devoted more constructive
thought and energy to improving America' s economic relations with Sub-Saharan Africa over
the past two years than at any time in our history. With our G-8 colleagues. v,e also have made
Africa a prominent subject for discussion at our annual summits. and we are encouraging other
countries to follow a similar approach to maximize the impact in Africa. That we have done so
says something about US priorities. and about our strong belief in embracing the new global
economy and supporting the development of emerging. and potentially emerging. markets.
As we have emphasized repeatedly. however. our determination to develop closer ties
with this long stagnant region also reflects the changing times in Africa itself. African
governments want the kinds of support that will help them to help themselves. and propel grovv'th
rather than plug gaps. Primary among these are open markets and private sector investors. the
two core elements of the Ati'ican Growth and Opportunity ;\ct as well as the President's
Partnership.
In short. Mr Chairman. we urge the Senate to join us in a bold initiative to help
sub-Saharan countries get back into the global economy and back on the road to gro\\1h. It is an
ambitious program: success. certainly. is not guaranteed. But from what we know about the
development process we can be at least cautiously optimistic that the t()ur-pronged strategy I
have outlined today could help Africa make that long-awaited transition to commercial vitality
9
and growth. We look forward to working with you. Mr Chairman. with memhers of this
committee, and with others in the Senate to help make this hope a reality. I would now \\c!comc
any questions that you might have. Thank you.
-30-
10
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
OffiCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
June 17, 1998
STATEMENT BY TREASURY SECRETARY ROBERT E. RUBIN
This morning, the Prime Minister of Japan outlined his Government's plans to restore the health
of the Japanese financial system and to strengthen domestic demand. We look forward to
implementation of a comprehensive action program that will create the conditions that are
essential for a healthy and prosperous economy. Japan has the financial resources and the
capacity to deal with the challenges it faces. Asia and the international community as a whole
have a large stake in Japan's success.
In the context of Japan's plans to strengthen its economy, the U.S. monetary authorities operated
in the exchange market this morning in cooperation with the monetary authorities of Japan. We
are prepared to continue to cooperate in exchange markets. as appropriate.
-30RR-2522
For press releases, speeches, public schedules and official biographies, call our 24-1I011r fax line at (202) 622-2040
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 12:15PM EDT
Text As Prepared for Delivery
June 17, 1998
ASSISTANT SECRETARY FOR FINANCIAL MARKETS GARY GENSLER
REMARKS TO THE CONFERENCE ON YEAR 2000 TESTING FOR THE U.S.
TREASURY SECURITIES MARKET
I. Introduction
It is a real pleasure to be with you today to discuss one of the great challenges now
facing the financial markets -- the Year 2000 computer problem. I would like to thank the
Federal Reserve Bank of New York and The Bond Market Association for joining us in
organizing this very important conference.
The American financial markets are the most sophisticated and highly developed in the
world. This is something of which we should all be proud. In my short time at the Treasury
Department, I have become even more aware of the leadership role that our financial markets
play in setting standards throughout the world. At the heart of developments in our financial
markets, lie advancements in computers and communications technology. Technological
developments have spurred a proliferation in products and market activity, and have fostered
improvements in service and in the speed with which transactions take place. We also should
recognize, however, that today's financial markets are highly complex and interdependent.
All of these factors highlight the importance of making Year 2000 readiness one of our highest
priorities.
Our focus today is the Treasury market, and the efforts that we all must make in order
to avoid disruption of this critical market when the Year 2000 arrives. I would like to review
with you some of the steps that the Administration is taking to address the Year 2000 problem.
I will then discuss the testing that we are asking all of you to undertake.
RR-2523
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
II. Clinton Administration Efforts
Treasury's efforts to prepare for the Year 2000 are part of an Administration-wide
initiative. President Clinton and Vice-President Gore have recognized the importance of
immediate action in this context. They have directed Federal agencies to do everything
necessary to ensure that the Government's mission-critical systems will continue to function
effectively as we move into the 21 st century. On February 4 of this year, the President's
Council on Year 2000 Conversion was established to coordinate the Government's efforts to
address the Year 2000 problem. The Government estimates that it will spend approximately
$5 billion, from fiscal years 1996 to 2000, to make its systems Year 2000 compliant.
Internally, Federal agencies are working to ensure that our own systems are ready for
the Year 2000. Externally, we are making inventories of all data exchanges with outside
partners. We are also reaching out to increase awareness of the problem and to offer support
to minimize Year 2000 disruptions.
III. Treasury Department Efforts
On Friday, December 31, 1999, the Treasury Department is scheduled to make
principal and interest payments of $35 billion. We are also scheduled to issue securities on
that date. On Monday, January 3, in the year 2000, we currently plan to conduct our usual
weekly Treasury bill auctions. Treasury is committed to taking all the necessary steps to avoid
any major disruption on that first trading day of the new millennium. As both the issuer and
the regulator in this market, we are responsible for maintaining market liquidity and safety, as
well as ensuring that government securities brokers-dealers are addressing Year 2000
readiness.
The Treasury a/id the Federal Reserve have made internal efforts to test all of our
various systems. Specifically, the Bureau of Public Debt has identified 14 critical securitiesrelated systems and has established a schedule of target dates for those systems to become fully
compliant. The critical systems include the national book entry system, its auction and trading
systems, the Fedwire system, and Treasury DIRECT. Fortunately, nine of the 14 systems
were designed compliant. Twelve of the 14 already have the appropriate coding, and are in
the testing phase. We expect to complete both code testing and interface testing for all but one
of the systems by the end of 1998. In addition, we are developing plans of action in case any
of the systems do not function as we hope they will.
Another step we are taking is the publication of a proposed rule under the Government
Securities Act. The rule will require reporting on Year 2000 readiness for approximately 25
specialized government securities broker-dealers. The rule is based on the SEC's temporary
rule amendment to SEC rule 17a-5, which covers general purpose broker-dealers.
IV. Year 2000 Readiness Testing
We are also heiping market participants to focus on the Year 2000 by encouraging them
to undergo Year 2000 readiness testing. This conference is an important part of that effort.
The testing plans give you the opportunity to test critical applications used to transact business
in the Treasury securities market, in future-dated environments. We urge you to test your
automated front-end and back-end interfaces, both with Federal Reserve applications, and with
others in the market. We also urge you to undertake testing both for auctions and for
secondary market transactions. Such testing should ensure that transactions can be processed
from end-to-end. The proposed testing offers flexible schedules and multiple opportunities to
test input and/or output. Your participation in these tests is crucial.
The panels for this conference underscore the breadth of this market and the many
interconnections and dependencies of the participants. Given the many participants in this
market, it is vitally important for you to make sure that your testing plans include all relevant
players.
v.
Conclusion
Treasury and the Federal Reserve are committed to working with you to address Year
2000 readiness. If you identify additional testing needs or discover other relevant information,
please share that information with us and with each other. The contact at Treasury for these
issues is Carl Locken. In addition, you will find in your program materials a contact list of
key market participants involved in Year 2000 readiness testing. We encourage you to make
use of those resources.
Let me conclude _by thanking you for your efforts to date. The financial industry has
been working very hard to solve the Year 2000 problem. In particular, I want to recognize the
substantial volunteer efforts of many firms that participate in industry groups working on Year
2000 issues. I have every confidence that if we continue to work together and successfully
complete the testing phase, we will have a Treasury market that functions effectively as we
enter the 21 st century. Thank you very much.
})EPARTMENT
OF
THE
TREASURY
NEWS
OFFICE
or PUBLIC AFFAIRS -1500 PENNSYJ.VANIA
AVENUE, N.W.• WASHINGTON, D.C .• 101ZO. (202) 622-2960
CONTACT:
EMBARGOED tJNTI:L 2: 3 0 P .K.
Offic@ of Financing
202/219-3350
June 17, 1998
TREASURY TO AUCTION 2-YBAR AND S-YEAR NOTES
TOTAL~
$23,000 ~LLION
The Treasury will auction $12,000 ~llion of 2-y@ar notes and $11,000 million of
S-year notes to refund $32,002 ~illion of publicly held securities maturing JUne 30,
1998, and to pay down about $9,000 million.
In addition to the public holdings, Federal Reserve BanK5 hold $2,648 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 $4,788 million held by P@deral
Reserve Banks as agents for foreign and international monetary authorities. Amouuts bid
for th8se accounts by Federal Reserve Banks will be added to the offering.
Both the 2-y@ar 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.
The 2-year and 5-year notea being offered today are eligible for the STRIPS
program.
Tenders will be received at F@deral Reserve Banks and Branches and at ehe Bureau
of the Public Debt, Washington, D. C. This offering of Treasury securities iB governed
by the terma and conditions set foreh in the unitor.m Offering Circu~ar (3~ CYR Part 35i,
as ~ded) for the sal@ 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 ehe attached offering
ru.gh1is;htg.
If the auction of 2-year Treasury notes to be beld Tuesday, June 23, 1998,
results in a high yield in a range of 5.875 percent through and including 5.999 percent,
the 2-year notes will be considered an additional issue of tbe outstanding 5-7/8 percene
5-year notes of Series M-2000 (CUSIP No. 9l2827U42) originally iB5ued June 30, ~995.
The additional issue of the notes would have the Bame CUSIP number as the outstanding
notes, which are currently outstanding in the amount ot $12,464 m1llion.
If the auction results in the issuance of an additional amount of the Series
M-2000 notes rather than a new ~-year note, it will be noted at the bottom of the
Treasury's auction results press release.
000
Attacb.m@nt
For press releases, spel!ches, public schedules and offh'ial biographies, call our 24-hour fax line at (202) 622-2040
RR-2524
HIGHLIGHTS
or
TREASURY OFF2RlNOS TO THE PUBLIC OF
2-YBAR AND S-YBAR NOTIS TO DB ISSUED JUNK 30. lS98
June 17, 1998
Qffer1IlQ Amount •..•..•....•.....•...... $12,000 million
DescriPtion of Qffering:
Term'.md type of security .••....••.....
Series •..•...••.•....•....•.....•...••.
COSIP mumber ...•.....•....•.......•.•..
Auctiom date ••.••..•....••••.•..•... , ..
Issue data .............................
Dated date •••••.•..•.....••..••.••..•..
Maturitv date ..•..•.....•.•.....••..•..
Interest rate •....•••....•......•.....•
l-year motes
AE-lOOO
912027 4J a
JUne 23, 1998
June 30, 1998
JUne 30, 1998
$11,000 million
5-year note8
H·lOO]
912027 4ft 5
June 14, 1998
June 10, 1998
June 10, 1998
June 10, 2003
JUDe 30, 2000
Determimad based on the higbeet
accepted competitive bid
Yield .•..••.••..•.•..•.......••.......• Determined at auction
Intere.t payment dates ..•.•.........•.• December 31 and June 30
MiniD\U.ll bid amount •••...•.•..•..••....• $5,000
Multiples ...•.....•.................•.. $1,000
Accrued interest pay~le
by inves tor ........................ None
PramiUD or discount .............•...... Determined at auction
None
Determined at auction
STRIPS Information:
MiDimun &mOunt required ................ Determined at auction
Determined at auction
Ccrpus :USIP number • . . . . . . . . . . . • . . . . . . . 912820 t-B 0
912820 DC 8
Due date(s) and CUSIP number(s)
for additional TXNT(s) .••••..••.•.....• Not Applicable
June 30, 2003
The
Determined based on the highest
accepted competitive bid
Determlned At auction
December 31 and June 30
$1,000
$1,000
;n2S1)
RXO
following rules apply to all securities ~entioned above:
Submission of Bidsl
Noncompetitive bids ..•...... Accepced 1n full up to $5,000,000 at tbe bighest accepted yield.
competitive bids •.•....•..•. (11 MUst be expressed as a yield with three decimals, e.g., 7.l23\.
