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Treas.
HJ
10
.AI3
P4
v.379
Department of the Treasury
t, PRESS RELEASES
The following numbers were not used:
348,405,416,418,425
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
202-691-3550
CONTACT:
IMMEDIATE RELEASE
uary 03, 2000
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
January 06, 2000
April 06, 2000
912795DQ1
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.360%
High Rate:
rr=-ce:
5.525%
Investment Rate 1/:
98_645
All noncompetitive and successful competitive bidders were awarded
:urities at the high rate.
Tenders at the high discount rate were
_otted 90%.
All tenders at lower rates were accepted in full_
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
$
24,626,210
1,284,872
25,911,082
PUBLIC SUBTOTAL
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
TOTAL
Accepted
Tendered
Tender Type
$
6,668,756
1,284,872
7,953,628 'L/
63,700
63,700
25,974,782
8,017,328
4,554,320
4,554,320
o
$
30,529,102
Median rate
5.360%: 50% of the amount of accepted compet it i -J~ tenders
s tendered at or below that rate.
Low rate
5_300%:
5% of thE amount
accepted"competitive tenders was tendered at or below that ratE_
d-to-Cover Ratio = 25,911,082 / 7,953,628 = 3.26
Equivalent coupon-issue yield.
, Awards to TREASURY DIRECT = $998,178,000
L8-316
http://www .pubUcdc bt.treas.gov
o
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:
cOR IMMEDIATE RELEASE
Tanuary 03, 2000
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
January 06, 2000
July 06 2000
912795ER8
Term:
Issue Date:
Maturity Date:
CUSIP Number:
1
5.585%
High Rate:
Investment Rate 1/:
Prlce:
5.844%
97.176
All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate.
Tenders at the high discount rate were
llotted 26%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
Accepted
Tendered
Tender Type
$
l7,851,090
1,139,073
$
18,990,163
PUBLIC SUBTOTAL
2,620,000
Foreign Official Refunded
7,007,663
21,610,163
SUBTOTAL
3,44S,OCO
Federal Reserve
Foreign Official Add-On
TOTAL
3,248,590
1,139,073
o
$
25,055,163
$
1'],452,663
Median rate
5.550%: 50% of the amount of accepted competitive tenders
1S tendered at or below that rate.
Low rate
5.470%:
5% of the amount
: accepted'competitive tenders was tendered at or below that rate.
Equivalent coupon- issue yield.
, Awarcs to TREASURY DIRECT = $848,099,000
I
LS-317
http://www.publicdebt.tnas.gov
DEPARTlVlENT
OF
THE
/:t~
NEW S
J$-(I'"
'l'DRASURY (~~ l:
~,.,
~.
\.....
]
~
"<'
~
TREASURY
c::;1
~/
'"',
~/78~qC.~. . . . .
..........................................
OrnCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
u.s. Internahonal Reserve PosltlOiI
January 4, 1999
The Treasury Department today releascd U.S. reser;e asscts data for the week encling December 31. 1<)<)<)
_-\s inclicated'ln this table, C.S. reserye assets totaled $72,028 million as of December 31.1<)<)<). up from $72.002 nullion
as of December 24. 1999.
(in US millions)
I. Official U.S. Reserve Assets
December 241 1999
December 31 1 1999
72,002
72,028
TOTAL
1. Foreign Currency Reserves
a. Securities
I
1
Euro
5,104
Yen
6,232
Of which, issuer headquartered in the U. S
TOTAL
Euro
11,336
5,067
Yen
TOTAL
6,283
0
11,351
°
b. Total deposits with:
b.i. Other central banks and BIS
b.ii. Banks headquartered in the U.S.
bji. Of which, banks located abroad
b.iii. Banks headquartered outside the U.S.
b.iii. Of which, banks located in the U.S
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
4, Gold Stock
2
3
5. Other Reserve Assets
8,736
12.068
20,803
8,691
12.161
0
0
0
0
0
0
18,453
18,430
10,360
10,347
11,049
11,049
0
0
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates Foreign currency holdings listed as securities reflect marked-to-market values, and
deposits reflect carrying values
21 SDR holdings and the reserve position In the IMF are based on IMF data and revalued in dollar terms at the official SDRJdoliar exchange
rate' Consistent with current reporting practices, IMF data for December 24, 1999 are final. Data for SDR holdings and the reserve pOSition
In the IMF shown as of December 31, 1999 (In Italics) reflect preliminary adjustments by the Treasury to the December 24, 1999 IMF data
31 Gold stock IS valued monthly at $42.2222 per fine troy ounce
was S11,049 million
20,852
0
0
Values shown are as of November 30, 1999. The October 31, 1999 value
~S-318
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
u.s. International Reserve Position (cont'd)
II. Predetermined Short-Term Drains on Foreign Currency Assets
December 24,1999
1 Foreign currency loans and securities
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the U.S. dollar:
2.a. Short positions
2. b. Long positions
3. Other
December 31,1999
o
o
o
o
o
o
o
o
III. Contingent Short-Term Net Drains pn Foreign Currency Assets
December 24, 1999
1. Contingent liabilities in foreign currency
1.a. Collateral guarantees on debt due within 1 year
1.b Other contingent liabilities
2. Foreign currency securities with embedded options
3. Undrawn, unconditional credit lines
3.a .With other central banks
3.b. With banks and other financial institutions
headquartered in the US.
3. c. With banks and other financial institutions
headquartered outside the US.
~. Aggregate short and long positions of options in foreign
currencies vis-a-vis the U.S. dollar
4.a. Short positions
4.a.1. Bought puts
4.a.2. Written calls
4.b. Long pOSitions
4.b.1. Bought calls
4.b.2. Written puts
December 31,1999
o
o
o
o
o
o
o
o
Offical Reserve Assets Worksheet
(actual US dollar amounts)
Enter Dates Here
Foreign Currency
Euro Securities
Yen Securities
Last Week
24-Dec-9g
This Week
31-Dec-g9
24-Dec-99
31-Dec-99
$5,103,991,567.73
$5,067,433,036.56
~6 283,318,324.20
-36,558,551.15
51,029,834.64
$11,350,751,360.78
'~8,690, 775,032.84
14.471.28349
93.383,240.60
63.086.550 14
~6,232,268,469.56
Sec. Total
Euro Deposits
Yen Deposits
Deposit Total
Total
Euro Rate
Yen Rate
IMF
- $11,336,280,077.29
~8, 735,543,006. 79
~12,O67,849,543.18
~12,161,232
783.78
$20,803,392,549.97
$20,852,007,816.62
$32,139,672,627.26
$32,202,759,177.40
$1.0128
Y 102.95
Y 102.16
24-Dec-9g
31-Dec-99
Source: NY Fed
$1.0070
Source: IMF (fax)
(prelim, with adjust.)
Reserve Tranche
GAB
NAB
Total
SDR
as of 11/30/99
Gold
18,452,914,962.48
0.00
18,429,512,953.08
0.00
-23,402,00940
0.00
0.00
18,452,914,962.48
0.00
18,429,512,953.08
000
-23,402,00940
10,360,451,229.75
10,347,312,092.79
-13,139,13696
000
24-Dec-99
31-Dec-99
11,048,880,329.36
11,048,880,329.36
Source: FMS (monthly statement)
0
24-DeC-9~1
31-Dec-9~1
ITOTAL
Source (?)
26,545,40379
IOther Res_Assets
72,001.919,148.85
72,028.464,552_64 1
Adjustments to IMF and SDR data, translated at current exchange rates
:f)~;u~:i~;:[)ata------------iN-S-DFts---------------------------------------------------S[)R-~i;for---------------------:
I
:Calculation Section
:I Reserve Tranche
:GAB
,
: NAB
I
:
I
:SDRs
I
24-Dec-99
13,427,577,272
0
0
7,538,958,465
Adjustments
31-Dec-99
13,427,577,272
0
0.728591
!
$18,429,512,953.08:I
$0.00:I
$0.00:
Q
13,427,577,272
7.538,958.465
In USD
Total =
SDRs =
.----------------------------------------------------------------------.-----------------------------..
I
$18,429,512,953.08:
I
$10,347,312,092.79:
.
DEPARTMENT
OF
THE
TREASURY
NEWS
FOR IMMEDIATE RELEASE
January 4, 2000
STATEMENT BY TREASURY SECRETARY LAWRENCE Il. SUMMERS
I was saddened to learn of the death yesterday of former Treasury Secretary Henry H. Fowler.
Secretary Fowler served this Department with great distinction under Presidents Kennedy and
Johnson, first as Under Secretary from 1961-64 and then as Secretary from 1965-68. His
achievements were many, including his contribution to organizing a two-tier system for the gold
market and to the creation of Special Drawing Rights as a supplemental reserve asset in the
international monetary system. President Johnson appropriately called him " ... the grand
architect of the most significant reforms in the international monetary system since Bretton
Woods." When he stepped down as Treasury Secretary, he left the nation with a budget surplus;
the last annual budget surplus until 1998.
Secretary Fowler was at all times committed to the highest ideals of public service. United
States and world economic and financial stability were greatly enhanced because of his
dedication. We will miss him.
Our thoughts are with his wife and family.
-30-
LS- 319
For press releases, speeches, public schedules and official biographies, call our 24·hour fax lillc at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.· WASHINGTON, D.C .• 20220 • (202) 622-2960
Contact. Steve Posner
(202) 622-2960
FOR IMMEDIATE RELEASE
January 4, 2000
TREASURY ANNOUNCES EFFECTIVE DATES OF FOUR NEW TAX AGREEMENTS
The Treasury Department on Tuesday announced that new income tax treaties with the
Republics of Estonia, Latvia, Lithuania and Venezuela entered into force on December 30. The
four treaties, to which the U S Senate gave advice and consent to ratification in November, all
represent new treaty relationships for the United States
On December 30, the United States notified Estonia, Latvia and Lithuania that the U S
had complied with the constitutional requirements for entry into force of the bilateral income tax
treaty between the United States and each of them. Each of the countries had previously
provided reciprocal notifications to the United States and, accordingly, the treaties entered into
force on December 30. The treaties apply, with respect to taxes withheld at source, in respect of
amounts paid or credited on or after January I, 2000 and, with regard to other taxes, in respect of
taxable years beginning on or after January 1, 2000.
Also on December 30, the United States and Venezuela notified each other of the
completion of required procedures for entry into force of the bilateral income tax treaty between
the two countries and exchanged instruments of ratification The treaty therefore entered into
force on December 30, 1999 The treaty applies, with respect to taxes withheld at source, for
amounts paid or credited on or after January I, 2000 and, in respect of other taxes, for taxable
periods beginning on or after January], 2000.
-30-
LS-320
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION· RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
Office of Financing
202-691-3550
CONTACT:
'OR IMMEDIATE RELEASE
ranuary 04, 2000
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
364-Day Bill
January 06, 2000
January 04/ 2001
912795ES6
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.645%
High Rate:
Investment Rate 1/:
Price:
5.997%
94.292
All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate.
Tenders at the high discount rate were
llotted 72%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
$
23/258/191
918/275
$
7,707/591
918/275
24/176/466
PUBLIC SUBTOTAL
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
TOTAL
Accepted
Tendered
Tender Type
1/390/000
1,390/000
25/566,466
10,015/866
4/925,000
4,925,000
o
°
$
30/491,466
$
14/940,866
Median rate
5.630%: 50% of the amount of accepted competitive tenders
18 tendered at or below that rate.
Low rate
5.550%:
5% of the amount
= accep te 9 competi~ive tenders was tendered at or below that rate.
_d-to-Cover Ratio = 24/176,466 / 8,625,866 = 2.80
I
!
Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $617,399/000
LS-321
http://www.publlcdcbt.treas.gov
D EPA R T \1 E N T
0 F
THE
T R E .\ S If.! H Y
NEWS
TREASURY
Ol1'FlC£ OF PUBLIC AFF'MRS e\500 P£NNSYLVANlj\ I\VF.NlJ2. N.W•• WASHINGTON, D.C.e lOl2.0 e (102) 62l.1960
EllBARGOJm tJN'l'IL 2: 30 P.M.
Januazy 5, 2000
Office of
CON'l'ACT:
F~cing
202/691-3550
'l'REASmlY TO AUCTION $6,000
raLL~ON OF
10-YRAR DlFLATXON-DmPDD NOTES
~ Treasury wi11 auctioD $6,000 mi11ion of 10-year
notes to raise ea8h.
iDfl~tion-indexed
Amoun~s bid by Federal Reserve Banks for their own aecoun~s and as
agents for foreign aDd i~ter.DatioDal monetar,y authorities will be added
to the of£ezoiDg.
~e auctio~ will be eonducted in the siDgle-price auction for.mat.
A11 ~ompetitive and noncompetitive awards will be at the highest yield of
accepted ~eci~i.e ~eD4~a.
~he
notes being offered to4ay are ellgLb1e for the STRI'S prog:am.
This offering of 'lreaaw:y sec:uritiea i . go'V8rzlR
c0a4itioa. ••e
for~h ~ ~
~
the teRlS
-=
anifor.a Of£er!Dg Circular !o: the Sale aDa x ••u. of
H&z:okatahl.• •ook-Ell.~&'Y Tr•••\1%'y Billa, Note., &Dei BonAs (31
~R
Part: 356,
all
....naed.) •
De~ai1s
about the
.ecuri~y
are given in the attaChed offeriDg
000
Attacbment
L8-322
~gh1ight ••
JaGBLlGBTS OF 'l"RBASORY Ol"PBRDIG TO '!'BB PUBLIC OF
10-YEAR. DlFLM'IOH-' N"SIE" IIO'l'ES TO BB ~SStmD JAWAlty 18, ~OOO
January S,
.I _
Offer~i ~t ••••••••••••••••
~OOO
•••••••••• . • $6 , 000 millicm
o.eeription of OfferiDg:
.
.
iJ:Ldeaed. DOt.es
Term aDd type of ••curity •••••••••••••••••• 10-y~ iD£lat1ODSeri •••••••••••••••••••••••••••••••••••.•.• Se.ri.., &.-2010
c:tJ8XP DlmMr ••••••••••••••••••••••••••••••• 912827 5W 8
AuctlOD 4ae•••••••••••••••••••••••••••••••• ~ 12. 2000
Is~. dat.e •••••••••••••••••••••••••••••••.• Ja:aazy 1.8, 2000
Dated date •.••••••••••••••••••••••••••••••• JaDUar.r lS, 2000
Matur1ey 4at ••••••••••••••••••••••••••••••• J~ lS, 2010
~~ar •• t ra~ •••••.••••••••••••..••.••••••.• De~ermiD.a baaed OD the higheac
accepted competit.ive bid
R.~ yiald •.••••••••••••••••••••••••••••••• Det~ at. auction
Int.rest payment date •••••••••••••••••••••• Ju1y 15 an4 January 15
M;a;mum bi4 KmOUDt &Ad ~tipl.s ••.••••••.• $1,000
acc~ed
Adjuste4
interest
•••••••••.••••••.••.. Deter.miDad at auction
Premium or discount ••••••••••••.••.•••..... Detezmiaad at auctiOD
pay~e by ~V8.t.or
SnIPS Imo:naaticm:
Min;mum amount required •••••.••.••••••••••• $1,000
Corpus CUSIP uumher •••••••••••..••••••••••• 91l820 BE g
Due date (s) &Dd. C'OSIP mamber (S)
for additional TIZRC.) ••••••••••.•••.... · 3uly 15, 2009 - - 912833 XQ 8
JaDUar,Y 15, 2010 - - 912833 xa ,
SUbmi •• io.a of .i4&.
Honaampetlt.ive hib I Ac!o.pte4 ill full u.p to $1,000,000 at the 2:l1srhe.~ acc.pt.a yielcl.
campeti~l.e bid••
(1) Hua~ b. exp~e •••a .a a Eeal yi~4 v1th ~. d.~tma1., •• g., l.123~.
(2 )
N.~ l.CIIlg' poai~iOD foZ' ~C:h hic!4er must: be repo:ted _han the 8WIL of th. toul bid
a.o\m~, at. aU. ?i.lu, U&4 ~b. net loD;' po.t~1oll 1. $2 bUlioD 01:' greateJ:.
(3)
Set lODg poaitioa
.u.~ ~.
4.tezmiD.4 .a o£
OD.
half-b~ pr1o~
to
~
C108iDg
time foZ' receipt of GOBpetit.ive t.ender ••
M~ Recogni~e4
Bi4
at • SiDgle Yi.ld •••• 35' of public offering
M"yi". Awaz4 •••••••••• 35% of publ1c ofter~
Receipt of Tenders:
BOD~etitive ~an4erll.
Comp.t:l~1ve ttmden ••••
Payment
'l'e%m81
By CIharge
1~ :00 noon But.ana. S~."dar4 ~iae em ILUc:t.iOA c1a.¥
PrioX' to leOO p.m. z.ateftl St-.z:a4azel time em auct.ioD c!&y
Prior to
to a funds account. &~
..
Poc1eral Re •• rve a.ZIk
GIl
i •• ue dat.., or
paymea.t of full par IUD01mt with teu4o.r.
Tre&SUr.YD.:LZec:c c:uatamars cUt. use t:he Pay Direct
feature which autbori.os .. charge to their acc:ount. o£ record at t.heir f.iJlaDcial iAatitu.
toiem
011.
iSlNe 4a.t. ••
XDdexiDI
Xllfo~t.iODZ
c.X . . . . . . i~llG. ».~04 ...... l"2-1J8'
ael CPI 01/15/2000 ••••••••••••• 1'8.2'516
R.t CPI 01/18/3000 ••••••••••••• 1'8.25484
XD4 •• aatio 01/11/2000 ••••••••• 1.00006
PUBLIC DEBT NEWS
Departmeat of the Treasury • Bureaa of the Public Debt • Washington, DC 20139
FOR IMMEDIATE RBIEASE
January 6, 2000
Contact: Office ofFimmcing
(202) 691-3550
TREASURY'S 10-YEAR INFLATION-INDEXED NOTES
JANUARY REFERENCE CPI NUMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPI) numbers and the daily
index ratios for the month ofJanumy for the 10-year Treasmy jnflation-indexed notes of Series A-20 1O.
This information is based on the non-seasonally adjusted U;S. 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 ofLabor.
In addition to the publieaJ:ion of the reference CPI numbers (RefCPI's) and index ratios, this
release provides the DOD-seasonally adjusted CPI..U for the prior tbrec-month pcrlod.
This information is available through ~ TICasury'S Office of Public Affairs autom~ fax syslem
by ~g 202-622-2040 and requesting docun:ient number 323. The monnation is also available on the
Internet at Public Debt's website (http://www.publicdcbt.trcas.gov).
The information for February is expected to be released on January 14 2000.
p
000
Attachment
LS-323
IIttp:J/wtnv.PQbUcdobt.treu.gov
Contact: Off/CfJ of Financing
202-691-3550
TREASURY 10-YEAR INFlAT1ON-1NOEXED NOTES
DESCRJPTlON:
CUSIP NUMBER:
AUCTlON DATE:
Series A-2010
9128275WB
OATED DATE:
ORJGINAL ISSUE DATE:
January 12. 2000
January 15. 2000
January 18. 2000
Januaty 15. 2.010
MAruRllY DATE:
Ref CPI on DATED DATE;
168.2.4516
January 2000
31
TABLE FOR MONTH OF:
NUMBER OF CAYS IN MONTH:
167.9
1682
168.3
CPI-U (NSA) september 1999
CPt-U (NSA) October 1999
CPI-U (NSA) November 1999
Ref CPI and Index Ratios for January 2000:
RefCPJ
Calendar Day
Year
January
January
JarMJary
January
1
2
3
4
2000
168.20000
2000
2000
2000
January
5
January
January
6
7
January
8
2000
2000
2000
2000
168.20323
188.20645
168.20968
188.21290
168.21613
168.21935
168.22258
168.22581
Month
January
8
January
10
11
2000
2000
2000
12
2000
2000
2000
January
13
14
15
16
January
17
January
January
January
18
19
JanU8lY
January
January
January
January
2000
.2000
2000
2.000
Index Ratio
168.22903
168.23226
168..23548
168.23871
168.24194
168.24516
168.24839
168.25161
188.254&4
168.258oe
168.26129
1.00000
1.00002
1.00004
2000
2000
2000
1S8.26774
1e8.27097
168.27419
188.27742
January
21
22
23
24
25
28
2.7
2000
2000
168.28066
188.28387
1.00006
1.00008
1.00010
1.00012
1.00013
1.0e015
1.00017
1.00019
1.00021
1.00023
Januart
JanuatY
January
J.-nuatY
January
January
20
2000
2000
2000
2000
168.26452
January
28
2000
168.28710
Jat\u.ry
28
1.00025
Jlnuary
2000
30
118.20032
2000 18S,2835S
1.00027
Januaty
31
2000
166.28677
1.00021
1.Q0031
o
E l' ART \1 £ N T
0 I'
THE
T R E ..\ S li R Y
NEWS
OFFICE OF PUBLIC "H'URS e1500 P,ENNSYLV,\ NIA AVENUE. N. W•• WASHINGTON. D.C.e 20220. (Ztll) 622·2960
EMBARGOED tTNTIL 2: 3 0 P.M.
January 6, 2000
CONTACT:
TREASOR~
Office of Financing
202/691-3550
OFFERS I3-WEEK AND 26-WEEX BILLS
The Treasury will auction two series of Treasury bills totaling
$14,000 mill~on co refund $55,635 million of publicly held
securities maturing January 13, 2000, and to pay down about $41,635 million.
The amount of maturing publicly held securities includes the 43-day cash
management bills issued December 1, 1999, in the amount of $28,006 million, and
the 23-day cash management bills issued December 21, 1999, in the amount of
$10,004 million.
approx~tely
In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $8,702 million of the matur~g bills, which may be refunded at
the highest discount rate of accepted competitive tenders.
Amounts issued to
tbese accounts will De in addition to the offering amount.
The maturing bills held by the public include $4.278 million held
by Federal Reserve Ba.nks as agents for fOreign and international monet:ary
authorit1es.
op to $3.000 million of these securities =ay be refunded within
the offering amount: in each of the auctions of 13-week bills and 26-week bills
at che highest discount ra~e of accepted eompetitiva tenders. Additional
amounts may be issued ~ each auction for such aecounts to the extent that
the amount of new bids exceeds $3,000 million.
TreasuryDirect customers requested that we reinvest their maturing
holdings of approxi=ateLY $956 million into the ~3-week bill and S895 mdllion
into the 26-week bill.
This offering of Treasury securieies is governed by the
te~
and
conditions sat forth ~ the Uniform Offering Circular for the Sale and Issue of
MarketabLe Book-2nery Treasury Bills. Notes, and Bonds (31 CFR Part 356, as
amended) .
Details about each of the new securities are given in the attached offering highlights.
000
Attachment
For press releases. speeches. public
LS-324
sch~duJe$ Ilnd
o//trial biographies, call Dur 24-hDur /fJX line at (202) 612.2040
HIGHLIOHTS OP
TRE~SURY
OFFERINGS OF
B~LLS
TO BE ISSUED JANUARY 13, 2000
January 6, 2000
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . $7,500 million
Description of Offering:
Term and type of security .•..••..••..•.
CUSIP number .....••..•....•..•..••.•...
Auction date . . . . . • . . . . . . . . • . . . . . . . . . . . .
Issue da te •••••......••.......•.•.••••.
Maturity date ........• , . . . . . . . . . . . . • . . .
Original issue date ....•.•..•.•..•.....
Currently outstanding . . . . . . . . . . . . . . . . . .
Minimum bid amount and multiples •.•...•
91-day bill
912795 DR 9
January 10, 2000
January 13, 2000
April 13, 2000
October 14, 1999
$11,976 million
$1,000
$6,500 million
182-day bill
912795 BT .January 10, 2000
January 11, 2000
July 13, 2000
January 13, 2000
$1,000
The following rules apply to all seourities mentioned above:
Submission of Bids I
Noncompetitive bids ...•....
Accepted in full up to $1,000,000 at the highest 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 time for receipt of competitive tenders.
0
Maximwn Recognized Bid
at a Single Rate . . . . . . . . . • . • 35% of public offering
Maximum Award . . . . . . . . . . . . . .
o
•••
35% of public offering
Receipt of Tenders:
Noncompetitive tenders ...... Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders . . . . . • . . . Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Terms:
By charge to a funds account at a Federal Reserve Bank on issue date. or payment
of full par amount with tender. TreasuryDirect customers can use the Pay Direct feature which
authorizes a charge to their account of record at their financial institution on issue date.
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
Contact: Peter Hollenbach
(202) 691-3502
FOR RELEASE AT 3:00 PM
January 6. 2000
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR DECEMBER 1999
The Bureau of the Public Debt announced activity figures for the month of December 1999, of
securities within the Separate Trading of Registered Interest and Principal of Securities program
(STRlPS).
Dollar Amounts in Thousands
.Principal Outstanding
(Eligible Securities)
$1,871,037,886
Held in Unstripped Form
$1,661,576,664
$209,46 I ,222
Held in Stripped Form
$11,713,463
Reconstituted in December
The accompanying table gives a breakdown of STRIPS activity by individual loan description. The
balances in this table an; subject to audit and subsequent revision These monthly figures are included
in Table V of the Monthly Stateme~t of the Public Debt entitled "Holdings of Treasury Securities in
Stripped Form."
The Strips Table along with the new Monthly Statement of the Public Debt is available on Public
Debt's Internet homepage at: www.publicdebt.treas.gov.Awide range of infonnation about Public
Debt and Treasury Securities is also available on the homepage.
000
L3-325
TA8LE v - HOLDINGS OF TREASURY SECURITIES IN STRIPPE:J F0P~~, DE(;EM2ER ~1, 1999
Pnnclpal Amour,t Outsianaln~ In Tnousanc:;
Corpus
STRIP
CUSIP
Loan DeSCription
Treasury Eonds:
CUSIP:
9128100M7
Da6
DR6
DU9
ON5
DPO
DS4
OT2
DV7
DW5
DX;3
OYI
DZ6
EA2
EBO
EC8
ED6
EE4
EFI
EG9
EH7
EJ3
EKO
EL8
EM6
EN4
EP9
EQ7
ES3
ETI
EVG
EW4
EX2
EYO
EZ7
FAI
FB9
FE3
FFO
FG6
FJ2
Interest Rate
11-518
12
10-3/4
9-3/8
11-3/4
11-1/4
10-518
9-7/8
9-1/4
7-114
7-1/2
8-314
6-7i8
9-1/8
9
B-718
8-1i8
8-112
8-3/4
8 0 3/4
7-7/8
8-118
8-1/8
8
7-114
7-5/6
7-118
6-114
7-112
7-518
6-7/8
6
6-3/4
6-1/2
6-518
6-3/8
6-1/8
5-1/2
5-114
912803 ABe
ADS
AG8
AJ2
912800 AA7
912803 AAI
AC7
AE3
AFO
AH6
AK9
AL7
AM5
AN3
AP8
AQ6
AR4
AS2
ATO
AU7
AV5
AVV3
AX1
AY9
AZ6
BAD
BB6
BCG
BD4
8E2
BF9
BG7
BH5
8Jl
8K8
BL6
BM4
BP7
eV4
BW2
CGG
5-1/4
6-118
MatUrity Oale
11/15/04
05/15/05
08115/05
02115/06
11115114
02115/15
08115/15
11115115
02115116
05115116
11115/16
05115/17
08/15/17
05115118
11115118
02115119
06/15/19
02115/20
05115/20
08115/20
02115/21
05/15121
08115/21
11/15/21
08/15/22
11115/22
02115/23
08115123
11/15124
02115125
08115125
02115126
06115126
11/15/26
02115/27
08115127
11/15/27
08115128
11/15/28
02115/29
08/15/29
Total Treasury BondS,
Treasury Inflat,on-Indexed Notes'
Series Interest Rate
CUSIP
3-518
J
9128273A8
3-318
2M3
A
3-5,8
3T7
A
3-718
4Y5
A
912820 BZ9
eva
CL9
ON4
07/15102
01115/07
01/15108
01115109
Total Inflation-Indexed Notes
Treasury Inflation-Indexed Bonds
IntereS1 Rene
CUSIP
3-518
912810 FD5
3-718
FH6
Totallnfiation-Indexed Bonds
912803 BN2
CF8
I
Reconstitute::
Total
Outstanding
04/15128
04115129
F:.r.,cn
r'.elj In
Uns-rlPco;j Form
I
Pen,en Held In
Stn;)Doe'j Form
ThiS Month
8,301,806
4,260,758
9269,713
4,755,916
6,005,584
12,667,799
7,149,916
6,899,859
7,266,854
16,823,551
18,664,446
18,194,169
14,016,858
8,708,639
9,032,670
19,250,796
20,213,632
10,228,868
10,158,883
21,418,606
11, 113,373
11,958,8Se
12,163,482
3Z,796,394
10,352,790
10,699,626
16,374,361
22,909,044
11,469,662
11,725,170
12,602,007
12,904,916
10,693,818
11.493,177
10,456,071
10,735,756
22:518,539
1 I ,776,201
10.947,052
1 1,350,341
11,178,580
4437,806
1,844,908
5,914,513
4,747,980
2434,384
8,238,199
4,895,196
3,178,259
6534,854
18,715,551
17,881468
10,595,769
10,314,458
3,107,039
2,540,870
10,788,398
19,330,952
8,124,468
3.093,283
7,545646
10082,973
6,700 DOS
9509.722
15.733.844
9074,390
3720.426
11,323161
16,487,540
3,529.182
2,997,170
7,701,207
11,881,116
7,369,Ot8
8,357,177
5,744,071
9,863.756
17880,139
11.637,401
10706.252
/1.339,941
11.178,580
3,864,000
2.4 t 5,850
3,355,200
7,936
3,571,200
4,429,600
2,254,720
3,721,600
732,000
108,000
982,960
7,598,400
3,702,400
5,601,600
6,492,000
8,462,400
882,680
2,104,400
7,065,600
13,872,960
1,030,400
5,258,8S0
2,653,760
17,064,550
1,27S,400
6,979,200
7,051,200
4.421,504
7,940,480
8,728,000
4,900,800
1,023,800
3,524,800
3,136,000
4,712,000
672,000
4,638,400
138,800
240,800
10.400
525.910,975
359,081,095
166,829,880
10.516,799
17,661,083
16.128,189
17,502,000
.16,308,703
17651.083
16728 189
17,502 000
16.3C8,703
0
0
0
0
0
0
0
0
68199,976
63199.976
0
0
17,478,800
15,061.358
17478800
15061,358
0
0
0
0
32540,156
3: .540.155
0
0
0
102400
0
225,600
0
10,400
1,202,880
749,440
204,800
116,000
96,800
321,200
580,320
372,800
131,200
95,000
521,600
62,720
127.600
31,200
833,440
43,2CO
91,200
934,720
1,527,975
164,800
308.800
166,000
99,264
75,680
358.400
72,960
10,000
15G.OOO
358.400
27,200
140,800
150.400
43,600
0
a
a
PnnClpal Amount Outstanding In Thousar,::s
C:.'~_s
Loan
S,?,-
De$c::~llon
Total
Outstanding
CUS';:>
Treasury Notes
Series
CUSIP
y
9128273U4
A
YN6
3Y6
Z
AS
4A7
AC
4C3
B
YW6
A'J
4G4
A::
4J8
AF
4Ml
C
ZE5
AG
402
AH
4RO
AJ
4T6
D
ZN5
X
3M2
AK
4W9
AL
4X7
4Z2
U
A
ZX3
3VVO
S
V
5C2
W
5DO
x
SEe
A85
8
4E9
T
Y
5Hl
SJ7
Z
A8
5L2
B92
C
5P3
AC
AD
501
AE
5R9
D25
D
F49
A
G55
8
M
3J9
N
3L4
P
303
359
0
3V2
C
J78
A
3Z3
D
485
E
F
4D1
4H2
G
H
4K5
L83
8
4N9
J
4U3
K
N81
A
5A6
E
P89
B
5F5
F
088
C
5MO
G
R87
D
H
557
A
586
T85
6
U83
C
V82
0
A
W81
X80
6
Y55
C
Z62
D
2JO
6
2U5
C
:;
3E0
3X8
6
4F6
C
['
4Vi
5G3
6
5cJ8
C
Total Treasury NOles
Interest Ra:e
5-318
8·112
5-1/2
5-112
5-518
8·7/8
5-1/2
01131/00
cza
05131/00
06130/00
Dec
DD6
8·3/4
5-1/8
AX5
DFl
DG3
DH7
AY3
CF2
DL8
DM6
DP9
4-1/2
4
6·1/2
5-3/4
4-5/8
4-5/6
4-112
7·3/4
no
CPO
DRS
DS3
DTl
BA4
eX3
DW4
5-318
S
4-7/8
5
6
5-5/8
5-1/4
5-3/4
5-1/2
7-718
7-1/2
6-3/8
5-7/8
5-3/4
5-3/4
5-518
5-1/2
6-1/4
5-112
5-1.'2
5-314
5-1/2
5-3/8
5-3;J
5·1 '4
4-1/4
5-7:8
4-3/4
7·1/4
5-1/4
4-3
6
I
11/15/00
11/15/00
11130/00
12/31/00
01131/01
02115/01
02115/01
02126/01
07/15'06
10/15,06
C081
CYl
DKO
CV6
EA1
~
09130/00
10131/00
BTJ
BUO
BW6
BX4
CA3
5-. :
07131/00
08/1S/00
08131/00
02115.'05
05/15/05
08115/05
11/15105
02115/06
05115/06
SK2
DZ7
SLO
5-: E
05115100
E3
CUB
7,"'4
6
7-7iS
5-7,8
7·112
6-1:2
6·112
5·78
5-5.8
6-7.6
7
6-112
6-1,4
6-5.8
5-1,S
5- 1 '.,
03131/00
04130/00
8MS
EN6
BPI
SQ9
ER7
SS5
DX2
5-1/2
5-5/8
5-7/8
7-1/2
02115/00
02129/00
03131/01
04130/01
05/1Sf01
05f15fOl
OSf31f01
06/30fOl
07/31/01
08/15fOl
08/31/01
09130101
10131fOl
11/15/01
05/15/02
08/15/02
09130/02
10/31102
11130/02
12/31/02
01131/03
02115103
02128/03
03131103
04/30103
05131/03
06130103
08/15/03
08/15,"03
11/15,03
02/15104
02115/04
05115/04
05/15,"04
08/15,04
08/15;04
11/15/04
11/15,04
DYO
892
E39
Ee7
EJ5
BCO
EDB
BEG
CC9
CE5
CH8
CK1
CN5
EF3
CS4
CU9
CW5
DA2
DC8
8G1
DE4
DJ3
EH9
D07
BJ5
I
Grand Total
CM7
AV9
CRG
CT2
CV7
Am
5-378
5-318
Reconstltute(l
ThiS Month
Matunty Date
02115,07
05/15;07
08/1507
02115, as
05/15108
11/1508
05115:09
08115,09
Portion Held ,n
Unstnpped Form
17.502.026
6.719.433
17.774.125
17.203.576
15.630.655
4.792.230
16.326.432
14.671.857
18.680.095
6.556.966
20.023.733
19.268.S08
20.496.986
6.186.882
16,036,088
20.157,568
19,471,572
17.502.026
10.673.033
17.776.125
17.206.376
15.633.855
10,496.230
16.580.032
14.939.057
18.683.295
11.080.646
20.028.533
19.268.508
20.S24.986
11.S19.682
16,036,088
20,157,568
19,474,772
19,777,278
11,312.802
15,367,153
19,586,630
21,60S,352
21,033,523
12,398,083
12,873.752
19,885,985
19,001,309
20,541,318
12.339,185
20.118,595
18.797,828
19,196.000
24.226,102
11.714,397
23,859.015
12.806.814
11.737,284
12.120,580
12,052,433
13,100,640
23.562.691
13.670.354
14.172.892
12.573.248
13.132.243
13.126.779
28.011,028
19.852.263
18.625.785
12955077
17.823.228
14.440372
18.925.383
13.346.467
18.089.806
14.373.760
18.405.756
13,834.754
14.739.504
15002580
15.209920
15513.587
16015475
22.740.446
22.459.675
13.103678
13958.186
25.636.803
13583412
27.150961
25083125
14754,750
27.355879
19,m,278
7.786,402
15,367,153
19,586,630
21,605.352
21,033,523
8,561,833
12.873.7S2
19,885,985
19,001,309
20.541.318
9.174.385
20,118,595
18.797,828
19,196,000
19.921,542
8.689,677
22.110,215
12.771,614
11.675,684
11,843,780
12.052,433
13,100,640
22,650,787
13,626,354
14.172,892
12.573,248
13.132,243
13.126,779
27,585.428
19.852.263
18,524,185
12.883.077
17,823.248
14,377,972
18,925.383
12.466.467
18.089.806
14.373.760
18.405,756
13,803.154
14.739.504
15.002.580
15.203.520
15.513.267
15.924.915
22.740.446
22.459.675
13.032,830
13.916.586
25.609.603
13.583,012
27.190.961
25.082.325
14.791.990
27.399.779
1.244386777
Port len He'd In
Stnt::~(l Form
0
3.953.600
2,000
2.BOO
3.200
5.704.000
253.600
267.200
3.200
4.523.6BO
4.800
0
26.000
S.332.800
0
0
3,200
0
3.S26.400
0
0
0
0
3.836,250
0
0
0
0
3,164.800
0
0
0
4.304.560
3.024.720
1,748,800
35.200
61~600
276.800
0
0
711,904
44,000
0
0
0
0
425.600
0
101,600
72.000
0
62.400
0
880.000
0
0
0
31.600
0
0
6400
320
90.560
0
0
70.848
41.600
27.200
400
0
800
2800
100
0
115.600
0
0
0
132.800
0
0
0
9.920
0
0
0
11.200
0
0
0
0
4,800
0
0
0
0
202,200
0
0
0
0
11.200
0
0
0
64,640
10,000
80,000
0
0
0
0
0
214,784
0
0
0
0
0
110,400
0
0
6.400
0
98,400
0
122.400
0
0
0
0
0
0
0
0
1.920
0
0
0
0
0
0
0
C
C
C
1.201.755.435
4: 631.342
1.196.66-1
1.661.576.664
2C9 -161.222
11.713463
I
1.8710378861
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:
IcOR IMMEDIATE RELEASE
ranuary 10, 2000
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
January 13, 2000
April 13, 2000
912795DR9
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.235%
High Rate:
Price:
5.392%
Investment Rate 1/:
98.677
All noncompetitive and successful competitive bidders were awarded
ecurities at the high rate.