(2) Net long position for eacb bidder must be reported when the sum of the total hid amount,
at all yields, and the net long position is $3 billion or greater.
(ll Nat long position must be determined as of one half-hour p~ior to the closing tima for
receipt of competitive tenders.
Maximum Recognized Bid
at , Single yield ........ 35% of public offerLng
Maximum AWArd ••.•..••..•...• 35\ of public offerLng
Receipt of Tenders.
Noncompetitive tenders •.. Prior to 14,00 noon Bastern Daylight Saving time on auction day
competitive tenders ...•.. Prior to 1:00 p.m. gastern Dayligbt saving time on auction day
Payment Te~' ............... 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
TREASURY SECURITY AUCTION RESULTS
SUREAU OF THE PUBLIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
Jtll1e 18,
Office of Financing
202-219-3350
1998
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
364-Day Bill
June 25, 1998
June 24, 1999
912795BY6
Tenn:
Issue Date:
Maturity Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
-----Low
High
Average
Investment
Rate 1/
price
----------
------
5.120%5.130\
5.130%
94.823
94.813
5.402%
5.413\
5.4l3%
94.813
Tenders at the high discount rate were allotted
34%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
TOTAL
40,844,353
981,764
$
$
7,874,015
981,764
41,826,117
8,855,779
1,302,000
1,302,000
43,128,117
10,157,779
4,915,000
4,915,000
a
o
Bid-to-cover Ratio = 41,826,117 / 8,855,779
1/
Accepted
Tendered
Tender Type
48,043,117
4.72
Equivalent coupon-issue yield.
RR-2525
http://www.pubUcdebLtreu.gov
$
15,072,779
DEPARTMENT
1REASURY
OF
THE
TREASURY
NEWS
OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
June 19, 1998
Contact: Susan Sal let
(202) 622-2920
TREASURY DEPARTMENT KIOSKS BRING CAREER INFORMATION
TO COLLEGE CAMPUSES
The Treasury Department is sending this week 20 touch-screen computer kiosks to five
Historically Black Colleges and Universities (HBCUs) and 15 members of the Hispanic Association of
Colleges and Universities (HACU). The kiosks provide up-to-date information on nation\\iJe cmploymcnt
and internship opportunities in the federal sector and at the Treasury Department
~'In today's growing economy, it is more important than ever for employers in the public and
private sectors to hire and retain the best people they can." Secretary Robert E. Rubin said. "8y
connecting us to a greater range of people, this new initiative will both make Treasury stronger and make
more young people aware of these opportunities."
The five HBCUs receiving touch-screen kiosks arc: Howard University~ Jackson State Univcrsity
(Jackson, MS): North Carolina Central University~ Morris Brown College (Atlanta. GA): and. Southcrn
University and A&M College (Baton Rouge, LA). The members of HACU recei\ing kiosks include:
Miami-Dade Community College (Wolfson and Kendall Campuses): University of Miami at Coral (iables:
California State University. Fresno: University of California. Los Angeles (UCLA): John Jay Collegc of
Criminal Justice (New York): City College. City University of New York: Metropol itan State College of
Denver: Universidad Intermericana de Puerto Rico (Metropolitan Campus. Rio Piedras): Pontifical
Catholic University of Puerto Rico (Ponce); American University of Puerto Rico (Bayamon and Manat!
Campuses): University of Illinois at Chicago~ Laredo Community College (Texas): and. Texas A&M
University (Laredo). The majority of these universities havc at least 25 percent Hispanic enrollment.
This program was designed to provide employment information to students \\ho do not havc
access to computers or thc Internet. The information in the kiosks is updated dail: through dedicated
telephone lines by the U.S. Office of Personnel Managcment (OPM). and studenb can access and print all
necessary forms and announcements from the terminals. In 1997. OPM purchased t\\che touch-~crccn
computer kiosks and placed them in six institutions \\ ith a high enrollll1ent of I Ii~p~lI1ic stuLienh and "i:-..
l-mCUs.
"Thesc kiosks \\ ill provide a direct link bct\\ecn the Treasur: Department and these "clw\)k" ~,lld
Nancy Killcfcr, Assistant Secretary for Managcment and Chic! Financial (lflicer j')1" the Irca"lll":
Departmcnt. "We can't bc everywhere. but technology can ccrtail1l~ gel llS tn 111\)\<: place" "
RR-2526
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlllNGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 19, 1998
Contact: Office of Public Affairs
(202)622-2960
STATEMENT OF TREASURY SECRETARY ROBERT E. RUBIN
AND IRS COMMISSIONER CHARLES O. ROSSOTTI
ON THE IRS REFORM LEGISLATION
Today we took a major step forward toward an IRS that best serves the American
people.
We are pleased that we have been able to work with the Congress to produce legislation
that continues the important reforms to make the IRS work better for the American people.
This legislation will help the great majority of taxpayers who voluntarily meet their tax
obligations each and every year without offering encouragement for noncompliance.
The Administration and the Congress worked together to create an Oversight Board
with private sector input and Executive Branch accountability, provide personnel flexibilities to
best enable the IRS to recruit high-quality employees, and protect important taxpayer rights
such as the protection of innocent spouses, the burden of proof for court cases, and the
suspension of interest and penalties. There remains today the issue of how to pay for these
important reforms, and we will continue to work with the conferees to address this issue.
We congratulate the conferees, the Congress and the IRS Restructuring Commission on
their important work on this issue.
--30-RR-2547
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
PUBLIC DEBT/WASH DC
Jun 22
Fax:202-219-336S
P.Ol
14:09
'98
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
TRE.~URY
SECURITY AUCTION RESULTS
EUREAU OF THE PUBLIC DEBT - WASHINGTON DC
fOR IMMEDIATE RELEASE
June 22, 1998
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCT10N OF 13-WE.E:K BILLS
91-Day Bill
June 25, 1998
September 24, 1998
91279SAI<7
Term:
Issue Date:
Maturity Date:
CDSI!' Nurr.ber;
RA}lGE OF ACCEPTED COMPETITIVE BlDS:
Discount
Low
Rate
Investment
Rate 1/
Price
------
----------
------
High
4.970%'
4.995%-
.~verage
4. 990-%-
5.102%
5.131%
5.122%,
Tenders at the high discount race were
9B.744
98.'737
98.739
~llotted
39~.
AMOUNTS TENDERED AND ACCEP'H:D (in thousands)
Tender Type
Accepted
Tendered
Competitive
Noncompetitive
$
PUBLIC St"BTOTAL
31,922,394
4,291,825
1,229,542
33,151,936
5,521,367
255,059
255,059
33,406,995
5,776,426
3,289,235
100,341
3,289,235
100,341
Foreign Official Refunded
SUBTCT.~
Federal Reserve
Foreign Official Add-On
TOTAL
$
lid·to·Cover Rat.io = 33,151,936 /
$
1,229,542
36,196,571
5,521,367 = 6.00
I Equivalent coupon-issue yield.
RR-2548
hUp://www.publJcdebt.treas.go v
$
9,166,002
Jun 22 '98
Fax:202-219-336S
PUBLIC DEBT/WASH DC
P.02
14:10
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUr.TION RESULTS
BUREAU OF THE PUBLIC DEET - WASHINGTON DC
FOR IMMEDIATE RELEASE
June 22 I
CON'IJ..CT:
Off~ce
l398
of Financing
202-219-3350
F.~SULTS
OF
TREASG~Y'S
Term:
Issue Date:
Maturity Date:
CUSIP Number:
AUCTiON OF
26-v~EK
BILLS
182-Day Bill
June 25, 1998
December 24. 1998
91279sAV3
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
------
Low
High
Average
Investm<=nt
Rate 1/
P:-iCE
--------- ..
------
5.105%
5.313%
5.120%
5.328%'
5.120%
5.328%
Tenders at the high discount rate were
P-_"10UNTS
97.419
97.412
97.412
~llotted
TENDERED AND ACCEPTED (in tr.o'J.sands)
Tender Type
Tendered
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Foreign Official Refunded
SUBTOTAL
Federa.l Reserve
Foreign Official Add-On
$
e
24,621,230
1,084,692
$
~,611.022 =
25,705,922 I
3,526,330
1,084,692
25,705,922
4,611,022
2,649.941
2,649,941
28,355,863
7,260,963
3,565,000
3,565,000
1,042,559
32.963,422
5.57
1/ Equivalent coupon-issue yield.
RR-2549
Accepted
1,042.559
TOTAL
Bid-to-Cover Ratio
97%.
II up://www.publlcdcbttre8!l.gov
s
J.1,868,522
DEPARTMENT
OF
THE
TREASURY
..............1I....................~~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220. (202) 622-2960
EMBARGOED UNTIL 1 :30 p.m. EST
June 23, 1998
Contact: Dan Israel
(202) 622-2960
TREASURY NAMES FIRST EVER IRS CITIZEN PANEL
Treasury Secretary Robert E. Rubin and IRS Commissioner Charles O. Rossotti today
announced the members of the nation's first IRS citizen advocacy panel, to be based in the IRS
South Florida district. The panel stems from recommendations of Vice President AI Gore's
National Partnership for Reinvention task force which looked for ways to improve customer
service at the IRS. The panel, which represents a cross-section of south Florida taxpayers, will
provide area citizens with an independent monitoring of the quality of IRS customer service and
make recommendations to improve that service.
"In May 1997, the National Partnership for Reinvention Task Force began examining the
IRS customer service operation," Vice President Gore said today. "Thanks to the efforts of the
NPR panel and thousands of dedicated IRS employees, tens of thousands of American taxpayers
have already received better service including extended phone and walk-in hours and special
Problem Solving Days. We have more work to do, but today we take another step in the right
direction. "
Secretary Rubin said, "The naming of the first citizen panel is an important step in our
efforts to reform the IRS. We look forward to input from all of our citizen panels to help us build
the IRS that the American people deserve."
The eleven private citizens on the Florida panel are: Christopher Bermejo and Ana Cruz of
Hialeah; Clarke Dahlgren ofFt. Myers; Yanick Douyon, Alvin Malley and James Wright of
Miami; Edward Gargiulo of Bradenton; Thomas Luken and William Norkunas ofFt. Lauderdale;
Mary Sciortino of Cape Coral; and Barbara Willard of Alva. The South Florida district's taxpayer
advocate, Maryellen Ledger, will also serve as a member of the panel.
The South Florida citizen panel's first public meeting will be in September. Area citizens
interested in contacting the panel can reach it through a special toll-free number:
1-888-912-1 CAP (1-888-912-1227).
RR-2550
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
"The IRS will benefit greatly from the fresh perspective of our service as seen through our
customers' eyes," Commissioner Rossotti said. "The citizen panel will help us continue to make
customer service a top priority at the IRS."