Tenders at the high discount rate were
llotted 64%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
.::'..ccepted
Tendered
Tender Type
$
Competitive
Noncompetitive
24,593,448
$
7,4408,563 2/
26,050,563
PUBLIC SUBTOTAL
55,000
55,000
26,105,563
7,503,563
Foreign Official Refunded
SUBTOTAL
5,991,448
1,457,115
1,457,115
4,961,860
Federal Reserve
Foreign Official Add-On
o
$
TOTAL
31,067,423
$
12,465,423
Median rate
5.220%: 50% of the amount of accepted competitive tenders
as tendered at or below that rate. Low rate
5.150%:
S% of the amount
f accepted competitive tenders was tendered at or below that rate.
id-to-Cover Ratio
=
26,OSO,563 /
7,448,563
=
3.50
/ Equivalent coupon-issue yield.
I Awards to TREASURY DIRECT
=
$1,057,152,000
LS-326
http://www .publicdebt.treas.gov
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
JR IMMEDIATE RELEASE
anuary 10, 2000
CONTAC:':
RESULTS OF TREASURY'S AUCTION OF 26-WEEK
Terrr. :
Off~ce
of Financing
202-691-3550
BI~LS
182-Day Bill
.January 13, 2000
Issue Date:
Macuricy Date:
July 13,
C'JSIP Number:
.912795ET4
Hlgh Rate:
5.420%
2000
Investment Rate 1/:
5.665%-
I?rice:
97.260
All noncompetitive and successful competitive bidders were awarded
=curities at the high rate.
Tenders ac the high ciscounc race were
llottec
9%.
All tenders at lower rates were accepted ln full.
AMOUNTS TENDERED AND ACCEPTED
Tender Type
(in :housands)
Tendered
competitive
Noncompetitive
$
PUBLI C SUBTOTAL
Accepted
18,420,107
1,282.950
$
1,282.950
),681,307 2/
19.703.057
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
s
TOTAL
2,396.357
2,819,000
2.819.000
22,522,057
6.500.307
3.740,000
3,740,000
o
o
26.262.057
s
10,240,307
Median rate
5.395\: 50% of tne amount of ac~epted compecicive tenders
.s tendered at or below that rate.
Low ra:e
5.320%:
5~ of the amount
accepted competitive tenders was tendered ac or below that race.
d-to-Cover Ratio
=
19,703,057 I 3,681,307 = 5.35
Equivalent coupon-issue yield.
Awards to TREASURY DIRECT: $974,173,000
LS-327
http://www.DubUcdebureM.l1ov
DEPARTMENT
OF
THE
TREASURY
NEWS
IREASURY
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622·2960
u.s. Inteniational Reserve Position
January 11, 2000
The Treasury Department today released U.S. reserve assets data for the week ending January 7, 2000.
As indicated in this table, U.S. reserve assets totaled $71,410 million as of January 7, 2000, down from $71,537 million
as of December 31, 1999.
(in US millions)
I. Official U.S. Reserve Assets
December 31 1 1999
Janua!:y: 71 2000
71,537
71,410
TOTAL
1. Foreign Currency Reserves
a. Securities
I
1
Euro
Yen
5,067
Euro
TOTAL
Yen
TOTAL
6,283
11,351
0
5,180
6,103
11.283
0
12,161
20,852
0
8,890
11,813
20)03
0
0
~
Of which, issuer headquartered in the U. S.
b. Total deposits with:
b.i. Other central banks and SIS
b.ii. Banks headquartered in the U.S.
b.iL Of which, banks located abroad
b.lii. Sanks headquartered outsfdethe U.S.
b.iii. Of which, banks located in the U.S.
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
4. Gold Stock
3
5. Other Reserve Assets
2
8,691
0
0
0
17,950
18.007
10,336
10.368
11,049
11.04~
0
1/ Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values. and
deposits reflect carrying values.
21 SDR holdings and the reserve position in the IMF are based on IMF data and revalued in dollar terms at the official SDRldoliar exchange
rate. Consistent with current reporting practices, IMF data for December 31, 1999 are final. Data for SDR holdings and the reserve position
in the IMF shown as of January 7, 2000 (in italics) reflect preliminary adjustments by the Treasury to the December 31. 1999 IMF data
31 Gold stock is valued monthly at $42.2222 per fine troy ounce. Values shown are as of November 30.1999. The October 31. 1999 value
was $11.049 million.
LS-328
0
0
C
u.s. International Reserve Position (cont'd)
II. Predetermined Short-Term Drains on Foreign Currency Assets
January 7, 2000
December 31,1999
1. Foreign currency loans and securities
2. Aggregate short and long positions In forwards and
futures in foreign currencies vis-a.-vis the U.S. dollar:
2.B. Shori positions
2.b. Long positions
3. Other
o
o
o
o
o
o
o
o
III. Contingent Short-Term Net Drains on Foreign Currency Assets
January 7, 2000
December 31,1999
1. Contingent Iiabiiities in foreign currency
1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
2. Foreign currency securities with embedded options
3. Undrawn, unconditional credit lines
3.B. With other central banks
3.b. With banks and other financial institutions
headquariered in the U. S.
3.e. With banks and other financial institutions
headquariered outside the U.S.
4. Aggregate short and long positions of options in foreign
currencies vis-a-vis the U.S. dollar
4.a. Shori positions
4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
o
o
o
o
o
o
o
o
D EPA R T 1\,1 E N T
0 F
THE
'IREASURY (g j
T REA SUR Y
NEW S
1789
OmCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C .• 20220. (202)622-2960
FOR IMMEDIATE RELEASE
January 12, 2000
"The United States Economy and The Challenge of Inclusion"
Remarks by Lawrence H. Summers
Secretary of the Treasury
Rainbow/Push Wall Street Project Conference
New York
Thank you. I am glad to be here today for the opening session of this third annual conference
for the Rainbow/Push Wall Street Project. Reverend Jackson. you have been tireless in your
national leadership on civil rights and economic empowerment for Americans. Let me take this
opportunity to thank you especially for your support for a strong eRA. and your leadership in
working with us to expand access to capital in the parts of America that too often get left behind.
I would like to kick off this session with some observations about the broader economic
environment and what it means for America' s most disadvantaged regions and citizens.
In many, many ways, the performance of the American economy over the past decade has
been miraculous. Even five years ago. if anyone had predicted the growth in output and
productivity. the high volume of job creation and the modest inflation that we have been able to
sustain: it is fair to say that that person would have met with more than a little skepticism.
We can rightly take pride in this prosperity. But enormous challenges remain. And none is
more important to this country' s future than making sure that every American is included:
•
This is a vital moral imperative for all of us as we work to build a better America for our
children.
•
And it is a critical national economic imperative at a time when every individual brought into
the productive enterprise of the nation marks a reduction in potential inflationary threats and
expansion of the room for growth.
LS-329
Far press releases, speeches, public schedules and ojficial8iographies, call our 24-hour fax line at (202) 622-2040
·U.S. Government Prlnllno Office 1998· 619·559
This crucial challenge is at the core of the President"s New Opportunity Agenda for the
coming year - one important piece of which he will be unveiling today with the proposal for a
major new expansion of the Earned Income Tax Credit.
Today I would like to make three main points:
•
First. that economic gro\\<1h is the best social policy ever invented.
•
Second. that the right kind of government can expand opportunities for the poorest and help
the economy.
•
Third. that expanding opportunities is crucial to reducing poverty. but we equally recognize
that it is far from being enough.
I.
Economic Growth and Social Inclusion
Economists have a long word. hysteresis. for a simple thought: that people form habits; that
opportunities have a lasting impact that exploiting the economy' s potential increases the
economy's potential: and that by running a strong economy that increases demand for labor we
make a lasting difference in the lives of our fellow citizens.
Our economic success has created a high-pressure economy where jobs look for people more
than people look for jobs. This pulls more people into the workforce and acts as a vital safety
valve for pressure that might otherwise have proved unsustainable. And it benefits most the
people who would otherwise be trapped in the economic margins.
Consider:
•
Every one percentage point decline in the national unemployment rate has brought a nearly 2
percentage point reduction in rate for African-Americans. African-American unemployment
averaged 8 percent last year - down from more than 14 percent in 1992
•
Labor force participation has risen three times more. in percentage terms, among AfricanAmericans than it has nationally, so that there are now 3 million more African-Americans in
the labor market than would have been the case in 1993.
•
Wages for African-American full-time workers since 1993 have advanced twice as fast as
they have in the workforce overall.
•
And because African-Americans in 1993 were much more likely to be living in poverty than
other groups, the decline in poverty has also affected this group the most. While the national
poverty rate has fallen by nearly 2.5 percentage points. to 12.7 percent. poverty among
African-Americans has plummeted by fully 7 percentage points: to a little over 25 percent.
That is still much. much too high. But it is a very important step in the right direction.
2
II.
Economic Empowerment for the Most Disadvantaged
A strong economy is and will continue to be hugely important for lifting more Americans out
of poverty and into the workforce. But if it is a necessary condition we know well that it is not
sufficient. That has been the second pillar of our approach: that a rising tide needs the right kind
of public action if all boats are to rise with it.
Support for "workingfamilies
Over the past 15 years we have had a sea change in the approach that government has taken to
the support of America -s working poor. In the mid-1980s the federal government was spending
around $5 billion on support for low-income working families. Last year. thanks in large part to
an expanded EITC, the government spent ten times that amount.
The $45 billion increase in spending on this group is more than twice what was spent on food
stamps last year. and it makes an enormous difference to the incentives facing poorer families.
For example. a worker with two children who took a minimum wage job in 1993 could expect to
earn just over $10.500 in today' s dollars - well below the poverty line. As a result of the changes
in the EITC and the minimum wage alone. by 1998 that same family stood to earn $13_300. or 26
percent more. in real terms - significantly above the poverty line.
It would be wrong to underestimate the role that this change in policy has played in America' s
recent economic miracles: not least. the fact that a record percentage of Americans are in the
workforce - and the fact that. after nearly nine years of economic expansion. inflation and longterm interest rates are still close to or below the levels they were at when the recovery began.
For example. the share of single mothers in work has risen from just over 60 percent in 1992
to 75 percent in 1998. One recent study by Bruce Meyer and Dan Rosenbaum. published by the
National Bureau of Economic Research. estimates that 63 percent of the increase in participation
within this group between 1984 and 1996 can be explained by the EITC. Other estimates suggest
that it has moved nearly half a million families off welfare.
Today the President is proposing to invest close to $20 billion over ten years in further
enhancing the returns to employment for poorer families through the EITC:
•
By reducing marginal tax rates for families with three or more children. Families with
income up to $9.980 in 2001 would get 45 cents for every additional dollar they earncompared to 40 cents under current law. This would be a tax break for more than 2 million
American families.
•
By expanding lax relief/or 11m-earner married COllIJ/es. Married couples would he ahle to
earn an additional $1.450 before their EITC starts being phased out. This \\ould benefit more
than 1.3 million married workers.
•
And hy reducing marginal rax rates lorlamilies \I'ilh 11m or more children For these
households. the President is proposing a nearly ten percent cut in the rate at \\'hich the EITC
is phased out after earnings go beyond the maximum. from just over 21 percent to J L) percent.
That would mean a tax break for over 5 million working families.
All told. these proposals would cut taxes by $315. on average. for 6.4 million working families.
Second. expandinf{ access to capital
The second key pillar of our approach is democratizing access to capital. The First Lady likes to
say that it takes a village to raise a child. She' s right. And it takes capital to build a successful
village.
Traditionally and importantly the question of access to capital has been about debt and the
provision of loans. We have continued to built on that tradition in recent years:
•
Under a revitalized Community Reinvestment Act. last year some $88 billion in private
capital flowed into low-income communities for home ownership and small business growth.
•
And we have helped to expand the reach of the private sector by creating the Community
Development Financial Institutions Fund. or CDFI. CDFls are locally based. specialized
financial institutions that serve markets overlooked by traditional financial institutions.
These CDFls are often the market pioneers in their communities. proving the viability of new
market segments. and drawing mainstream financial institutions into partnership. Since 1996
the CDFI Fund has provided over $200 million to such local financial institutions. a sum that
has leveraged anything up to ten or fifteen times that amount in total generated investment.
At the same time. we have learned that there can be more important barriers to attracting or
creating businesses in our disadvantaged communities and making them a success. Notably. lack
of access to equity and lack of the kind of technical expertise business networks that firms in the
mainstream economy take for granted.
Growing businesses in these communities are unlikely to attract the attention of venture
capitalists, who tend to work with the relationships and communities they already know. At the
same time, local venture funds may have difficulty becoming capitalized. developing deal flow.
providing the requisite expertise, or managing the risks that come from less diversified local
economies. And isolated businesses. both urban and ruraL might need greater levels of technical
assistance and business advice to succeed.
•
That is why the President launched his New Markets Initiative last year. to unlock the
potential of America's inner cities and rural areas at time when the purchasing power of these
communities is estimated to be close to $700 billion. Tomorrow at this conference the
4
President will be making an important announcement about the scope of this initiatin.' going
forward.
•
And that is wby. through BusinessLINC led by Vice President Al Gore. \\e are encouwgin!.!
businesses throughout the nation to take a second look at opportunities for partncring \\"ith
firms in inner cities and rural areas. Indeed. BllsinessLlNC strategies can be good for hoth
sides. providing large firms with an agile source of products or partner for time-sensitive
projects. as well as an entree into new markets. With a private-sector coalition led by Texaco
CEO Peter Bijur. and the support of the Business Roundtable. we are working to expand
BusinessLINC strategies across the country. including with the Chase Manhattan Bank and
the New York City Partnership right here in New York.
The sheer potential that exists here was brought
home to me in mv,., verv first week as T reasurv...
......
Secretary. when I visited Harlem. USA, a major retail and entertainment center being developed
th
on 125 Street. This public-private effort - brought together. among other things. by the CRA is bringing major retailers to an area with a population the size of Cincinnati that previously has
had no shopping mall or even, until recently. a major supermarket.
,.;
The taxpayer's contribution to this project will not go un-rewarded. Higher New York City tax
revenues will pay back the public investment in Harlem. USA in just 9 months. Moreover. and
values in the area have increased 5- to 10-fold.
Third. universal access
(0
a bank account
As we think about finance we need also to think about financial services for people. Like
money itself. the benefits that a bank account provides are easy to take for granted. Until you do
not have one. And today, in the age of the Internet, derivatives. and embedded options. between
10 and 20 percent of American households still lack that basic passport to the broader economy.
If it was an important national challenge half a century ago to ensure that essentially every
American had access to electricity. to running water. and to a telephone - in new economy.
ensuring access to a basic bank. account must also be a national priority. One recent survey in
Chicago found that 44 percent of recipients of the EITe used a check cashing service to cash
their refund check. And estimates suggest that the costs over a lifetime for low- and middleincome families of paying fees for every check or bill payment could be more than $15.000.
Having a bank account would save these families precious resources. It would also give them
the capacity to save on their own account. As recent research by Dalton Conley makes clear,
access to savings takes on even greater significance for African-American families today, at a
time when racial wealth differences can make all the difference in the world to whether families
and their children can see out bad times and break out of poverty.
This can be tackled in a number of ways:
•
By encouraging states to help families making the transition from welfare to work to have
bank accounts. Building on Individual Development Accounts. states could and should use a
5
portion of their T ANf surpluses to ensure that low-cost financial services ami 1inancial
education are available for families moving to economic self-sufficiency.
•
By working with the private sector to find ways to educate Americans ahout the importance
of building wealth through savings and financial literacy.
•
By working to provide safe and convenient access to hanking services within traditionally
underserved communities. As part of this effort the Treasury Department and the Postal
Service have established a pilot program to place ATMs in post onices. which will give
many low-income families needed access to their funds at a low cost.
•
And by building on the experience of the Electronic Transfer Account. which is now a useful
entry point to the financial services mainstream for federal benefits recipients without a bank
account. In only its first five months. ETA 99 has secured commitments from over 300 banks
to offer the account. underlining that these types of im10vations can benefit both banks and
consumers. \Ve are hoping to work with Congress to expand these efforts going forward.
As part of this approach we will also be encouraging direct deposit of the EITC refund into bank
accounts. so that the 19 million working families that are eligible for it receive their refund more
quickly and securely - and see less of it eaten away by fees.
III.
Where Opportunity Stops and Need Begins
We have all spoken a great deal about opportunity in recent years and we will continue to
speak about it a great deal in the future. It is profoundly important. But I would like to conclude
today with a different thought: that opportunities only become realities when people are in a
position to take advantage of them.
It has been estimated that in America today. a child born of a single teenage mother who did
not finish high school has an 80 percent chance ofliving in poverty at the age often. As the First
Lady has taught us. what we are any of us able to become can be determined to a very large
degree by what happened to us in our pre-school years: by the home we grew up in: by the kind
of school that we were able to attend. That will be true. regardless of how fast the economy
grows and regardless of how low the rate of unemployment falls.
That is why economic empowerment is about more than a strong economy - important though
that it. And it has to be about more than strengthened incentives and support for those with the
capacity to find work. It must also be about ensuring every American child starts out with the
core essentials: above all. the capacity to read and write.
In this new economy many are rightly focused on preventing a gaping digital divide. We
should equally remember that nothing does more to create that divide than the inability to read:
•
That is why we need to expand Head Start so that every child can begin his or her education
with a real chance.
6
•
That is why Medicaid and the expansion of the Child Health Insurance Program. CHIP. arc
so important so more American children come to school healthy and ready to learn.
•
And that is why. foIlO\ving the lead set by Bob Rubin. Treasury continues to v.:ork to get both
Federal agencies and large businesses involved in providing assistance to inner city schools.
As part of these efforts. Treasury is no\v providing internships to high school students and inkind support to three career academies in DC and one here in New York City in partnership
with Sandy Weilrs National Academy Foundation.
In short. our commitment to sound policies. both at the macro and a micro level has already
paid important dividends in some of America's most disadvantaged communities. But we can
and must do more. And we must all work together to do it. Thank you very much.
7
D EPA R T 1\1 E N T
0 F
THE
'IREASURY {~
T REA SUR Y
NEW S
1789
omCE OF PUBUCAFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlflNGTON, D.C .• %0220. (202) 622-2960
FOR ThfMEDIATE RELEASE
January 13,2000
STATEMENT OF TREASURY SECRETARY LAWRENCE SUMMERS
This morning I have the pleasure of introducing an important new tool for
Treasury's management of the public debt in an era of budget surpluses - debt buybacks.
Today we are releasing the final regulations that make this important too] available to us,
and announcing our plan to use debt buybacks to benefit American taxpayers as we
continue to pay down our nation's debt.
As you all know, FY 1999 produced a budget surplus of$123 billion. the largest
ever. Following FY 1998's surplus ofS69 billion., we have generated the first back-toback budget surpluses in over forty years. As a result, we have paid down $140 billion in
debt held by the public over the past two years, saving taxpayers the billions of dollars in
interest payments that would have been due on that amount. And, while future
projections are always uncertain., if the President's fiscal framework is adopted and the
current fiscal discipline is maintained, we anticipate paying down the debt held by the
public to zero within the next fifteen years.
As I have previously noted, reducing the supply of Treasury debt held by the
public brings enormous benefits to our economy.
It means that less of the savings of Americans will flow into government bonds and
•
more will flow into financing capital investment for American businesses and homes
for American families.
•
It means that we will be less reliant on borrowings from abroad to finance American
investment.
•
It means that there will be less pressure on interest rates than there would otherwise
have been., and therefore lower borrowing costs for businesses and lower interest
payments for American families.
At the same time. this success brings a new and welcome debt management
challenge for the Federal government. Debt buybacks, which will allow us to repurchase
outstanding securities before they mature, are a new tool created to respond to these
challenges.
LS-330
For press releases, speeches, public schedules and official biographies, call our 24.Jauurfax line at (202) 622-2040
Debt buybacks have several concrete advantages for our Federal debt
management.
•
First, they allow us to enhance the liquidity of Treasury benchmark securities, which
promotes overall market liquidity and should reduce the government's interest costs
over time. The issue of liquidity is important., as can be seen in the noticeable
difference in yield between recently issued highly liquid benchmark securities and
older less liquid debt. This differential is commonly in the range of20 basis points.
•
Second, by paying off debt that has substantial remaining maturity, buybacks enable
us to prevent what would otheJWise be a potentially costly and unjustified increase in
the average maturity of our debt., which has grown from 5 1,4 years in 1997 to 5 ~
years in 1999 and, absent countetvailing action, would be projected to rise to almost 8
years by 2004. Over the long term, this would impose additional cost on the
taxpayers to finance our debt.
•
Third, by paying off debt, we can make more effective use of excess cash at times of
the year when tax revenues exceed immediate spending needs. For instance, last
April our cash balances rose from $5 billion to $75 billion due to the receipt of
income tax payments.
Each of these benefits contributes to our ability to meet our overall debt
management goals, which include achieving the lowest cost financing for American
taxpayers, effective cash management, and promotion of efficient capital markets. We
plan to use debt buybacks to help us fulfil1 each of these goals. The rule that is being
released today establishes the procedures by which we will conduct debt buybacks.
These include:
•
An announcement of the range of eligible maturates.
•
A multiple-price, reverse auction fonnat.
•
Operations will be conducted through the Federal Reserve Bank of New York.
•
Only competitive offers will be accepted.
•
Settlement will occur two days after the buyback operation.
While the amount of debt that we intend to purchase will be influenced by a
number of factors, we expect to buy back as much as $30 billion this year. We will begin
conducting buyback operations in the next few months and expect to conduct several in
the first half of the year. We plan to gauge the market reaction to our early experiences
and adjust our processes and procedures, including the notice period. size, timing and
regularity of the operations. We will prepare the market for our first debt buyback
operation by prior public announcement.
Following consultations between OMB and CBO, it has been detennined that the
most appropriate budget treatment for any purchase premium (or discount) is as a means
of financing. This is the section of the budget that includes funds used for debt reduction
(or borrowed to finance deficits), seigniorage on coins, changes in Treasury cash
balances. and other items that, like debt buybacks, do not represent a true cost to the
Federal government.
The Treasury is committed to protecting the interests of the American taxpayer.
An era of budget surpluses requires us to adapt by making changes to the way we manage
the national debt in a manner consistent with our long-held objectives: achieving the
lowest cost of financing for the American taxpayer, maintaining sound cash management
practices; and promoting efficient capital markets. Today, we have put in place an
important new tool to allow us to manage our nation's debt more efficiently. We look
forward to using it to benefit all Americans. Thank you.
-30-
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
~OR IMMEDIATE RELEASE
January 12, 2000
CONTACT:
Office of Financing
202-;:;91-3550
RESULTS OF TREASURY'S AUCTION OF la-YEAR INFLATION-INDEXeD NOTES
4 1/4%
Interest Rate:
A-2010
3eries:
9128275W8
::USIP No:
3TRIPS Minimum: $1,000
Issue Date:
January 18, 2000
Dated Date:
January 15, 2000
Maturity Date:
January 15, 2010
TIIN Conversion Factor per $1,000
12.630378193 1/
High Yield:
4.338%
Adjusted Price:
99.298
All noncompetitive and successful competitive bidders were 3warded
3ecurities at the high yield.
Tenders at the high yield were
~llotted
30%.
All tenders at lower yields were accepted in full.
Adjusted accrued interest of $ 0.35029 per $1,000 must be paid for
the period from January 15, 2000 to January 18, 2000.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
$
18,342,855
81,777
$
315,789
315,789
Federal Reserve
$
18,740,421
5,919,355
81,777
6,00l,1322/
18,424,632
PUBLIC SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
$
6,316,921
Both the unadjusted price of $ 99.292 and the unadjusted accrued interes~
8f $ 0.35027 were adjusted by an index ratio of
1.00006, for the period
from January 15, 2000, through January 18, 2000.
Median yield
4.300%:
50% of the amount of accepted compet=-,==--.--=: ~e;.de~5
was tendered at or below that rate.
Low yield
4_200%:
5% of the amou~t
8f accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 18,424,632 / 6,001,132 = 3.07
1/ This factor is used to calculate the Adjusted Values for any TII~; face
amount and will be maintained to 2-decimals on Book-entry systems_
2/ Awards to TREASURY DIRECT = $20,845,000
LS-331
http://www.publlcdebUreM.gov
DEPARTJ\lIENT
OF
THE
TREASURY
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlDNGTON, D.C. - 20220. (202) 622·2960
EI\1BARGOED UNTIL 12:30 PM
T ext as Prepared for Delivery
January 13, 2000
"A New IRS for a New Century~'
Remarks by Lawrence H. Summers
Secretary of the Treasury
IRS Modernization Conference
Washington, DC
Thank you Ron, for that kind introduction and for the important role that you played in
organizing this conference.
Let me also thank the American Tax Policy Institute, the American Bar Association, the
American Institute of Certified Public Accountants, the National Association of Enrolled
Agents, and the Tax Executives Institute, who, together with the IRS, are cosponsoring
this conference. The practitioner community is a key partner for the IRS and is critical to
the advancement of the modernization process.
It is a pleasure to be here today at this IRS Modernization Conference The very fact that
we all are gathered to discuss the progress that has been made in modernizing and
reorganizing the IRS and the challenges that lie ahead is a testament to the remarkable job
that Charles Rossotti and his management team are doing. Clearly, much work remains,
but everyone at the IRS can take pride in the progress that has been made in just the last
couple of years.
I.
A Recent History of IRS Reform
I am going to focus on that progress in my remarks today, as well as on the road ahead,
but first I would like to set the context by reviewing some recent history. It can be
instructive to reflect on the past as we contemplate change, and I think it is particularly
useful to do so with respect to the IRS.
In 1996, there was a growing concern in Congress and a broad consensus generally that,
despite best efforts, the modernization program at IRS was off track.
1S-332
For press releases, speeches, public schedules and official biographies, call our 244rour fax line at (202) 622-2040
Confidence in the IRS was at a low, and it was clear that a sharp turn was needed to put in
place lasting, fundamental reforms that would improve the way the IRS served taxpayers
In response to these concerns, Treasury laid out a plan in the spring of 1997 to bring
about change at the IRS. Our goals were to strengthen the institution's leadership; to
increase managerial flexibility; to enhance oversight; to improve the IRS's budgeting
process; and to work toward a fairer and simpler tax code.
Many voices contributed substantially to the growing momentum for IRS reform. The
IRS Restructuring Commission, headed up by Senator Kerrey and Representative
Portman, along with Senator Grassley, Representative Coyne, and a host of distinguished
tax professionals, issued its report in June of 1997, calling for a number of fundamental
reforms at the IRS.
Vice President Gore and a National Performance Review task force of IRS employees,
including those on the front lines and members of the National Treasury Employees
Union, issued a report to the President in the fall of 1997 that included 200
recommendations for improvements across the board at the IRS.
We should also acknowledge the leadership of Senators Roth, Moynihan, Stevens,
CampbelL and Dorgan, and Representatives Kolbe and Hoyer, who have both led the call
for reform at IRS and have supported budgets to build reform that is far-reaching and
lasting.
The consensus for reform culminated with passage of the most comprehensive
restructuring legislation of the IRS in nearly half a century The 1998 IRS Restructuring
and Reform Act called for a transformation in the way IRS operates and relates to its
customers The business of that transformation is, indeed, the focal point of this
conference
At Treasury and at IRS, we listened, we learned, and we prepared for change.
One of our first priorities was to find a Commissioner with the leadership skills and proven
ability to implement a major overhaul of the IRS. We sought a candidate with experience
running a major, service-oriented business.
As all of you know, we were fortunate enough to recruit Charles Rossotti for the job.
With his 28 years of experience in the private sector and his record of success running a
large publicly-held information-technology company, we found the perfect candidate to
serve as Commissioner. Charles enthusiastically accepted the challenge. Let me say that
we are fortunate to have Charles at the helm of the IRS at this critical point in the agency's
history, and indeed America is fortunate to have Charles Rossotti as the Commissioner of
the IRS.
2
With Charles' leadership, and the support of talented executives and nearly 100,000
dedicated men and women at the IRS, partnered with the National Treasury Employees
Union, much has been accomplished.
II.
Improvements at the IRS
T oday's IRS, securely on the path of change and reform, is very different from the IRS of
a few years ago. Look at just a few recent accomplishments:
•
•
•
•
•
•
The IRS has established an award-winning web-site which offers information and
forms 24 hours a day, 7 days a week. The Washington Post called it "amusing to
read," "cool," and "written with a webby breeziness that belies its origin in one of the
government's least humorous agencies." The site offers forms, publications, and
answers to tax questions, and continues to draw record numbers of taxpayers to it
every year. These statistics are truly remarkable: the web site (wwwirs.gov) had over
1 billion hits last year and 87 million tax form, publication, and other tax document
downloads. The IRS is expecting 1.6 billion hits in 2000
The IRS is changing the way it does business to bring the agency into the 21 st century
Electronic Filing - Telefile, E-file, and On-line Filing - accounted for over 29 million
returns last year, a 19% increase over the prior year, including 2.5 million taxpayers
who filed their returns on line via their home computer -- a 161 % increase over the
previous year. We're expecting almost 34 million electronic returns this year. $1.3
trillion in tax deposits in FY 1999 were made electronically under the Electronic
Federal Tax Payment System (EFTPS)
The IRS is implementing increased taxpayer protections and rights as part of the 1998
Restructuring and Reform Act, including more inclusive protections on certain penalty
and interest provisions, making a difference in the lives of innocent spouses, and
strengthening taxpayer rights in collection and audit situations.
The IRS is opening its doors wider than ever before to serve taxpayers on their timeincluding 24 hour-a-day17day-a-week telephone service, expanded walk-in service
hours, translators for taxpayers who do not feel comfortable using English, and
problem solving days to help taxpayers with particularly difficult issues find solutions.
We've also figured out that what we count, counts. We are well into a process to
develop measures that recognize that employee satisfaction, customer satisfaction, and
productivity all work together
Finally, we have begun the process of restructuring the organization itself into four
new operating divisions -- Wage and Investment, Small Business/Self-Employed,
Large and Mid-size Businesses, and Tax Exempt/Government Entities -- all with
renewed commitments to hear more clearly the voice of the customer and to provide
enhanced, specialized services. As you heard this morning, we now have on board a
full complement of leaders in these new divisions poised to deliver on those
commitments.
Ill.
Protecting Taxpayers' Interests (False Tradeoffs)
So, we have in fact charted a new course. At any time of major change, there are some
who will look back and ask whether the change was necessary, whether it was for the
better, whether anything important was sacrificed in the process.
One of Commissioner Rossotti's first steps as Commissioner was to develop a new
mission statement for the IRS to signal the change in course. As is his style and with great
wisdom, he turned to the IRS employees for ideas, and thousands poured in. The new
mission statement grew out of that response. The IRS Mission Statement reads: "Provide
America's taxpayers top quality service by helping them understand and meet their tax
responsibilities and by applying the tax law with integrity and fairness to all."
This is a mission that speaks equally to applying the tax law and providing top quality
service. As the modernization and reorganization at the IRS has proceeded, some have
framed debates on IRS priorities around a trade-off between enforcement and customer
service, and have pointed to this new mission statement as an example.
This is a false choice. We have heard similar false choices posed through the years. For
example, it has been argued:
•
That companies and governments face a tradeoff between how quickly they can grow
and how effectively they can protect the environment.
•
That manufacturers must choose between improving the efficiency of their production
processes and improving the quality of the goods they turn out.
•
That businesses must compromise between the level of customer service they can
provide and the level of profitability they can attain.
The best businesses know, however, that these are false tradeoffs - that in each case it is
possible, and indeed ultimately in their best interest, to achieve both objectives.
This is the approach the IRS is taking To have effective tax administration, there must be
both compliance and high-quality customer service. A tradeoff is neither necessary nor
desirable.
Indeed, the changes taking place at the IRS, which Commissioner Rossotti described to
you this morning, are aimed at improving both customer service and compliance. For
example:
•
Electronic filing will produce faster refunds, a reduction in errors, quicker
identification of compliance problems, and reduced costs---all at the same time.
•
We are rethinking of the way in which collection and enforcement occur, putting more
resources on the front end in education and outreach to head off problems early and
increase voluntary compliance by helping those who want to pay, pay.
•
Having four divisions at the IRS, each focused on a different category of taxpayer,
means both that employees will be better able to provide support to the customers they
serve, and that they will be better prepared to detect and address any irregularities that
appear on filers' returns.
IV.
The Road Ahead
While we are now confident that the IRS is on the right track, I think Commissioner
Rossotti would be the first to tell you that much more work lies ahead
In the coming months, IRS will be devoting significant time and resources to implementing
the reorganization, to ensuring that all systems remain Y2K ready and operating properly,
and to advancing the ongoing modernization effort At the same time, as at the beginning
of every year, the IRS will be heavily focused on ensuring the completion of another
successful filing season
We at Treasury are committed to continuing our close working relationship with the
leadership team at the IRS - a relationship that is as strong as it has been in the past 50
years
That commitment means continuing to ensure that the IRS has adequate resources to
confront the challenges it faces I am pleased to report that we expect the President's
budget for fiscal year 2001 to allow the IRS to continue to make the investments in its
people and in technology that are critical to the modernization process. Most importantly,
our budget proposal will allow the IRS to end the shrinkage of its workforce that has in
recent years only added to its challenges as it makes this difficult transition.
Resources will also allow the IRS to continue to take advantage of modern technology to
build the kind of IRS America deserves Critics of the IRS have noted that it had the best
1960's technology money could buy. We can no longer afford to wait for 30 years for
major technology enhancements. Technology is moving too fast and America's
expectations are too high.
These investments will translate into opportunities to process returns quicker, issue
refunds faster, and deliver error-free service at less cost over time. Taking advantage of
new technology will allow IRS to increase the availability of electronic filing and promote
growth in the area of electronic payments and other innovations that are the future of
better tax administration, and the benchmarks of better government.
Specifically, to further encourage the use of electronic filing, I am today announcing that
the President's budget will include a new refundable tax credit proposal for individual
taxpayers who file their returns electronically. This $10, refundable credit will provide an
incentive for filing on-line and reward individual taxpayers who transact their business
with the IRS in a way that helps improve the accuracy and efficiency of IRS processing
Taxpayers using Telefile, filing returns using their telephone. will receive a $5 refundable
credit under this proposal.
This year will also see another major addition to the reform effort at the IRS, with the first
meeting of the IRS Oversight Board. As many of you know, the board will bring in
seasoned professionals from private industry, academia, and labor--working with
Commissioner Rossotti and myself--to serve in a role similar to a Board of Directors for a
private corporation. Though finalizing a slate of qualified and willing candidates has, to
the frustration of many - including me personally - taken longer than we ever imagined,
Commissioner Rossotti and I look forward to the benefits of their strategic and managerial
guidance.
v.
Concluding Remarks
As significant as the changes going on within the IRS are, one simple truth remains
constant, reflected in the words of Oliver Wendell Holmes, and engraved on the front of
the IRS building:
"Taxes are the price we pay for a civilized society."
Americans depend on the IRS to collect the revenues used to educate our children, to
protect our nation's borders, to ensure the safety of the food we eat, and to provide
countless other services that each of us relies upon day in, day out.
I believe that IRS now has the right leadership, the right mission, the right organizational
structure to stay the course, and to deliver to the American people the kind of tax agency
America deserves.
The practitioner community that is so well represented in this audience today will playa
critical role in making the IRS the most effective institution it can be. It is you, after all,
who work closest with the IRS on behalf of your clients and are therefore most intimately
familiar with the challenges it faces and the places where we can and must do better. I
hope that all of you will continue to be active partners in the coming months and years as
we continue to follow through on this fundamentally new course for the Internal Revenue
Service.
Finally, let me conclude by acknowledging the hard work and dedication of the men and
women of the Internal Revenue Service. They perform critical work on behalf of our
country, collecting 95% of the nation's tax revenue, frequently under very difficult,
6
sometimes dangerous conditions. We all owe them a debt of gratitude for the work that
they do -- and for their efforts, which allowed this agency to begin making the sharp turn
it needed to make three years ago. Commissioner Rossotti has turned to them from day
one for the guidance and support he needed to get this done--and they have been there
To them I pledge, on behalf of the Treasury Department and this Administration, that we
will be there for them. We will continue to seek the resources necessary to provide them
with the tools that they need to do their jobs, and we will continue to support
Commissioner Rossotti and his team as they lead IRS into the next century.
Thank. you.
-30-
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 10139
FOR IMlyfEDIATE RELEASE
Contact: Office of Financing
(202) 691-3550
January 14, 2000
TREASURY'S INFLATION-INDEXED SECURITIES
FEBRUARY REFERENCE CPI NUMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPO numbers and
daily index ratios for
month of February for the following Treasury inflation-indexed
securities: (1) the 3-3/8% 100year 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, (4) the 3-5/8% 30-year bonds·
due April 15, 2028, (5) the 3-7/8% lO-year notes due January 15,2009, (6) the 3-7/80/0 30":year
bonds due April 15, 2029, and (7) the 4-1I4% 10-yearnotes due January 15,2010. This
information is based on the non-seasonally adjusted U.S. 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.
the
-J
_
In addition to the publication of the reference cpr s (Ref CPI) 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 333. The information is
also available on the Intemet at Public Debt's website (http://www.publicdebt.treas.gov).
The ioformation for March is expected to be released on Febnplry
000
Attacbment
LS-333
hUp:/Iwww.publicdebt.treas.gov
18~ 2000.
TREASURY INFLATlON·INDEXED SECURlnE8
Re' CPIFetm
and Index Radol far
...,., 2000
Security:
DelCripflon:
CUIIP Number.
'·318% 10·Y_ Nol ••
:wII% 16-YearNol..
1051.% '.Yalr Bond.
OrlglnillMue Dale:
Adclidonalillul Dire:
9128212M'
January 15, 1197
F.bl\lll)' .. tll1
April ",1997
3·5/'" I·Y..r'Notel
SlIrlee J-20D2
1'21127lA8
Julr'l5,16T
Jury 15.1197
October U, 11187
9128a7317
January 15. ,."
January '5. '8911
October 16, 1998
April 1S. te91
Ju lr 1S,1'"
Maturity Date:
Re' CPI on Dt,.d ht.:
Janulry .5. 200T
151.43548
July 111, 24102
180.15484
Januarr 15, 2DOI
leU5484
Aplf115,
111.140aO
SHle.A-200T
Dated Dala:
DI"
Feb.
1
Feb.
Feb.
F,b.
Fib.
Feb.
Feb.
F.b.
Fib.
F.b.
F,b.
F.b.
F,b.
Feb.
Feb.
Feb.
Feb.
2
3
4
S
2000
2000
2000
2000
2000
2000
• zoao
7
a
fA
2000
2000
2001
2000
2000
200D
200'0
200D
2000
2000
2000
2000
2000
2000
2000
aooo
2000
a
10
11
12
is
14
15
18
17
F,b.
1.
Feb.
Feb.
1.
Feb..
20
21
Feb.
22
Feb.
Feb.
Feb.
21
F.
25
2000
Ie
Feb.
D
21
21
2000
20DD
2000
2000
Feb.
Feb.
a,rt•• A-2D08
Bondi of Aprtl 2028
.,2110fD5
AIIrfl , S. ""
2n.
RefCPI
rndellRIID
Inde.Rallo
Inde.Rallo
IndlxRllio
181.30000
188.30000
168.30000
16UOOCIG
168.3DDOO
1eUOOGCI
18UODClO
168.30000
181.300110
181.30001
181.3000D
161.30000
1811.300011
1.08228
1.0mG
1.08121
1.0NZt
1.012Z1
1.C16226
1.GC1128
U8226
1.0mB
1.CJ822&
1.05086
1.0SCl86
1.0541&8
1.0se81
1.05086
1.050111
1.05086
1.05OB8
U50es
I.OSDBII
1.114175
1.CI4176
1.141715
1.04175
1.04175
1.041T6
1.04115
1.041T5
to4115
1.04175
1.04175
1.04171
1.04175
1.0417&
1.04115
1.041711
1.041711
1.04175
1.04175
1.04175
1.04175
1.CI4175
1.04175
1.04178
1.04176
1.041'75
1.04115
1.04175
1.04115
1.040111
1.04056
1.04051
1.040513
1.04055
1.04056
1.041)58
1004GSB
1.04CISB
1.0408&
tGIUOOO~
181.30001)
IGUOOOO
1.CI8228
tome
1.CJ8228
1.CI8Z18
1.082Z6
1.01221
'.05DBB
1.0G088
'.0501111
1.0110.8
1.05088
1.05088
1.G5086
1.05086
1.05088
1.05088
1.05016
1.C18228
1.CIG2~'
f6UOOOO
16UOOOl»
.e8.30011)
168.30000
16&.S00"
188.30000
'68.30000
168.30001
168.301100
'68.30000
188.30100
181.3otOO
188.301DO
1.062 1
1.08221
1.012211
1.0822'
1.011228
1.OGnl
1.011128
usa..
1.08221
I.om'
1.01i088
1.0SOlG
1.O!4I81
1.118228
1.05088
MSDI
'.011228
t.a508B
1.05.'8
1.04D511
U4D!I
1.0406&
1.04I1S8
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t"'~56
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1.04051
1.04056
1.04051
1.0'05'
1.04066
1.04056
1.040&6
1.841)51
1.04CI56
1.04058
1.00W!l1
I
I
ClPI·U (NSA) for :
~~---~-
October .1159
188.2
November t ilia
168.3
December
I.,;
181.3
I
tREASURV INFLATION-INDEXED SE.CURITIES
Rlf CPI and ..,de" Ratlo6 for
February aoOG
81cuIIty:
Ducrlptlon:
CUIIP Number:
OrtgIuIIa.ul Date:
AddI8ona1 "lUI 0.1.: •
Maulty Date:
.... CPlon OIit.d Oak:
Dale
Feb.
Feb.
Feb..
Feb.
Feb..
Feb..
Feb.
Feb..
Feb.
Feb.
Feb.
Feb.
Feb..
Feb.
Feb..
Feb.
Feb..
Feb.
Feb.
Feb..
Feb.
Feb..
Feb.
Feb..
Feb.
Feb.
Feb..
Feb.
1
2
3
4
S
6
7
••
"
10
12
13
14
15
16
17
18
18
2D
21
21
J3
1.4
2&
21
21
H
H
2OO1t
2000
2000
:ZOOD
200D
ZOOI
20011
201t1T
2001
20ID
ZOO.
201M1
ZOOI
2000
2000
20ltD
ZOOD
20"
2001
20111
20M
2001
20IID
200D
2001
200.
2000
200D
2000
cpt·u (NSA) IClr :
-~
~~~-~~
3-718% 3O·Ye., Bondi
Bond. or April 2029
.'2810FH8
AprJ115,1ItII
Aprtl15, 1ge1
October 15,1$t8
Jamllry 15, 2008
184.1111000
April 15, 2029
IIUe,»
I"'.
DdedDIlt.:
Feb.
3-71'% I "Vel' NoW_
S
A-2IICJ9
.,21274Y5
January tI, 1819
Jlnu_ry 15,11119
Jul~ 16, 11111
January 15, 20to
161.24518
Ref CPI
IndlltRallo
Inda"Alllo
Indax Rallo
181l.30ooD
18UOG00
168.30000
'88..30000
188.30000
168.30010
118..50000
'81l.30000
1611.30000
IBUOOItD
tGUOOOO
IIUDODD
168..50000
168.30000
16UOODO
168.300110
1111..30000
168.300110
IIUDODO
168.300110
IIUOOIIO
168.30000
118.30000
168.30000
16lUDODO
1GIUOOOO
1.02822
1.02822
1.02622
1.021122
1.02622
1.02122
1.02122
1.112122
1.112122
1.02122
1.1l2i22
1.111122
1.02122
I.G2I22
1.02122
1.112.122
1.12122
'.02122
1.12522
1.82122
I.G2.Iin
1.02376
1.02378
1.02376
1.0D78
1.112376
1.02316
I.On71
1.02376
1.02176
1.02378
1.0217&
t.02:r7S
1.02S18
Un7S
un1S
'.02376
t.023711
1.000n
1.000n
1.00033
1.000n
1.110033
1.00033
1.01)0»
1.00033
1.0110»
1.00033
1.000»
1.000Sl
'.OOG33
I.OOOU
1.0OG33
181l.3DOOO
1.02122
18U0000
168.30000
... .22
October 1991
~
"1/4% 10·Vear Nolal
...... A-20111
tt2827SWa
Janulry 15, 2000
January 18, 2DOO
'Lozezz
t.1I2I~
I.G2.IiJ2
t.111122
t.o2822
I.tan
1.00031
1.0003S
1.00113:1
1.0()o)S
'.00033
•. 00033
U2Ue
'.OZ316
1.02376
1.02376
1.02376
1.02376
1.023715
1.02376
1.02370
1.02376
1.02'78
1.02316
t.00033
1.00033
1.00033
1.000s'
1.000n
1.0003:1
1.00033
1.00033
November 1999
168.2
~--
--
166..3
------
D.c:tmber 19!1i
168.3
DEPARTMENT
IREASURY
OF
THE
TREASURY
NEWS
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
January 12, 2000
Contact: Public Affairs
(202) 622-2960
SECRET ARY SUMMERS TO VISIT INDIA, INDONESIA AND JAPAN
Treasury Secretary Lawrence H. Summers will visit India and Indonesia prior to
attending the 0-7 Finance Ministers' meeting in Tokyo, Japan, on January 22. While in
the region, he will meet with goverrunent officials and business leaders.
In India, Secretary Summers will visit Bombay (Jan. 17), New Dehli (Jan. 18) and
Bangalore (Jan.19.) He will speak to the Confederation ofIndian Industry at 5 p.m.
Monday, January 17 at the Taj Hotel in Bombay.
Following India, the Secretary will travel to Jakarta, Indonesia, and will speak at a
noon luncheon Thursday, January 20 jointly hosted by the Indonesian Economists
Association and the American Chamber of Commerce at the Regent Hotel.
-30-
LS-334
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·U.S. Govemment Pnnllng "Jt1oce . '198· ,. g.:~.=
DEPARTMENT
lREASURY
OF
THE
TREASURY
NEWS
~/~7~~~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1II
....................................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
January 13, 2000
Contact: Bill Buck
(202) 622-2960
TREASURY DEPARTMENT LAUNCHES DEBT BUYBACK PROGRAM
Treasury Secretary Lawrence H. Summers on Thursday announced the introduction of
debt buybacks, an important new tool for Treasury's management of the public debt and
announced Treasury's plan to buy back as much as $30 billion of Federal debt held by the public.
"Buying back old, higher-interest debt allows us to manage the Federal debt in a way that
saves the American taxpayer money," said Secretary Summers. "We are committed to paying
down the Federal debt in a way that best serves the interest of the American taxpayer."
During the first half of the year, Treasury plans to conduct several buyback operations
and may buy back as much as $30 billion in 2000.
Debt buybacks have several advantages for Federal debt management. They enhance the
liquidity of Treasury benchmark securities, which promotes overall market liquidity and should
help reduce the government's interest costs over time. Buybacks will help prevent a potentially
costly and unjustified increase in the average maturity of American debt by paying off debt that
has substantial remaining maturity. When tax revenues exceed immediate spending needs debt
buy backs are an effective use of excess cash.
Over the last two years, America has made the largest pay down of debt ever -- $140
billion -- and debt held by the public is $1.7 trillion lower than it was projected to be in 1993. As
a result, in 1999 alone, interest payments on the debt were $91 billion lower than projected.
-30LS-335
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·U 5 Government
PnntlngOth:~
,?~. 6~S-S59
o
"
EPA R T 1\1 E N T
o ..~
THE
T REA SUR Y
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.· WASHINGTON, D.C. • 20220. (202) 622-2960
EMBARGOED UNTiL 10:00 AM
Text as Prepared for Delivery
January 14, 2000
"The Imperative of Balanced Global Economic Growth"
Remarks by Lawrence H. Summers
Secretary of the Treasury
Institute for International Economics
I \\'ould like to take the opportunity todav to retlect on the global economy in these first months
of a ne\\ century as the financial crises of 1997 and 1998 abate, as growth in Europe and Japan
begin to turn upwards, and we prepare for the upcoming G7 meetings in Tokyo
A welcome consequence of the recent upturn in conditions outside the United States is that it is
moving us away from a time when we found ourselves to be the main engine of global growth
As the period of repair continues, achieving sustained and stable gro\\lth with increasing balance
in the pattern of expansion across economies - while preserving a broad framework of financial
stabilit: - ",ill and must be the first item on the G7 agenda in Tokyo and beyond
Success \\ ill depend on \\ hat ".e do here in the United States It will also depend importantly on
\\ hat other~ do Let me turn tirst to the challenges here at home
I.
The l; nited States
.-\merican~ can tab~ satisfaction from the progress that the United States economy has made
dUring the past ten vears
•
:\t the stan of the decade, the debate \\a~ about how high unemployment would remain and
htm long the productivity sIO\\du\\1l \\uuIJ last Toda:, forecasters debate how low
unemplo:'ment can go with inflation still subdued, and how to extrapolate the productivity
improvements that have recently been achieved
•
At the start of the decade, debate focused on preventing the federal deficit spiraling further
out of control Today the question is hm.. best to manage the prospect of rising surpluses.
LS-336
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'U S Government Pnnlong OffIce 1998· 619·559
•
At the start of the decade, there was the concern that social problems would prove
intractable. That continues to concern us today. But with welfare rolls at half their previous
level; crime rates lower than they have been in a generation; education measures rising;
poverty declining; and real wages growing at every level of income, it is fair to say that we
are seeing real progress.
I believe this progress reflects a number of factors.
FlrSI, compelllive finance Gnd markelf!ex/hilz(1,.' These made it possible for large-volume finance
to flow into the industries of tomorrow. It has been estimated that in the 1950s and 1960s it took
20 years for one-third of the companies in the Fortune SOO to be replaced by new entrants In the
1970s, it took a decade. In more recent times - just five years
Second. the restoration a/fiscal disclplzne. By balancing the budget, we have helped double our
rate national savings and built a highly supportive environment for private investment. Nearly $2
trillion dollars that would, according to the deficit projections made in 1993, have been absorbed
in publ ic borrowing has instead been invested in private sector investment and employment Real
investment as a share of GNP is now higher than it has been at any time in the past 50 years, in
turn helping the recovery to be more long-lived
Exports have created millions of new jobs - jobs
that on average pay 13 to 16 percent abo\e the average wage And our openness to imports has
fueled competition, encouraged innovation. and helped sustain growth with low intlation such
that e\en nm\, nearly 9 years into an expansion, long-term interest rates are significantly lower
than thev \ . . ere \\ hen the recovery began
liz/I'd,
Iht' 1I1(//lJ/i!l1atlCt' (!foll Opt'll i!COII()IlIY
J.lJllrrll.\/rellgfl1l'lIL'd SUpP()rt lllld IIICt'IIII\'('\ (or IO\l'-lIlcOnIi! workers. Thanks to successive
e,palhltllh tlf the Earned Income Tax Credit. federal spending on support for low-income
\\l)r]...l11\..' t:lJl1r1ie~ i~ Illm ten times \\hat it \\3S in the mid-1980s This increase in the return to
Il1\\ er-paid \\ or\.; i~ nut unrelated to the tilet I hat a higher percentage of our population is in the
actl\ l' labor force than at allY time in peacetime history, and it provides another reason \\ hy
intlatioll ha~ remained so subdued
llu\\,e\ er a~ strom!
are, andas strong as investlllent has
- as the fundalllental~ of our economv
.
COlllll1ucd to be - it is imponant for all of u~ to remember that just as the world in 1999 looks
\ l'1\ different from the world of 1QS0. so too did things look very different in 1989 than in 1979
;\11(1,"-0 \\111 ~U00 surely look very different from today
'\.tllll' lIt' 1I~ (<Ill alTurd to be complacent or tp t<t~l' these good times for granted Indeed,
cOlllpl(\(enc\ can itselfbe a threat to good tlllll'S. if it leads to e'\cessi\e borrowing or lending,
unsustainable spending plans, or a failure on the part of consumers, businesses or government to
recognize the uncertainties that are ine\ Itablt:' In economic life
We cannot know what our economy wi II look like a decade hence What we do know is that we
are I1m\ enjoying a very prosperous moment We need to take advantage of this moment of
prosperity to build the conditions for a more durable expansion with a reduction in the
imbalances that have emerged in our economy and the global economy.
Any current account deficit is a reflection of the amount of domestic expenditure relative to the
amount of goods produced or, equivalently, the amount invested domestically relative to the
amount that is saved. When, as it does now in the US, the imbalance reflects a period of strong
growth relative to the rest of the world, accelerating productivity gains and relatively high
investment in our productive potential, and takes places in a context of rising public sector
savings, it is unlikely to pose an immediate risk to the well being of the economy. Indeed, quite
the reverse.
At the same time, it is obviously important, for our own economy and for the global economy as
a whole that the United States move over time to a more balanced external situation because a
more balanced expansion is likely to be a more durable one. As Secretary Rubin used to say the
\\"orld cannot indefinitely sustain the present level of imbalances that have emerged in the growth
and openness of the United States and the rest of the world
The key contributions that we can make to a smooth domestic and global adjustment in the
pattern of gro\v1h are
•
Preserving our hard-won fiscal discipline Jnd the increased room for domestically funded
il1\estment that such discipline creates That means continuing to pay down debt and
a\oiding excessive tax cuts that could put future surpluses in doubt
•
Doing all that we can to raise private saying Some of the significant fall in household saving
appears to be due to the temporary impact of large wealth gains on consumption, so this
should pass in due course But national say ing remains uncomfortably low - both relative to
other industrial economies and to our 0\\ n experience in the 1950s and 19605
•
Doing all that \\ e can to IIlclude everY American in the productive enterprise of the nation,
IhrLlugh further expansion ofnur sUPP{H1 I'm the \\orkillg poor and stronger efforts tn combat
SOCIal exclusion This is a 111 ora I Imperatl\ e II is also an economic imperative at a time \vhen
increasing our producti\'e capacit~ mean, a reduction in future intlationary threats
These steps \\ i II promote the prospects for a health\. savings-driven adjustment process in the
l nited States And the best \,,;ay of sLJppOnl!lg that kind of healthy adjustment - the best for the
l niteJ States. for the G7 economies and for the global economy as a whole - will be for higher
natIonal sayings in the United States to be accompanied by a more open and rapidly growing
glohal econom\ This. in turn. \\ill depend crItIcally 011 what happens ill Europe and Japan
II.
The (;7 Challenge
Americans mllst guard against the complacenc" that can come from strong past performance But
our experience reminds us that poor perf()rmance can lead to complacency of a different kind In
the United States of a decade ago it was common place to suggest that we needed to
.,..,
accommodate ourselves to diminished expectations about what our economy could achieve.
Fortunately, we did not. Governments, workers and businesses in Europe and Japan are
increasingly recognizing that they, too, do not have to limit themselves to the hope that growth
will return to traditional estimates of potential - and that graduall y, more of their economy's
substantial wasted or unused capacity will be absorbed.
As Europe and Japan put the 19905 behind them, the' right aspiration for policy is much higher
than that: achieving a sustained period of growth above what has recently been considered their
potential, and encouraging the kind of investments that are necessary to raise the rate at which
the economy can expand. This will also help bring about a more balanced pattern of growth in
the global economy as a whole.
As policy makers in both regions recognize, this has two dimensions
•
Developing a dynamic micro-economic environment that supports growth in investment and
employment
•
Maintaining a supportive and flexible macro-economic stance, at a time when economies are
still fragile, global competition is more intense; and there is the prospect that, as in the US,
rising il1\estlllent-led demand \\'i11 in turn create room for higher effective supply.
In recent years important foundations of a more dynamic European economy have started falling
into place notably, v., ith the de\elopment of the single market and introduction of the Euro But
the region' s policy makers and businesses see clearly that the micro- and macro-conditions for
reallzlllg the full potential of these developments are not yet fully established
•
A trul\' European financial market is being born, with some private sector estimates
suggesting bond issuance around five times higher in 1999 than in 1998 - and innovations
such as the German Neuer \1arkt now making their mark Yet fixed investment in the euroarea has risen b~' only 10 percent in real terms. since I qq I In the United States it has nearly
doubled And last year, only:: :' percent
ELI pension fund assets were invested in venture
capital. compared with nearl~' three tIllles that in the US
or
•
In large part as a result of Europe-\" idc mmes to\,,:ard deregulation, Europe is considered by
pri\ ate sector analysts to havc the most dynamic and well-developed mobile phone markets
ill the \\ orld But as we are seeing. cross-horder takeovers can raise unexpected difficulties in
e\L'1l this more liberalized mark:et And on average, the OECD has estimated that it takes 12
times longer to set up a !lev.. business in Europe than in the US, and four times the cost
•
Se\eral countries have taken steps to il11pnwe t1e,ibilit~, in the labor market and thereby
boost potential growth in employment Those \\ ho have gone furthest in this direction, such
as the UK, Netherlands, Ireland and Denmark:. have enjoyed significant declines in structural
unemployment and above-average grov,;th But for the Euro area as a whole, high
unemployment has persisted The jobless rate dipped into single digits last fall But, at nearly
4
ten percent, it remains higher than in 1990 and much higher than many in a continent with a
tradition of social inclusion are willing to accept.
No one knows better than Europe's reforming governments the kind of commitment and political
will that will be needed to complete this ambitious agenda for change But the potential is clearly
there. It has not escaped notice that the four countries that have moved furthest with structural
reforms, real fixed investment in the 1990s has risen between three and ten times faster than for
the Euro-area as a whole.
Maintaining a strongly supportive macro-economic environment will be equally critical. As in
the United States, the challenge for the European authorities will be the maintenance of
pragmatism and an open mind. Just as we have been struck by the room for inflation-free growth
that an investment-led recovery has made available in the United States, so European policy
makers will need to be open to the possibility that in the context of high investment and a more
responsive labor market, the traditional parameters of relationships between growth and inflation
will shift
.
JapalJ
The same structural challenges are presented even more forcefully in Japan There, important
steps have been taken to reverse the poor economic performance of recent years and build an
economy that can play its part in a more balanced pattern of global growth. But as the Japanese
authorities recognize, enormous obstacles remain if Japan is to achieve the kind of dynamic
mar!.;t:t-dri\en gro\A.-lh that its people deserve and its demographic situation demands
In tht: tinancial s\stem, Japan's "Big Bang" liberalization plans for financial services stand out
a" an t:"\amplt: of important progress, including the freeing up of foreign exchange transactions,
il1\ t:S(Illt:nt trusts. and bro!.;erage commissions The authorities have also made real progress
to\\ard stabilizing the condition of the major financial institutions and beginning the process of
restructuring and consolidation But all recognize that significant challenges remain. especially
J ........ t:! dl"POSltllHl and the creation of more efTective and flexible resolution techniques
\ lUI e hr(ladh. as last vear's OEeD report on regulatory reform in Japan made clear, the
<IutIHllltlt:"· repeated deregulation etTorts sinct: 1993 have made headway in few areas outside the
fill<lIKlaL telecommunications, and retail sectors Outside these, mar!';ets are still distorted by
re~LJlations that impede innovation and competition 'r'et the estimated benefits of even this very
Ilnuted progrcss underscore ho\\ large the ultimate returns could be
I· or e,(llllple, than!.;s to deregulation of telecollllllunications
•
•
"\earh ()O percent of Japanese households now own cellular phones, up from just 3 percent in
Il)l) _,
Planned il1\"Cstl1lcnt in the mobile communications, at 1.5 trillion yen last year, is now equal
to that planned in the entire Japanese auto industry
•
The share of the Japanese population with internet access, at 16 percent, has nearly tripled in
two years, although this is still less than half the share in the United States, and below that of
many European countries.
Successful structural change wi II depend on the maintenance of a supportive macro-economic
environment. Despite signs of recovery, private sector estimates suggest that the Japanese
economy will achieve only a very modest rate of growth this year and barely begin to erode the
substantial output gap that now exists
The Japanese government has committed itself to maintaining a supporti ve fiscal stance until a
self-sustaining recovery in private demand is assured. Over the medium term, Japan faces
important fiscal challenges, and going forward there may be increasing limits on the role for
fiscal policy as the major source of domestic stimulus. But as the past few years have shown, the
greatest threat to the economy's long-term fiscal health would be allowing the economy to slip
once again into recession. This makes it all the more important that the overall macro-economic
stance continue to be accommodative as growth becomes more firmly established In that
context, the monetary authorities have reatlirmed their commitment to maintaining their zero
interest rate policy until deflationary forces have been dispelled
/he hrood",.
col1f£'xl
We must welcome the indications of continuing repair in the emerging market economies, even
as we recog;,ize that in certain countries. economic and political uncertainties remain severe
Attending the tirst meeting of the G20 in Berlin last month I was struck by the mood of optimism
that is beginning to take hold - sometimes. in countries that just two years ago felt themselves to
be staring into the ab~'ss
In the reco\cril1u crisis economies, too. \\hat \\ill he crucial going forward \vill be to maintain
the pressure for reform e\'en as economic conditions begin to turn up\\ards It is to be e:xpected
that as conditions and confidence in the emerging market economies improve. investment flows
\vill pid lip - and the \ery large swing in their external positions that came \vlth the crises will
gradually be re\ersed This, too, has the potential to contribute to greater balance in global
economic gro\\1h
It has frequent I~' becn observed that as a consequence of our strong cyclical performance, a very
large proportion of the shift in Asian current accounts that occurred as a result orthe crises \vas
mirrored in a risinu current account deficit III the l.inited States The current account surplus for
the fUfO-iuea last ~'ear. at just over I percent uf GOP, was broadly unchanged from its level in
IC)C)6 - v,hile Japa;l's has actually risen sub~tantially during this period, frolll I -l percent of GOP
in I C)C)6 10 roughh 2 ~ percent ofGDP in I ()IF) With a successful strategy for supponing strong
domestically generated growth in Europe and Japan, this skewed pattern of adjustment \'>'ould
naturallv be rc\ersed
6
Ill.