President Clinton announced last October the concept of the new, locally-based citizen
panels whose mission is to provide citizen input into enhancing IRS customer service by
identifying problems and making recommendations for improvement of IRS systems and
procedures, and monitoring the progress toward improvement. The panel will also refer
individual taxpayers to the appropriate IRS office for assistance in resolving their problems.
Four citizen panels nationwide are being established this year. In addition to the panel in
Ft. Lauderdale, panels will be set up in Brooklyn, Milwaukee, and Seattle later in 1998.
The panel members were identified through an independent, structured application
process, aimed at a balanced membership and representation of a cross-section of the taxpaying
public within the South Florida district. Panel members will serve two-year terms; they will not
be paid, but will be reimbursed for their travel expenses.
-30-
South Florida IRS Citizen Advocacy Panel Members
CHRISTOPHER BERMEJO
Hialeah
As a telemarketing manager for the American Red Cross, Mr. Bermejo is responsible for achie\'ing the
needed blood donations for South Florida hospitals. He has been able to increase blood donations from
previous years by developing effective community events and by training and motivating his staff of 30
telemarketers. These activities have provided Mr. Bermejo, 35, with many opportunities to interact with the
communities of South Florida to promote public awareness. He also served on Red Cross committees for
nationwide total quality management and for Hispanic donors.
ANA CRUZ
Hialeah
Ms. Cruz is an associate professor of accounting for Miami-Dade Community College. She previously
served as manager and controller of an accounting department for a large company, and for five years was a
tax examiner for the IRS. She has coordinated three Volunteer Income Tax Assistance (VITA) centers for
Miami-Dade college over the past five years. She trains her students to listen, interview and prepare tax
returns for taxpayers. Ms. Cruz, 43, sen'es on multiple committees at Miami-Dade Community College, is a
member of the Florida Institute of Certified Public Accountants and the Miami-Lakes Business Association.
She speaks both English and Spanish.
CLARKE DAHLGREN
Ft. Myers
Mr. Dahlgren has retired from his career as a former Regional Director for AT&T. While at AT&T, he led an
international initiative to establish new offices in Switzerland, Sweden, the Netherlands, Spain, Greece and
Israel. He also participated as a member of a delegation for the U.S. State Department that focused on
international tariffs and regulations. More recently, Mr. Dahlgren, 67, studied accounting and took tax
~urses through H&R Block and Jackson & Hewitt. He currently serves as a tax consultant for H&R Block.
He also serves on the board of directors of the Forest Count,!' Club.
Miami
YANICK DOUYON
Ms. Douyon is a teacher with the Dade County Public Schools and teaches G.E.D. classes in a maximum
security prison. She is well versed in taxpayer issues of South Floridians due to her participation in the IRS
VITA program since 1994. She teaches in predominantly Hispanic and Haitian communities in Miami-Dade
County, speaking Haitian Creole. Ms. Douyon, 48, has also been a facilitator of seminars for Peace Corps
volunteers in Haiti.
Bradenton
EDWARD GARGIULO
Mr. Gargiulo is the president of a Gargiulo Financial Services, Inc.. He has served his community on several
community boards and panels, including the Manatee County Board of Commissioners Panel to survey youth
recreational needs , the Manatee County- Council on Aging, and the Manatee County Rural Health Clinic, for
which he served as director. Mr. Gargiulo, 56, was also a customer service manager with Xerox Corporation.
He has worked at the Department of Labor and spent five and a half years in the US. Navy.
(more)
THOMAS LUKEN
Ft. Lauderdale
Mr. Luken has been a practicing attorney for over 20 years. Having represented taxpayers through the
appellate levels of the IRS, he brings a unique knowledge of taxpayer issues and IRS procedures to the panel.
He has extensive knowledge of the tax code and taxpayer issues through his involvement on the American
Bar Association section of taxation subcommittee, Broward Lawyers Care (a pro bono organization
providing free legal help to the indigent). Mr. Luken, 53, has also been trained as a CPA.
ALVIN MALLEY
Miami
Mr. Malley is the retired founder and director of Advocates for Seniors, an innovative program for dealing
with the criminal justice problems of elderly offenders. He chose gerontology and counseling as a second
career, after serving as a managing partner of a large gtneral merchandise and discount store in upstate New
York. His work as chainnan of the District Long-Tenn Care Ombudsman Council for the State of Florida
involves investigating, mediating, and enforcing federal and state regulations that cover long-tenn care
facilities. Mr. Malley, 74, has extensive volunteer experience on community, local, and state boards.
WILLIAM NORKUNAS
Ft. Lauderdale
Mr. Nodmnas is the director of a non-profit agency, Disabled Assisting the Disabled. He was the governor's
appointee to the State of Florida Human Rights Advocacy Board, an appointee to his local redistricting
board, and a member of the coordinating council of Broward County. He also serves on a variety of
community boards and has participated for three years in the IRS VITA program. Mr. Norkunas, 53, also
worked with the staff of the U.S. Senate in the development of the Americans with Disabilities Act (ADA),
and currently mediates ADA cases. He carried the Ol~mpic torch through Ft. Lauderdale in 1996.
MARY SCIORTINO
Cape Coral
Ms. Sciortino is a retired teacher who spent 26 years with the Suffolk County, New York public school
system. During that time, she served as head of the 530-member teachers union. Currently, she is a mediator
of civil suits for the Lee County justice system. Ms. Sciortino, 71, has been an active volunteer in
community activities -- including the Ft. Myers "Call for Action" program, which helps citizens resolve
various problems -- since moving to South Florida over 10 years ago.
BARBARA WILLARD
Alva
Ms. Willard is a self-employed CPA whose practice is located in a small rural community in South Florida.
She brings a strong understanding of individual South Florida taxpayer issues to the panel through her work
with a broad client base that includes retired professionals, migrant laborers, fanners, and small businesses.
Ms. Willard, 44, previously worked as a marketing professional with a resort firnl and has spent time as an
advisor to a condominium association and a large resort council's regulatory board. Her experience teaching
courses for the VII A program and a CPA review program provides up-to-date infonnation on tax issues.
JAMES WRIGHT
Miami
As a sergeant with the Miami-Dade pulice department, ~r. Wright interacts with the South Florida
community on a daily basis. Within the department, he helps to establish policies and make
recommendations regarding the efficiency and effectiveness of his unit. Beyond his regular employment
responsibilities, he serves as an executive on numerous community boards, including the Progressive Officers
Club and the North Dade Health Center Advisory Board. Mr. Wright, 33, also serves as an arbitrator for the
National Association of Securities Dealers.
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SECRETARY OF THE TREASURY
June 23, 1998
The Honorable Robert Livingston
Chainnan
Committee on Appropriations
U.S. House of Representatives
Washington, D.C. 20515
Dear Bob:
I am extremely concerned that an amendment to restrict severely the use of the Exchange
Stabilization Fund (ESF) may be considered during House action on the Treasury, Postal
Appropriations bill. Such an amendment would constitute an unacceptable limitation on the
executive branch's ability to protect critical U.S. economic interests, and I would be forced to
recommend a Presidential veto if the final bill contained such restrictions.
The original ESF statute deliberately provided the executive branch with the flexibility needed to
respond expeditiously and effectively when justified by important national economic interests.
Because the nature of financial crises sometimes requires urgent action to stabilize markets and
protect the U.S. economy, it is necessary to act more quickly than is permitted by the deliberative
procedures of the legislative branch. This is particularly true in today's large, fast-moving
financial markets.
To take just one recent example, the ESF permitted the United States - with broad international
cooperation - to participate in a critical, highly time-sensitive Christmas Eve effort to forestall
financial default in Korea, where 37,000 American troops are stationed. The economic and
national security consequences of Korean default were clearly unacceptable risks for the U.S., and
the availability and flexibility ofESF resources were indispensable to our stabilization efforts.
Let me make clear that we fully accept our responsibility to account to Congress for our actions
under the ESF statute. Treasury submits detailed monthly reports on ESF transactions to the
Banking Committees, and the President submits an annual report to the Congress. We believe
strongly that our past use of the ESF, as well as any potential use as intended in the Asian crisis, is
prudent and consistent with the spirit and letter of the law
We simply cannot afford to compromise our nation's vital economic and financial interests by
limiting our ability to act responsibly and expeditiously during times of urgent crisis, and I urge
the Congress to preserve the ESF statute in its current form
Sincerely
RR-2551
Robert E. Rubin
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
199B
CONTACT:
June 23,
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Interest Rate:
5
3/8t
Issue Date:
Dated Date:
Maturity Date:
AE-2000
Series:
912B274J8
CUSIP No:
STRIPS Minimum: $1,600,000
High Yield:
Price:
5.495%
June 30, 1998
June 30, 199B
June 30, 2000
99.776
All noncompetitive and successful competitive bidders were awarded
securities at the high yield. All tenders at lower yields were
accepted in full.
Tenders at the high yield were allotted
40\.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Competitive
Noncompetitive
s
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
TOTAL
Accepted
Tendered
$
36,803,860
1,307,350
$
10,713,800
1,307,350
38,111,210
12,021,150
1,383,000
1,500,000
1,383,000
1,500,000
40,994,210
$
Median yield
5.490%: 50% of the amount of accepted competitive
tenders was tendered at or below that rate.
Low yield
5.400%:
5% of the amount of accepted competitive
tenders was tendered at or below that rate.
Bid-to-cover Ratio = 38,111,210 / 12,021,150 = 3.17
RR-2552
http://www.pubUcdebltreas.gov
14,904,150
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OfFICE OF PUBLIC AFFAIR.S -1500 PEJIINSYLVANIA AV F.NUE, N.W. - WASHINGTON, D.C.a 20220. (202) 622·1960
EMBARGOED UNTIL 2:30 P.M.
CONTACT:
Office of Financing
202/219-3350
June 23, 1998
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills totaling
approx~tely $13,000 million, to be issued July 2, 1998.
This offering will
result in a paydown for the Treasury of about $800 million, as the maturing
publicly held weekly bills are outstanding in the amount of $13,797 million.
In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $6,862 million of the maturing bills, 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 $2,494 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 exceeas the aggregate amount of maturing hills.
Tenders for the bills will he received at Federal Reserve Banks and
Branches and at the Bureau of the public Debt, Washington, D.C. This offering
of :treasury socuri.ti.es is governed by the terms and condition. Det £or'Cb. in tbe
Unifor.m 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-2553
Fo, p,ess 'eletlses, $peeches, public schedules lind offhilll biographies, cllll ou, 2~-hDur fax line at (202) 622-2040
HIGHLIGHTS OF TRBASORY OFFBRINGS OF WBB~LY BILLS
TO BE ISSUED JULy 2, 19~5
June 23, 19ge
Offering Amount •.••...•••..•.•...••..•••••• $5, 7S0 snillion
Pe!CriDtion of Offeringl
Term and type of •• curity •.•••••.••••.•••••
CtJSIP number •••..••••••..•.•••••.••••••••••
Auction date •••..•..•.•.••.••••••••••••••••
lasue date ............. , ...................