Global Challenges Going Forward
I have been talking about the macro- and micro-economic imperatives for successful and
balanced global growth But in a more integrated world, we need to recognize that these have
their counterparts in the maintenance of a strong and fully integrated international trading
system.
At the micro-economic level, we are seeing daily the potential that integration affords as
innovation in telecommunications and information technology spread around the world and the
number of the world's people connecting through the Internet grows at exponential rates. At the
same time, continuing this progress and building a global economy that works well for all its
members will also need efforts that are more overarching
This will ha\'e a national dimension, as countries work to open their markets or, where they are
already open, work to maintain support for them to remain so. It will also have a regional
dimension, be it the continued expansion and deepening of the European Union or the
commitment to greater openness that is reflected in APEC But now, especially, the development
of a strong and prosperous global economy will also require a commitment to a strong
multilateral trading system As we work to seize the opportunity for strong and more widespread
economic gro\\th that a recovering global economy affords, this commitment will also need to be
an illlp("rtant focus at the upcoming meeting ill Tokyo and going forward. Thank you
-30-
7
PUBLIC DEBT NEWS
Department of the Treuury • Bureau of the Public Debt • Washington, DC 20239
FOR
IMMEDIAT~
January
~4,
~LEASE
CONTACT:
2000
Peter Hollenbach
202/691-3502
AMENDED ANNOUNCEMENT OF
TREASURY CALLS '8-1/4 PERCENT BONDS OF 2000-05
The press release dated January 14 '2000, announcing the
Treasury Call of the 8-l/4 Percent Bonds of 2000-05,
1ncorreccly seated che amount held by private investors.
The amoun~ should be $2.047 million ins~ead of S2.710
million.
I
All other particulars in che press release remain the same.
000
LS-337
http:/tw-w.publkdebt.treas..go v
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 14, 2000
CONTACT:
Peter Hollenbach
202/691-3502
TREASURY CALLS 8-1/4 PERCENT BONDS OF 2000-05
The Treasury today announced the call for redemption at
par on May 15, 2000, of the 8-1/4% Treasury Bonds of 2000-05,
issued May 15, 1975, due May 15, 2005 (CUSIP No. 912810BU1).
There are $4,224 million of these bonds outstanding, of which
$2,710 million are held by private investors.
Securities not
redeemed on May 15, 2000, will cease to earn interest.
Payment will be made automatically by the Treasury for
bonds in book-entry for.m, whether held on the books of the Federal Reserve Banks or in TreasuryDirect accounts. Bonds held in
coupon or registered for.m should be presented for redemption to
financial institutions or mailed directly to the Bureau of the
Public Debt, Definitive Processing Group, P.O. Box 426,
Parkersburg, WV 26106-0426.
000
PA-435
LS-338
o.-,.·ICE OF PUBLIC AfJ'hIR.'i. ]500 P£NNSYLVANIA AVENUE, N.W.• WASHINGTON. D.C.- 20220. (2U2) 6.22.2960
~GOED
UNTIL 2:30 P.M.
CONTACT:
uary 13, 2000
Office of Financing
202/691-3550
TREASURY OFFERS I3-WEEK AND 26-WEEK BILLS
The Treasury will auction two series of Treasury bills totaling
roxi~ately $14,000 million to refund $33,064 million of publicly held
lrities maturing January 20, 2000, and to pay down about $19,064 million.
amount of maturing publicly held securities includes the 66-day cash
19ement bills issued November 15, 1999, in the amount of $16,042 million.
In add~tion to the public holdings, Federal Reserve Banks for their own
)uots hold $7,556 million of the maturing bills, which may be refunded at
highest discount rate of accepted competitive tenders.
Amounts issued to
19 accounts will be in addition to the offe~ing amount.
The maturing bills held by the public include $5,202 million held
'aderal Reserve Banks as agents for foreign and international monetary
Lorities.
Up to $3,000 million of these securities may be refunded within
offering amount in each of the auctions of l)-week bills and 26-week bills
,he highest discount rate of accepted competitive tenders.
Additional
nts may be issued in each auction for such accounts to the extent that
amount of new bids exceeds $3 000 million.
1
TreasuryDirect customers requested that we reinvest their maturing
ings of approx~ately $825 million into the 13.week bill and $755 million
the 26-week bill.
This offering of Treasury securities is governed by the terms and
itions set foreh in the uniform Offering Circular for the Sa1e and Issue of
stable Book-Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as
:led) .
Details about each of the new securities are given in the attached offerlighlights.
-339
000
:hment
'res... releases. speeches. public schedules and official biographies, call our 24-hour fax line ar (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED JANUARY 20, 2000
January 13, 2000
Offering Amount . . . . . . . . . . . . . . . . . . . . . . . . $7, SOO million
$6,500 million
Description of Offerin~:
Term and type of security . . . . . . . . . . . . . •
CUSIP number .....
Auction date.
Issue date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . . . . . . . .
Original issue date . . . . . . . . . . . . . . . . . . . .
Currently outstanding . . . . . . . . . . . . . . . . . .
Minimum bid amount and mUltiples .......
192-day bill
912795 ED 9
January 19, 2000
January 20, 2000
July 20, 2000
July 22,. 1999
$15,373 million
$1,000
'0
0
••••••••••••
0
•••••••
•••••••••••••••••••••••••
91-day bill
912795 DS 7
January 18, 2000
January 20, 2000
April 20, 2000
October 21, 1999
$12,206 million
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids . . . . . . . . . Accepted in full up to $1,000,000 at tbe highest discount rate of
accepted competitive bids.
Competitive bids . . . . . . . . . . . . (1) Must be expressed as a discount rate with three decimals in
incraments 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.
Maximum Recognized Bid
at a Single Rate . . . . . . . . . . . . 35% of public offering
Maximum Award . . . . . . . . . . . . . . . . • . 35% of public offering
Receipt of Tenders:
Noncompetitive tenders ...... Prior to 12:00 noon Bastern Standard time on auction day
Competitive tenders .......•. Prior to 1:00 p.m. Eastern Standard time on auction day
~
o
~
r
~
~
N
Payment Ter.ms:
By charge to a funds account at a Federal Reserve Bank on issue date, or payment
of full par amount with tender.
TreasuryDlrect customers can use the Pay Direct feature which
authorizes a charge to their account of record at their financial institution on issue date.
DEPARTMENT
OF
THE
TREASURY
~/78~9~. . . . . . . ._ _
. . . . . . . . . . . . . .
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE. N.W.• WASlDNGTON. D.C.. 20220. (202) 622-2960
EMBARGOED UNTIL 3 PM (LOCAL TIME)
Text as Prepared for Delivery
January 16,2000
"THE UNITED STATES AND INDIA IN A NEW GLOBAL ECONOMY"
TREASURY SECRETARY LAWRENCE H. SUMMERS
REMARKS TO THE CONFEDERATION OF INDIAN INDUSTRY
MUMBAI, INDIA
Thank you. I am delighted to be here. A strong United States relationship with India takes
on increasing significance today, because of the importance of building consensus between
industrial and developing countries on how to shape global integration~ because of the major
challenges facing this country as you contemplate a new wave of refonns~ because of India's
economic potential and the consequences that its emergence will have for global affairs.
After a long period in which India has perhaps not received the global attention that it
deserves, that time of comparative world neglect is surely past. The United States and India have
concerns in common and equally, some differences on how best to approach them. But by
investing in a deeper. many-sided relationship we can hope to better confront the strategic
concerns that have been at the forefront of attention in recent years. In that context we expect
President Clinton's upcoming visit - the first by a US President in more than 20 years - to mark
a turning point.
I want to focus today on the most important economic debate that the world will face in
the decades to come. one to which the United States and India can make a unique contribution.
That is how best we can build a successful and truly integrated global economy.
Let me discuss four issues:
•
First, the key forces that are shaping a new global economy.
•
Second, the enormous global benefits that this process of integration could bring.
•
Third, the kind of national policies that will be needed to support this kind of integration: in
the United States and in India.
LS-340
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·u.s. Government Prlnt,ng Off'ce
1998· 619·559
•
I.
Fourth, the broader international challenge of building a framework for integration that \\ill
make it work for evervone.
Three Forces Driving a New Global Economy
Many elements are building a new global economv. But three mutually reinforcin!!
developments are at its center.
~
First. rero/lltions in technology
A recent cartoon in an American magazine depicted a small boy telling his friend that
what he wanted to be when he grew up had not yet been invented. That captures some of the
spirit of this new time. Modern advances in information technology, transportation and
communications are taking us to a post-industrial age. with profound implications for economies
and societies.
In this new era:
•
Brains matter more than brawn - how much you know matters more than how much you can
lift.
•
Innovation matters more than mass production - a product's value is measured not in pounds
or kilos. but by the weight of ideas that went into making it.
•
And infonnation matters most of all - how easily it can travel through the economy and how
well it is used.
Second. the spread of market forces
These technological changes, in tum. have helped propel the second key trend of recent
years: the erosion of centralized economic controls and the spread of market forces.
It cannot be an accident that Soviet-style communism, planning ministries in the
developing world and large US corporations run by command and control all ran into a brick
wall in the same decade and had to be restructured. Increasingly, the balance of economic
advantage has tilted firmly in favor of systems in which economic power and opportunities are
more decentralized - and the skills and ideas of the individual are given greater weight. At the
level of individual businesses and national economies. flexibility is winning out over the license
Raj. And the capacity to respond to change is winning out over the capacity to dictate it.
Third. global integration
These two trends come together in the third and perhaps most spectacular aspect of the
new global economy. This is the beginnings of a global economy that is worthy of the name one in which goods, capital and information flow freely across the globe to where they will be
most effective in spurring growth.
2
When history- books are written 200 -vears from nO\\" about the last two decades. of the
20th century. I am convinced that the end of the Cold War will he the second story. The first
story will be about the appearance of emerging markets - about economies where literally
billions oflive. moving toward the market and seeing rapid growth in incomes. For the fi-rst time
in human history. living standards for huge populations have quadrupled or more in a single
generation.
II.
The Enormous Potential Benefits from Integration
Taken together. this is an event. I would argue. whose importance in economic history
can be compared only to the Industrial Revolution and the Renaissance. For business. it means
commercial opportunity on a huge scale. For governments it means managing in a single decade
changes in the balance of economic power that might once have taken half a century. For the
world's people - it offers the prospect of improvements in health. literacy. and living standards
that were unthinkable even two decades ago:
•
In 1997. around 70 percent of the developing world population was living in countries where
per capita incomes grew by 3 percent or more - compared to 44 percent in 1991. Growing at
that pace. real per capita incomes double in less than 25 years. Growing at 1.4 percent a year
- the average rate in the developing countries between 1974 and 1990. it would take more
than 50 years.
•
Economic opening and market reforms in China have reduced the number below the official
poverty line from 250 million to around 60 million. even as the population has grown by
close to 350 million.
•
And here in India, the partial opening that took place in the early 1990s has spurred growth
of around 6.5 percent per year in the past decade - compared to around 3.5 percent annual
growth in the 1960s and 1970s. One crucial consequence of this progress has been a record
increase in national literacy, from 52 to 64 percent.
The potential for a step-change in the prospects of every nation is palpable. Yet. just as so
many are enjoying the new opportunities that this world brings - millions are falling further
behind. At the end of the 19 th century. the ratio of the average incomes of the world's richest
countries to the poorest was 9 to 1. In 1985 the ratio was 52 to 1. Today it is probably closer to
60 to 1.
The question that the world is rightly and increasingly focused on at the start of this new
century is whether this trend toward divergence will continue or whether it will be reversed. The
answer matters to the people and countries today that are being left behind. because they fear that
the trend is irreversible. But it must be an equally large concern for those who are speeding
ahead - because global integration that fails large parts of the world will ultimately fail every one
of us.
-,....
•
Success will depend. first and foremost. on national policies: whether industrial and
developing countries embrace integration and pursue the right policies to make it \\ork for all
their citizens. As Robert Lucas has noted. the logical end-point of globalization is not that
there should be a larger gap between the incomes of rich and poor countries - but that there
should be none. The divergence we see today is not because more countries are inte!!ratin!!
themselves with the global economy. It is because so many countries are not.
~
~
•
It will also depend on the frameworks and policies that we develop internationally to support
integration and respond to the needs of this very different time - notably. by deepening and
broadening the terms of the relationship between industrial and developing countries.
Let me discuss each of these in turn.
III.
National Policies for Successful Economic Integration
The United States
We in the United States have been grappling with these changes in our economy and
economic life during the past decade. Our success in creating the right kind of environment for
resources to flow to new entrepreneurs has made the United States - like some parts of India are
perhaps becoming today - a place where if you have a sufficiently good idea. you can raise your
first $100 million before you buy your first suit.
This, in turn, has rested on our recognition that a new economy is based on old fiscal
virtue. By reining in the budget deficit during the past decade we have helped keep long-term
interest rates down and growth and job creation up. And we have freed $2 trillion that would
otherwise have been absorbed in government paper to instead be invested in our country' s future:
its businesses, its workers and its homes.
Yet, while these are great successes, perhaps the most troubling aspect of our country' s
performance, across a wide range of the political spectrum, is our inability to ensure that every
American feels included. After a long period when it was not the case. a rising tide has lifted
almost all boats in recent years. but some have risen much, much higher than others have.
By working to increase our support for the working poor (which is now ten times higher
than it was in 1985). by working to improve the quality of our education system; and by working
to meet the basic needs of our children, we are seeking to address this problem of exclusion
because it is a moral imperative. It must also be an economic imperative at a time when
continued social cohesion will be important to our capacity to move forward.
In part this is an issue of inequality. It is also an issue of insecurity. When Robert
Kennedy ran for President in 1968, he spoke about it being a new more dynamic economy
because the average American entering the workforce could expect to have 4 jobs over the
course of their lifetime. Bill Clinton used a similar formulation in 1992. except the number of
jobs had risen to 7. And the pace of change can only be increasing.
4
We do not have all the answers to the challenge of insecurity and exclusion in this ne\\
economy. But they will surely bulk larger in the years ahead. And ti1ey will have consequences
beyond the United States: because our capacity to create the kind of global integration that it is in
so much in our interest and in the world's interest will depend on our making it work for
everyone.
Indio
Here in India, you do not need to look to East Asia or China to see the benefits that
membership of this new global economy can bring. You need only look to the explosive gro\\1h
of Indian IT. I look forward to seeing Bangalore for myself later this week. Along with
Hyderabad, Gurgaon, and others. it is truly an embodiment of the idea that the information
revolution can bring prosperity and opportunity globally, not just to the fe\\,.
Like the success of Indian ex-patriot communities in California. New York and the
English Midlands before it. the success of firms such as Infosys, Wipro and Sat yam says a great
deal about the vast potential that Indians' closer integration with the global economy could
unlock. At the same time. it also says a great deal about the obstacles that hold the rest of India
back.
•
The software technology parks created in the early 1990s have helped the sector to blossom but only because they freed it from the tariffs and high tax rates that still prevent the bulk of
Indian industry from competing abroad. Exports grew 130 percent in the 1990s. That is
impressive. but in China they grew nearly twice that amount during the decade. And China' s
stock of foreign direct investment as a share of GDP is eight times higher than India' s.
•
Like the other labor-intensive services doing well in the new India. these firms have also
been less hampered by high levels of public borrowing in India and the dearth of aflordable
private lending that this creates. India's borrowing requirement absorbed up to 40 percent of
Indian national savings last year. And 14 percent of GDP that might have been flowing into
its growth industries was instead spent on ill-targeted public subsidies.
•
Software finns and data processing companies have also been more able to leap-frog the
failings oflndia's infrastructure: the clogged ports and segmented transportation networks
which mean that goods that take 3 hours to ship abroad in Singapore, in India, take 3 days.
Certainly, these new businesses have been blessed by India's tradition of high quality
high education. India's pool of trained scientists and engineers. for example. is second only to
our own. Yet the same approach that has brought India its high number of graduates has equally
built a country in which more than half of women cannot read.
Time and again, we are learning that the highest return investment that a developing
country can make in its future is girls' education. But for all its recent progress. India still has a
long way to go. Amartya Sen has noted the sobcring fact that Indian basic health and education
indicators are not merely much lower today than in Korea, Thailand and other East Asian tigers;
they are below what these countries had already achieved in 1960.
5
With the election past and a new government now in place. India has the oppo!1unity to
take reforms forward again. so that India may take its rightful place in the 21 ,{ century glohal
economy. And in Prime Minister Vajpayee and Finance Minister Sinha. it has leaders \VI1O ha\"t~
committed themselves to that goal. In this regard. Finance Minister Sinha's plans to re-engineer
the budget: reduce the state' s pervasive and costly role in the financial sector: and open up key
parts of the economy will be especially important.
India has been able to grow at relatively high rates in recent years. as the crises in Asian
and other emerging market economies have rocked the world. I gather there has been some
discussion about whether this in some way reflects India' s policy of very limited international
financial engagement. It seems to me that India's lack of reliance on short-term capital flows.
low level of external debt. and small share of trade in the economy have probably all played a
role. Rut when one considers the wealth of economic opportunities in India and the sheer volume
of investment that these will require. it seems equally clear that over time. greater involvement in
the global capital market will need to playa role.
With a strong commitment to openness. to a more efficient and competitive financial
system. and a new role for the state that, in Amartya Sen' s terms, works more to complement
markets than to exclude them - with all of these things I would fully expect India to be one of the
largest economies in the world in less than a generation. As the government recognizes.
developing a more sustainable and coherent framework for fiscal relations between the states and
the center will be vital to bringing this about. The 6.5 percent growth rate that you have achieved
in recent years is impressive. But 10 percent growth is well within your grasp. At that pace.
Indian standards ofliving would be five times higher in 2020 than they are today.
IV.
Building the Right International System for More Global Economy
The economic historian, Jeffrey Williamson has reminded us that global integration. once
begun, is not predestined to continue. Indeed. important features of today' s more international
economy were present in the late 19 th century as well: capital and labor flowed across national
borders to an unprecedented extent. and declining transport costs fueled an explosion in global
trade.
In the second decade of the 20 th century, this first global economy imploded. Countries
embraced autarky and the world entered one of the darkest periods in its history. Opinions differ
on why integration was stopped in its tracks. But Williamson is not alone in pinning a good part
of the blame on governments - and their failure to find ways to manage integration's broader
effects.
At this second moment of historic opportunity, the capacity to enjoy the benefits of truly
global integration will depend on the success we have domestically with our economies because that is what will creates the security that makes global integration possible. But it also
depends on the right kind of broader framework in which integration can take place.
In many ways, the challenge is to reconcile three widely shared objectives:
6
•
First, realizing the benefits of trade and integration.
•
Second, support of public purpose in areas such as promoting the environment. regulating
financial risk, and assuring worker and product safety.
•
Third. allowing sovereign governments to make their own choices and put policies in place
that will work for them.
The problem of focusing only on trade was learned within our own country in the late
1800s and early 1900s, as inter-state commerce took off and the national economy began to
come together. Over time. politicians in both major parties came to recognize that a greater
degree of interconnectedness between states also called for common institutions and
understandings at the national level - to offset the downward pressure on local rules and
standards that competition could create.
At the global level, our agenda is to promote free trade, sovereignty and serious global
efforts with respect to common problems. It is easy to pursue any two of these if one is prepared
to forget the third. It is easy, for example, to support sovereign pursuit of public purpose if one is
prepared to wall out the world. And if countries were willing to give up national sovereignty. one
could perhaps imagine a world where there would be the same rules for all.
The challenge we will have to manage - with respect to trade. the environment and many
other issues - will be striking the right balance between all three objectives. The difficulties of
doing this were pointed up in the recent WTO meetings in Seattle. But the events of the past
several years have equally shown us that there can be no alternative if the benefits of global
integration are finally to be captured.
Discussions of international integration used to be the preserve of the industrial countries.
With the balance of power now shifting, and nearly all of the growth in the world's labor force
now taking place in developing countries. it will be especially important to make these nations a
larger part of the discussion. This has been reflected in the financial sphere with the creation of
the G20, in which India has such an important role. It will doubtless need to be reflected in other
areas going forward if this challenge is to be met.
India and the United States, the world's largest and oldest democracies, have an
opportunity to work together to shape the terms of this new global engagement in the years
ahead. And we must seize it. We should remember your first Prime Minister's famous words of
more than half a century ago: "those dreams are for India, but they are also for the world, for all
the nations and peoples are too closely knit together today for anyone of them to imagine that it
can live apart." Thank you.
-30-
7
1'.'\ I~ T 1\ lEN'"
I) ..:
()...
l' II
I~
'I" It I·: A S II It \'
17&<:1
oma: OF PUBUC AFFAIRS •
1500 PENNSYLVANIA AVENUE., N.W.• WASHINGTON. D.C .• 20220. (202)
622·~960
January 18, 2000
U.S. International Reserve Position
The Treasury Department today released U.S. reserve assetS data for the week ending January 14, 2000.
As indicated in this table, U.S. reserve assetS totaled $71,175 .million as of January 14,2000, down from $71.330
m.illion as of January 7, 2000.
In
us millions)
· OfficIal U.S. Reserve Assets
Jaouary 7, 2QQQ
January 14. 2000
71,330
71.175
TOTAL
I
· foreIgn Currency Reserves
a.Securities
Euro
Yen
TOTAL
Euro
Yen
TOTAL
5.180
6,103
11,28.3
0
5,140
6,063
11.202
0
B.890
11,813
20,703
0
8.864
11.737
20,600
Of whkh, Issuer hesdqu81T81'8d In the U.S.
b. Total deposrts with:
bJ. Other c.nt7'lll banks lind SIS
b.II. 8IInlc.s hNdquartered In the U.S.
Q
b.ii. Of which. banks located abroad
0
0
b.lll. Banks headquartered outside tile U.S.
bjli. Of which. Danks loC8led in the U.S.
0
0
0
17.959
17.9n
10.336
10,346
" .049
11.049
0
0
· IMF Roserve Position
1
• SpeCial Drawing RJghts (SOR&)
· Gold Stock 3
, Other Reaerve Aaeets
2
11 Includes holdings of the Trea~ury's Exchange StabilizatJon Fund (ESF) and the Federal Reserve's System Open Marl<81 Account
[SOMA), valued at current mar1<et eXchange rates. Foreign currency holdings list~ as securilies reflect marked-trrmarke1 values. and
jepo5lts reflect carrying values.
'U SDR holdings and the re~erve pOSition In the IMF are based on IMF data end revalued In dollar terms at the official SORJdollar exchange
ate. Consistent with current reporting pradu::es. IMF data for January 7, 2000 are final. Data for SDR holdings and the resenle position in
he IMF Shown as of January 14, 2000 (in Italics) reflect preliminary adjustments by the Treo~ury to the January 7, 2000 IMF data.
II Gold staek is v:alued mOF1thly at $42.2222 per fine troy ounce. Values shown are as of November 30. 1999. The October 31. 1999 value
.-as $11.049 million.
LS-341
Q
u.s. International Reserve Position (cont'd)
Predetennlned Short·Term Drains on Foreign Currency Assets
January 7, 2000
JanU3ry 14. 2QQQ
o
Foreign currency loans and securities
Aggregate short and long positions in forwards ana
futurea in foreign c:umlneleG vis-a-vis the U.S. dollar:
2.8. Short posJtJons
2.b. Long positions
Other
c
o
o
o
o
o
o
. Contingent Short-Term Net Drains on Foreign Currency Assets
January 7, 2000
ContJngent Ilabilities in foreign currency
.R. Collateral guarantees on debt due within' year
,b. Other contingent liabilities
Foreign curtency securitieS with embedded options
Undrawn, unconditional credit lines
January 14,
2M2
o
o
o
o
o
o
o
o
3.8. 'Mtfl other central banks
l.b. ~Ih banks Bnd other financial institutions
hsadquBrtered in the U.S.
lc:. W1th banks end other nnsncial institutions
heeaqusrttlf8d outside /he U. S.
~ggregate short and long positions of options in foreign
:urrencles vi.i"'-vis the U.S. dollar
h. Short positions
4.a.1, Bought puts
4.9.2. WrlttBn calls
f.b. LonQ pOsitions
4.b.1, Bought calls
4.b.2. Written pub
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
January 18, 2000
CONTACT:
Office of ?inancLng
202-691-3550
RESULTS OF TREASURY'S AUCT:ON OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
91-Day Bill
January 20, 2000
April 20, 2000
912795DS7
High Rate:
5.350%
Investment Rate 1/:
Price:
5.512%
98.648
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount race were
allotted 76%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompecicive
$
19,466,329
1,196,232
335,000
335,000
20,997,561
7,507,561
4,270,500
4,270,500
o
o
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
$
5,976,329
1,196,232
7,172,561 2/
20,662,561
PUBLIC SUBTOTAL
TOTAL
$
25,268,061
$
11,778,061
Median race
5.330%: 50% of che amount of accepted competitive tenders
was tendered at or below that race.
Low rate
5.230%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
~
20,662,561 / 7,172,561
~
2.88
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT ~ $918,571,000
LS-342
http://www .pu blicdebt. treas.goy
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
January 18, 2000
CONTACT:
Office of Financlng
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
182-Day Bill
January 20, 2000
Ju 1 Y 2 0, 2000
912795ED9
5.535%
High Rate:
Investment Rate 1/:
5.789%
Price:
97.202
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 11%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
competitive
Noncompetitive
$
18,031,475
1,095,111
$
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
$
2,786,233
1,095,111
3,881,344 2/
19,126,586
PUBLIC SUBTOTAL
TOTAL
Accepted
Tendered
Tender Type
2,620,000
2,620,000
21,746,586
6,501,344
3,285,000
3,285,000
o
o
25,031,586
s
9,786,344
Median rate
5.520%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
5.440%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 19,126,586 / 3,881,344 = 4.93
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = 5828,134.000
L8-343
http://www.publicdebt.treas.gov
DEPARTMENT
OF
THE
TREASURY
NEWS
'TREASURY
Ot"FIC£ (H PUBLIC A i'"I'A IRS -1500 PENNSYLVANIA AVENIJE. "'.W .• WASHINGTON. D.C.e 20220 _ (202) 622-2960
EMBARGOED UNTIL 2:30 P.M.
January 20, 2000
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction two series of Treasury bills totaling
$14,000 million to refund $17,988 million of publicly held
securities maturing January 27, 2000, and to pay down about $3,988 million.
approx~tely
In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $7,848 million of the maturing bills, which may be refunded at
the highest discount rate of accepted competitive tenders. Amounts issued to
these accounts will be in addition to the offering amount.
The maturing bills held by the public include $3,960 million held
by Federal Reserve Banks 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 highest discount rate of accepted competitive tenders. Additional amounts may be issued in each auction for such accounts to the extent
that the amount of new bids exceeds $3,000 million.
TreasuryDirect customers requested that we reinvest their maturing holdings of approximately $955 million into the 13-week bill and $800 million into
the 26-week bill.
This offering of Treasury securities is governed by the ter.ms and conditions set forth in the Uniform Offering Circular for the Sale and Issue of
Marketable Book-Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as
amended) •
Details about each of the new securities are given in the attached offering highlights.
000
Attachment
LS-344
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
H~GHL~GHTS
TO BE
OF TREASURY OFFER~NGS OF
~SSUED JANUARY 27,
2000
B~LLS
January 20, 2000
Offering Amount •••••..•.•••....••••••••• $7,500 million
Description of Offering:
Term and type of security .....•...••....
CUSIP number ..•...••.••••.•••••....•.•••
Auction date ....•.•.••.••••••••.••.•••••
Issue date •••.•.•..•••.•..•.•..•••.•••••
Maturity date .••••...••.•••..•..••..•••.
Original issue date ....•.•.....••..•....
Currently outstanding ....•.••...•..••.•.
Minimum bid amount and multiples ..••..••
91-day bill
912795 DT 5
January 24, 2000
January 27, 2000
April 27, 2000
April 29, 1999
$26,110 million
$1,000
$6,500 million
182-day bill
912795 EU 1
January 24, 2000
January 27, 2000
July 27, 2000
January 27, 2000
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids ..••..•.. Accepted in full up to $1,000,000 at the highest discount rate of
accepted competitive bids.
Competitive bids .•..•...•... (1) Must be expressed as a discount rate with three decimals in
incrQrnents 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.
Maximum Recognized Bid
at a Single Rate . . . . . . . . . . . . 35% of public offering
Maximum Award ...•.........•..•.. 35% of public offering
Receipt of Tenders:
Noncompetitive tenders .•••.. Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders ..•.•.•.. Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank on issue date, or payment
of full par amount with tender.
TreasuryDirect customers can use the Pay Direct feature which
authorizes a charge to their account of record at their financial institution on issue date.
n
E I· .-\ R T 'I E
~
T
0 F
TilE
T REA SUR Y
NEWS
TREASURY
O.·FICE OF PUBLIC An·AIRS. 1500 PENNSYLVANIA AVENUE. N.W. e WASHINGTON. D.C.e 10220 e (202) 6%2·2960
2MBAllQOEJ) UR'l'n. 2: 30 P. II.
OORTACT:
January 20, 2000
Office of FiDADcing
202/691-3550
The Trea.ury w1ll auction two .erie. of Trea.ury hill. totaling
ap,prox±mately $14,000 million to refund $17,988 million of publicly held
.ecurities maturing January 27, 2000, aDa to pay dOWD about $3,988 million.
%n addition to the public holding., Federal ae.erve Bank. for their own
account. hold $7,848 million of the maturiDg hill., which may be refunci.d at
the higheat di.count rate of accepted competitive tender.. Amount. i ••ued to
the.e account. will be in addition to the offering amount.
The maturing bill. held b,y the public include $3,960 million hela
by Pederal aeserve Banka as agents for foreign aDd 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 billa and 26-week
bills at the highest discount rate of accepted campetitive tenders. Additioual amounts may be i.sued in each auction for such accounts to the extent
that the amount of n . . hids exceeda $3,000 million.
~.a.ur.YDLrect customers requested that we reinvest their maturing holdings of approximately $955 million into the 13-. .ek hill and $800 million ~to
the 26-. .ek hill.
This offering of Treasury securities i. governed b,y the ter.m. and coniitions .et forth in the Unifor.m Offering Circular for the Sale aDd X.sue of
qz.ketab1e Book-EIltxy Treasury Bills, Note., and. Beads (31 cnt Part 356, as
UDended) •
.Z1g
Details about each of the n . . securities are given in the attached offerhighlights.
000
.ttachment
,5-345
or press
r~leas~s, spe~ches,
public $chedul~s and ofJicilll biogrllphi~s, clllI Qllr 24-"Qllr flU
l;n~ lit
(202) 622-2040
HXGHLXGHTS or TREASURY orrzaXNGS or BXLLS
TO BE XSSUED JANUARY 27, 2000
January 20, 2000
Offering Amount •••••••••••••.••••••••••• $7,500 million
Description of Off.rinw,
T.rm and type of •• curity ••••••••••••••• 91-day bill
CUSIP numb.r •••••••••••••••••••••••••••• 912795 DT 5
Auction d.t ••••••••••••••••••••••••••••• January 24, 2000
I •• u. dat ••••••••••••••••••••••••••••••• January 27, 2000
Maturity d.t •••••••••••••••••••••••••••• April 27, 2000
Origin.l i •• u. dat •••••••••••••••••••••• April 29, 1999
Curr.ntly out.tanding ••••••••••••••••••• $26,110 million
Minimum bid amount and multipl •••••••••• $l,OOO
$6,500 million
1e2-day bill
912795 EO 1
January 24, 2000
January 27, 2000
July 27, 2000
January 27, 2000
$1,000
The following rul •• apply to all •• curiti.s m.ntion.d above.
Submi •• ion of Bid.,
Noncomp.titiv. bids ••••••••• Acc.pt.d in full up to $1,000,000 at the high.st discount rat. of
acc.pt.d comp.titiv. bid ••
comp.titiv. bids •••••••••••• (1) Mu.t b • •xpr ••••d a. a di.count rat. with thr •• d.cimal. in
increment. of .005%, •• g., 7.100%, 7.105%.
(2) N.t long po.ition for .ach bidd.r mu.t b. r.port.d wh.n the .um
of the total bid amount, at all di.count rat •• , and the n.t long
po.ition i. $1 billion or gr.at.r.
(3) N.t long po.ition mu.t b. d.t.rmin.d a. of on. half-hour prior
to the olo.ing tim. for r.c.ipt of comp.titiv. t.nd.rs.
Maximum R.cogniz.d Bid
at a Single R.t ••••••••••••• 35% of publio off.ring
Maximum Award ••••....•.••••••.•• 35% of publio off.ring
R.ceipt of T.nd.r.,
Noncompetitiv. t.nd.rs •••••• Prior to 12.00 noon Ea.t.rn Standard tim. on auction day
Competitive t.nders .•••••••• Prior to 1.00 p ••• Ba.t.rn Standard tim. on auction day
Payment Term.. By charge to a fund. account at a r.d.ral Re •• rve Bank on i •• ue dat., or payment
of full par amount with tend.r. Tr•• su~Dir.ct customer. can use the Pay Dir.ct f.atur. which
authorize. a charge to their account of record at th.ir financial in.titution on i.su. dat ••
DEPARTMENT
OF
THE
'IREASURY !~~'~J
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TREASURY
NEW S
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OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANlAAVENUE. N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
January 22. 2000
STAfEMENT BY TREASURY SECRETARY LAWRENCE H. Sl;MMERS
AT THE POST-G7 PRESS CONFERENCE
Let me begin by saying a few words about today's meeting. and then I will be happy
to answer questions.
Our discussion today essentially divided into two parts: our review of global
economic conditions and prospects; and the broad agenda for international financial reform.
First: Achieving Sustainable Growth in the Global Economy
With the maintenance of a strongly supportive macro-economic environment.
we are now seeing improved prospects for global grov,rth. At the same time. we all
recognize that continued improvement is not inevitable. and will depend crucially on
proactive policy. At a time of dramatic advances in technology. we must all seize this
moment of opportunity to create an environment for strong and more balanced growth
across all our economies.
In vie\\' of the importance of this point I would like to quote in full the
formulation in paragraph three of the Statement:
"We see improved prospects for non-inflationary growth in the major industrial
economies and the world econon1\' as a \\hole. The challenge remains to
secure a more balanced pattern of growth among our economies that is so
important to sustaining the expansion. \\':e agreed on the importance of
directing both macroeconomic and structural policies in all our countries at this
objective. with particular emphasis on taking advantage of the investment
opportunities created by new technologies."
As far as exchange rates are concerned. let me quote what we said in the Statement:
"V·./e discussed developments in our exchange and financial markets. We welcomed
the reaffIrmation by the Japanese monetary authorities of their intention to conduct
T.S 346
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
policies appropriately in view of their concern. v·.:hich v;e share. ahollt the potential
impact of yen appreciation for the Japanese economv and the \>.,orld cconOI11\. We \\ill
continue to moni.tor developments in exchange markets and cooperate as appropriate."
Let me also note that our policy with respect to the dollar remains ul1cilan\..!cd: a strnm~
dollar is in the interest of the United States.
~
~
Second: International Financial Reform Going Fonvard
\Ve also talked about our broad agenda for international financial reform I.!oinl:.
forward. Let me highlight three areas that are especially important to us:
~
~
First. on the reform of the international financial architecture. we have made
real progress since our meeting in September. including a successful inaugural meeting
of the G-20 Finance Ministers and Central Bank Governors in Berlin in December.
Ob\"iously what is most important now is translating the consensus that has been
reached into real change: for example. \\ith regard to broader implementation of
internationally agreed codes and standards. and working to find the right ways to ensure
private sector involvement in forestalling and resolving crises.
In this context. we also agreed on the importance of measures to strengthen the
functioning of the IMF to make sure that it is better able to meet the challenges of the
21 51 century. \Ve agreed that there was a particular need for a greater focus on promoting
the flO\v of information to markets and reducing liquidity and balance sheet
vulnerabilities. and a comprehensive review of IMf facilities. In addition. we agreed to
expand our discussions to include an examination of how the role of Multilateral
Development Banks ought to evolve in a changing global environment.
Second. implementation of the HIPC (Heavily Indebted Poor Country) Initiative. We
agreed that countries seeking relief under the Initiative should move quickly to put in place the
more participatory process for developing national poverty reduction strategies that we have
supported in this context. This will be crucial tor meeting the target we set today. of threequarters of the eligible countries qualifying for relief under this initiative by the end of :2000.
Third. we agreed that a priority for the Summit would be stepping up the international
effort to combat financial crime. which poses a growing threat to the credibility and integrity of
the international financial system. Especially important \vill be the Financial Action Task Force
(FATF) moving quickly to complete its identitication of non-cooperative jurisdictions: greater
progress in implementing the OECD Anti-Bribery Convention: and continued IMF and World
Bank efforts to strengthen governance and anti-money laundering safeguards in their programs
with member countries.
Let me conclude by noting that we all expressed our deep gratitude to Managing
Director Camdessus for his thirteen years of valuable service as the IMf' s Managing Director
and for his contributions to these G-7 meetings.
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DEPARTMENT
OF
THE
'IREASURY (~+'j
TREASURY
NEW S
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OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE. N.W .• WASHINGTON. D.C.. 20220. (202) 622·2960
Statement of G-7 Finance Ministers and Central Bank Governors
,Januar-~ 22,2000
Tok~'o
1.
\\'e. the Finance Ministers of the G-7 countries. the Central Bank Gon~rnors of Canada.
Japan. the United States. and the United Kingdom. the Euro-ll Presidency. and the
President of the European Central Bank. met today \vith the Managing Director of the
International Monetary Fund to review recent developments in the world economy.
The Finance Ministers and Central Bank Governors of the G-7 countries revie\\ed the
progress made towards strengthening the international financial architecture and
implementing the HI PC Initiative.
We expressed our deep gratitude to Mr. Camdessus for his thirteen years of valuable
sen'ice as the IMF's Manaaina Director and for his contributions to our l11eetil1l!s.
~
~
~
De\'elopments in the World Economy
3.
We see improved prospects for non-inflationary gro'v\1h in the major industrial economies
and the world economy as a whole. The challenge remains to secure a more balanced
pattern of gro'v\1h among our economies that is important to sustaining the expansion. We
agreed on the importance of directing both macroeconomic and structural policies in all
our countries at this objecti\e. \\ith particular emphasis on taking advantage of the
investment opportunities created hy ne\\ technologies.
4.
Open and competitive internationJ.1 lllJ.rkets for trade and il1\estment are essential for
efficient global resource allocation. sustainable gro\\1h. stability. and shared prosperity,
Vie reaffirm our commitment to achie\ing further trade liberalization through the
launching of a new multilateral trJ.dc round at the earliest opportunity.
5.
We reemphasized our commitment to maintain or create conditions for sustainable
gro w1h in each country. In this context. \\e stressed the importance of continued
cooperation among the (1-7 coul1tril's.
•
In the United States and Canada. cconomil's are showing continued strength. while
unemployment and inflation are historically low. Thc aim of policies now is to
preserve conditions conduci\"t~ to sustainable gn)\\1h by maintaining strong fiscal
conditions. prudent monetary policy. and. in the United States. increasing national
savmg.
For press releases, speeches, public schedules and official biographies, call our 24-haur fax line at (202) 622-2040
•
In the United Kingdom. gro\\1h has strengthened. Labor market acti\it\ has rel11dined
robust. and interest rates haye risen preemptively in recent months in th·c face nf
stronger domestic demand. Policies should continue to aim at meeting the intlation
target and sustaining gro\\1h and employment.
•
Recovery of growth is well under way in the euro area. With the unemployment rate
falling though still high in many countries_ appropriate macroeconomic and structural
policies. aimed at strengthening economic growth. increasing employment and
expanding investment opportunities. will continue to be important.
•
Japan's economy has shown some encouraging signs of recovery_ although a sustained
recovery remains to be established. In these circumstances_ the Japanese authorities are
implementing the second supplementary budget and announced FY2000 budget proposal
maintaining stimulus to ensure domestic-demand-Ied gro\\th. They reiterakd their
intention. in the context of their zero interest rate policy. to provide ample liquiJit: tn
ensure that deflationary concerns are dispelled. Measures to further strenf!then the
financial system and structural reforms will continue to be important.
Exchange Rates
6.
\Ve discussed developments in our exchange and financial markets. We welcomed the
reatlirmation by the Japanese monetary authorities of their intention to conduct policies
appropriately in view of their concern_ which we share. about the potential impact of
yen appreciation for the Japanese economy and the world economy. We \\i1l continue
to monitor developments in exchange markets and cooperate as appropriate.
Emerging Market Economies
7.
In the emerging market economies. recent economic developments have been generally
encouraging. and market sentiment has impro\"ed. We v,elcome the earlier and stronger
than expected economic recovery in many Asian nations. Along with appropriate
macroeconomic policies. full implementation of reforms in the financial and corporate
sectors are crucial preconditions for restoring strong sustainable growth and avoiding
future financial instability. In L:nin American countries. there are welcome signs of
improved economic conditions in thc region as a \\hole. These countries need to persist
with sound macroeconomic pol icies and the ckcrcning of economic reforms. including
strengthening of the financial sector- \\hich '-liT essential in paving the way for economic
recovery and full restoration of market confidence.
Russia
8.
We welcome favorable den:lopments in some arcas of the Russian economy. reflecting
improved external factors. We urge the Russi<.m authorities to intensify macroeconomic
stabilization and economic reforms which an: necessary for sustained economic gro\Vth.
These include enhanced transparency. budgetary and financial accountability_ structural
and institutional reform. and combating corruption and money laundering.
2
Strengthening the International Financial and Monetary System
9.
We re\"iewed with satisfaction the progress that has oeen made since our last l11cctil1:! in
Septemoer to strengthen the international financial architecturc in line \\ith the (i-7 Finance rvlinistcrs' Report at the Cologne Summit last June.
•
\\'e welcome the steps taken to transform the Interim Committee into tile permanent
"International Monetary and Financial Committee".
•
We note that the first meeling of the G-.:20 Finance Ministers and Celltrai Bank
Goyernors was successfully held in Berlin in December.
•
\\"c look forward to recommendations by the Financial Stability Forum (rsr) this spring
on highly-leveraged financial institutions. capital flows. and otlshore financial centcrs.
\\"e note that the Task Force on the Impkmentation of Standards and Codes Ltnd the
Study Group on Deposit Insurance Schemes \\'ere established by the rSF.
•
We agree that we must continue to focus on encouraging broader impleml:ntatiul1 of
internationally agreed codes and standards and on monitoring compliance with the IMF
assuming a leading role b: \irtue of its suneilJance function.
•
We are encouraged by the deepening of discllssions being held at the IMF hoard on
wide-ranging issues to strengthen international financial architecture.
\\"e will continue to work to achie\'e solid progress in implementing the \\ ide range of
refonns endorsed at the Cologne Summit. including \\'ays to ensure private sector
involvement in forestalling and resolving crisis. We \yill also continue to \\ork together
on measures to strengthen the functioning of the IMF to ensure that its role reflects the
changing global financial landscape. In that context. we will examine appropriate
measures, including a greater focus on promoti ng the flo\\ of information to markets and
reducing liquidity and balance sheet risks. and a comprehensi\'e re\'ie\\ of 1l\1f facilities.
V·ie also agreed to consider in our future \\ork the role of Multilateral Development
Banks in the context of ch~ll1ging glohal c(,lnditions.
Actions against Abuse of the Glohal Financial System
10.
In order to secure the benefits of the gl()h~ll financial system we must ensure thal its
credibility and integrity are not undermined h;. crime. poor regulatory standards and
harmful tax competition.
•
For the prevention of money laundering. \\L' urge the- Financial Action Task Force (FATn
to complete its identification ur Ilon-cnopcrati\e- jurisdictions expeditiously ami. in this
context. we will coordinate our \\ork with other ministries when appropriate.
•
We remain concerned ahout nt'C"hore financial centers and tax 11(1vens \\'hich undermine
international standards of financial rL'!::,ulution and \\hich are shelters to L1\'oid or t'\'ade
payment of tax. \Ve strongl) support the work heing done by the rsr and the OEeD's
3
Forum on Harmful Tax Practices. as \\"t~1I as the cooperatin~ efforts urthe OI':Cr)""
Committee on Fiscal Atfairs ((TA) and the FATF We urge the OECO's CF\ tu hrin~ ~I
rapid conclusion to its work on bank secrecy,
•
The benefits and opportunities of the international financial system can also he
undermined by corruption. In this regard. we support the work b\.?ing done in \ariolb
fora on anti-corruption measures.
•
\Ve look fOlward to the re\'ie\\ in the lMF and World Bank on \\ays to strengthen
safeguards on the use of their funds. 'ke expect the international financial institutions
(IFIs) to also strengthen governance and anti-money bundering measures in prugrams
with member countries.
•
Vv'e commit ourselves to tackling these issues. in close coordination \\ith rek\~ll1t
multilateral fora. and 'will report on the progress at the upcoming Summit meeting.
Enhanced HIPe Initiative
II.
'We reaffirmed our commitment to the enhanced HIPC (Hea\'i!y Indebted Poor Country)
Initiative and its speedy implementation. While ,w welcome the eonsiderahle rrogress
made so far. notably in identifying and securing resources for financing of th~ HI PC
Initiative. further steps need to be taken to secure the practical imrlementation of the
Initiative to provide faster. broader and deeper debt relief.
•
All IFls are encouraged to be actively engaged in the Initiative. maximizing the use of
their own resources in meeting their costs.
•
Some important bilateral financial contributions to the Initiative. including those to the
HIPC Trust Fund. still require legislative approvaL
•
We urge bilateral creditors to take action to deliver their proportional share of debt
relief under the Initiative as 3l!reed at the last Annual meetin!!s,
~
~
•
Countries seeking assistance under the lnitiatiw are urged. in cooperation with the IFrs.
to begin the participatory process of de\e1oping pm'erty reduction strategies .in the
context of a sound policy frame\\ork. \\ith clear monitorable performance targets.
including emphasis on transparency. accountahility. and good governance.
•
We welcome the recent statement of \f"-orld Bank and IMF that up to eleven countries
could benefit from HIPe deht relief hy early spring. We urge the IFIs to continue to
work with the HIPC countries to ensure that three quarters of the eligihle countries
have reached their decision point under the Initiative by the end of 2000.
Kyushu-Okinawa Summit
12.
We discussed issues to be taken up at the Fukuoka finance Ministers' Meeting \vhieh
will be held in July as a part of the Kyushu-Okinav,ca Summit. These issues may
4
include. in addition to a follow-up on progress in the reform of the international
financial architecture and the HIPe initiative. the opportunities and challcll!2e:-; posed h~
further ad\'~mcement of information technology and glohalization and their implications
for our public rolicies. \Ve will start preparatory \\"ork f(:)f the Fukuob l\keting.
2U26221~~9
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1REASURY
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NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANlAAVENU£. N.W•• WASHJNGTON. D.C. %0220 - (202) 6%%·2960
EMBARGOED UNTIL 7:30 PM
Text as prepared for Delivery
January 24, 2000
"TIlE PRIORITIES FOR UNITED STATES GLOBAL ECONOMIC ENGAGEMENT"
TREASURY SECRETARY LA WRENeE H. SUMMERS
REMARKS TO mE WORLD AFFAIRS COUNCIL
WASHINGTON, DC
Thank you. I would like to reflect today on some of the challenges for American
international economic policy over the next several decades.
My remarks start from a fundamental premise: that a world in which countries are
integrating is a world that is more likely to be prosperous; is more likely to be a world in
which the US current account deficit declines; is more likely to be at peace; and is more likely
to be a world of in which democracy continues to extend its reach. Indeed, I would suggest to
you that investing in a prosperous global economy is the most effective - and most oo5teffective - means of investing in forward defense of American interests.
As President Clinton has said: u a strong economy in a foreign land is not a threat to our
jobs, it's a new market for America's products; an engine of human dignity and environmental
preservation; and a panner for peace and freedom and .security." We enjoy the benefits in the
peace and the spread of OUT core values that greater global openness can bring. And we see
them more directly, in the millions of high-paying jobs that exports create, and the competition
and innovation that our openness to imports can produce. These have helped to sustain an
expansion in which, nearly 9 years on I long-term interest rates are still well below their level
at the start.
There are many ways that we interact with the rest of the global economy. But there are
three ways in which our policies and choices have a particularly large impact on the global
system.
•
First, the way we manage our own example at home, because actions speak louder than
words.
LS - 349
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•
Second. the approach that we take to the world trading system.
•
And third, the approach that we take to the international financial institutions.
1 would like briefly to discuss each of these today. But first let me say a few words
about the broader context.
It is, in many ways, a critical moment in our nation's history. America is the world's
largest economy and strongest nation with no single, dominant competitor. At the same time,
Americans are growing wary of global entanglements. Market ideas are in ascendancy; there is
high regard for business and the rights of capital~ but while successful investors are heroes,
those at the bottom of the ladder still feel insecure. Internationally, the breakdown of empires
and the absence of large power balances have made the world ripe for ethnic and nationalist
conflicts.
I suppose I could be describing the latter part of the 1990s. I am actually describing the
late 1920s. That was a time of high optimism, a time when continued peace and stability was
widely foreseen; yet over the next 15 years the world system would spiral out of control, first
economically and then politically. The period of depression and World War that followed are
perhaps the darkest two decades of this century and, arguably, among the darkest of this
millennium.
History does not repeat itself. Any historical analogy between the world of today and
the world of the 1920s is surely imperfect. But it does remind us that there have been other
times in our history when the United States' reluctance to engage fully with other nations and
to help manage changes in the balance of global economic power has had major consequences.
A generation of post-war leaders was determined that we would not make that mistake
again. They helped to shape a global vision of an America commined to create an everwidening circle of ever more prosperous, ever more international economies. This is a vision
that has been at the center of US foreign and economic policy - during Republican and
Democrat Administrations alike - for the bulk of our postwar history. And it is a vision that
has served our country extraordinarily well.
In many ways, the United States in the final decade of the 20lh century is more
successful than it has ever been. And yet, at another critical time in our history, the basic
choice for this country - to be a force for the right kind of global integration - is under threat
in a way that it has not been in 50 years.
•
That threat does not spring from a single party or agenda - although partisanship and the
particular interest have played their role.
•
That threat does not clothe itself in the language of protection or nationalistic retreat although these surely have their proponents.
2
W2b22199;J
•
And it does not come in a single battle that will be won or lost - although some of the
decisions that we make in the coming days w~l be very important to the long-term result.
The risk we face at this special time is more diffuse than any of these - but no less
dangerous. It is the risk of what one might call the malign neglect of our global standing: the
risk that little by little, in countless different ways for countless different reasons. we will wear
away at our capacity to lead the world in a direction that will support our deepest long-term
national interests and values - and in a manner that can inspire ever-increasing global support.
I.
Leading by Example: the Case for More Inclusive Prosperity
Just as the rest of the world's economic strength is our economic strength - so keeping
our own economy strong and our markets open makes a significant contribution to global
growth. Indeed, the United States has in many ways been the main engine of global growth in
recent years. One of the things that we all recognized at the recent meeting of G7 flnance
ministers in Tokyo was the need to move to a more balanced, and thus more durable, pattern
of global growth.
Americans can take satisfaction from the progress that the United States economy has
made during the past ten years. It is a tribute to the benefits of economic openness, of
competitive markets and also of old-style fiscal virtue. And it surely points up the importance
of continuing sound policies going forward, by keeping our markets open, by paying down our
public debt, and by avoiding excessive tax cuts that could put future surpluses in doubt.
At the same time, many people over-learned the lessons of Russia in the 19505, or
Japan in the 1980s, in thinking they had found, in a decade's success in a single country, the
path to economic wisdom. And none of us should doubt that there are important aspects of our
global example of democracy that we must work to strengthen. One of these, which I will
discuss in a few moments, is our willingness to pay attention to the prosperity of the rest of the
world. The other is our capacity to ensure that every American feels that a new global
economy works for them.
In part this is an issue of inequality. After a long period when it was not the case, a
rising tide has lifted almost all boats in recent years. OUf economic success has created a highpressure economy where jobs look for people more than people look for jobs - with the result
that real incomes are at last rising in every part of the income scale.
And yet, in America today:
•
More than 1 in 5 children under the age of six live in poverty. And a child born of a single
teenage mother who did not finish high school has an 80 percent chance of living in
poverty at the age of ten.
3
•
An African-American child born today is twice as likely to die before his first birthday than
a child born in Yugoslavia or Kuwait; and male life expectancy here in DC is several years
below that in Mongolia or Belarus.
The feeling of exclusion is also an issue of insecurity. When Robert Kennedy ran for
President in 1968, he spoke about it being a new more dynamic economy because the average
American entering the workforce could expect to have 4 jobs over the course of their lifetime.
Bin Clinton used a similar formulation in 1992, except the number of jobs had risen to 7. And
the pace of change can only be increasing.
Increased. support for the working poor will be part of the answer. Federal spending on
this group was ten times greater last year than it was in 1985 - in large part due to successive
increases in the Earned Income Tax Credit. This year the President is asking Congress to
expand it further. Equally, improving the quality of our education system and working to meet
more effectively the basic needs of our children are and must continue to be high priorities.
In these and other ways, we must seek to address the problem of economic exclusion
because it is a moral imperative. It must also be an economic imperative at a time when our
social cohesion will be important to our capacity to move forward. In that sense the greatest
threat to American security may be domestic insecurity.
II.
The Case for Continued United States Support for Open Markets
Nationally and internationally, we must recognize and respond to the difficulties that
can attend globalization and the substantial and disproportionate fears that it can generate.
What we must not do is lose sight of what logic and hard experience has taught and a large
majority in both parties has long believed: that increased global integration benefits the vast
majority of the citizens in all our countries.
Today the United States has 4.5 percent of the world's population, and 22 percent of its
income. In a very real sense, OUT capacity to realize OUT national potential in this new century
will depend to no small degree on our capacity to realize the potential of an open global trading
system.
Up until recently there was a strong bipartisan consensus in support of this objective even as they debated how best it might be achieved. In the wake of the debates we have had
about NAFT A or Fast Track - and around the recent World Trade Organization meetings in
Seattle - the question arises whether that broad-based support for open markets will be
sustained. The answer to that question will not come in a single battle that will be won or lost.
But a number of upcoming decisions will provide important tests of our capacity to stay on the
right track.
One very important test will be whether we vote to grant China Nonnal Trade Relations
(PNTR) in the months ahead, essentially supporting its entry into the wrO. Of course, it is
4
important to ensure in our relations with China that our commercial iriterests are protected.
That was the basis for the bilateral accession agreement we reached with China last November,
which provides for very substantial opening of Chinese markets in return for now new market
access concessions of our own. The agreement also strengthens our capacity to assure fair
trade, through the WIO, while protecting our strong defenses against import surges and
dumping from China for some considerable period. But to seek to contain China economically
- to keep it poor and to isolate it from our markets - is to see our long-term interests precisely
backwards.
As President Clinton has said, if we have learned anything in the last few years from
events in Russia it is that the weaknesses of great nations can pose as great a challenge to the
United States as their strengths. The WTO provides a framework in which China will
economically liberalize. It strengthens the liberal elements in Chinese society. It supports
freedom and ultimate political evolution. It incorporates China into the community of nations
but does so on the basis of their acceptance of the rules of the road.
A second very important test will be our capacity finally to pass the African Growth
and Opportunity Act and the enhanced Caribbean Basin Initiative. Whatever our broader trade
policy might dictate, it cannot be right that the richest country in the world is unable to provide
preferential access to its markets to countries in Africa where 600 million people live, nearly
half on incomes of less than one dollar a day. What is true in Africa is also true much closer to
home, in the Caribbean. The right trade preferences for the Caribbean will help make their
economies much stronger and our economy safer.
At the global level, our agenda going forward must be to promote free trade and serious
global efforts with respect to common problems, even as we suppon every nation's right to
chart its own course. The challenge we will have to manage - with respect to trade, labor, the
environment and other issues - will be striking the right balance between all these objectives.
The difficulties of doing this were pointed up in the recent WTO meetings in Seattle. But the
events of the past several years have equally shown us that there can be no alternative if the
benefits of global integration are finally to be captured. If globalization does not work for
everyone it will ultimately not worle at alL
III.
The Case for Sustained Support for the International Financial System
We always - and rightly - tend to respond to and focus on the problems with names,
such as Kosovo or East Timor. What we may focus on too little are the things that can help
prevent such problems occurring in the future. That is why our support for international
financial institutions, OUf support for open markets, and our support for strong policy are so
important.
With our management of the end of the Cold War, the United States defense budget is
$107 billion lower in real terms today than it was in 1989. Reasonable people can debate how
much of this ought to be invested in forward defense of our core interests through support for
5
the IFIs and other foreign operations. But it would be hard to make the case that the right
answer is to spend a good deal less on these things than we did before.
The Foreign Operations bill that was passed in last year's budget agreement
appropriated $15.2 billion in FY 2000 for such investments. That is 20 percent less, in real
terms, than was spent on average under Presidents Reagan and Bush. In the coming weeks the
President will be proposing an energetic budget with respect to these international priorities,
because they represent high return investments in America's core interests and its global
leadership - investments that for more than 50 years have enjoyed strong bipartisan support.
Every dollar we contribute to the multilateral development banks leverages more than
$45 in official lending, to countries where more than three-quarters of the world's people live.
Quite simply, these programs are the most effective tools we have for investing in the markets
of tomorrow. They promote changes that reflect core American values: such as freer markets,
greater transparency and public participation strengthened property rights and open borders.
And they are at the cutting edge of global efforts to combat new threats such as AIDS, which is
devastating Africa and now threatens to undermine decades of economic development in Asia.
Let me highlight one area where our support will be especially important this year:
implementing the strengthened HIPC initiative.
Writing off debts owed by countries that will never be able to repay them is sound
financial accounting. It is also a moral imperative at a time when a new generation of African
leaders is trying to throw off the legacies of the Cold War and open up their economies. That
is what the Highly Indebted Poor Countries initiative is about. It will not write off the debts of
countries that are not working to reform. It will help support growth and openness in countries
that are committed to helping themselves.
With the bipartisan suppon for HIPC that was reflected in last year's budget agreement,
the strengthened HlPC initiative agreed at last year's G7 Summit in Cologne is now moving
ahead. Bolivia, Uganda and Mauritania should benefit in a matter of days, with up to 11
countries likely to receive relief before the Spring meetings of the World Bank and IMP in
Washington. What will be critical will be effectively implementing the new framework for
official support in these and other countries, so that the poorest will also see rapid results - and
working here in the United States to ensure that our commitment to this effort can be fully
funded.
IV.
The Roots of Domestic Distrust of International Engagement
It is a striking irony of this time that the economy that has gained most from rising
global integra.tion and cooperation seems to need ever-greater assurance that these things are in
its interest - and will invest an ever-decreasing amount in their support. And that irony, we
can. be sure, is not lost on other nations. In all of these ways, any wavering in the United
States' faith in the benefits of global engagement could reduce the world's faith in us, and so
undermine our capacity to lead.
6
I have tried to reflect on why, when the security benefits are so compelling and the
economic benefits so clear, it can be difficult to make the case for open trade and broader
economic integration in America today. Several reasons stand out:
The first is the natural human tendency to internalize the good news and atemalize the
bad. How many people working hard at a badly managed f1rm, with out-dated technology, pin
the blame for their layoff on foreign competition? How many people, when offered a raise or
promotion in a labor-short industry following a surge of export demand, assign the credit to
open international markets, rather than considering it to be a deserved rewan1 Lo theiI own
skill':>
It is the nature of the trading process that when there are costs, those costs are appaIent
and attributed to trade, even when the main cause is something else - and when there are
benefits, the link with trade is seldom if ever made. That makes the case for integration that
much more difficult to make.
The second reason why we have a hard time making a compelling case for global
integration is that the compelling geopolitical rationale that the Cold War provide(} is no more.
Historians have written at length about the oscillations of the United States between
isolationism and global engagement. It greatly simplifies, but perhaps does not distort, that
work to say that our global engagement has typically been in response to a djre threat.
In democracies, fear does the work of reason. And today's threats - of rising
impoverishment overseas - do not have the same emergency character that previous threats
have had. Yet we saw in the 19205 what could happen when we shunned cooperation and
turned inward, at a time of great national strength. That is the danger we must work to avoid
today, just as a generation of visionary leaders did after 1945.
The third reason is that trade - and integration more generally - tend to become the
lens through which all kinds of concerns about a changing world are projected. Whether the
root concern is new technology, or deregulation - all of the economic insecurities that this new
economy can produce tend to come together when the subject is trade. That is why it is so
essential that we work to equip workers with the education and skills to manage the transition
process and to seize the opportunities that come with it.
If we compare our time to thac postwar period of remarkable American
internationalism, the absence of a single, major threat is one major difference. A different
kind of political process is another. I doubt anyone ever focus-grouped the Marshall Plan and I am not sure how well it would have done if they had. But that postwar period was also a
time when opportunity and protection was being given to the American middle class. To a
degree that historians have perhaps under-emphasized, the GI Bill of Rights was an integral
part of the strategy behind the Marshall Plan - just as
OUf
the result of an effort to marshal our Cold War defenses.
7
interstate highway system was partly
For all of these reasons, the case for vigorous United States engagement with the world
and support for open markets is surely more difficult to make today than it was fifty years ago.
But the risks for our future capacity to lead the world - and to bequeath a safe and prosperous
global economy to our children and their children - are every bit as great as they were then.
Thank you.
-30-
8
D EPA R T l\>1 E N T
0 F
THE
T REA SUR Y
~~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .
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OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
EMBARGOED UNTIL 8:30 AM
Text as Prepared for Delivery
I:muary 27,2000
"Extending the Frontier of Capital"
Remarks by Lawrence H. Summers
Secretary of the Treasury
CDFI Coalition
Washington, DC
January 27, 2000
Good morning. I'd like to take this opportunity to thank all of you for the vital work you are
doing in helping to tight social and economic exclusion in communities around the country. We
hear a lot - and we quite rightly focus a lot - on the fact that that we about to pass an historic
milestone in achieving a record period of unbroken economic expansion in this country. But this
must not and will not distract us from the challenge of ensuring that more Americans are
included
Our macro-economic success during the past decade will not be my main focus this morning. But
let me make two broad comments.
•
Without economic growth we cannot hope to reduce significantly the levels of poverty that
persi st in too many of our urban centers and deprived rural areas. In the past few years we
have made genuine progress in reducing poverty - in large part because of the spectacular
performance of our economy Growth. in that sense, is the best social policy we have.
•
However - and this is equally important - economic growth, on its own, will not be enough
to prevent certain areas from being left behind In that sense, growth is a necessary condition
for defeating poverty But it is very far from being a sufficient one.
What can we do to channel the benefits of growth to the communities that have previously been
~\c1uded') The challenge is to give people the means to help themselves. And here, we at
Treasury believe that expanded access to capital can playa vital role. As the First Lady says, it
takes a village to raise a child She's right And it takes capital to build a successful village
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·U S Government Pnntlng Office 1998· 619-559
r~is ~ill be a many-sided effort. Let me just highlight three that have been a particularly high
pnonty at the Treasury Department:
•
First, universalizing access to capital.
•
Second, supporting economic development across the country.
•
And third, broadening access to financial services.
Universalizing Access to Capital
l.
I_dch century brings its own challenges ofinc1usion. The challenges of the 20th century were
universalizing access to the vote, to education, to electricity and to running water. The challenges
ofthis new century include universalizing access to information technology, and something that
we at Treasury are especially concerned with, universalizing access to finance.
Providing better access to finance is good economics when it goes to those who can use it most
\\ell
•
A recent survey' of projects and businesses that benefited from Community Development
Financial Institutions Fund investments in 1996 shows that the average value of their assets
more than doubled since the initial investment. There are many in the Fortune 500 that would
dream about seei ng that kind of rate of return
•
On a more personal note, a while ago I visited a business in Philadelphia called PWRT
ComServ that \vas set up by a minority businessman with the help of public sector seed
capital Within two years of its launch. the business, which out-sources electronic tasks from
Fortune 500 companies, was already sen/icing Bell Atlantic and American Express. Every
dollar provided by CDFIs raised four dollars more in private venture capital.
•
Mv first visit as Treasury secretary last year was to the Harlem, USA project, a major retail
and entertainment center on l2Sth Street being built, among others, with the help ofCRA.
Although it has a population the same size as Cincinnati, there had been no a major retail
development in Harlem since the second world war Until recently, there has not even been a
supermarket in the area And the taxpayer will not go unrewarded. By conservative estimates,
Harlem, USA \\ill repay the public funding for the project in additional New York sales tax
revenues in just nine months
And it makes a difference on a human level as well When I visited that project that has been so
successful in Philadelphia, I talked to a working mother who was now a telephonist for PWRT
('omServ I asked her what has been the most important thing about the project for her. She said
that now when her children looked at her, they had pride in their eyes. Their house was happier,
their bills were easier to pay, and her children were doing better in school. All because she had a
job.
2
Creating many more examples like these ones has been and continues to be a major priority for
this Administration. For example, earlier this month I joined the First Lady and the Reverend
Jesse Jackson in voicing the Treasury's strong support for the objectives of the Rainbow-Push
Wall Street Project conference, which aims to increase the participation of minorities and the
socially excluded in the mainstream economy.