Maturity date •.•••..•••.••.••••••••••••••.•
Original issue date .•••.•••••••.•••••.•.•.•
Currently outstanding ••..•.•••••.••••.•...•
Hinimum bid amount ..•.•..•.••.••.••••••••.•
Nul tiples ....•.......••....•......•...•...•
91-day bill
91:.1795 AL 5
June 29, 1998
July 2, 1"8
October 1, l!BIS
April 2, 1U8
$10,905 million
$10,000
$ 1,000
$7,::150 million
1ll-day bill
912795 AW 1
June 29, 1998
July 2, 1998
December 31, 1998
July 2, 1998
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bidsl
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 three decimals in
increments of .005\, e.g., 7.100\, 7.105\.
(2)
Net long position for each bidder must be reported wheD the
aum of the total bid amount, at all discount ratea, and the
net long position is $1 billion or greater.
(3)
Net long position muat be determined a. of one half-hour
prior to the closing time for receipt of competitive tenders.
M8xim~
RecoqniJed Bid
at , Single Yield •.•..•.•.••...••..•••.• 35% of public offering
MaxilIlU!)
AwArd .••......•.....•.....•...•...• 35% of public offering
Receipt of Tenders:
Noncompetitive tender •••....•••••••••..•.•• Prior to 12:00 noon Bastern Daylight Saving time on auction day
Competitive tenders •..••.•..••••••.••••..•• Prior to 1100 p.m. Bastern Daylight Saving time on .~ction day
Paymont Terms .•.•......•.•..••••••.•••..•.• Full payment with tender or by charge to a funds account
at a Federsl Reserve Bank on iSlue date
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
June 23, 1998
Contact: Peter Hollenbach
(202) 219-3302
BUREAU OF THE PUBLIC DEBT AIDS SA VL,GS BO~rnS OWNERS
AFFECTED BY WILDFIRES IN FLORIDA
The Bureau of Public Debt took action to assist victims of wildfires in Florida by expediting the
replacement or payment of United States Savings Bonds for owners in the affected areas. The
emergency procedures are effective inunediately for paying agents and owners in those areas of
Florida affected by the fires. These procedures will remain in effect through August 31, 1998.
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.
Florida counties involved are Brevard, Columbia, Duval, Flagler, Putnam, Seminole, St Johns
and Wakulla. 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 by writing the
Richmond Federal Reserve Bank's Savings Bond Customer Service Department, 701 East Byrd
Street, Richmond, Virginia 23219; phone (804) 697-8370. This form can also be downloaded
from Public Debt's website at: www.publicdebt.treas.gov. 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 num ers if available. The completed form must be certified by a
notary public or an officer of financial institution. Completed forms should be forwarded to
Public Debt's Savings Bond I perations Office located at 200 Third St., Parkersburg. West
Virginia 26106-1328. Bond wners should write the word "FIRES" on the front of their
envelopes, to help expedite the Irocessing of claims.
000
PA-355
RR-2554
http://www.publlcdebt.treas.gov
DEPARTMENT
OF
THE
TREASURY
~j/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . .. .
............................
OFFICE OF PUBUCAFFAIRS ·1500 PENNSYLVANIA AVENUE, N.W .• WASlllNGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL lOAM EDT
Text as Prepared for Delivery
June 24, 1998
TREASURY ASSISTANT SECRETARY GARY GENSLER
HOUSE COMMITTEE ON WAYS AND MEANS
Mr. Chairman, and distinguished members of the committee, it is an honor to be here
today to discuss Treasury debt management. With the Clinton Administration's policy of fiscal
discipline, and its fostering of a strong U.S. economy, we are experiencing our first budget
surplus since 1969. The Administration welcomes the challenge of managing a surplus rather than
financing a deficit.
Our discussion of debt management will begin with the goals and principles that guide
Treasury in this important endeavor. After outlining our changing financing needs, I will review
the adjustments to Treasury debt management announced this May. I will then discuss the
inflation-indexed program and a number of other innovations in debt management that have been
implemented during the Clinton Administration. Finally, I will say a few words about the
measures that we are taking to prepare our critical securities-related systems for the Year 2000.
1. Goals and Principles
Treasury debt management has three main goals (Exhibit A):
•
The first is sound cash management -- ensuring that Treasury cash balances are
sufficient at all times.
•
The second is achieving the lowest cost financing for the taxpayers.
•
And the third is the promotion of efficient capital markets.
In achieving these goals, five interrelated principles guide us (Exhibit B).
RR-255S
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The first principle is maintaining the "risk-free" status of Treasury securities. This is
accomplished through prudent fiscal discipline and timely increases in the debt limit. Ready
market access at the lowest cost to the Government is an essential component of debt management.
Second, is maintaining consistency and predictability in our financing program. Treasury
issues securities on a regular schedule with set auction procedures. This reduces uncertainty in
the market and helps minimize our overall cost of borrowing. In keeping with this principle,
Treasury does not seek to time markets; that is, we do not act opportunistically to issue debt when
market conditions appear favorable.
Third, Treasury is committed to ensuring market liquidity. The U.S. capital markets are
the largest and most efficient in the world. Treasury securities are the principal hedging
instruments used by investors across the markets. Liquidity promotes both efficient capital
markets and lower Treasury borrowing costs.
Fourth, Treasury finances across the yield curve, appealing to the broadest range of
investors. A balanced maturity structure also mitigates refunding risks. In addition, providing
a pricing mechanism for interest rates across the yield curve further promotes efficient capital
markets.
Fifth, Treasury employs unitary financing. We aggregate all of the Government's
financing needs and borrow as one nation. Thus, all programs of the Federal Government can
benefit from Treasury's low borrowing rate. Otherwise, separate programs with smaller, less
liquid issues, would compete with one another in the market. Paul Volcker, then Under Secretary
of the Treasury, proposed to promote the concept of unitary financing by establishing the Federal
Financing Bank. He brought that idea before this Committee 27 years ago. The Administration
continues to vigorously endorse this principle.
2. Changing Financing Needs
As we experience the first budget surplus in almost 30 years, we are responding to
dramatic changes in our financing needs. Exhibit C shows the components of outstanding Federal
debt. Privately held debt totals just under $3.4 trillion. Baseline estimates made just prior to the
Clinton Administration projected that today's level of privately held debt would be greater by
roughly $1.1 trillion, or approximately 32 percent. This remarkable accomplishment has
benefitted all Americans through a higher national savings rate and lower interest rates.
Exhibit D shows how the components of our financing needs have changed over the last
several years. Unified budget deficits, which historically drove our net borrowing needs,
decreased dramatically and finally became a surplus. Net Federal lending activities that are not
included in the unified budget have added to our financing needs. (This is largely rtpresented by
the direct student loan program.)
Another significant change is that we have been filling an increasing share of our financing
2
needs by issuing nonmarketable securities. Upon the redesign two years ago of the
nonmarketable securities issued to state and local governments ("SLGS"), we have seen a sharp
increase in this type of financing. This year, we anticipate more than $50 billion in net SLGS
issuance.
All of these factors lead to an anticipated $79 billion pay down in marketable debt this
fiscal year. This compares to $169 billion in net market borrowing just three years ago.
Treasury will still be the largest issuer in the market, however, as we need to raise the monies
to payoff our maturing securities. This year, $5lO billion of our longer term debt, known as
"coupon" securities, will mature. In addition, there are $450 billion in Treasury bills
outstanding which need to be refinanced on average several times a year. Treasury bills are
our shortest term offerings, with maturities ofless than one year.
3. May Announcements
To achieve the goals and to promote the principles that I described above, Treasury has
a variety of financing tools at its disposal. These include issue sizes, offering schedules,
instruments offered, auction rules and possible debt repurchases.
In May of this year, we used several of these financing tools to address the exciting
challenge brought on by the new environment of budget surpluses. First, we discontinued
issuance of 3-year notes. Second, we reduced the frequency of new issues of 5-year notes,
shifting to a schedule of quarterly issuances instead of monthly issuances. I will discuss in
some detail the actions that we took, as they best demonstrate how Treasury's debt
management goals and principles guide our policy decision making.
In light of our lower borrowing requirements, we needed to develop a strategy for
decreasing our issuances of Treasury securities. The first question we faced was whether to
further decrease the issuance of Treasury bills. Over the last two years, we had been reducing
the amounts of Treasury bills offered. Consequently, the market in privately held Treasury
bills had declined in overall size by $135 billion, or 23 percent. Due to this change, the bill
market had become less liquid. In addition, our previous reductions in bill issuances had
caused the average life of our marketable debt to increase modestly. If left unaddressed, this
would raise our borrowing costs because over long periods of time, interest rates on shorter
term borrowings tend to be lower than on longer term borrowings. Moreover, Treasury bills,
which are issued weekly, allow us flexibility to best manage Treasury's fluctuating cash needs.
For all of these reasons, we decided to reduce our issuance of coupon debt, rather than further
reduce issuance of Treasury bills.
The second question we faced was whether to make cuts across all of the existing types
of coupon debt, or to eliminate specific issues or maturities. The current issue sizes had
already been reduced to levels in existence in 1992. The size of the U.S. capital markets have
expanded
3
significantly since that time. Accordingly, we decided to concentrate our borrowing in fewer
but larger debt offerings. By reducing the total number of yearly coupon issues from 39 to
27, we will promote market liquidity and efficiency, and best achieve lowest cost financing for
taxpayers.
The next question we faced was which issues or maturities to eliminate. The
discontinuation of a maturity is not unusual - we discontinued 20-year bonds in 1986, 4-year
notes in 1991, and 7-year notes in 1993. The 3-year note was chosen for elimination in
response to market demands. It is closest in maturity to another of Treasury's coupon
offerings, the 2-year note. In addition, the elimination of the 3-year note allows us to
maintain financing across the yield curve. We chose to reduce the frequency of new issues of
5-year notes, shifting to a schedule of quarterly issuances to further concentrate our issuance.
That change fits our cash management needs by providing us with the cash we need in the
middle of fiscal quarters.
In sum, the debt management changes that we announced in May promoted the
achievement of Treasury's debt management goals. We reduced the Treasury offering
schedule to align new Treasury security issuance with the Government's need for financing.
By concentrating our financing on larger, more liquid issues, we are promoting capital markets
as well as lowest cost financing for the taxpayers.
4. Recent Innoyations
The changes that we instituted in May are just one example of the innovations in debt
management that have been achieved during the Clinton Administration.
One of our most significant innovations has been the development of inflation-indexed
securities. These securities, first offered in January 1997, diversify the Government's
financing sources. We believe that this will lower Treasury's borrowing costs over the long
term. They also provide an important diversification tool for investors. Moreover, by
providing inflation protection, we believe that inflation-indexed securities promote savings. In
addition, U.S. capital markets now have securities that price inflation risk. Treasury has made
a long-term commitment to develop the inflation indexed market further.
In 1996, Treasury made it easier and less costly for state and local governments to
refinance and invest in Treasuries. We redesigned SLGS and made them more flexible. As
noted, we are now experiencing record net new borrowing in the form of SLGS.
In 1997, Treasury took steps to make savings bonds more attractive for American
savers. We hegan to calculate the savings bond interest rate using a different formula, which
raised the rate. We also began to accrue the interest on a monthly basis, instead of every six
months. Later this year, we will be introducing inflation-indexed savings bonds. These
bonds will protect hard-earned savings from inflation. They will be issued in denominations as
low as $50, making them affordable for all Americans.