We want to push out the frontiers of capital access even further in the future:
•
That is why we have fought to protect and to strengthen the Community Reinvestment Act,
to help channel billions more in conventional bank lending to inner city and other deprived
areas Last year alone, a revitalized CRA generated $88bn in private investments for home
ownership and small businesses in disadvantaged communities.
•
And that is why we are pushing for Congress to reauthorize the CDFI Fund and support
President Clinton's request for $125m in new funding for the CDFI in FY 200 I - some $30m
more than last year. Since its birth more than five years ago, the fund has invested more than
$]OOm in projects and communities around the country leveraging several billion dollars
worth of private sector investment. Many of these projects have acted as beacons for
strategies that have subsequently been launched solely with private sector capital. Time and
again. CDFls are teaching us that seed capital that is well planted in these communities will
spread and it will multiply.
II.
Supporting Economic Development Across the Country.
Our economic success has created an environment where jobs look for people more than people
Ino\..; for jobs. And by bringing access to capital to the areas that businesses tend to overlook we
have worked to ensure that every part of America is included in the nation's economic success.
\t the same time. we have learned that success in this effort is about more than expanding the
capacity to born)\",. money Enhanced access to capital is only useful if people have the tools and
skills to use that capital well' notably, equity and the kind of technical expertise and business
netv,.:orks that firms in the mainstream economy take for granted.
That is why the President launched his New Markets Initiative last year, to unlock the potential
of America's inner cities and rural areas This initiative includes a New Markets Tax Credit,
providing a 25 percent tax credit for equity investment in locally based, specialized financial
institutions that will in turn invest in local businesses. As you know, last week the President
announced his proposal for a major expansion of the New Markets Tax Credit to $4.5 billion for
the FY200 I budget. In turn, the funds would be permitted to issue $15 billion in equity over five
~'ears or 2.5 times the size of last year's initiative
And that is also why. through BusinessLINC led by Vice President Al Gore, we are encouraging
businesses throughout the nation to take a second look at opportunities for partnering with firms
in inner cities and rural areas. And experience suggests that BusinessLINC strategies can also be
!.wod for both sides, providing large firms with a new partner, an agile source of products and an
~l1tree into new markets in an increasingly diverse and global consumer market.
3
In.
Broadening Access to Financial Services
When we think about finance in this context we need also to think about financial services for
individuals. Like money itself, the benefits that a bank account provides are easy to take for
granted Until you do not have one. And today, in the age of the Internet, derivatives, and
embedded options, as many as one in five American households still lack that basic passport to
the broader economy This is roughly equivalent to the population of Spain.
Without access to a checking account, the individual is deprived of the most basic link to the
mainstream economy. A recent survey showed that almost half ofEITC recipients used a checkcashing service to cash their refund benefits. And estimates suggest that the costs over a lifetime
for low and middle-income families of paying fees for every check or bill payment can exceed
$15,000. But these are just the surface costs Imagine trying to start a small business without
access to a deposit or knowledge of the services that banks can offer.
In the months ahead we will be fighting to broaden access to financial services in several ways:
•
By working to passing the President's new initiative - First Accounts - to bring the
"unbanked" into the financial mainstream. The President's upcoming budget will include
$30 million for this initiative, to finance pilot strategies to help low- and moderate-income
Americans benefit from the basic financial services that most of us take so much for granted.
•
By expanding the Electronic Transfer Account, which enables recipients of Federal Benefits
to open an account for the first time. More than 300 banks are talcing part in a scheme that
will benefit both those who are opening their first account - and the banks themselves.
•
By working to provide safe and easy access to banking services within previously under-
served communities At the Treasury we have established a pilot program to place ATMs in
local post otlices This will give families access to funds at a low cost, and with less fear for
their safety
•
And by encouraging states to help families that are making the transition from welfare to
worh: to open bank accounts, or Individual Development Accounts. We are also encouraging
states to educate Americans about the importance of financial literacy and building wealth
through savings
llnder the Bank Enterprise Award, the CDFI has granted almost $80m offunds to banks for
increasing their investment strategies. It gives me great pleasure to report that the scheme, which
has already helped to encourage more than $) bn in investments, has attracted almost three times
as many applicants this year as when it was launched. But just as Treasury has provided
incentives for banks to create assets where none existed before, by lending to start-up businesses
in deprived areas, so we want to give banks equally strong incentives to create liabilities in
socially excluded areas That is to say. we also want to give banks stronger incentives to open
checking accounts in areas that are traditionally "under-banked". I am asking he the CDFI Fund
to look at ways of strengthening incentives in this area in the future.
4
IV. Concluding Remarks
Let me conclude where I began. Too many people, perhaps, see little connection between the
goal of maintaining rapid economic growth rates, on the one hand - and the drive to push back
the frontiers of social exclusion on the other. That could not be more wrong.
In a high-pressure economy, we all have a stake in including more Americans in the productive
enterprise of the nation. Because every new member of the active labor force represents a
reduction in potential inflationary threats - and a greater scope for continued sustainable growth
So fighting against social deprivation is both a moral imperative, and an economic imperative.
With the initiatives that I have discussed, and the commitment of the people in this room and the
l lrganizations that you represent, I am confident we can continue to make real progress. Thank
\·OLI.
5
I)
I,: I' . \ R T
~'I I~
NT
U t'
... II 14:
... I( I~ ,\ S l.l I( \'
NEWS
OffiCE OF PUBLIC AFFAIRS • 1500 PENNSYlVANlA AVl:NUE, N.W. • WASIDNCTON, D.C.• 20220 • (202) 622.2960
E\1J3ARGOED UNTIL 10:00 AM EST
Text As PrepaIed for Delivery
January 27, 2000
TREASVRY TAX LEGISLATIVE COUNSEL JOSEPH MIKRUT TESTJM:ONY
BEFORE THE HOUSE WAYS AND MEANS SUBCOMMITTEE ON OVERSIGHT
Mr Chairman, Ranking Member Coyne, and distinguished Merr.bers of the Subcommittee.
1 appreciate the opportunity to discuss with you today the Department of Treasury's study
and recommendations with respect to the penalty and interest provisions of the Internal Revenue
Code of 1986.
The srudy conducted by Treasury and its report issued on October 25, 1999 were
mandated by the Section 3801 of the Internal Revenue Service Restructuring and Reform Act of
[998 (RRA98) The :)ludy was to review the administration and implementation of those
provisions and make appropriate legislati ve and administrative recommendations. On July l.
1999. the Treasury Department issued ,he Prohlem G!f Corporate Tax Shelters: DisctJssion,
AnalysIs. and Legislalive Proposals, a white pap~r that made a number of recommendations.
including with respect to certain penalties, to address the problem of corporate tax shelters.
Those recommendations wen~ incorporated by reference into the October penalty and interest
repon, and were the subject of a hearing in November in the full Committee.
In General
As stated in its report, Treasury focused its penalty and interest study on the principal
civil penalty provisions that afTect large numbers of taxpayers and account for the majority of
penalty assessments Clod abatements. In evaluating these penalties, Treasury was Jl1 inctfuJ tbat
achieving a fair and et1ective system of compliance involves st;-iking a balance that (i) fosters
and maintains the high degree of voluntary compliance among the vast majority oftax.pay~rs, (ii)
encourages taxpayers who are not complIant to expeditiously resolve nO:1compliance problems
with the IRS. and (iii) imposes an adequat<: system of sanctions that are fair lO taxpayers whose
noncompliance may be due to diverse ca'Jses that involve dIfferent degrees of culpability, but do
not impose substantial additional complexity or burden. Achieving such a balance is inherently
difficult because a system of sanctions that is calibrated to account for these differences may be
L5-351
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complex, but a system that does not make adequate distinctions may be unfair. There is no
perfect system of sanctions and striking the appropriate balance inherently in vol ves tradeoffs
among competing concerns The issue of penalties is one that often strikes an emotional chord,
particularly with respect to penalties with their attendant normative overtones. At the same time,
compliant taxpayers - the vast majority of taxpayers -- deserve a tax system that recognizes their
compliance. Although a penalty regime should not be overly harsh to noncompliant taxpayers
whose noncompliance may not reflect deliberate flouting of the tax laws, it is equally true that
the currently high compliance level should not be discouraged. Treasury'5 study and
recommendations reflect an effort to strike a reasonable balance, understanding that there is no
single solution and different approaches can be formulated to achieve the same goaJs.
Treasury also examined the respective roles of penalties and interest in our tax system,
with a view toward maintaining an appropriate distinction between penalties as sanctions for
noncompliant c.enduct and interest as a charge for the use or forbearance of money. Treasury
recognizes that current law does not always make a clear or consistent distinction between
interest and penalties, but believes that this distinction is imponant both with respect to taxpayer
perception of the amounts they are required to pay and the underlying reasons for the imposition,
the desired d~t~rrent effects, and the corollary consequences of the characterization of the
payment. The distinction between penalties and interest has particular consequence for the
statutory provisions that permit abatement
those impositions. Penalties generally can be
abated for reasonable cause and other statutorily-prescribed reasons that reflect their function as
a sanction, that is. as a deterrent to noncompliant conduct. By contrast, the grounds for
abatement of interest traditionally have been more narrowly drawn because imerest is a charge
for the use or forbearance of money. To the extent that current-law penalties are converted to
interest charges or interest becomes a more dominant mechanism for dealing with arrears in
payment, important corollary consequences, such as interest deductibility or interest abatement
provisions, must be considered In general, Treasury's position is that interest should remain
principally a charge for the use or forbearance of money and should be set at a rate that
approximates market rates. Although there are penalties in the Code that have aLLributes of an
interest charge and whose legislative origins SUppOrT rhar characterization, these penalties also
function as sanctions. Treasury is particularly concerned that conversion of certain penalties to
interest, even if supportable on analytical grounds, may invol ve a correlative blurring of the
distinctions that have been drawn in the Code between penalty and interest abatement provisions.
If that distinction is blurred, it may cause further confusion among taxpayers regarding the
distinction between penalties and interest
or
Treasury also is mindful of the ongoing TRS reorganization and implementation aspects
of the new taxpayer right provisions of RRA 1998 Considerable guidance has been issued by
Treasury in the past year reJating to a number of these new provisions and the IRS is engaged in
a major overhaul or its structure and systems as direcred by Congress Time is required for the
impact of these new provisions to be evaluated and certain of the new provisions affect IRS
programs, such as the oITer-in-compromise program. that provide avenues other than abateJ1l~nt
for relief from monetary impositions
2
Specific Recommendations
In its report, Treasury made a number of specific legislative recommendations, which
are described below
Penalties for Failure to File and Failure to Pay
Treasury recommends that the failure to file and failure to pay penalties be restructured to
eliminate the frontloading of the failure to file penalty and to impose a higher failure to pay
penalty than under current law. The front loading of the failure to file penalty under current law
in the first five months of a filing delinquency does not provide a continuing incentive to correct
filing failures and imposes additional financial burden on taxpayers whose filing lapse may be
coupled with payment difficulties so as to impede compliance. The filing obligation is of
paramount importance to the tax system, but imposition of a severe penalty in the first five
months of a filing delinquency appears incongruent with the availability of automatic extensions
of time to file. Treasury proposes, accordingly, that the failure to file penalty be restructured to
impose a lower penalty rate over a longer period of time, up to the current-law maximum
amount The current-law higher penalty for fraudulent failures to tile, however, would be
maintained. This proposal would mainrain a failure to file penalty to encourage timely filing, but
not impose as significant a financial burden as under current law for a filing lapse of short
duration, while providing a continuing incentive for delinquent ti lers to correct a tiling lapse of
longt:r duration
The failure to pay penalty should provide appropriate incentives to taxpayers to COrTect a
payment delinquency and, jf necessary, arrange for payment under various payment programs
that the IRS makes available A taxpayer who fails to make such arrangements in a timely
manner should be subject to a higher penalty rate than that provided under current law. Treasury
proposes. accordingly, that the failure to pay penalty be restructured to accomplish these
purposes by imposing a penalty at the current rare of O. 5 percent per month for the first six
months of a payment delinquency The penalty rate would be raised to one percent per month
[or continuing payment delinquencies after the sixth month to pruvide an additional incentive to
pay an outstanding tax liability. As under current law. lhe maximum penalty would be 25
percent. These penalry rates would be reduced if taxpayers make. and adhere to, arrangements
with the IRS for payment The fallllre to pay penalty would not be coordinated, as under current
law, with the failure to file penalty to recognize that each form of delinquency is a separate act of
noncompliance. More specitically, these recommendations would
( I)
Restructure the failure to file penalty to impose a penalty of 0 5 percent per month
of the net amount due for the first six months of a delinquency in fding tax
returns. which penalty rate will be increased to one percellt per month thereafter,
up to a maximum 25 ;Jercent This resrructured penalty would eliminate the
currel1l-taw front/oilding of the penalty into the tlrst live months of a filing
delinquency. providing a continuing incentive for delinquent filers to correct their
tiling delinquency over longer penods of time The maximum penalty of 15
percent is the same as under current law. As under current law, fraudulent
failures to file would be penalized at a higher penalty rate of 15 percent per
month, up to a maximum of 75 percent.
(2)
Restructure the failure to pay penalty to impose a penalty of 0 5 percent per
month of the net amount due for the first six months ofa payment delinquency,
which rate would be increased to one percent per month thereafter, up to a
maximum 25 pe.rcent. The penalty rate would be decreased from 0.5 percent to
0.25 percent per month if the taxpayer, within six months, enters into a payment
arrangement with the JRS to which the taxpayer adheres. Likewise, the onepercent penalty rate would be reduced to 0.5 percent if the taxpayer, after the
lapse of six months, enters into a payment arrangement with the IRS to which the
taxpayer adheres.
Treasury also recommends that consideration be given to charging a fee, in the nature of
a service cha:-ge, for late filing of "refund due" or "zero balance" returns. Presently. the failure
to file penalty is imposed if a balance is due with the return but is no! imposed if tax is not owed
as a result, for example, of overwithholding The importance of the filing obligation and the IRS
administrative costs associaled with nonfiling may warrant imposition of a fee for late-tiled
returns to ~ncouragc timely filing even if no balance is due with the return, at least after the lRS
has contacted the nontiling taxpayer.
Consideration also can be given to permitting tJ1e IRS to utilize a tixed interest rate for
installment agreements to avoid the incurrence by a taxpayer who has made the required
installmenr payments of a balloon payment at the end of the agreement.
Penalties fQLFa.LIure to Pay Estimated Tax
Treasury recOlllmends that the current-law addition to tax for failure to pay estimated tax.
remain treated as a penalty Treasury recognizes that the current sanction has attributes of
interest and of a penalty The ancillary effects, however, of converting the sanction to an interest
charge do not warrant such a change Conversion to an interest charge may mean that existing
statutory waiver provisions are inappropriate. Conversion to intert;!~t also would permit
corporations to deduct the payment of such sanction
Tn recognition, however, of the potentially cumbersome nature of complying with the
estimated tux payment requirements, the following simplifying changes are recommended for
con~idcl'ation
(J)
lndividuals should not be subject TO estlmated tax penalties if the balance due with
their r(;!turns is less than S1,OOO Thus, estimated tax payments should be included
in the calculation of the $1,000 threshold, but Treasury recommends this change
under d ~il11plitied averaging method that would preclude taxpayers from
satisfying the threshold by concentrating estimated tax payments in later
il1stallmcnt:>
4
(2)
A reasonable cause waiver from penalty should be permitted for individuals who
are first-time estimated taxpayers, provided the balance due on the tax return is
below a threshold amount and is paid with a timely filed return.
(3)
Penalty waiver should be provided for individual estimated tax penalties below a
de minimis amount, in the range of $1 0 to $20
P~alty for Failure to Deposit
Treasury recommends that few immediate changes be made to the deposit rules or
penaaics at this time to provide a sufficient period of time for changes to the deposit rules
enacted by RRA 1998 to take effect. However, the penalty for failure to use the correct deposit
method should be reduced. The current-law lO-percetll penalty is too severe for this type of
error.
Treasury also recommends that, in cases where depositors miss a deposit deadline by
only one banking day, consideration be given to a reduction in the current penalty rate of two
percent to a lower amount, but above an interest charge for a one-day delay.
Accuracy-Related and Prepare! Penaltie5
Tbe minimum accuracy standards, for disclosed and nondisclosed tax return positions,
should be modified to impose the same standards on taxpayers and tax return preparers A
significc:1nt proportion of taxpayers rely on paid preparers. Such professionals have dual
responsibilities to their client/taxpayers and to the integrity of the tax system and should be
expected to be knowledgeable and diligent in applying the Federal tax laws
The minimum accuracy standards should be raised to require a "realistic possibility of
success all the merits" for a disclosed lax return position and "sub.stantial authority" for an
undisclosed return position. The standards for tax shelter item:; of noncorporate taxpayers should
be higher In the case of disclostd positions. substantial authority and a reasonable and good
faith belief that the po~jtion had a "more likely than not" chance of success should be required.
For undisclosed positions, substantial authority should be accompanied by a reasonable and good
faith bel ief ba~t!d upon a bigher standard of accuracy than the "more likely than not" chance of
success standard. The proposed changes in the accuracy standards would reduce the number of
accuracy standards, impose minimum standards that are higher than current law litigating
standards to discourage aggressive tax reponing, and eliminate divergence between the standards
appJicable tu taxpayers and tax preparers
Treasury further recommends consideration of better harmonization of the substantial
In many cases, the standards applicable to the
substantial understalement penalty may subsume the negligence standards. It may be appropriate
to consider whether the negligence penalty should relate only to understatemeIlls that do not
satisfy the "'substantial ity" requirement.
understatement and negligence penalties
5
In determining the amount of the preparer penalty, consideration should be given to a feebased or other approach to more closely correlate the preparer penalty to the amount of the
underlying understatement of tax, rather than the current-law flat dollar penalty amounr.
Finally, Treasury also recommends enactment of the Administration's Budget proposals
[har would address penalties applicable to corporate tax shelters and the determination of
"substantiality" for large corporate underpayments.
Penalty for Filin?r.a Frivolous Return
The current-law penalty for filing a frivolous tax return should be raised from $500 to
$1.500. but the IRS should abate the penalty for a first-time occurrence if a nonfrivolous return is
filed within a reasonable period of time. This penalty amount was last raised in 1982 and
significant numbers of such penalties are assessed This approach will help bring taxpayers who
tile frivolous returns into better compliance.
Failures to File Certain Information Returns With Respect to Employee BeneGt Plans
Severa! penalties currently apply to a qualitied retirement plan's failure to tile IRS Form
5500 These penalties should be consolidated into a single penalty not in excess of a monetary
amount per day and not to exceed a monetary cap per return. This penalty would be waived
upon a showing of reasonable cause. Welfare and fringe benefit plans should be subject to a
simil<:u· single penalty
J:~n(lliy
rind lntcrcsl Abatement
interest Abatement
Abatement of interest in situations where taxpayers have reasonably relied on erroneous
written advice of IRS personnel should be available. Treasury does not recommend further
legi!>li:\tive expansion of the provisions permitting abatement of interest A distinction exists
between the imposition of interest as a charge for the u~e of money and penalties as sanctions for
noncompliance. Because of this distinction, abatement of interest should be allowed in more
limited circumstances than for penalties and generally restricted to circumstances where the IRS
rnay be at fault or where serious circumstances outside the taxpayer's control result in payment
delays. Current Jaw provisions permitting abatement in circumstances of unreasonable IRS error
or delay and in certain other prescribed circumstances provide sufficient scope for interest
abatemem at this time. In addition, taxpayers have recourse to other mechanisms for mitigation
of interest and penalties, such as the offer-in-cOl1lpromjse program, which arc in the early stages
uf implementing changes after enactment by RRA 1998
Consideration orany modification of the current law monetary limitation on mandatory
imerest abatement in cases of erroneous refunds should be coupled with consideration of whether
the IRS has adequate means under current law to recover erroneous refunds Procedural
impediments exist with regard to the recovery of erroneous refunds by assessment in all cases
and litigation is required in some circumstances
6
026221999
Penalty Abatement
Other than as described above, Treasury recommends that the IRS implement
administrative improvements to ensure greater consistency in the application of penalty
abatement criteria and enhanced qual ity review of penalty abatement decisions.
Interest Provisions
The underpayment interest rate (other than the "hot interest" rate) should be a uniform
rate determined by appropriate market rales of interest. Treasury recognizes that no single rate is
the appropriate market rate for all taxpayers but concludes that, for reasons of fairness and
administrability, a single rate generally should apply to underpayments of tax.. The appropriate
rate should be in the range of the Applicable Federal Rate (AFR) plus two [0 five percentage
points to reflect an average market rate for unsecured loans.
The existing rate differentials between the underpayment and overpayment rates for
corporate underpayments and overpayments, including the "hot interest" rate on large corporate
underpayments, should be retained Because of the recent enactment of global interest netting
wles, it is premature to eliminate existing rate differentials
Treasury does not SUppOl1 an exclusion from income for overpaym~nt interest paid to
individuals. The legislative policy precluding deduClions or consumer interest does not warrant
such a change.
Conclusion
Treasury srrongly supports a penalty and interest regime that fosters and maintains the
current high level of comphance, provides appropriate costs and sanctions for noncompliance,
and provides C\ reasonable aIld administrable degree of latitude for individual taxpayer
circumstances and errors
The proposals made in Treasury's report strike an appropriate balance among these
objectives. The failure to file and failure to pay penalty would be restructured to provide
appropriate sanctions without undue burden on taxpayers and with incentives for taxpayers to
address payment difficulties with the IRS expeditiously. The proposals made with regard to
estimated tax and deposit penalties are intended to address complexity and mitigate unintentional
errors while recognizing the imponance of the estimated tax and deposit rules to our "pay-asyou-go" tax system The recommendations with respect to the accuracy and preparer penalties
recognize the i mponance of our self-assessment systern, the damage to taxpayer perceptions of
fairness as a result ot' overly aggressive tax repol1ing by some taxpayers. Rlld the importance o[
preparer:; and other praclitioners in protecting the intr:grity of the tax system Treasury's
recommendations regarding penalLY and interest abatement preserve the distinction between
penalties and interest while providing latitude for mitigation in appropriate circumstances
Treasury's recommendation that current interest differentials be maintained with respect to
7
corporate underpayments and overpayments is grounded in marketplace differences between
borrowing and lending rates and reducing incentives for de:ayed payment of large corporate
underpayments or incurrence of large corporate overpayments. The new global interest netting
rules also are in the process of implementation and time is required to evaluate their efficacy.
Finally, consideration of any legislative change in the current penalty and interest regime
must take into account: 1) behavioral impact of significant change cannot be predicted with
precision, and 2) the ability of the IRS to administer the new rules in a timely and equitable
manner
This concludes my prepared remarks. We look forward to working with you, Iv1l.
Chairman, and members of the Subcommittee and full Committee in further developing these
and any other legislative proposals in this area. I wou.ld be pleased to respond to your questions.
-30-
DEPARTMENT
OF
THE
TREA'SURY
NEWS
IREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220· (202) 622-2960
U.S.
Internahonal Reserve
POSluon
January 27, 2000
The Trc:lsury Dep:lrt!l1cnt tochy released U S resel-VC aSSets data for the week endJng j:1!1uary 21, 2(Jon
As mdJcated
In
tim table, LlS reserve assets tot;dcd $71,132 Il1l1Lon as ofJanuary 21, 2U()(), up from 570,993 nulliol1~'
of Jan U:ll)' 1-+, 1999
(in US millions)
I. Official U.S. Reserve
January 141 2000
70,993
Assets
TOTAL
1.
I
Foreign Currency Reserves 1
a. Securities
Euro
5,094
Yen
6.063
Of which, issuer headquartered in the US
January 211 2000
71,132
TOTAL
Euro
11,156
5,078
TOTAL
Yen
6,115
11193
0
J
b. Total deposits with:
b.i. Other central banks and BIS
b.ii. Banks headquartered in the US.
11,737
20,488
8,732
20 :;-)
11.838
0
)
b.ii. Of which, banks located abroad
0
)
b.iii. Banks headquartered outside the U.S.
0
J
b.ili. Of which, banks located 111 the US
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
4. Gold Stock
5.
8,751
2
3
Other Reserve Assets
--
0
17,965
17; -7
10,336
~
11,048
.. -..!:
-
0
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates Foreign currency holdings listed as securities reflect marked-to-market values and
depOSits reflect carJ'ing values
NOTE: Data for January 14, 2000 is corrected data.
21 SDR holdings and the reserve position In the IMF are based on IMF data and revalued In dollar terms at the offiCial SDR/dolla r exc,an;:"
rate Consistent with current reporting practices, IMF data for January 14, 1999 are frnal Data for SDR holdings an:j the reserve DOSI' on the IMF shown as of January 21,2000 (In ItaliCS) reflect preliminary adJustments by the Treasury to the January 14. 2000 IMfC da:"
31 Gold stock IS valued monthly at 542 2222 per fine troy OLnce
Values shown are as of December 31. 1999
The Novencoer::':
1c::.:.
value was S 11.049 million
LS-352
For press r~leas.es,. speedzes, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
S
~...::: 3
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:
DR IMMEDIATE RELEASE
·anuary 24, 2000
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
January 27, 2000
April 27, 2000
912795DT5
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.385%
High Rate:
Investment Rate 1/:
Price:
5.:'49%
All noncompetitive and successful competitive bidders were awarded
3ecurities at the high rate.
Tenders at the high discount rate were
illotted
49%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
$
Competitive
Noncompetitive
21,968,053
1,308,807
497,100
497,100
23,773,960
7,507,210
4,657,815
4,657,815
o
iJ
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
$
5,701,303
1,308,807
7,010,110 2
23,276,860
PUBLIC SUBTOTAL
TOTAL
$
28,431,775
$
12 , ] G S ,
(~:c::,
Median rate
S.~70%: 50% of the amount o[ accepled competitive tenders
was tendered at ot" below that rate.
Low rate
5.280%:
5% of the Flmount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
==
23,276,860 / 7,010,110
=
3.32
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,034,217,000
LS-353
~ttp://www.publlcdebt.treas.gov
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:
OR IMMEDIATE RELEASE
anuary 24, 2000
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
IB2-Day Bill
January 27, 2000
July 27, 2000
912795EU1
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.520%
High Rate:
Investment Rate 1/:
Price:
5.774%
97.209
All noncompetitive and successful competitive bidders were awarded
3ecurities at the high rate.
Tenders at the high discount rate were
illotted 23%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
$
Competitive
Noncompetitive
PUBLIC SUBTOTAL
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
s
TOTAL
18,319,170
1,130,91B
$
2,372,670
1,130,918
19,450,088
3,503,588
2,998,300
2,998,300
22,448,388
6,501,888
3,190,000
3,190,0(J
o
'I
25,638,388
9,691,8;0:::
Median rate
5.S00%: 50% of the amount of accfO>ptpd compfO>titiv,,=, lend"::c3
was tendered at or below that rate.
Low rate
5. 4 50~6 :
S% of the:: amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
19,450,088 /
3,S03,588 = 5.SS
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $853,532,000
LS-35 4
http://www .publlcdebt.treas.go v
L/
D E P :\ H. T \1 E N T
0 F
THE
T R E :\ S tJ R \I
\
TREASURY
NEWS
OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA,\v ENU£, N.W .• WASHINCTON. D.C •• Z0120. (201) 622.291,0
EMBARGOED UNTIL 2 :30 P.M.
Jalluaxy 27, 2000
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK, 26-WEEK, AND 52-WEEK BI.LLS
~he
Treasury wi~~ auction three series of Treasury bi~~s tota~ing
approximate1y $24,000 million to refund $29,483 mi11ion of publicly held
securities maturing February 3, 2000, and to pay down about $4,483 ~llion.
In addition to the public holdings, Federal Reserve Banks for thei~ own
accounts hold $13,993 million of the maturing bi~ls, which may be refunded at
the highest ~scount rate of accepted competitive tenders. Amounts issued
to these accounts will be in addition to the offering amount.
The maturing bills held by the public include $6,447 ~llion held by
Federa1 Reserve Sanks as agencs for foreign ana international monetary
aathorities. up to $3,000 million of these securities !AY be refunded wi~hin
the offering amount in each of the auctions of 13- and 26-week bills at the
highest discounc rate of accepted competitive tenders.
Additional amounts may
be issued in each auction for such accounts to the extent that the amount o£
new bids exceeds $3,000 million.
Of the $6,447 mallion maturing bills held by foreign and international
monetary authorities, $1,483 million is considered to be held in the o~iginal
52-week issue; additional ~ounts may be issued in ~be 52-week bill auction
for such accounts to the extent that the amount of new bids exceeds ehat
amount.
Treasur,y,Direct customers requested that we reinvest their maturing
holdings of approx±mate1y $~,052 million into the 13-w&ek bill, $796 ~11ion
into the 26-week bill, and $609 million into the 52-week hill.
This offering of ~reasury securities is governed by ~he ter.ms and conditions set forth in the Unifor.m offering Circular for tbe S~le and ~Ssue of
M~rketable Book-Entry Treasury Bills, Noees, and Bonds (3~ CFR Part 356, as
amenclecl) •
Det.i~s
offering
about each of the new securities are given tn the attaehed
hi~h1i9hts.
000
L8-3'1'1
A~tQ.cQment.
For preIS releases, speeches) public rcheduls ... and official biog1'ftl'hies, call our 24-h()ur fax line at (2fJ2) 622·2040
flIGHLIOHTS OF TREASURY OFFERINGS
TO BE ZSSUED FEBRUARY 3 1
OF BILLS
2000
January 27, 2000
Offering Amount ........••....•..... $7,500 million
Description of Offering:
Te~ and type of security •.•.•....• 91-day bill
cusrp number ••••••.....••...••....• 912795 DU 2
Auction date •••.••••.••••••••••...• January 31, 2000
Issue date ••..•..•••.••••••••••.•.• February 3, 2000
I4aturitl' d4te ......•...••....•..... May 4, 2000
Original iasue date •.••••••••••••.• November 4, 1999
Currently outstanding .•••.•.....•.• $13,082 million
Minimum bid amount and multiples •.• $1,000
$6,500 mil.lion
$10,000 mi.ll.ion
182-day bill
912795 EV 9
January 31, 2000
February 3, 2000
August 3, 2000
February 3 1 2000
364-day bill
912795 FR 7
February 1, 2000
February 3, 2000
February 1, 2001
Feba:-uary 3 2000
$1,000
$1,000
1
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids ..•.•. Accepted in full up to $1,000,000 at the highest discount rate of accepted
competitive bids.
Competitive bids ••.•••••. g(1) MUst be expressed as a discount rate with three decimals in incr~nts
of .005%, e.g., 7.100%, 7.105%.
(2) Net long position for each bidder must be reported when the surn of the
total bid amount, at all discount rates, and the net long position is
$1 billion or greater.
(3) Net long ~oBition must be dete~ined as of one half-hour prior to the
olosing tUne for receipt of competitive tenders.
Maximum Recognized Bid
at a Single Rate .•••••.•. 35% of public offering
Maximum Award •.•.•..•••••.•. 35% of public offering
Receipt of Tenders:
Nonc~etitive tenders ••. Prior to 12:00 DOon Eastern Standard time on auction day
Competitive tenders ••••• ,Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Terms ...•.....•.•.•. By charge to A funds account at a Federal Reserve Bank on issue date, or
payment of full par amount with tender.
Tr8asu~Direct customers can use the
Pay Direct feature which authorizes a charge to their account of record at
their financial institution on issue date.
D EPA R T ~I E N T
0 F
T II E
T REA SUR Y
ornCE OF PUBUCAFFAmS -1500 PENNSYLVANlAAVENUE.. N.W. - WASIDNGTON, D.C. - %0%%0 - (%02) 6%%.%960
Text as Prepared for Delivery
January 28, 2000
REMARKS BY TREASURY SECRETARY LAWRENCE H. SUMMERS BEFORE THE
U.S. CONFERENCE OF MA YORS ·'BUILDING SAFER, MORE PROSPEROUS
Al\tERICAN CITIES"
Thank you, I am glad to be here today. I want to talk. first. about the importance of
America's big cities and what has happened in our inner cities in these years of strong national
performance. I would then like to touch on two issues that are especially important to cities: our
approach 10 economic empowerment. and guns.
I.
The Burden that American Cities
Car~'
The possibility of a nation rides to a great degree on the possibility of its cities. Cities are
where people come together. create ideas. put those ide:1s into practice and take human
achievement to its limits. Cities work for America - we cannot imagine the economic success of
this nation without our cities. So America has 10 work for its cities.
But inner cities also carry a disproportionate aI1H1l1l1l ll(. \merica' s responsibilities. They
are home to more than their fair share ofdillicuil tlll:'UUl'O.ltL" childn:n: more than their fair share
of people on welfare: and attract more than their fair sh~n: 01 tlll'Sl..' with nowhere else to go.
Because poverty is disproportionately concentratt:d in our big cities. the cities are
compelled to spend more of their O\\TI resources ~r ht:ad In combat poverty than smaller citiesthis imposes a much higher tax burden on the: mid-inco!11~' rt:~idt:nts of most big cities and acts as
an incentive for them to move out to the.: suhurbs_
The best news for cities in America' s t:conomic Sll(Cl..'~~ is that it has created an
environment where jobs look for people mort: than pe:opk Innk for Jobs. That benefits most the
people who would usually be ]ast in the.: Imt:. But it is not enough. Although their economies
have grO\~n over the last decade. cities ha\ e not kept pace \\ ith the rest of the nation.
•
One in five residents of our big cities li\ es below PO\ erty compared to one in seven in the
nation as a whole. Philadelphia Count~. for c:\ampk. i~ illllllt: to only 12 percent of
Pennsylvanians - but nearly half of its \\e1f~He recipll"nts.
LS-356
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I)
•
In 1996, almost I in 5 urban children was "at risk" of poor economic outcomes as an adult that is twice the number at risk in the suburbs - and tifty percent more than in 1976.
•
Big cities carry a much heavier share of the fiscal burden. In 199::! large cities raised more
than $1,200 in municipal revenues and spend almost $ ..HlO Clfthis per capita on health.
Smaller cities spent just $40 per head on health or less than 10 per cent of their O\\TI
revenues. [Gyourko and Summers]
II.
A New Approach to Economic Empowerment and Inclusion
We are committed to bringing economic development to all of America's cities. This has
to be a moral imperative of the highest order. \[ is also ~ I1~Hi()l1al economic imperative: because
in a high-pressure economy, everyone that is brou~ht inw tht: productive enterprise of the nation
marks a reduction in inflationary threats.
Central to our efforts to support economic development in cities has been the idea of
expanding access to capital. The First Lady likes to say that it takes a village to raise a child.
She"s right. And it takes capital to build a successful village.
Expanding access to capital
Traditionally and importantly the qUl!stion of aCl:ess ttl capital has been about debt and
the provision ofloans. We have continued to built on that traJitioll in recent years: with a
revitalized Community Reinvestment Act. which last :e~r resulted in some $88 billion in private
capital flowing into community lending: and with the cn:atioll of the Community Development
Financial Institutions Fund .. which has pnwided more than S300m to local financial institutions
since 1996. a sum that has been leveraged man~ tim~s lnCr in :ldditional private investment.
At the same time. we have I(!arned that then: can h: Ill,lrl' important barriers to attracting
or creating businesses in our disad\antaged communJtIL':-- ,-, I(;lbl:. lack of access to equity and
lack of the kind of technical expenise busint:ss net\\(lrks that lirms in the mainstream economy
take for granted.
•
lbat is why the President launched hi~ 'to'\\ \larkch Initjatin~ last year. to unlock the
potential of America's inner cities and rural an:as at ;1 IIIllL' when the purchasing power of
these communities is estimated to approach S700 bdl1l1ll. fhis initiative includes a New
Markets Tax Credit. providing a :!5 rcrcent ta:x cn:Jll 1111" l'quity investment in local.
specialized financial institutions that \\ ill then imcst III II lL~t1 husinesses. As you know. last
week the President announced his propo~1 f(lr a I11JIPf e:\r'~lI1sion of the New Markets Tax
Credit to $5 billion for the FY~OO 1 huJget.
•
And that is also why. through BusinessLl~C. led h: Vice President Al Gore. we are
encouraging businesses throughout the nation to takL' ~I ..;cc()nd look at opportunities for
partnering with finns in inner cities and rural arc:.ls.
In addition. to ensure that our nation' s urban areas hJ\L' rill' special support they need. we
have proposed:
•
Allowing State and local governments to issue Better :-\I1lL'ficJ Bonds. tax credit bonds similar to the current Qualified Zone Academy Bonds - to tinance projects to protect open
spaces or otherwise to improve the environment.
•
Raising the annual State limitation on the Low Income Housing Tax Credit to $1.75 per
capita effective for calendar year 200 I and to index th:H ~mount for inflation. beginning with
calendar year 2002
•
And expanding the empowerment zone tax initiative by
Second. promoting universal access 10 a
S~.4
billion over the next 10 years.
hank aCCOUnT
When we talk about finance we must also talk about indi\'idual access to financial
services. Like money itself, the benefits that a bank account provides are easy to take for granted.
Until you do not have one. And today. in the age of the Internet. oerivatives. and embedded
options. between 10 and 20 percent of Am~rican househnld~ ...;till lack that basic passport to the
broader economy. If it was an imponant national (hall eng.: half ~l century ago to ensure that
essentially every American had access to clt:ctricity. to funning ,\·ater. and to a telephone - in
new economy, ensuring access to a basic bank account must be a critical challenge for today.
One recent survey in Chicago found that 44 percent (1f recipients of the Earned Income
Tax Credit used a check cashing sen:ice to cash their EITe refund check. Estimates suggest that
the costs over a lifetime for low- and middle-income f:lmllit::-; III r~ying fees for every check paid
in, and bill paid out, could be more than S 15.000.
This crucial problem can be tackled on a number of fr"llts:
•
By building on the experience of the Ekctronic T ranskr . \\.:count. which is now a useful
entry point to the financial services mainstream ti.)r II.:Jl.:r~" hendits recipients without a bank
account. In only its first five months ET:\ 44 hJ5 sl:curcu commitments from over 300 banks
to offer the account, underlining. that these t~ pes of illlHl\ .Ilions can benefit both sides.
•
By passing the President's ne" initiati\t~ -- Flnl ACC(I/IIII\ - Itl bring the "unbanked" into the
financial mainstream. The President" s F Y 200 I budg~t tor the Treasury Department win
include $30 million to pilot strategies to help 10\\- and moderate-income Americans benefit
from basic financial services that most of us takt: t(lr ~r~lllted - like bank accounts and A TMs.
And yet. the only way to ensure that pur CHi\:< IllhllT'.~·nL'd communities are able to
adequately maintain the safety of the people h\'inJ; withlll lill.:ll1. /\s we have seen too often,
economic distress goes hand-in-hand with the prolikratioll (\/ "io!ence - and we know well that
seed capital and economic development cannot take root when the bullets are flying .
...
J
III.
A New Approach to Building Safer Cities
Ensuring the safety of all of our citizens. is the tirst and most essential responsibility of
government and it is critical to expanding the reach of our f'f0sperity. We have made important
progress in recent years:
•
For 7 years in succession, the gun homicide rate has fallen. by an average of 7 percent a year.
•
Overall, gun crime has fallen by more than a third. and the number of juveniles committing
homicides with guns has fallen by 57 percent.
•
Federal fireanns prosecutions are higher today thnn rhey "ere in 1992. and they are up 25
percent just from 1998 to 1999.
And yet. as your "Wall of Death" shO\\"s us Sl) PO\\ ,:null: . a \"\:~ry great deal remains to be
done. It is simply not acceptable that. in 1997. 32A36 pet\plc: died from gunfire in the United
States - or one every sixteen minutes. You hn.\"e (0 IjyC "'jtll these statistics every day - and the
pain and suffering that they leave behind.
Because you have joined your voices with others. the nature of the public dialogue about
gun violence has been transfonned. The old canards ab0l1t ~lIns are being abandoned. Now it is
widely accepted that we can do better with our laws and that \\t' need to support. not undercut,
our law enforcement efforts. Your foresight led you to cre~lle a committee to bear down on the
problem. Your voice was heard clearly in the resolution you passed to support most of the
Administration' 5 gun proposals. You ha\'e focused national attention on the role of the gun
industry_ which is bringing about a long oyerdue dialogue. For your leadership. I thank you.
But we must do more. Last night. in his Statt! of tilt: t :nion message. President Clinton
laid out a common sense path for progress. Today I want tn hi~hlight three areas where our
partnership v.ith Mayors "ill be most important:
First, tougher, wider enforcement.
As Treasury Secretary. I am proud of the dhms of I hI.: men and women of the ATF to
reduce violent crimes with firearms. The Prl.:sidcnl ha" prnr'Il"L'd In add 300 new agents at ATF.
the largest increase in the histol]' of-tht: . .\ IT.
•
These agents will work with U.S. Attome~ s anJ \\ ith ~ IIl1 111..:\ will build on what we know
works in gun enforcement by targeting tht: most \i{)iL-nl ntl'enders and vigorously prosecuting
those who cross the line.
•
They will also work with you to disarm violent otTcnders hy focusing enforcement efforts on
the criminals-behind-the-criminal: the gun tmftickers. and jllegal gun buyers and possessors.
•
And they will work with community institutions anu sL'nices so that these offenders are
supported if they choose to build new and produl:ti\c li\ L':-' III society.
4
Second. greater gun industry and gun mmcr resp{)nsibilj~L
The President's budget proposes to add 200 inspectors (() ATF's workforce. These new
inspectors will enable A TF to target more aggressively those dealers that are now identified as a
source of crime guns.
While many licensed gun dealers are not associated with guns used in crime, in 1998
there were over 2,000 dealers that had 5 or more guns traced to them in 1998. This small grouprepresenting less than 3 percent of active gun dealers - was associated with nearly three-quarters
of crime gun traces to active dealers in 1998. The new inspectors \,·ill enhance A TF's ability to
determine who is responsible for those traces - straw purchasers or other unlicensed sellers or
the licensed gWl dealer. If the gun dealer is in violation l,r the ~un laws. the inspectors will take
regulatory action or refer the case for criminal investigation.
But gun dealers are only one pan of a more comprehensive approach:
•
Manufacturers, wholesalers. retail dealers. and pav.nbrokers all need to do more to tighten
the chain of distribution. control inventory. secure their premises against theft. and use
common sense in dealing with customers.
•
Gun owners too must take greater care. More than a third of handguns are stored loaded and
unlocked. The accidental gun death rate of children under 15 in the United States is nine
times higher than in 25 other industrialized nations combined. We can reduce accidents and
theft if gun owners, especiaJIy parents. take more r~sponsibility for keeping firearms under
wraps - and if we pass the safet), lock legislation to ensure that safe storage is an option
provided at the point of sale. This is why the President last night proposed a plan to develop
a system of state-based licenses for handgun purchases. Applicants for a handgWl license
would be required to complete a certified firearms safct~ course or exam to demonstrate that
they can handle and store a gun safel~.
Third. common sense gun legis/alion.
For those of us who believe that tougher ent(.)rccllH:1l1 must he coupled with better
legislation to eliminate gun violence. our I~t IcgislalJ\ t: ~cssion t:nded in deep disappointment
that an opportunity had been squandered and the lessons of Columbine had been ignored.
TIlls year we must carry forward PreslI.knt Clinton's call to adopt all the common sense
gun legislation considered by Congress in the fall. CS~Ciillly closing the gun show loophole.
Right now, we know that criminals who are reJected at guns stores based on Brady checks will
seek out these unlicensed sellers. wherever lhc~ art!. especially at gun shows where so many
sellers gather. Closing the gun show loophole will squeac the criminal. not the law abiding gun
owner.
The President's handgWl licensing proposal would build on the gun show legislation by
requiring applicants to pass Brady background check. Each state licensing authority would
5
regularly cross-check criminal history records to flush lHI[ license holders who have since fallen
into the prohibited category, including felons and persons under domestic violence restraining
orders. State participation would be optional - and supponed by federal funding, For states that
choose not to participate, federally approved gun dealers or a federal entity would be authorized
to issue licenses. Under this system. more gun buyers would receive background checks, and
states would have more ability to prevent guns from falling into the \\-Tong hands. I ask you to
support these proposals.
IV.
Concluding Remarks
These are some of the particular ways v,:e will be working to make our cities safer and
more economically vibrant in the months and years ahead. You know better than I that there are
many, many, others. Our commitment to sound policies. at the macro and the micro level- in
Washington and aroW1d the country - has paid important di\'idends for your cities. But we can
and must do more to help lift the heavy burden that our citi~::; (:lrry in America today. And we
mu.st all work together to do it. Thank you very much.
- 30-
6
..____________
NEWS
~~9~~-----------
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622·2960
EMBARGOED UNTIL 3:00PM
January 31, 2000
CONTACT: Bill Buck
(202) 622-2960
TREASURY ANNOUNCES l\1ARKET BORROWING ESTIMATES
The Treasury Department announced on Monday that net market borrovnng
for the January - March 2000 quarter is estimated to be a paydown of S 17
billion with a cash balance of $40 billion on March 31, 2000. The Treasury
Department also announced that net market borrowing for the April - June
2000 quarter will be a paydown of $152 billion with a cash balance of S40
billion on June 30.
In the quarterly announcement of its borrowing needs on November 1, 1999,
the Treasury Department estilnated net market borrowing for the January March 2000 quarter to be a paydown of $12 billion with a cash balance of
$20 billion on March 3 I, 2000. Current estimates reflect higher receipts,
lower outlays and a change in cash balances.
Actual net market borrowing for the October - Decen1ber 1999 quarter \\'as
$47.0 billion with a cash balance of $83.3 billion on Decen1ber 31, 1999.
On November 1, the Treasury Department announced its current estimate of
net market borrowing to be $51 billion with a cash balance of $70 billion on
December 31, The decrease III net market borrowing and the higher cash
balance was the result of higher than expected receipts. primarily during the
latter part of December.
The Quarterly Refunding Press Conference will be held at 9:00AM on
\Vednesday, February 2, 2000,
LS-357
For press releases, speeches, public schedules and official biographies, call our 24-hour fax lim! at (202) 622-2040
.
026222611
From;
~artment
Of Treasury
06/02/00 04:07 PM
Page 57 of 62
OFFICE OF PUBUC AFFAIRS • lS00 PENNSYLVANIA AVENUE, N.W•• WASHINGTON, D.C. • 202%0 • (202) 622-2960
EMBARGO TIME WILL BE SET
Text as Prepared for Delivery
February 1,2000
DIRECTOR OF THE OFFICE OF MACROECONOMIC ANALYSIS JOHN H. AUTEN
REMARKS TO THE TREASURY BORROWING ADVISORY COMMITTEE
OF THE BOND MARKET ASSOCIATION
When you were here three months ago, the economy had completed the third quarter with
strong real growth, currently carried at 5.7 percent annual rate, Not much has changed in that
respect. Fourth quarter real growth was a broadly similar 5.8 percent, according to last week's
advance estimate. Clearly, the economy regained forward momentum in the second half of last
year. This raised real growth over the four quarters of last year to 4.2 percent, the fourth
successiv~ year of real growth in excess of 4 percent.
This is a remarkable record of stable growth in what will become this month the longest
U. S. economic expansion on record. It is more remarkable still that inflation is averaging at the
lowest levels in more than three decades, while at the same time the unemployment rate has
fallen to its lowest level in more than three decades. This combination of strong real growth. low
inflation and a falling unemployment rate is unique in U. S. post-World War II economic
expenence.
Some boost to the fourth quarter had been widely expected from precautionary inventorybuilding by both consumers and businesses in advance of Y2K, followed by a corresponding
inventory runoff and weak economic growth early this year. Final inventory data are not yet
available for the fourth quarter, but it appears from current infonnation and anecdotal reports that
such activity did occur, but it did not playa dominant role in the fourth quarter. Instead, the
economy displayed considerable strength wholly aside from Y2K effects.
As a consequence, near term economic forecasts have been marked up. For example, the
Blue Chip forecast of October 10, made in advance of the fourth quarter, projected a 2 percent
growth rate for the fust quarter of this year and 2.6 percent growth across all four quarters. Their
latest forecast of January 10, made in some knowledge of fourth quarter developments but
without the benefit of last week's official estimates, projected 3 percent growth for the first
quarter of this year -- a full percentage point higher than three months earlier -- and 3.2 percent
grov.1:h across all four quarters of this year. That is quite a sizable upward move for this average
of 50-some forecasts at major businesses, financial instirutions and academic research
organizations.
LS-358
(I
·U.S. Go....."m..,\ P,..,ling 011"",; 1998·
61~$S9
026222611
Fro.: OGpartment Of Treasury
06/02100 04:07 PM
Page 58 of 62
2
Two key statistical releases late last week -- fourth quarter GDP and the employment cost
index for the three-month period through December -- summarized the state of the economy at
year-end. The general picture was one of strong real growth combined with good inflation
performance. Some special features deserve comment.
Real personal consumption expenditures (roughly two-thirds of GDP) increased at a
5.3 percent annual rate in the fourth quarter. up from 4.9 percent in the third, but in line with the
5.4 percent growth across the four quarters oflast year. Consumer outlays are reflecting
continuing gains in employment and income. along with sharp increases in consumer net worth
from rising equity values. Business fixed investment increased less rapidly in the fourth quarter,
possibly beca.use of some Y2K effects in the equipment and software areas. Software
corrections were largely completed earlier in the year, while some purchasers of computer
equipment later in the year may have deferred their purchases into 2000 to insure that they were
Y2K compliant.
Businesses increased total inventories $65 billion in real terms in the fourth quarter,
following increases of $3 g billion in the third quarter and $14 billion in the second. This rising
trend reflects some Y2K preparation, but it is difficult to separate from the normal accumulation
stimulated by rising sales. lnventory-sales ratios are still very low and there probably is no
sizable inventory overhang that needs to be worked off. While inventory investment added more
than a percentage point to real growth in both the third and fourth quarters. it is unlikely to
continue to make such a contribution. That is one reason why real growth may begin to
moderate this year from its recent pace.
Inflation, as measured by the GDP chain weight price index less food and energy, rose at
a 2.3 percent annual rate in the fourth quarter, up from 1.1 percent in the third. Similar. isolated
quarterly increases of much the same magnitude have occurred in recent years without signifying
any lasting departure from a low trend rate of inflation. But, this is an area where developments
will need to be followed closely.
The employment cost index. also released late last week. rose by 1.1 percent dwing the
three months ending in December, following increases averaging 0.8 percent during the first
three quarters of the year. During the twelve months of 1999, the employment cost index
increased by 3.4 percent, the same as in 1998. Gains in compensation have been largely offset in
their cost-increasing impact by rising productivity. While fourth-quarter productivity results are
not yet available. rough adjustment of the GDP and workhoW's data suggests a fourth quarter
productivity gain of 4 percent or more. This would obviously outweigh the relatively minor
fourth-quarter acceleration in the employment cost index. The general conclusion one reaches is
that employee compensation is still in the same moderate range consistent with rising
producti vity and Jow inflation that has ruled throughout the expansion.
~026222611
frOl: Department Of Treasury
06/02/00 04:07 PM
Page 59 of 62
3
Infonnlltion cUlTently available suggests that the economy began this year with
considerable forward momentum.
•
The swveys of both the Conference Board and the University of Michigan reported sha1l'
increases from December to record levels of consumer confidence in January. The
Conference Board felt that consumer spending may very well pick up even more over the
next few months, while the January surge in the Michigan index was the largest monthto-month gain in more than five years.
•
After a strong Christmas sales season, some sales slowdown might have been anticipated.
Industry reports suggest that the holiday sales pace extended into this year on a
seasonally adjusted basis with sales generally running at or above plan.
•
Recent jobless claims data indicate that labor markets remain extremely tight. In the
week ended January 22. initial claims for state unemployment insurance edged up by just
1,000 to 266.000 while claims for the previous week were revised down sharply to
265.000 -- the lowest level since December. 1973.
While the recent indicators have been strong, there is reason to believe that real gro'Wth is
likely to shade down from the 5 percent pace of the second half of last year. About 1 percentage
point of that was due to inventories, influenced in part by Y2K concerns whlch are now behind
us. In addition. some other GDP components seem to have received a boost prior to Y2K [hat
may now begin to fade away or even reverse. All things considered. the economy seems likely
to grow at a somewhat more moderate, but still healthy pace going forward with inflation
remaining under controL
That is a swnmary of recent economic developments and the near term economic
outlook.
TOTRL P.03
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
January 31, 2000
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
91-Day Bill
February 03, 2000
May 04, 2000
912795DU2
5.560%
High Rate:
Investment Rate 1/:
5.731%
Price:
98.595
All noncompetitive and successful competitive bidders were awarded
;ecurities at the high rate.
Tenders at the high discount rate were
illotted 71%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Competitive
Noncompetitive
$
22,979,396
1,448,432
$
730,000
730,000
25,157,828
7,503,448
5,048,010
5,048,010
Foreign Official Refunded
SUBTOTAL
5,325,016
1,448,432
6,773,448 2/
24,427,828
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Add-On
TOTAL
Accepted
Tendered
Tender Type
o
$
30,205,838
°
$
12,551,458
Median rate
5.540%: 50% of the amount of accepted competitive tenders
is tendered at or below that rate.
Low rate
5.470%:
5% of the amount
: accepted competitive tenders was tendered at or below that rate .
. d-to-Cover Ratio = 24,427,828 / 6,773,448 = 3.61
, Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $1,141,986,000
http://www.publicdebt.treas.gov
L8-359
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
January 31, 2000
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
February 03, 2000
August 03, 2000
912795EV9
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.705%
High Rate:
Investment Rate 1/:
Price:
5.972%
97.116
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 28%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
$
$
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
$
2,382,592
1,118,326
3,500,918 2/
17,902,918
PUBLIC SUBTOTAL
TOTAL
16,784,592
1,118,326
3,000,000
3,000,000
20,902,918
6,500,918
3,525,000
560,000
3,525,000
560,000
24,987,918
$
10,585,918
Median rate
5.675%: 50% of the amount of accepted competitive tenders
'as tendered at or below that rate.
Low rate
5.600%:
5% of the amount
'f accepted competitive tenders was tendered at or below that rate.
id-to-Cover Ratio
=
17,902,918 I 3,500,918 = 5.11
I Equivalent coupon-issue yield.
I Awards to TREASURY DIRECT = $848,865,000
LS-360
b ttp:llwww.publicdebt.treas.gov
o ..~
D EPA R T 1\1 E N T
THE
IREASURY fg)
T REA SUR Y
NEW S
178~
OFFlCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
U.S. International Reserve Position
February 1, 2000
The Treasury Department today released U.S. reserve assets data for the week ending January 28, 2000.
As indicated in this table, U.S. resel"e assets tot.lled S70,495 million as of January 28, 2000, down from S71,144
million as of Jan uar)' 21, 1999.
'I
US millions)
Official U.S. Reserve Assets
January 21, 2000
January 28. 2000
71,144
70,495
TOTAL
I
Foreign Currency Reserves'
a. Securities
Of whiCh, Issuer headquartered
In
Euro
Yen
5078
6,115
the US
TOTAL
Euro
11.193
4.906
TOTAL
Yen
5.991
10.896
a
0
b, Total deposits with:
b.l. Other central banks and BIS
8.732
11.838
b.ii. Banks headquartered in the U.S.
b
II
Of Whld1, banks located abroad
b.iii, BanKS headquartered outside the U.S.
b III Of which. banks located In the U S
lMF Reserve Position
2
Special Drawing Rights (SDRs)
Gold Stock
2
1
Other Reserve Assets
20.570
8.448
11.596
20.043
0
0
0
(
0
C
17.990
18.100
10.343
10406
11.048
11 048
0
0
(
C
, InCludes hOldIngs of the Treasury 5 Excnange StablllZat.on Fund, ESF I and the Federal Reserve's System Open Market Account
iOMA , valued at current marl<et eXChange rates Foreogn currency holdIngs listed as seCUrities reflect marked·to-market values. and
~POSlts
reflect carrying values
SDR t1old,ngs ano the reserve posltoon In the IMF are tJaseo 0" IM~ data and revalued In doliar terms at the offiCial SDRlooliar exchange
ConSistent ..... ,th current reporting praCllces IMF Oata Ic' Jan.uary 2' 1999 are final Data for SDR holdings and the reserve pOSItion I~
e IMF st10wn as o· January 28 2000 lin IJalo~1 relleCl pre"""""') a~,ustmen!5 by the Treasury 10 the January 21 2000 IMF data
te
Gclj
s!oc~ IS
va,ueo monthl; at $42 2222 per fine troy o ... "~
Va ues Stlown
are
as of December 31. 1999
The November 30 1999
Ilue was S 11 049 million
:Or press releases. speeches. public schedules and official biof!1"aphies. call our 24~our fax line at (202) 622-2040
'u S Governmen, Pronlon<)
OffICe
'998· 6,g.559
u.s. International Reserve Position (cont'd)
II. Predetermined Short-Term Drains on Foreign Currency Assets
January 21. 2000
1. Foreign currency loans and secuntles
12. Aggregate short and long positions in forwards and
futures in foreign currenCIes vis-a-vis the US dollar:
2. a. Short positions
2.b. Long positions
3. Other
January 28. 2000
o
o
o
o
o
o
o
o
III. Contingent Short-Term Net Drains on Foreign Currency Assets
January 28, 2000
January 21. 2000
1. Contingent liabilities," foreign currency
o
o
o
o
o
o
o
o
1.a Collateral guarantees on debt due wlthrn 1 year
1.b. Other conttngent liabilities
2 Foreign currency securities with embedded oPtions
3. Undrawn. unconditional credit lines
3.a. With other central banks
3.b With banks and other finanCial mstltutlons
headquartered In the U. S
3.e. With banks and other fmanCial institutIOns
headquartered outsIde the U. S
I. Aggregate short and long POSitions of options In fore.gn
currenCieS Vis-a-VIS the U S dollar
4.a Short poSItions
4 a 1 Bought puts
4 a 2 Wntten calls
4.b Long poSItions
4 b 1 Bought calls
4 b 2 Written puts
026222611
DEPARTMENT OF THE TREASURY
DEPARTMENT OF mSTICE
For Imm~diate Release
February 1, 2000
Contacts: Maria Ibanez., Treasury
202-622-2960
Myron Murlin. Justice
202-616-2777
STATEMENT OF TREASURY SECRETARY LAWRENCE H. SUMMERS
AND ATTORNEY GENERAL JANET RENO
Today, we received the reportoflhe Commission on the Advancement of Federal Law
Enforcement. We commend the Commission for its hard work and the courtesie~ which it has
extended. to the Departments of the Treas'W'Y and Justice. It has been both thoughtful and
deliberative in its review. We panicularly commend the Commission for raising concerns
regarding training, police integrity and tec.hnology.
While the report ha:s many re~ommendations that must be studied before we can
comment, the proposals to merge ATF and DEA into the FBI arc not new. We have previously
considered, studied and rejected the idea of merging the A TF and DEA into the FBI.
We believe such a merger would be unT\ecessary and would be detrimental to
enforcement efforts.
OUT
law
A TF collects revenue, regulates legitimate illdustries and has criminal enforcement
authority. Having all these functions has allowed ATF to be flexible in its enforcement
npproache5 and has fosrel'ed a mutually productive partnership between it and tbe regulated
industries. Merging ATF's eriminal el1forcememjurisdictioll into the FBI would eliminate this
synergy- There would be reductions in ATF?s effectiveness nnd no material efficiencies or
budgetary savings fTOm merging A TF into tIle FB 1.
Over the years, DEA has exhibited a proven ability to to.ster law enforcement cooperation
both domestically and internationally. A merger would result in I!l. dilution of the nation's
sucoessful anti-drug effort and would cause a sigDificant loss of momentum in dome::l[jc and
overseas enforcement activities. Both the DEA and FBI possess unique skills which complement
each other and merging the two would 1'1ot result in cost snvings or increased efficiency.
We appreciate the work of the Commission in seeking to improve federal law
enforcement efforts. Together we will review the remaini.ng recommendation and provide our
comments to the Commission. to the Congress and to the American people.
# # #LS-362
D EPA R T 1\1 E N T
0 F
THE
IREASURY'.)
17SQ
T REA SUR Y
NEW S
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANlAAVENUE, N.W.• WASHINGTON, D.C•• 20220. (202) 622·2960
EMBARGOED UNTIL 5 PM (EST)
Text as Prepared for Delivery
February I, 2000
"Moving Forward with Millennial Debt Relier
Remarks by Treasury Secretary Lawrence H. Summers
Reception to Celebrate HIPC
House Banking Committee Room
United States Congress
Washington, DC
Thank you. I have two tasks today. The fIrst is to join with the rest of the Administration in
thanking everyone in this room - and, especially, the individuals we are honoring today - for your
hard work on the HIPC initiative during the past year. Chairman Leach, Ranking Member Lafalce,
Senator Mack, Senator Sarbanes, Congressman Bachus, Congresswoman Waters - quite simply,
without your support and commitment to this effort it would not have happened. Literally hundreds
of millions of the world's poorest people owe you their thanks and so does the Administration.
My second task is to remind you that we have more to do to make HIPC happen - and to assure you
that the Administration is one hundred percent committed to working with you to get it done. Debt
relief for the poorest countries is a global moral imperative. It is also a global economic imperative,
at a time when nearly all of the growth in the world's labor force and productivity will be in the
developing countries - and their success in a new 21 st century global economy is going to be
important to the success of us all.
As you know, the work you all did for the FY2000 budget made it possible for the international
community to move forward with providing broader, deeper and faster debt relief to countries
committed to growth, economic reform and reducing poverty. That success was a tribute to the
dedication of the NGO community and the people who have supported this effort in Congress from
the beginning. And it is enonnously important. Indeed, with these appropriations in place, as many
as eleven countries will begin to benefit from debt reduction by the spring of 2000, with Bolivia,
Mauritania, and Uganda now due to qualify in a matter of days.
That is the good news. The bad news is that the HIPC countries as a whole will not fully benefit
from the time and energy that we have all invested in HIPC - unless we invest some more. The
steps agreed last year will help us to cover roughly one-third of the direct costs to the United States
of the enhanced HI PC we all want to see. And they will make it possible for the IMF to free up a
substantial part of the internal resources it needs to write down the debts that are owed to it.
L8-363
r press releases, speeches, public schedules and official biographies, call oor 24~our fax line at (202) 622-2lHO
But we have not yet done our full share, notably with respect to the HIPe Trust Fund and other
multilateral pieces of HIPC, where every dollar of our total request will leverage $20 dollars in
multilateral debt relief. The Latin American HIPes will be especially affected if we fail to ensure
that the HIPC Trust Fund is adequately funded. To put it bluntly: if we do not play our part in this
area, debt relief for Bolivia, Guyana, Honduras, and Nicaragua will not happen.
That is why the President is asking for a supplemental request for the FY2000 budget of $210
million for the HIPC Trust Fund and authorization to use the remaining earnings on revalued IMF
gold for debt relief. In the upcoming budget request for FY 2001 we will ask for a further $225
million to make good on our commitment to HIPe going forward: $150 million for the HIPC Trust
Fund and $75 million to meet the cost of reducing out bilateral debts. To underscore our
commitment to seeing this initiative through, he is also requesting $375 million in FY 2001 in
advance appropriations for these two elements of HI PC.
It is good accounting to write off debts that will never be repaid. And it is good economics to reduce
debts when the effort to collect those debts creates such an overhang that you reduce he amount you
will ultimately collect. It is also morally right - at a time when interest payments on foreign debt. in
some of the poorest countries in the world, exceed their annual spending on education or health.
The choice we face is a simple one. We can do more to play our part in making HIPC happen. Or
we can achieve less: HIPe can provide less support for market-led growth in the poorest countries
in the world; it can free up fewer resources to invest in social priorities such as child immunization.
clean water, and primary education in places where a child is more likely to die before the age of 5
than to go to secondary school; it can provide less effective support for better governance and wider
participation in policy in these countries, even though we know that true growth and human
development will not happen without them. We do not believe this is a difficult choice to make.
As you know, in his budget the President is also requesting Congressional support for an initiative
that supports these same crucial goals - by promoting faster development and wider delivery of
vaccines for infectious diseases. Diseases such as HIV / AIDS, tuberculosis and malaria are
responsible for almost half of all deaths worldwide of people under 45. Providing vaccines to
prevent these deaths is one of the most cost-effective ways there is of raising the well being and
productivity of people in the poorest countries. To this end, the President is proposing:
•
First, a $50 million contribution to vaccine purchase through the purchase fund of the Global
Alliance for Vaccines and Immunization (GAVI).
•
Second, that the World Bank and other multilateral development banks dedicate an additional
$400 million to $900 million each year of their concessionallending to enhance efforts to
immunize, prevent and treat infectious diseases in the poorest countries.
•
Third, a significant increase in funding for National Institutes of Health research on malaria,
tubercolosis and HIV/AIDS.
•
Fourth, a new tax credit to help accelerate the development for these and other diseases, which
would provide matching funds of up to $1 billion over ten years upon sale of a newly-invented
vaccine.
2
I hope that you will continue to support us on every part ofthis full and urgent agenda. In the end.
the only ones who can build a better future for these countries are their own governments and
people. But as we enter this millennial year, we have the capacity. and the responsibility to play our
part in helping them to help themselves. Again, thank you for what you have already done - and
thank you what we are able to do in the months ahead, to make this historic effort a reality.
With that, let me hand over to our vital supporter in this effort - Chainnan Leach.
-30-
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:
R IMMEDIATE RELEASE
bruary 01, 2000
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
364-Day Bill
February 03, 2000
February 01, 2001
912795FR7
Term:
Issue Dat.e:
Maturit.y Dat.e:
CUSIP Number:
5.90S%-
High Rate:
Investment Rate 1/:
94.029
Price:
6.287%
All noncompetitive and successful competitive bidders were awarded
:urities at the high rate.
Tenders at the high discount rate were
Lotted 99%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
-----------------
$
Competitive
Noncompetitive
PUBLIC SUBTOTAL
21,274,020
1,087,164
7,430,020
1,087,164
$
8,517,184 2/
22,361,184
Foreign Official Refunded
1,483,000
-----------------
SUBTOTAL
--
-
--
1,483,000
-
-
- -
- -
-
- - - -
-
23,844,184
10,000,184
5,420,000
804,000
5,420,000
804,000
Federal Reserve
Foreign Official Add-On
-----------------
TOTAL
$
30,068,184
$
16,224,184
Median rate
:; . 880 %: 50% of the amount of accepted compet l t.::.. ve Lenders
tendered at or below that rate.