4
We are also introducing some new services designed to make our securities more
accessible to investors. For example, later this year, we expect to offer savings bonds over the
Internet. In addition, we've made improvements to the Treasury DIRECT book-entry system.
The changes to Treasury DIRECT make it easier for investors to sell and to pay for Treasury
securities, and to reinvest proceeds.
5. Year 2000 Problem
Before I conclude, I would like to take a moment to discuss the steps we are taking to
address the Year 2000 computer problem as it relates to the functioning of the market for
Treasury securities.
On Friday, December 31, 1999, the Treasury Department is scheduled to make
principal and interest payments of $35 billion. We are also scheduled to issue securities on
that day. On Monday, January 3, in the year 2000, we currently plan to conduct our usual
weekly Treasury bill auctions. Treasury is committed to taking all the necessary steps to avoid
any significant disruption on that first trading day of the new millennium.
Our efforts in this area are both internal and external. Internally, the Treasury and the
Federal Reserve have identified 14 critical securities-related systems, and are in the process of
ensuring that all of those systems are Year 2000 compliant. The critical systems include the
national book entry system, which maintains and transfers marketable Treasury securities; and
our auction and trading systems, which receive and process auction tender information. We
expect to complete coding and testing for all but one of the systems by the end of 1998.
Externally, Treasury has been reaching out to Treasury market participants to
encourage them to engage in Year 2000 readiness testing. Just last week, we co-sponsored a
conference on readiness testing in New York. In addition, we have been engaging with other
members of the Working Group on Financial Markets, both at the principal level and at the
staff level, to address this important issue.
6. Conclusion
As I stated earlier, the Administration welcomes the challenge of managing a surplus
rather than financing a deficit. I will be happy to answer any questions you may have
regarding Treasury debt management in this new era of budget surpluses.
-30-
Exhibit A
GOALS OF DEBT MANAGEMENT
• Sound cash lDanagelDent
• Lowest cost financing for taxpayers
• Promoting efficient capital tnarkets
Exhibit B
GUIDING PRINCIPLES
• Maintaining "risk free" status
• Maintaining consistency and predictability
• Ensuring Inarket liquidity
• Financing across the yield curve
• EInploying unitary financing
Exhibit C
Public Debt
As of May 31, 1998
(Billions)
I. Privately held
Marketable:
Bills
Coupons
Inflation-indexed securities
Subtotal
Nonmarketable:
State and Local Government Series
U.S. Savings Bonds
Other
Subtotal
$
449
2,430
48
2,926
151
181
100
432
II. Held by the Federal Reserve Banks
444
III. Held by u.S. Government Accounts
1,704
TOTAL
Note:
J>et.all may not add, due to rounding.
$ 5,506
Exhibit D
Financing Need
(Billions)
FY 1995
FY 1996
FY 1997
FY 1998
(estlI:nate)
Unified Budget
Financing Accounts
$ -164
$ -107
$ -22
$ 39
-4
-12
-21
-16
$ -168
$ -119
$ -42
-19
18
169
-15
-24
158
16
21
52
3
-79
$_ J68
$ .119
$ 42
$ -23
$
$ 440
$ 481
$ 510
Nonmarketable Securities
Adjustments to Cash Basis and Other
Net Market Borrowing
Maturing Coupon Securities
Note: Detail may not add, due to rounding.
351
6
$
23
PRIVATE HOLDINGS OF TREASURY MARKETABLE DEBT
BY REMAINING MATURITY
Billions of dollars
Total
$2,926
$482
16%
Bills
1 year & under
~ 1-2 years
[2d
2-10 years
DOver 10 years
As of May 31,1998
THE DEPUTY SECRETARY OF THE TREASURY
WASHINGTON
June 23, 1998
The Honorable Richard A. Gephardt
Minority Leader
United States House of Representatives
Washington, DC 20515
Dear Congressman Gephardt:
As the House prepares to consider H. R. 4105, the Internet Tax Freedom Act, I welcome the
opportunity to share the Administration's views on this important legislation.
The Administration strongly supports a temporary and appropriate moratorium on taxation of the
Internet and electronic commerce. The dramatic growth of the Internet and electronic commerce is
creating jobs and economic growth, expanding customer choice, and making U.S. firms more
competitive in global markets. We would not want duplicative, discriminatory or inappropriate
taxation by 30,000 different state and local tax jurisdictions to stunt the development of what
President Clinton has called "the most promising new economic opportunity in decades." Thus, any
taxation of the Internet and electronic commerce must be clear, consistent, neutral, and
non-discriminatory.
At the same time, we must not allow the Internet to become a tax haven that drains the sales tax and
other revenues that our states and cities need to educate our children and keep our streets safe. In
conjunction with this moratorium, we need to establish a commission that will explore the longer-term
tax issues raised by electronic commerce, and develop a policy framework that is fair to states and
localities while allowing the Internet to earn its fair place in the ever-changing business world.
The Administration strongly urges the House to act now to pass this legislation as we work to
accomplish these two goals. The Administration will have suggestions for improving the bill, but we
believe that any outstanding issues can be resolved in a House-Senate conference.
The Office of Management and Budget' has advised that there is no objection from the standpoint of
the Administration's program to the presentation of this report.
Sincerely,
Lawrence H. Summers
RR-2556
THE DEPUTY SECRETARY OF THE TREASURY
WASHINGTON
June 23, 1998
The Honorable Newt Gingrich
Speaker of the House
United States House of Representatives
Washington, DC 20515
Dear Mr. Speaker:
As the House prepares to consider H. R. 4105, the Internet Tax Freedom Act, I welcome the
opportunity to share the Administration's views on this important legislation.
The Administration strongly supports a temporary and appropriate moratorium on taxation of the
Internet and electronic commerce. The dramatic growth of the Internet and electronic commerce is
creating jobs and economic growth, expanding customer choice, and making U.S. firms more
competitive in global markets. We would not want duplicative, discriminatory or inappropriate
taxation by 30,000 different state and local tax jurisdictions to stunt the development of what
President Clinton has called "the most promising new economic opportunity in decades." Thus, any
taxation of the Internet and electronic commerce must be clear, consistent, neutral, and
non-discriminatory .
At the same time, we must not allow the Internet to become a tax haven that drains the sales tax and
other revenues that our states and cities need to educate our children and keep our streets safe. In
conjunction with this moratorium, we need to establish a commission that will explore the longer-term
tax issues raised by electronic commerce, and develop a policy framework that is fair to states and
localities while allowing the Internet to earn its fair place in the ever-changing business world.
The Administration strongly urges the House to act now to pass this legislation as we work to
accomplish these two goals. The Administration will have suggestions for improving the bill, but we
believe that any outstanding issues can be resolved in a House-Senate conference.
The Office of Management and Budget has advised that there is no objection from the standpoint of
the Administration's program to the presentation of this report.
Sincerely,
Lawrence H. Summers
RR-2557
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
June 24, 1998
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Interest Rate:
Series:
CUSIP No:
STRIPS Minimum:
5 3/8%
H-2003
9128274K5
$1,600,000
High Yield:
Issue Date:
Dated Date:
Maturity Date:
5.454%
Price:
June 30, 1998
June 30, 1998
June 30, 2003
99.658
All noncompetitive and successful competitive bidders were awarded
securities at the high yield. All tenders at lower yields were
accepted in full.
Tenders at the high yield were allotted
91%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
TOTAL
$
26/030,300
271,657
Accepted
$
26/301,957
11,001/157
1/265,000
850/000
1,265,000
850,000
28,416,957
$
Median yield
5.438%: 50% of the amount of accepted competitive
tenders was tendered at or below that rate.
Low yield
5.400%:
5% of the amount of accepted competitive
tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 26,301,957 / 11,001,157
10,729/500
271,657
2.39
RR-2559
http://Yt'WW . pu bllcde bt.treas.gov
13/116,157
DEPARTMENT
OF
THE
TREASURY
..
~178~q~. . . . . . . . . . . . . . . .. .
....................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASfllNGTON, D.C .• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
June 25, 1998
Contact: Michelle Smith
(202) 622-2960
FINAL RULE FOR ELECTRONIC GOVERNMENT PAYMENTS WILL BALANCE
RECIPIENT NEEDS WITH BENEFITS OF ELECTRONIC PAYMENT
The Treasury Department announced today key provisions of a new regulation to carry
out a 1996 law requiring most federal payments to be made electronically. The Treasury
regulation will allow payment recipients to continue receiving paper checks if electronic deposit
would cause them a hardship.
"We want to strike the right balance between realizing the tremendous taxpayer cost
savings from direct deposit while still protecting the payment recipients from possible disruption
or hardship," Treasury Under Secretary John D. Hawke, Jr. said. "The final rule will emphasize
recipient choice and the importance of ensuring that recipients are not forced into choices that are
not right for them."
Treasury expects to issue its final regulation this summer. Today's announcement is
being made in order to give Federal payment recipients as much information as possible about
their choices under this new law and also to provide federal benefit agencies with a head start in
implementing this regulation.
The new regulation will implement provisions in the Debt Collection Improvement Act of
1996 requiring that all federal payments other than tax refunds be made by electronic funds
transfer (EFT) beginning January 2, 1999. The law gives the Secretary of the Treasury broad
authority to provide waivers from this requirement. The payments covered by EFT include
Social Security, veterans benefits, Railroad Retirement benefits, federal salaries and federal
retiree benefits and vendor payments.
Direct deposit of payments through EFT has become increasingly popular because it is
safer, more secure and, for most recipients, more convenient than paper checks. The EFT
initiative will therefore significantly improve the way many Americans receive their government
payments. In addition, EFT will enable the government to achieve significant cost savings and
will therefore save money for taxpayers.
RR-2560
1
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
In September 1997, Treasury and its Financial Management Service bureau issued a
proposed EFT regulation and invited public comment. Treasury received more than 200
comment letters from individuals and organizations, including federal payment recipients,
consumer organizations, government agencies, financial institutions, and non-bank financial
service providers. Treasury also held public hearings in Dallas, New York City, Baltimore and
Los Angeles.
Many of those providing comments urged Treasury to broaden and liberalize its original
proposal for waivers available to allow individuals to continue to receive paper checks. Treasury
has given serious consideration to all of the comments received in fonnulating this final rule.
EFT Final Regulation
Waivers
Any payment recipient who does not have an account at a financial institution will receive
an automatic waiver from the EFT requirement until the Treasury Department provides notice
that an account meeting its specifications is available to the recipient (see "Access to Accounts
Specified by Treasury" below). Once that account is available, those payment recipients will be
able to decide whether they wish to sign up for one of those accounts or continue receiving a
paper check.
In addition, payment recipients may choose to continue receiving paper checks for other reasons:
~
Any individual will be eligible for a financial hardship waiver if receiving direct deposit
will cost him or her more than receiving a check.
~
Any payment recipient with a physical or mental disability, or a geographic, language, or
literacy barrier, will be eligible for a waiver from the EFT requirements.
The Treasury Department emphasizes that no payment will be withheld or delayed for
any reason related to the implementation of EFT.
Waiver Information and Disclosure
Treasury is working with other federal paying agencies (such as the Social Security
Administration) to ensure that payment recipients know what choices they have under this
regulation and can choose whatever payment option is best for their particular circumstances.
Under this final regulation, broad categories of waivers, as described above, allow recipients to
continue receiving paper checks. The waivers are self certifying, which means that payment
recipients make their own decisions as to whether or not to sign up for direct deposit; if they
choose not to sign up for direct deposit, they will continue to receive paper checks. Federal
agencies will have discretion whether to require recipients to submit written waiver certifications.
Treasury has been infonned that the Social Security Administration will not require
written waiver certifications. Therefore, any Social Security recipient who does not sign up for
2
direct deposit will continue to receive his or her benefits by paper check. Federal agencies will
be required to notify all current check recipients of all EFT options, including enrolling in direct
deposit, awaiting the availability of the Treasury specified account, and electing waivers that
allow recipients to continue receiving checks.
Access to Accounts Specified by Treasury
As part of the EFT initiative, Treasury is working to develop a low-cost account that will
be offered through federally-insured financial institutions for electronic receipt of federal
payments. This account will be known as the Electronic Transfer Account (ETA SM). Individuals
who receive a government payment would be able to select an ETA SM at any participating
institution. The ETA SM will be available to all payment recipients, regardless of whether the
recipient has an existing account at a financial institution. The specific characteristics of the
ETA SM will be proposed in a Federal Register notice to be released in the near future.
In addition, Treasury has been working with a number of States to link the delivery of
federal payments to State Electronic Benefit Transfer programs. This would allow federal
payment recipients to receive those federal payments on the same card on which they receive the
state benefits, such as Food Stamps.
Next Steps
Treasury expects to publish the final EFT rule within 6 to 8 weeks. In addition, Treasury
will publish a Federal Register notice describing the proposed characteristics of the ETA SM in the
near future. The public will have at least 30 days from the publication date of the ETA notice to
provide Treasury with comments.
Treasury considers public education to be a crucial component for successful
implementation of EFT. Based on comprehensive market research to learn more about the
characteristics of federal payment recipients, Treasury is crafting an extensive nationwide public
education campaign. This outreach will include grassroots education through consumer,
community, and other organizations, as well as through the publication of infonnation materials,
media outreach, and public service advertising.
Further Considerations
In anticipation of the effective date for the EFT initiative, some federally insured
depository institutions have entered into, or have announced plans to enter into, arrangements
with non-depository providers of payment services, such as check cashers and money
transmitters. Such arrangements may involve giving recipients access to EFT deposits in their
insured accounts through the uninsured third-party provider. Treasury is considering whether to
propose a regulation covering these arrangements. Any such proposed action would be published
for public comment.
-30-
3
DEPARTMENT
OF
THE
TREASURY
~~J78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . ..
............................
OrnCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASIllNGTON, D.C .• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
Jule 25, 1998
Contact: Michelle Smith
(202) 622-2960
Statement by Treasury Under Secretary for Domestic Finance John D. Hawke, Jr.
The Treasury Department is concerned about recent reports indicating that some banks
are offering or are planning to offer direct deposit services that involve prearranged linkages with
retail outlets, including liquor stores. Customers who sign up for such services, including
recipients of government payments, would access their accounts through the nonbank outlet and
may be exposed to substantial fees in order to receive their payments.
We are concerned that government payment recipients may be misled into signing up for
such payment access services prematurely and on the basis of misinformation or
misapprehension about their rights. The Department recently requested that all federal bank
regulators take steps to ensure that banks involved in any such arrangements make full and fair
disclosure of the costs and fees involved in such arrangements. In addition, the Department
recently obtained the agreement of a nonbank service provider that was distributing erroneous
information to distribute a corrective notice to all affected customers and to inform customers
that any fees paid may be recovered. The Department is also considering whether to issue a
proposed regulation with respect to such arrangements.
Congress has directed that starting in January 1999 most recipients of federal payments
should receive their payments by electronic direct deposit. New Treasury regulations that will be
released in the very near future, many terms of which are being announced today, however, will
make clear that waivers from this requirement will be liberally available at the recipient's choice,
and that no checks will be held up or delayed.
In addition, Treasury will be making arrangements for banks to offer a low-cost
Electronic Transfer Account (ETA) that will be available to all recipients of federal payments. It
is expected that the ETA will become available in the latter part of 1999. Recipients who
currently receive checks need not take any action to convert to direct deposit before the ETA
becomes available. They may, of course, sign up for direct deposit at any financial institution,
but no recipient need take any action at this time.
-30RR-2561
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
MEDIA ADVISORY
June 25, 1998
Contact: Office of Public Affairs
(202) 622-2960
u.s. TREASURY SECRETARY RUBIN TO SPEAK AT
SASIN GRADUATE INSTITUTE OF BUSINESS ADMINISTRATION
AT CHULALONGKORN UNIVERSITY, TUESDAY, JUNE 30
U.S. Treasury Secretary Robert E. Rubin will address students at the Sasin Graduate
Institute of Business Administration at Chulalongkorn University in Bangkok, Thailand on
Tuesday, June 30, at 11 :00 a.m. Secretary Rubin will speak on current global economic issues
and take questions from the students.
Secretary Rubin's speech will be in the Grand Hall on the ninth floor of the Sasin Institute.
The speech is open to the press and will be followed by a press conference also at the Institute in
Room 704. Media interested in attending the speech and the press conference should contact the
USIS Media Office in Bangkok at 662-205-4232 or 205-4241 or by fax at 650-8919.
Space will be available for TV camera crews and photographers. Space for other members
of the media in the hall itself is limited and seats will be held on a first-come first-serve basis. Other
members of the media will be able to watch and listen to the speech on closed circuit TV at the Sasin
Institute.
-30RR-2562
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
1I~/~78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
....................................
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASIDNGTON, D.C.• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 25, 1998
Contact: Michelle Smith
(202) 622-2960
ST ATEMENT BY DEPUTY TREASURY SECRETARY
LAWRENCE H. SUMMERS ON INDONESIA
We welcome the announcement in Jakarta today that the International Monetary Fund and
the Government of Indonesia have reached agreement on a revised economic program designed
to stabilize the Indonesian economy. The United States has a strong economic and national
security interest in seeing Indonesia succeed in these efforts, which will depend on its ability to
sustain both economic and political reforms. We will be consulting with the international
financial institutions and other countries around the world to ensure that international support for
Indonesia is sufficient for it to meet the difficult challenges it currently faces. We look forward
to the timely board approval and disbursement of these funds, as well as those from the World
Bank.
We also welcome the Asian Development Bank's announcement that it has approved a
substantial loan to improve financial sector governance in Indonesia. This loan will support
efforts to strengthen Indonesia's banking system and is critical to restoring financial stability and
growth.
-30-
RR-2563
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
~~178~9~. . . . . . . . . . . . . . . . . . . . . . . .. . .
..........................
OFFlCE OF PUBUCAFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 25, 1998
Contact: Michelle Smith
(202) 622-2960
STATEMENT OF ROBERT E. RUBIN
ON THE DEPARTURE OF MICHAEL P. DOLAN
IRS Deputy Commissioner Mike Dolan, the highest ranking career official in the
agency, has announced his intention to leave the IRS after 27 years of dedicated public service.
Beginning in March 1992, Mike served as Deputy Commissioner of the agency. After 5 years
as Deputy Commissioner, Mike stepped in to lead the Service as Acting Commissioner last
year for the second time, and he provided strong leadership at the Service during a difficult
period.
As Deputy Commissioner, he has played a primary role in refocusing the IRS on
providing better service to taxpayers and fundamentally reexamining IRS operations. He
worked closely with the National Treasury Employees Union on several, innovative labormanagement initiatives. And as someone who rose through the ranks of the Service, he earned
the respect both of front-line employees allover the country, and officials at the highest levels
of government. In both 1987 and 1994, he received Meritorious Presidential Rank Awards.
In working on IRS issues over the last few years, I have personally developed an
enormous amount of respect for Mike Dolan's abilities, leadership, and character. For his
longtime commitment to improving the functioning of government, we are grateful to Mike
and hopeful that he will continue working with us in the Treasury Department.
--30-RR-2564
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
0
federal financing
WASHINGTON. D.C. 20220
bonkNEWS
June 26, 1998
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB) ,
announced the following activity for the month of May 1998.
FFB holdings of obligations issu~d,sold or guaranteed by
other Federal agencies totaled $44.2 billion on May 31, 1998,
posting a decrease of $669.9 million from the level on
April 30, 1998. This net change was the result of a decrease in
holdings of agency debt of $54.5 million, in holdings of agency
assets of $605.0 million, and in holdings of agency guaranteed
loans of $10.3 million.
FFB made 14 disbursements during the
month of May and refinanced 26 RUS-guaranteed loans. FFB also
received 23 prepayments in May.
Attached to this release are tables presenting FFB May loan
activity and FFB holdings as of May 31, 1998.
RR-2565
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Page 2 of 4
FEDERAL FINANCING BANK
MAY 1998 ACTIVITY
BORROWER
INTEREST
RATE
DATE
AMOUNT
OF ADVANCE
5/1
5/4
5/4
5/18
$7,140,000.00
$189,900,000.00
$100,000,000.00
$134,100,000.00
5/4/98
5/5/98
5/5/98
5/19/98
5.267%
5.353%
5.142%
5.322%
S/A
S/A
S/A
S/A
5/15
5/18
5/19
5/19
$3,194,535.20
$17,216.40
$116,626.21
$22,724.00
4/1/99
4/1/99
4/1/99
7/31/25
5.583%
5.569%
5.560%
6.019%
S/A
S/A
S/A
S/A
5/21
5/27
$9,922,433.95
$542,717.00
11/2/26
11/2/26
6.003% S/A
5.976% S/A
5/27
5/28
$326,881.17
$182,973.16
9/1/27
9/1/27
5.977% S/A
5.952% S/A
FINAL
MATURITY
AGENCY DEBT
U.S. POSTAL SERVICE
U.S.
U.S.
U.S.
U.S.
postal
postal
Postal
postal
Service
Service
Service
Service
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Chamblee Office Building
Chamblee Office Building
Chamblee Office Building
Foley Square Office Bldg.
GSA/PADC
rCTC Building
rCTC Building
DEPARTMENT OF EDUCATION
Bethune Cookman
Bethune Cookman
SjA is a Semi-annual rate.
Page 3 of 4
FEDERAL FINANCING BANK
MAY 1998 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
$115,077,123.00
$2,379,172.40
$2,680,755.46
$24,352,606.95
$1,839,958.75
$1,429,449.29
$2,367,037.49
$11,562,123.93
$211,022.62
$3,182,738.57
$13,176,122.45
$18,882,709.30
$19,375,193.82
$13,974,473.01
$17,772,996.68
$10,936,444.84
$13,212,154.70
$4,782,362.11
$18,711,654.70
$543,638.98
$6,719,665.14
$9,655,819.14
$18,846,450.60
$1,800,000.00
$508,000.00
$11,034,615.31
$1,533,990.37
$16,672,679.56
12/31/09
1/3/12
1/3/12
1/3/12
1/3/12
1/3/12
1/3/12
12/31/13
12/31/19
12/31/18
12/31/18
12/31/19
12/31/19
12/31/19
12/31/15
1/3/17
1/3/17
12/31/14
12/31/15
1/3/17
1/3/17
12/31/18
12/31/19
12/31/18
12/31/31
12/31/09
1/3/11
12/31/18
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
RURAL UTILITIES SERVICE
+Oglethorpe Power #445
+oglethorpe Power #445
+Oglethorpe Power #445
+oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
Johnson County Elec. #482
Coastal Electric #460
+Oglethorpe Power #445
+Oglethorpe Power #445
+Oglethorpe Power #445
Qtr. is a Quarterly rate.
+ 306C refinancing
5/8
5/8
5/8
5/8
5/8
5/8
5/8
5/8
5/8
5/8
5/8
5/8
5/8
5/8
5/15
5/15
5/15
5/15
5/15
5/15
5/15
5/15
5/15
5/19
5/22
5/22
5/22
5/22
5.629%
5.663%
5.663%
5.663%
5.663%
5.663%
5.663%
5.708%
5.838%
5.824%
5.824%
5.838%
5.838%
5.838%
5.729%
5.757%
5.757%
5.702%
5.729%
5.757%
5.757%
5.805%
5.824%
5.914%
6.003%
5.586%
5.592%
5.766%
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 4
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Export-Import Bank
Resolution Trust Corporation
U.S. Postal Service
sub-total*
May 31, 1998
$
541.9
416.6
1.000.0
1,958.4
April 30, 1998
$
Net Change
5/1/98-5/31/98
541,9
471.1
1.000.0
2,013.0
$
0.0
-54.5
0.0
-54.5
FY '98 Net Change
10/1/97-5/31/98
$
-752.7
-958.4
-963.5
-2,674.6
Agency Assets:
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Utilities Service-CBO
sub-total*
3,675.0
11,350.0
4.4
13.0
4,598.9
19,641.3
3,675.0
11,955.0
4.4
13.0
4,598.9
20,246.3
0.0
-605.0
0.0
0.0
0.0
-605.0
0.0
-2,180.0
0.0
0.0
0.0
-2,180.0
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*
2,922.7
2.4
32.9
1,491.4
2,472.3
17.8
1,224.9
14,209.4
245.3
3.9
22,623.1
2,935.4
1.9
34.1
1,491.4
2,468.4
17.8
1,224.9
14,207.1
248.5
3.9
22,633.4
-12.7
0.5
-1. 1
0.0
3.9
0.0
0.0
2.3
-3.2
0.0
-10.3
-125.6
1.7
-3.0
-70.0
52.6
-0.9
-83.1
-609.4
-29.6
-0.1
-867.3
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
=========
=========
$ 44,222.8
$ 44,892.7
$
=========
=========
-669.9
$ -5,722.0
6-25-98
To: Publlc Mtatrs
1:)4pm
p. 1
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE
June 29, 1998
RELEASE
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
July 02, 1998
October 01, 199B
912795ALS
Term:
Issue Date:
Maturi ty Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BrDS:
Discount
Rate
-----Low
High
4.970\'
5.000"
4.995%
Average
Investment
Rate 1/
Price
---------5.l02\'
-----98.744
98.736
99.737
5.135"
5.l31\'
Tenders at the high discount rate were allotted
AMOUNTS TENDERED AND
ACCEPTED (in thousands)
Tender Type
Accepted
Tendered
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
26,290,723
1,200,692
SUBTOTAL
Federal Reserve
Foreign Official Add-On
TOTAL
$
=
27,491,415 / 5,613,359
$
4,412,667
1,200,692
27,491,415
5,613,359
193,678
193,678
27,685,093
5,807,037
3,117,430
93,822
3,117,430
93,822
Foreign Official Refunded
Bid-to-cover Ratio
45".
30,896,345
4.90
1/ Equivalent coupon-issue yield.
RR-2566
http://wW'W.pabUcdebl·IreU.IOV
$
9,018,289
ot (
To: PUblIC
~tralrs
6-29-96
1 54prn
p. 2
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington. DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
June 29, 1998
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
182-Day Bill
July 02, 1998
December 31, 1998
912795AW1
RANGE OF ACCEPTED COMPETITIVE BIDS:
Low 2/
High
Average
DiscOWlt
Rate
Investment
Rate 1/
Price
-----5.050%·
----------
------
5.060%
5.055%
5.254%
97.447
97.442
97.444
5.265\
S.261'i1'
Tenders at the high discount rate were allotted
31%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Foreign Orr1cial Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
TOTAL
Bid-to-cover Ratio
Accepted
Tendered
$
=
26,519,407 / 4,998,207
25,390,616
1,128,791
$
3,869,416
1,128,791
26,519,407
4,998,207
2,263,022
2,283,022
28,802,429
7,281,229
3,745,000
1,106,378
3,745,000
1,106,378
33,653,807
$
5.31
1/ Equivalent coupon-issue yield.
2/ $2,500,000 was accepted at rates below the competitive range.
RR-2567
http://www.pllbUc:dFbt.treU.gov
12,132,607
or t.
DEPARTMENT
OF THE
TREASURY
1789
OFFlCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
FOR IMMEDIATE RELEASE
Remarks as Prepared for Delivery
June 30, 1998
Secretary Robert E. Rubin
Sasin Institute of Business Administration
Chulalongkorn University
Bangkok, Thailand
Let me say that it is really a great pleasure to be here and I am deeply honored to be at this
great university which I know plays a very important role in educating the young men and women
of Thailand.
As the future business leaders of this nation, your education at the Sasin Institute will
provide a strong foundation for you to help meet the great and important challenges of your
country. The fact that this Institute was established as a joint venture with two great American
universities-the Kellogg Graduate School of Management at Northwestern University and the
Wharton School of the University of Pennsylvania-reflects the close and long ties, the great
feelings of friendship between the United States and Thailand. We believe very strongly that a
growing, prosperous and vibrant Thailand is important to the political stability and economic wellbeing of Southeast Asia, and that the economic well-being of Southeast Asia is very important to
the economic well-being and national security of the United States. Our nation has strongly
supported Thailand's work, with the assistance of the International Monetary Fund, to reestablish
financial stability and economic growth in the wake of your financial crisis. And we greatly
respect and support the courage and leadership that your government has shown in moving to
confront directly the challenges this crisis has presented. More generally. we will continue to work
with great intensity with the International Monetary Fund, the World Bank, the Asian
Development Bank and the international community, and all of the countries in the region to help
Asia recover and to reestablish its financial stability and economic health. We believe deeply that a
prosperous and successful Asia is critically important to the economic well-being of the American
people.
Today, I would like to offer some reflections on the Asian financial crisis, which began
almost one year ago. While it is still far too early to make definitive judgments on this momentous
event, let me offer a few observations.
RR-2568
For press releases, speeches, public schedules and official biographies, call our 24~our fax line at (202) 622-2040
From the very beginning. this crisis has presented unprecedented and enormously comple'
challenges to the international community. For example. a number of countries have had great
difficulties at the same time. and events in one country have had substantial impacts on currencies.
trade and economic activities in other countries in the region, and for that matter, in countries
beyond the region. Moreover, the effort to combat the crisis has been made far more difficult
because the largest economy in the region by multiples, and the second largest economy in the
world, Japan, was in difficulty at the beginning of the crisis, and is now in recession. Clearly. in
this era of the new global economy and new global financial markets, the actions of each nation
can affect other nations as never before and each nation has a responsibility to address its
respective challenges. Moreover, all of this was made even more difficult by the vast flows of
private capital that have gone into the region in recent years, and in fact have fueled gro\\1h that
helped to lift millions out of poverty, a result of these vast flows of foreign capital. of the
development of a true global financial market. One observer said recently that the Asian financial
crisis is the first economic crisis of the 21 st century.
In Asia, although the situations in each country with difficulties were different in some
respects, there were also some deep, common problems-weak financial sectors, noncommercial
relationships amongst the banks, governments, and industrial companies, and a lack of
transparency in financial transactions and government decision-making. to name a few-and all of
this eventually led to severe financial instability. These problems are not and will not be selfcorrecting; they require the help of the international community and a reorientation of the role of
government and the political will to implement that reorientation. Governments must turn away
from the kinds of interventions in the economy that helped give rise to this crisis in the first place.
and turn to the action necessary for restructuring and reform that are requisite for restoring
growth. In the broadest sense, governments, in our view, must adhere on a sustained basis to
sound macroeconomic policy and to deep and far-reaching structural reform programs. All of this
will inevitably be a difficult path, it is the best and probably the only effective route back to
financial stability, a resumption of economic growth and higher living standards.
The crisis, as you know better than anyone. has led to enormous hardships for the people
of Thailand and the region. However, these hardships and economic difficulties are a product of
the crisis, not of the reform programs. The reform programs are a response to the crisis. and
economic circumstances, in my judgment. would be vastly worse and the hardship would last for
far longer without effective reform.
At the heart of the international effort has been the International Monetary Fund, the
World Bank, and the multilateral development banks. These institutions have been following a
strategy of strengthening financial systems, especially banks; ending directed lending between the
financial systems, the industrial sector and the government, opening markets. encouraging sound
macro-economic policies and improving social safety nets. There are no sure or easy answers to
these vastly complex and unprecedented problems. And the reform programs that have been
implemented in Thailand and elsewhere represent the best judgments o~' the time of the actions
2
that will lead to recovery. Then, the programs have been adjusted as circumstances have
warranted.
Much remains to be done to recover from crisis, but it's also true that much has been
accomplished. For example, there was without doubt a serious risk of global contagion, of a
spreading of crisis across the globe, that was avoided at the end of December in the situation in
Korea. The private banking sector was on the verge of default and Korea's reserves were virtually
depleted. The international community that coalesced-this was all basically in the last week of
December-the international community that coalesced the IMF and World Bank and with
American leadership helped catalyze a voluntary standstill and then extension, maturity extension,
of credits from the international banking sector to the banking sector of Korea. Since then, I
might add, Korea has very, very substantially increased its international reserves.
Beyond that, the governments of Korea and Thailand, after some initial difficulties in each
case, have clearly committed themselves to strong reform programs and are moving forward in all
of the areas I've just mentioned. The situation in Indonesia is obviously far more complicated.
Elsewhere around the world, developing and transitioning countries have intensified actions on
areas that they believe will make them less vulnerable to the kind of financial instability we
experience in Asia today.
In all of the Asian countries that have been experiencing difficulties, even those countries
that are in the process of implementing strong reform programs, economic activity is still
declining. As we go forward, there are enormous challenges to be met by the people of the
countries, the governments and the international community. In order for these countries to
resume financial stability and economic health, banking sectors need to be put on a sound financial
basis and non-commercial lending ended. Problems of corporate indebtedness need to be
effectively addressed; impediments to trade and investment need to be reduced; and the social
safety net needs to be improved, to name just a few.
Moreover and very importantly, there must be a political environment that supports
sustained adherence to reform programs. Pursuing policies essential to success in the global
economy is a very difficult task politically. The politics of reform must keep pace with the policies
of reform, and that is true in the developing nations and that is true in the developed countries,
very much including our own. Effective democratic institutions that take account of the concerns
of government, business, labor and all affected parties provide, in our judgment, the most
conducive environment for building effective public support for the requisite reforms involved in
economic growth and economic success.
Let me now tum for a moment to Japan and China, both centrally important to the
economic prospects of Thailand, the region, and very likely the world. The Japanese economy is
probably the greatest success story, the greatest economic success story, of the past fifty years,
but in recent years Japan 'las had great economic difficulty. We have been deeply concerned about
the weakness of the Japanese economy and the resulting weakness of the yen. It is critical to the
3
economic health of Thailand, the region and once again perhaps the world that Japan take the
steps necessary to allow its underlying strengths to once again generate a strong economy. though
this time led by domestic demand and a healthy currency. The world welcomed the recent fiscal
stimulus program enacted in Japan and that is an important step forward. The focus of the world
now is on Japan effectively addressing the problems in its banking sector in a manner that gains
the confidence of world markets.
With respect to China, which I just visited with President Clinton, in our meetings Chinese
leaders once again expressed a strong understanding of the great challenges they faced as they
make the transformation to a market-based economy, and a strong commitment to meeting those
challenges. They also reaffirmed their judgment that maintaining the RMB exchange rate is in
their self interest, a judgment with which we agree. China's success in its reform program. and
more generally, China's economic success is very important for China and, we believe, very
important for the rest of the world and maintaining its exchange rate has been a source of stability
for the region.
When I speak at home and elsewhere in the world on the Asian crisis, 1 always say that it
is very important to step back for a moment and remember that the countries in the region have
had decades of strong growth based on great underlying strengths-a strong work ethic, high
savings rate, discipline, and an intense focus on education. I then say that over time, by addressing
their problems, these countries can once again draw on those strengths and attract increased
foreign investment, expand trade and return to sustained and vigorous economic growth. It will
not be an easy path, but it is an accomplishment well within the reach of this region.
Let me now tum to Thailand for a moment. From the very beginning, the United States
has supported a substantial and well constructed IMF program responsive to the problems that
gave rise to the crisis in the first place. After the change in government, the new government in
Thailand immediately committed itself to the reform program, and it worked steadily to implement
its various parts.
The Thai government has pursued sound macroeconomic policies and made significant
progress in beginning to restructure the banking sector. By closing 56 finance companies,
requiring banks to recapitalize, and implementing stronger prudential standards, the government
made a clear statement that it was breaking with past behavior and determined to put in place a
financial system based on appropriate international standards. The government is moving ahead
with auctions of assets of closed finance companies and is working toward necessary related
improvements to the bankruptcy and liquidation laws. It is also putting in place social safety nets.
About half the recent increase in the fiscal deficit target is to provide for greater spending on
social welfare, training and emergency job creation programs. Moreover, all of this has been done
in a regional context that is very difficult and it is likely to remain difficult for some time to come.
There is still an enormous amount of work that remains to be done in your country and
because of the problems in the region and other factors, economic conditions are likely to
4
continue to be difficult for some time. Having said that, it is worth observing that with the reform
programs that Thailand that putting in place, the baht has recovered from its low of 56 to roughly
42 today and interest rates have begun to decline somewhat. The path that you are on is the best
and most likely means of getting back to solid growth and financial stability. Though this will be a
hard path to follow, as I said a few moment ago, failure to implement reform would lead to far
worse conditions and far longer duress. And once again, let me be clear, the United States stands
with you as you face these challenges. From the very beginning, we supported a well-financed
IMF program appropriately geared to the issues that gave rise to the crisis in Thailand and more
recently we have said we would strongly support additional IMF funding if needed. Thailand's
exports to the United States remain strong and American companies continue to invest in this
country.
The experiences of the past year underscore the challenges for all nations with respect to
the global financial system itself The crisis has intensified the effort by the international
community, an effort begun about three years ago, to strengthen the international financial
architecture to better prevent crises from happening and when crises happen, to deal with them
more effectively. We look to the experience of Thailand and other nations in dealing with crisis to
help inform this process and, I might add, Thailand is very actively involved in the group of 22
nations that are intensely focused on moving toward proposals which will then be put forth to win
international consensus.
The activity on architectural reform has focused on three areas: strengthening financial
systems; increasing transparency and disclosure; and appropriate burden sharing by private sector
creditors and investors in the event of a crisis. Let me say a brief word about each of these.
First, we must strengthen financial sectors. Difficulties in the Asian nations and difficulties
in recent years in all developing countries that have experienced financial instability have either
begun in or have been greatly exacerbated by badly flawed financial sectors. Efforts here need to
focus on sound financial sector policies, such as banking decisions being made solely on a
commercial basis, implementation of recently adopted core global standards with respect to
banking; the development of a strong credit culture; and the possible development of new
institutional multi-lateral arrangements for international surveillance of domestic financial systems.
Second, increased transparency and disclosure of financial information from governments
and from the private sector so that investors and creditors have better information with which to
make good decisions. We believe governments also need to become more open about their own
policy decision-making processes. Having said that. this will only work if investors and creditors
use that information effectively. One of the things that has most struck us about the Asian crisis, is
that after problems began to develop and we spoke to the institutions that had extended credit or
invested in the region so often we found that these institutions had engaged in relatively little
analysis and relatively little weighting of the risks that were appropriate to the decisions. In
addition, the IMF and the World Bank need to ir.:rease their transparency regarding the
operations of those institutions.
5
Finally, and very importantly we must create mechanisms so that creditors and investors
more fully bear the consequences of their actions. This is an exceedingly complex issue. but it is
one we cannot shy from tackling. Because of the size of the markets and the size of the capital
flows today, at some point there will simply not be sufficient official money to deal \\;th the crises
that could develop. Furthermore, we need to reduce the risk that providing official finance shields
creditors and investors from the consequences of bad decisions and therefore sows the seeds of
future crisis-the so-called, moral hazard problem.
Let me conclude by saying that after one year, much has been done but an enormous
amount remains to be done in the time ahead. The situation, as I said at the beginning of my
remarks, is unprecedented and enormously complex. And as we stand here today, there are indeed
many complexities and uncertainties that lie ahead. I don't believe that there is any question that
the best path for the countries experiencing difficulties is the path of sustained reform and of
drawing on the underlying strengths that led to their great economic growth in recent decades.
This will not be easy but over time it will provide the best route and perhaps the only route to
renewal of stability and growth. And that is true in Thailand, and for the region as a whole. And
let me say with absolute certainty that the United States stands with you in this effort. All of
us-the developing nations and developed nations-have a tremendous stake in a successful
Thailand, and a successful region.
As Thailand's future business leaders you will playa critical role in creating a prosperous
future for your country. Ultimately. the private sector is central to creating opportunity and
economic well being for your country, and as a consequence. you will be in the front lines of the
effort to create long-term growth for your country and prosperity for the people of Thailand. You
will benefit from a growing Thailand, but you also bear the responsibilities for helping make
Thailand grow and for spreading the benefits of growth to all of the people in this country. I might
add that I spent 26 years in the private sector and it was an extraordinary experience. But it has
also been an extraordinary experience to then have the opportunity beginning five and a half years
ago to come to the public sector and to use that experience to deal with the issues of the nation. I
have found that to be an extraordinarily fulfilling experience. I hope that as you think about your
careers, you consider the possibility of you too. bringing your education and your private sector
experience to public service in Thailand. I wish you the best as you face the challenges of the
years ahead. in building this great country. Thank you very much.
-30-
6
OfFICE OF PUBLIC AFFAIRS -1500 PJ::NNSYLVAJliJA
",V
Ep.;lJE, N.W .• WASUINGTON, D.C .• 20210. (lOl) 622·%960
EMBARGOED tm'l'IL ~: 3 0 P. 14.
June
CONTACT:
Office of Financing
202/219-3350
30, 1998
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auceion two series of Treasury bills totaling
approximately $13,000 million, to be issued July 9, 1998. This offering will
result in a paydown for the Treasury of about $1,625 million, as the maturing
publicly held weekly bills are oueseanding in tbe amount of $14,623 million.
In addieion to the public boldings, Federal Reserve Banks for their own
accounts hold $7,034 million of the maturing bills, which may be refunded at the
weigbted average discount rate of accepted competitive tenders. Amounts issued
eo these accounts will be in addition to the offering amount.
Federal Reserve Banks bold $2,222 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 accounta if the aggregate amount of
new bias exceeas 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, Wasbington, D.C. This ~fering
of Treasury securities is governed by ~he terms ana conditions set forth in the
Uniform Offering Circular e3l CFR Part 356, as amended) for the sale and issue
by ehe Treasury to the public of marke~able Treasury bills, notes, and bonds.
Details about each of the new securieies are given in the attached offering
highlights.
000
Attachment
RR-2569
FDr press releases, speel:hes, public schedules ond oJJidoJ biocrllphies. call our 24-hour fllX line ar (202) 622-2040
HIGHLIGHTS OP TREASURY OFFERINGS Of NBEKL~ BILLS
TO 5B ISSUBD JULy g, 1998
June 30, 1998
2!1y1n.!LAIn.oVnt .....•....••......•.....•...
~Icriptiop
or
$7,250 millioD
9l-day bill
912795 AN 1
July 6, 1998
July 9, 1998
October 8, 1998
April 9, 1998
$10,788 million
$10,000
$ 1, 000
18l-day bill
912795 BS t
.:July 6,1998
July 9, 1998
January 7, 1999
January 8, 1998
$17,837 million
$10,000
$ 1,000
Offering.
Te~
and type of security .••.••••.•..•....•
CDSIP nUJnber ....•..•••••..•••..••••.••.••••
Auction date ...•••.•..••...••.••..••...•..•
Issu. date .................••.•••.•••..•.•.
Maturity date .•.......•....•....•......•.••
Original i.eue date .•.•.•••••••.••••••.••••
Currently outstanding ...••.••...•...•..•.•.
MinimUJrl bid amount ••...••••••••.•.•••..•••.
MUltiples •........•....•.•.•..••••.•••.•.••
~follo~iDg
$S, 750 million
rules ,pply to all securiti.s mentioned above:
Subroi,@ion or Bids.
Noncompetitive bids ....•...•••.....•.•••.•• Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids.
Competitive bids.
(1)
r~st be expressed as II discount rate with three decimals in
inc~ements of .OOS~, e.g., 7.10C~, 7.10S~.
(2)
Net long posi~on for each bidder must be reported when the
sum of the total bid amount, at all discount rates, and the
net long position is $1 billion or greater.
(l)
Net long position must be determined 88 of one half-hour
prior to the closing time for receipt of competitive tenders.
0
0.000
••••••••
00
•••••
0
••••
Maximum Recognized Bid
at 8 Bingle Yield ...•...••.••.•..••.••.• JS% of public offering
~
-.J NaxjrnUUl l\.wprd •••••••••••••••••••••.•••••••• 35% of public offering
• W
~ ~ Receipt of Tender!.
tD
~
Noncompetitive tenders .•.••.••.•••.••.••••• Prior to 12:00 ooon Bastern Daylight Saving time on auction day
to 1:00 p.m. Sa8tern Daylight Saving time on auction day
(J1 Competi tiv. tender •.••••.•••.•••.•••..••••• Prior
N
~ Poyment
~
~
Terms ••.......•...••.•..••.......•. Pull payment w~th tender or by charge to a
at a Federal R,serve Bank on issue date
funds account
@FedFRASER