Low rate
5.840%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.
-to~Cover Ratio
= 22,361,184 / 8,517,184
Equivalent coupon-issue yieid.
Awards to TREASURY DIRECT = $756,877,000
-364
=
2.63
DEPARTMENT
OF
THE
TREASURY
NEWS
~~~~~~~~t78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~~. .111
............................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AvENUE, N.W. - WASIflNGTON, D.C. - 20220. (202) 622-2960
'~MBARGO
TIME WILL BE SET
February 2, 2000
UNDER SECRETARY OF THE TREASURY FOR DOMESTIC FINANCE
GARY GENSLER
REMARKS AT THE FEBRUARY 2000 TREASURY QUARTERLY REFUNDING
Good morning. I am pleased to be with you today to discuss the government's
refunding needs for the current quarter. This month marks the longest running economic
expansion in our nation's history. The President announced on Monday that, by the end of the
year, we will have paid down approximately $300 billion in debt over three years. As our
nation's debt takes up a smaller portion of our economy and our financial markets, our
continued fiscal discipline contributes significantly to the health of the economy.
Debt Management Challenges
To date, Treasury has managed the declining debt by refunding our regularly maturing
debt with smaller amounts of new debt. We have accomplished this by two means. First. we
have reduced the number of longer-term debt issuances by one-third, from 39 to 26 auctions
per year, while keeping auction sizes relatively constant. Second, we have cut the size of our
short term bill auctions by almost a quarter, from an average of almost $20 billion in 1996 to
just over $15 billion in 1999, but have maintained the number of issues.
Fortunately, as budget surpluses continue to diminish our borrowing needs, we nov'!
f-.lce additional challenges going forward.
First, debt held by the public is forecast to shrink even further and faster than it has in
the last two years. As we announced on Monday, we estimate that we will paydown S 17
billion in net market borrowing for the January-March quarter. This will be followed next
quarter with the largest reduction in publicly held debt in Ollr nation's history, as we pay down
approximately $152 billion. More significantly, there is now a consenSllS among private sector
and government forecasters that these paydowns will grow in the future.
LHS-365
For press
.l~r
p 1
luthl;cschedules
re~U-.)ff,
~ce6.1"~,
~
and official
biographies, call our 24-hOllr fax line at (202) 622-2040
'JJ'
Second, the effect of seven years of fiscal discipline is already showing up in our
maturing debt. There will be a great deal less maturing debt to be redeemed in the very near
fllture. This fiscal year, $476 billion of coupon debt will mature, down from a peak of $510
l}illion in 1998. Over the next 15 months, the last of the old 7 -year and 3-year notes will
mature. Thus, by 2002, debt maturing will decline significantly. Debt maturing in 2002 is
likely to be less than $400 billion.
Third, we face the challenge of how to continue to issue sufficient longer-term debt
without an unacceptable lengthening of our maturity structure. For instance, if we maintain
the current level of longer-term financing (lO-year and 30-year debt), the average maturity of
Treasury debt is forecast to lengthen from about 5 3/4 years currently to approximately 8 years
by the end of 2004. Over the long term, this would impose an unnecessary additional cost on
the taxpayers to finance our debt.
\Ve have several announcements to make today concerning adjustments we are making
across our debt management program to further address these challenges.
Reducing Size of Long-Maturity Issues
OUf first announcement concerns reductions in the issuance sizes of longer-maturity
debt. This reduces our funding, takes into consideration the longer-term fiscal forecasts, and
helps us manage the average maturity of our debt. In this regard, we plan to reduce the
issuance of 5-year, 10-year and 30-year debt, both fixed rate and inflation-indexed securities.
At the last quarterly refunding, we announced new rules to facilitate reopening of our
benchmark securities within one year of issuance. We now will be adopting a regular
reopening schedule for our longer term securities. Our current offering plans are as follows:
•
Nev.' 5-year notes will be offered in May and November, with smaller
reopenings in February and August. The February five-year note therefore will
be (1 smaller reopening of the November 5-year note.
•
New lO-year notes will be offered in February and August, with smaller
reopenings 111 May and November. The May offering of our IO-year notes
therdore will be a reopening of the 10-year notes we issue this quarter.
•
New .~O-year bonds will be offered only in February, with significantly smaller
reopenings in August.
In I1ne wltil the reductions we are making in our 5- and lO-year notes and 30-year
bonds, we also intend to reduce the issuance size of our inflation-indexed notes and bonds.
\Ve started this process last month. when we reduced the auction size on the 10-year secunties
2
from $7 billion to $6 billion. We are now announcing that we plan to auction only one 30year inflation-indexed bond, which will be issued in October. There will be no April issue.
In addition, we most likely will make further modest reductions in the size of the 10-year
inflation-indexed note.
Taken together, our aggregate issuance of 30-year debt for this fiscal year will be less
than half what it was in FY1999. We expect that these changes to our auction schedule will
preserve the liquidity of our 5-, 10- and 30-year securities while reducing the overall size of
our longer term issuances. We will continue to assess the size, frequency, and issuance of
these securities in the' future.
Debt Buybacks
Last month, Treasury announced the adoption of a final rule that permits us to conduct
buybacks of outstanding Treasury securities prior to maturity. We will begin using this new
debt management tool promptly.
We plan to conduct up to $30 billion of debt buybacks this year, with the first
operations conducted in the next two months. Our initial buyback operations will be
approximately $1 billion each in size and will focus on the longer-maturity sector. These
initial operations will provide an opportunity for both the market and the Treasury to gain
experience with the reverse auction process prior to more significant operations. After
evaluating our first buyback operations, we will refine our approach to using buybacks going
forward. The use of debt buybacks will help us best maintain the liquidity of our remaining
Issues, while also managing the average maturity of Treasury debt.
Reducing Numbel' of Short Maturity Issues
Lastly, we plan to reduce the issuance of our shorter-maturity securities. Based on the
Borrowing Advisory Committee's recommendations, we are reducing the auction frequency of
Ollr one-year bills. These bills currently are auctioned every four weeks. We will now auction
one-year bills only four times each year. The last monthly auction of the one-year bill wlil
take place on March 2 and the next auction will then be June 1. This change to our auction
,>checlule will eliminate five one-year bill issues this fiscal year.
Consistent with the Committee's recommendations, we will maintain the regular
monthly auctions of OLlr two-year notes at the present time. We plan, however. to cut
modestly the size of individual auctions of two-year notes.
These changes will enable us to increase the size of our three- and six-month bill
;lllctions, as well a~ respond to our reduced borrowing needs. \Ve will increase the size of
weeKly bills beginning with the regular auction announcement tomorrow. It is likely thac. as
3
further reductions in issuance becomes necessary, elimination of the one-year will be
considered.
Tenus of the Febr'uary Refunding
I will now turn to the terms of the quarterly refunding. We are offering $32 billion of
notes and bonds to refund $27.6 billion of privately held notes maturing on February 15,
raising approximately $4.4 billion.
The securities are:
1) A reopening of the 5 7/8 % note of November 1999, maturing on November 15,
2004, in the amount of $12 billion;
2) A 10-year note in the amount of $10 billion, maturing on February 15, 2010; and
3) A.30 1/4-year bond in the amount of$10 billion, maturing on May 15,2030.
These securities are scheduled to be auctioned on a yield basis at 1:00 p.m. Eastern
time on Tuesday. February 8, Wednesday, February 9, and Thursday, February 10,
respecti vel y.
As announced on Monday, January 31, 2000, we estimate that we will have a $40
billion cash balance on March 31, as well as on June 30. We expect to issue cash management
bills this quarter to bridge seasonal low points in our cash position.
The next quarterly refunding press conference will be held on May 3, 2000.
-30-
4
NEWS
TREASURY
OFFICE OF PUBLIC AFFAIRS e 1500 PENNSYLVANIA AVENUE, N.\\' .• WASHINGTON, [).C.e 2()220 e (202) 622-2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
February 2, 2000
CONTACT;
Office of Financing
202/691-3550
TREASURY FEBRUARY QUARTERLY FINANCING
The Treasury will auction $12,000 million of 4-3/4-year 5-7/8% notes,
$10,000 million of 10-year notes, and $10,000 million of 30-1/4-year bonds
to refund $27,624 million of publicly held securities maturing February 15,
2000, and to raise about $4,376 million of new cash.
In addition to the public holdings, Federal Reserve Banks hold $3,470
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 $3,594 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.
TreasuryDirect customers requested that we reinvest their maturing
holdings of approximately $159 million into the 4-3/4-year note, $11 million
into the 10-year note, and $1 million into the 30-1/4-year bond.
All of the auctions being announced today will be conducted in the
single-price auction format.
All competitive and noncompetitive awards will
be at the highest yield of accepted competitive tenders.
All of the securities being offered today are eligible for the STRIPS
program.
This offering of Treasury securities is governed by the terms and conditions set forth in the Uniform Offering Circular for the Sale and Issue of
Marketable Book-Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as
amended) .
Details about the notes and bond are given in the attached offering
highlights.
000
Attachment
For press releases, speeches, public schedules and official biographies, call our 24-hOllr fax line at (202) 622-2040
~
J[IGHLrGH~S
OF
TRBAS~RY
FEBRUARY
2000
O • • _ _ ~M~B TO
PIN~CX~G
QUARTERLY
Y6hrua~y
2.
~OOO
Offering Amount . . . . . . . . . . . .
$12,000 million
$10,000 million
$10,000
Description of Offering:
Term and type of security . . . . . . . . .
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CUSIP number . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . . . . . . . . . . . . . . . . . .
Issue date . . . . . . . . . . . . . . . . . . . . . . . .
Dated date . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date ... " , .. , .... , .. ,.,.,
Interest rate,., .. , .. ,., . . . . . . . . . .
4-3/4-year notes (reopening)
H-2004
912827 5S 7
February 8, 2000
February 15, 2000
November 15, 1999
November 15, 2004
5-7/8%
10-year notes
B-2010
912827 5Z 1
February 9, 2000
February 15, 2000
February 15, 2000
February 15, 2010
Determined based on the highest
accepted competitive bid
Determined at auction
August 15 and February IS
30-1!4-year bonds
Bonds of May 2030
912810 FM 5
February 10, 2000
February 15, 2000
November IS, 1999
May 15, 2030
Determined based on the highest
accepted competitive bid
Determined at auction
May 15 and November 15 (first
payment on May 15, 2000)
$1,000
Yield. , •...... , .... , . . . . . . . . . . . . . . Determined at auction
Interest payment dates . . . . . . . . . . . . May 15 and November 15
Minimum bid amount and mul tiples .. $1, 000
Accrued interest payable
by investor . . . . . . . . . . . . . . . . . . . . . $14.84890 per $1, 000
(from November 15, 1999,
to February IS, 2000)
Determined at auction
Premium or discount
STRIPS Information:
Minimum amount required . . . . . . . . . . . $1,600,000
Corpus CUSIP number . . . . . . . . . . . . . . . 912820 EE 3
Due date(s} and CUSIP number(s)
Not applicable
for additional TINT(s)
$1,000
None
million
Determined at auction
Determined at auction
(from November 15, 1999,
to February 15, 2000)
Determined at auction
Determined at auction
912820 EM 5
Determined at auction
912803 CH 4
Not applicable
May 15, 2029--912833 XS 4
November 15, 2029--912833 XT 2
May 15, 2030--912833 XU 9
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids . . . . . . . . Accepted in full up to $5,000,000 at the highest accepted yield.
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.
}.!aximwn Recognized Bid
at a Single Yield ..
35% of public offering
Maximum Award . . . . . . . . .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders.
Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Terms . . . . . . . . . .
By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
with tender.
TreasuryDirect customers can use the Pay Direct feature which authorizes a charge to
their account of record at their financial institution on issue date.
REPORT TO THE SECRETARY OF THE TREASURY
FROM THE
TREASURY ADVISORY COMMITIEE
OF THE
BOND MARKET ASSOCIATION
February 1,2000
Dear Mr. Secretary:
Since the Committee's last meeting on November 2, 1999, the US economy has continued to
expand at a rapid pace, with the Commerce Department recently reporting that GDP posted a
5.8% annualized growth rate in the fourth quarter. Solid gains in consumer demand are
responsible for the bulk of the strength in GDP during the second half of 1999, but the breadth
of the global recovery points to a likely near term rebound in exports as well. There are few
signs at this time that the higher interest rate structure is cooling the pace of economic
activity. On the inflation front, higher oil prices have pushed up headline readings for CPI
and PPI in recent months. Moreover, there are some signs that the tightness in labor markets
may be leading to an acceleration in wage and benefit costs. However, productivity appears
to be expanding at a rapid rate, which is helping to keep a lid on overall unit labor costs.
Indeed, there is still little indication of a pick-up in underlying price pressures at this point.
On balance, the outlook for the U.S. economy continues to appear quite favorable.
With the FOMe announcing a 25 basis point rate hike on November 16, Treasury yields
generally continued to trend higher since our last meeting. Factors responsible for the trend
included: continued evidence of a robust domestic economy, signs of an improving global
economic environment, continued strength in equity markets, and the absence of any
significant Y2K-related disruptions. On January 13, the Treasury unveiled the details of its
program to repurchase up to $30 billion of securities this year. Most importantly to market
participants, the Treasury announced that government accounting rules would not treat any
premium purchase as a budget outlay.
This announcement contributed to a narrowing of spreads between benchmark issues and offthe-run securities, and seemed to be a catalyst for lower bond yields, and an inversion of the
yield curve between the 10- and 30-year sectors. Other technical and fundamental factorssuch as mortgage hedging activity, the supply of intermediate sector securities, rising budget
surplus forecasts, and more aggressive expectations and pricing of the scope and pace of
Federal Reserve rate increases appear to have reinforced the movement of30-year yields
relative to the rest of the Treasury yield curve.
Within this context, and against a backdrop of expected large fiscal surpluses, the Committee
considered a number of issues related to the Treasury's financing plans.
-2-
In response to a question regarding the average maturity of the debt in the current fiscal
environment, the Committee noted that a significant extension would occur assuming current
budget surplus projections, unless substantive changes are made in the financing schedule.
Members expressed the view that the average maturity of the debt should be stabilized, and
ideally brought down as debt is retired. With the additional goal of maintaining sufficient
market liquidity to promote orderly markets, members considered a number of alternatives in
response to the Treasury's request to make recommendations concerning additional
adjustments to its financing plans this year.
Specifically, the Committee recommended a reduction in the issuance of 52-week bills to 4
issues per year, with a goal of the eventual elimination of the instrument. Members continue
to feel that the 52-week bill offers the least incremental utility to investors relative to
alternative investments with similar maturities. Any ability to issue additional securities
should be directed to enhancing the liquidity of the 3- and 6-month bill sectors.
The Committee strongly supported the establishment of a regular reopening policy for the
quarterly refunding issues in order to allow for some further reduction in issue size while
preserving market liquidity to the greatest extent possible. The Committee's recommendation
was consistent with the principle of offering new 5- and la-year notes in quarters where long
bonds were not being offered.
In the discussion of the extending average maturity profile and the reduced liquidity of
benchmark Treasury issues, the Committee noted that inflation-indexed securities have been
growing rapidly as a share of total Treasury issuance, and without a change will contribute
significantly to a lengthening of the average maturity of the debt. In addition, some members
expressed the view that this debt represented an excessive cost to the Treasury. The
Committee supported eliminating the 30-year inflation-indexed issue that would normally be
auctioned in April with the objectives of stabilizing the proportion of TIPS issuance, and
reducing the contribution of TIPS to the extension of the average maturity.
Specifically, the Committee recommended a financing to refund approximately $27.6 billion
of privately held notes maturing on February 15 and to issue $32 billion in notes and bonds
consisting of the following offerings:
•
•
•
$14.0 billion of the 5-7/8% notes due November 15, 2004
$8.0 billion of the 6% notes due August 15, 2009
$10.0 billion ofa 30-114 year bond due May 15,2030
The reopenings of the 5- and 10-year notes were supported to allow th~ T~easu~ ~o establish
a regular reopening pattern consistent with the principles outlined earher, 10 addItIOn to
enhancing market liquidity.
-3-
~h~ reco~~endation for a new 30-114 year bond was made in the context of the Treasury's
itmlted ablhty to offer new bond issues, the desire to enhance the relatively limited supply of
May and November coupons in the Treasury STRIPS market, and a view to a reopening of
this is~ue in smaller size at a later date to support the dual goal of stabilizing the average
matunty of the debt and enhancing market liquidity.
In regard to the composition of Treasury market financing for the remainder of the current
quarter, the Committee recommends that the Treasury meet its borrowing requirement in the
following manner:
•
•
•
•
Two 2-year notes of $14.0 billion each,
A I-year bill of$IO.O billion,
Weekly issuance of3- and 6-month bills through the remainder of the
quarter, and
Three cash management bills totaling $102 billion to mature in late April.
For the second calendar quarter, the Treasury estimates a net market paydown of about $152
billion with a cash balance of $40 billion on June 30. To accomplish this requirement, the
Committee preliminarily recommends the financing schedule in the attached table.
Finally, the Committee considered a series of questions related to the Treasury's buyback
program. The Committee felt that the Treasury should not be constrained by a particular
maturity range in its operation, but should purchase securities with the highest yields
consistent with the average maturity goal. Members continue to feel that the Treasury can
operate consistent with the Federal Reserve coupon pass format with a relatively short notice
period, while acknowledging the desirability of allowing some additional time in early
operations. Although the Treasury might want to start with a relatively small operation, the
Committee felt that fewer and more sizable buybacks consistent with market conditions,
would prove most effective and least disruptive.
In an environment of declining Treasury debt issuance, the Committee discussed, at the
Treasury's request, the implications for financial markets and possible risk to the government
of the following: the increasing globalization of the markets, hedging and pricing practices in
fixed income markets, and the growth of Government Sponsored Enterprises.
The impact of the globalization of fixed income markets has been a significant broadening of
the investor base for Treasury debt, and an increasing focus on non-sovereign alternatives.
Concerning hedging and pricing practices in fixed income markets, members noted the greatly
increased use of agency debt and swaps for hedging purposes in a broad spectrum of fixed
income transactions by all market participants-with a particularly notable increase by endusers. This has occurred in a favorable credit environment with a rapid increase in the
issuance of agency debt and other credit market instruments compared to Treasury new
issues. The development of market liquidity in these alternative hedging instruments has been
successful to date, but is unproven in a more difficult credit environment. As to the possible
-4-
risks to the government of the growth of Government Sponsored Enterprises and alternative
hedging markets, there was no consensus on the Committee as to how to assess the nature and
severity of this risk.
Respectfully submitted,
/G4'/~-rKenneth M. deRegt
u.s. TREASURY FINANCING SCHEDULE FOR 2ND QUARTER 2000
BnuONSOFDoLLARS
ISSUE
AUCIlON
DATE
SElTLEMENr
0FFEREn
MATURING
NEW
FOREIC2'
DATE
AMOUNT
AAroUNT
MONEY
ADD-Q..-S
03/30
04103
04/10
04106
04/13
14.00
14.00
14.00
14.00
14.00
14.00
18.00
18.00
18.00
18.00
18.00
18.00
18.00
16.4
04/06
04/l3
04120
04127
05104
05111
16.5
16.1
15.5
16.6
15.5
IS.7
15.5
16.0
15.5
15.5
15.5
15.5
-2.43
-1.51
-2.l4
-1.5l
-2.8l
-1.53
2.30
2.50
2.00
2.50
2.50
2.50
2.50
ANNOUNCEMENT
DATE
3&6 MONTH BilLS
05118
OS/25
05/30
06/08
06/15
06/22
04/17
01/24
05/01
05/08
05/15
OS/22
05129
06/0S
06/12
06/19
06126
04120
01127
05104
05/l1
05/18
05125
06/01
06/08
06115
06/22
06129
210.00
204.91
0.00
0.00
10.00
102
10.1
10.3
-10.16
-10.14
-0.30
10.00
30.59
-20.59
5.09
I-YEAR BILLS
04/20
05/18
06/01
CASH MANAGEMENT
04125
05122
06106
04127
05125
06108
BILls
I
2122
I
02129
I
2124
02129
0.00
27.00
-27.00
3/02
03/03
0.00
3S.00
-35.00
03128
03/30
03/31
0.00
40.00
-40.00
04/20
05/25
:MATURES 6/15
05/31
06102
15.00
15.00
0.00
04/05
04/12
04/17
0.00
10.1·
-10.1
04/19
04/26
05/01
14.00
242
-102
5-YEARNOTE
10-YEAR-NOTE
05/03
05/03
05/09
05/10
05/15
14.00
10.00
29.9
-5.9
2-YEAR NOTE
05117
OS/24
05/31
14.00
25.5
-11.5
2-YEARNon
06121
06/28
06/30
14.00
25.1
-11.1
lSI-Day Bill
I 55-Day Bill
I 20-Day Bill
I 13-Day Bill
MAroRES 4/20
MAroRES 4127
:MATURES
I
COUPONS
!INFLATION-INDEXED
I
SECURITY
, 2-YEARNoTE
05115
24.00
66.00
NET CASH RAISED THIS QUARTER
FOREIGN ADD-ONslM:ISC. PURCHASES
TOTAL NEW MONEY RAISED TIllS QUARTER
• MATURING 7-YEAR NOTE
A = ANNOUNCED
1149
TREASURy
ANNOUNCED Q2
-166.4
14.2
BORROWING NEED
-152.2
OF -$162 BILLION ON
If31/00
14.2
-48.9
AssUMES AOOtIT
S 14
BILLION FOREON
ADD-ONS FOR THE.
QUARTI.R
TREASURY FINANCING REQUIREMENTS
October -
December 1999
$Bil.l
I$Bil.
Sources
Uses
47
•
21j,
40
Deficit
11
40
State and Local
•
Net Ma~ket
Borrowing
20
20
•
Increase in Cash
Balance
_ _ _ _ _ _ _ _~I
o
1/
0
Includes budget results, direct loan activity, changes in accrued interest
and checks outstanding and minor miscellaneous debt transactions.
Department of the Treasury
Office of Market Finance
January 31, 2000· 1
TREASURY FINANCING REQUIREMENTS
January -
$Bil.l
March 2000
I $Bil.
I
Uses
Sources
431,12
3
3
/4
•
40
40
State and Local
30
' , }j
De f IClt
30
•
20
10
•
Paydown in
Marketables
o
Department of the Treasury
Office of Market Finance
Decrease
in Cash
Balance Y
20
10
.....--------110
1·
Includes budget results, direct loan activity, changes in accrued interest
and checks outstanding and minor miscellaneous debt transactions,
21
Assumes a $40 billion cash balance, March 31,2000.
Janua,y 31 2000·?
NET MARKET BORROWING
January - March 2000
(Billions of Dollars)
-16.9
Total
-108.4
Done*
Bills
Regular weekly
52 week
Cash management
Coupons
7 year note
2 year note
5 year note
10 year inflation-indexed note
To Be Done
-16.7
-0.9
-54.1
-10.1
0.1
-33.1
6.3
91.5
• Issued or announced through January 28, 2000.
Department 01 Treasury
Office of Markel Finance
.Ianuary 31.2000-3
TREASURY OPERATING CASH BALANCE
Daily
$BiI.
~'Nithou~
90
....-- New -----".Borrowing 1J
Total Operating
Balance
80
•
70
60
50
40
30
20
10
,
I
I
Federal Reserve Account
-10
\
-20
-30
\~
~~
,
,,
~
-40
\
-50
\
-60
-70
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
1999
Nov Dec
Jan
Feb
Mar
2000
1
Data points are semi-monthly.
Department of the 1reasury
Office 01 Market "Inance
January 31. 2000 4
TREASURY NET MARKET BORROWING ~
$Bili
$Bil.
l*7 1'\
80
80
60
60
40
40
20
20
0
O"'I--~
-20
-20
-40
-40
Coupons
-60
DOver 10 yrs
-60
-80
D
5 -10 yrs
I;fA
-80
2 - under 5 yrs
-100
-120
-71.5
-100
•
Bills
-120
-113.8
•
-140'~~------~----~~J-------~L-------~--------~------~~
II III IV
1994
II III IV
1995
II III IV
1996
II III IV
1997
II III IV
199A
I
II
III IV
-140
1999
Excludes Federal Reserve and Government Account Transactions.
Department of the Treasury
011 Ice 01 Marke. F,nanee
January
~
120m"
DISTRIBUTION OF COMPETITIVE AUCTION AWARDS OF
TREASURY NOTES
10-Year Inflation-Indexed
10-Year Fixed Rate
January & July 1999, &
January 2000 Auctions
May, August & November
1999 Auctions
Primary Dealers
Foreign &
International
1
Financial Insts.
Investment
Funds
(:\H
Pension Funds
D
Other
Note: Investment funds include investment mgrs., mutual funds, and hedge funds.
Financial insts. include nonprimary dealers, depository insts., and insurance cos.
Other includes individuals, nonfinancial cos., and other financial cos.
Department of the Treasury
Office of Market Finance
January 31. 2000-6
DISTRIBUTION OF COMPETITIVE AUCTION AWARDS OF
TREASURY BONDS
30-Year Inflation-Indexed
July 1998 &
30-Year Fixed Rate
November 1998 &
April & October 1999 Auctions
February & August 1999 Auctions
Primary Dealers
[%J
. %.
D
Foreign &
International
Financial Insts.
Investment
Funds
21%
r~:::;:«·I:1
' I iillll&,
HtJ
Pension Funds
D
Other
Note: Investment funds include investment mgrs., mutual funds, and hedge funds.
Financial insts. include nonprimary dealers, depository insts., and insurance cos.
Other includes individuals, nonfinancial cos., and other financial cos.
Department of the Treasury
Olflce of Market Finance
January 31. 2000· 7
PRICES FOR 10-YEAR 3-7/8% liN AND 10-YEAR 4-3/4% FIXED-RATE NOTE!l
Daily Data: 4/8/99 through 1/27/00
Price $
~'"
~.......
99~
100
Price $
3-718% liN of 1/15/09
# ............
•
.,.~ ~...... ~
\ ......, _...................._ .........
98~
..
99
........
98
...........
971---'.
96L-
100
• ..... ..
97
~
-,
.. '96
95
95
94
94
93
93
92
92
91
91
90
90
89
4-3/4% of 11115/08
89
88
88
87
87
86
Apr
•IVIClY
L..
Jun
Jul
Aug
Sep
Oct
1999
Department 01 the Treasury
Oll,ce 01 Market Finance
Real Price for inflation-indexed note
Correlation: 84.4% STO IIN/STO Nominal = 0.45
Nov
Dec
Jan
I
86
2000
January 11 ?()OO R
PRICES FOR 30-YEAR 3-7/8 % liB AND 30-YEAR 5-1/4% FIXED-RATE BONDY
Daily Data: 4/8/99 through 1/27/00
'-.-
. $
Price
*--..•~.'... ....
..... ....
...
98 1"'.
100
...
...
Price $
-i 100
...
,.
3-7/8% liB of 4/15/29
•
r ............
. . . . . . . . II . .
...,. . ." '. . . . . ._
...
96
..,
~..........
94
98
96
..
94
~.~
....
5-114% of 02115/29
92
•
90
W
~92
90
88
88
86
86
84
84
82
82
80'
Apr
Mav
Jun
Jul
1"
Departmenl ollhe Treasury
Oil Ice 01 Markel Finance
Aug
1999
Sep
Oct
Real Price for inflation-indexed note
Correlation: 91.9% STD IIN/STD Nominal = 0.61
'80
Nov
Dec
Jan
2000
JaniJo,y 11 ?0009
NET STRIPS OUTSTANDING (1985-2000)*
$Bil.r--i- - - - - - - - - - - - - - - - - - - - - ,
200
150
100
50
o 1985 1986
Deparlmenl 01 Ihe Treasury
ott,ce 01 Markel F ,nance
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 '20
End of Quarter
'Strips program began February 15, 1985.
Reconstitution began May 1, 1987.
Inflation-indexed securities had not been stripped as of January 21, 2000.
January 31. 2000·10
TREASURY NET BORROWING FROM NONMARKETABLE ISSUES
$Bil.
15
$Bil.
bY}!
15.3 15.3
Savings Bonds
o
15
State and Local Series
Foreign Series
10
10
5.7
5
5
o I'·····:
-:ri" 0
I
,...".-I"""fII-......
-0.5 -2.2
-5
-10'
-5
-4.7
-7.6
II
III
1996
IV
II
III
IV
II
1997
III
1998
IV
II
III
1999
IV
Ie
'-10
2000
e estimate
Department 01 the Treasury
OU:ce 01 Markel F:nance
Jilnuary 31 2000 11
STATE & LOCAL GOVERNMENT SERIES
$Bil.
$BiI.
25 r-
_
Gross Issues
25
20 l-
• • • Redemptions
20
.•..
15
:.......
••••
10
5
15
...................-...
••••
10
5
o'
car
0
$Bil.
$Bil.
-
10
NetSLGs
10
5
5
oI
,....""",.. #
r:
0
"
-5
-5
-10
~.~
__ __ __ __
II III IV
1995
~
~
~
~
__ __ __
II III IV
1996
~
~
~~
__ __ __ __
II III IV
1997
~
~
~
~
__ __
II III
1998
~
~
__
IV
~
__
~~
II
__
~
"'
__- J
-10
IV
1999
Note: SLGS sales were suspended from October 18, 1995 to March 29, 1996.
Department of the Treasury
Office of Market Finance
January 31 20no 1?
STATE AND LOCAL MATURITIES 2000-2005
$8il.r=
12
~ $Bil.
11.4
12
10
10
8
8
6
6
4
4
2
2
II III IV
2000
Department of the Treasury
Oft ICe of Market Finance
II III IV
2001
II III IV
2002
II III IV
2003
II III IV
2004
II III IV
2005
o
January 31, 2000-13
QUARTERLY CHANGES IN FOREIGN AND INTERNATIONAL
HOLDINGS OF PUBLIC DEBT SECURITIES
$8il
$8;1.
Nonmarketable
n
108.9
l::.:.:J
100
100
Marketable
~ Net Auction Awards to Foreign ll
80
•
80
Other Transactions
60
60
40
40
20
20
o
o
-20
I
-40
.
II
III
IV
1995
II
III
IV
1996
II
III
1997
IV
II
III
1998
IV
II
III
-17.7'
-20
I
-40
IV2!
1999
Noncompetitive awards to foreign official accounts held in custody at the Federal Reserve in
excess of foreign custody account holdings of maturing securities. Foreign add-ons prohibited
from October 18, 1995 to March 29, 1996 to avoid exceeding the debt limit.
2
Depanmenl of Ihe Treasury
Ollice 01 Markel Finance
Data through November 30, 1999.
.January 31. 200(J·14
FOREIGN HOLDINGS AS A PERCENT OF TOTAL
PRIVATELY HELD PUBLIC DEBT
Pe~cent
- - - - - - - - - - - - - - - - - - - - - - Percent
I
40
40
38
38
36
36
34
34
32
32
30
30
28
28
26
26
24
24
22
22
20
20
18
18
16
16
141 I I I
1988
I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I 14
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Quarterly
Department of the Treasury
OU,ce 01 Markel Finance
January 31. 2000- 15
MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES
November 30,1999
December 31,1998
As a % of
Total
Foreign
As a % of
Total
Private
$ Billions
As a % of
Total
Foreign
$313.9
24.8%
9.9%
$276.1
21.6%
246.1
19.5%
7.7%
264.0
Germany
96.2
7.6%
3.0%
Mainland China
50.1
4.0%
OPEC
46.8
Hong Kong
As a % of
Total
Private
$ Billions
As a % of
Total
Foreign
8.3%
$277.6
22.4%
8.2%
20.6%
7.9%
251.3
20.2%
7.4%
95.1
7.4%
2.9%
93.9
7.6%
2.8%
1.6%
46.4
3.6%
1.4%
47.9
3.9%
1.4%
3.7%
1.5%
42.9
3.4%
1.3%
58.4
4.7%
1.7%
45.3
3.6%
1.4%
44.2
3.5%
1.3%
35.0
2.8%
1.0%
Mexico
34.6
2.7%
1.1%
37.4
2.9%
1.1%
35.9
2.9%
1.1%
France
31.2
2.5%
1.0%
30.0
2.3%
0.9%
13.3
1.1%
0.4%
Singapore
30.1
2.4%
0.9%
43.1
3.4%
1.3%
35.2
2.8%
1.0%
Belgium-Luxemburg
29.1
2.3%
0.9%
31.5
2.5%
0.9%
26.0
2.1%
0.8%
Taiwan
27.9
2.2%
0.9%
31.3
2.4%
0.9%
33.2
2.7%
1.0%
Switzerland
25.5
2.0%
0.8%
33.7
2.6%
1.0%
28.0
2.3%
0.8%
Spain
24.5
1.9%
0.8%
41.2
3.2%
1.2%
51.7
4.2%
1.5%
Canada
18.6
1.5%
0.6%
12.4
1.0%
0.4%
11.5
0.9%
0.3%
Netherland Antilles
11.6
0.9%
0.4%
21.7
1.7%
0.7%
35.7
2.9%
1.1%
232.1
18.4%
7.3%
227.7
17.8%
6.8%
207.0
16.7%
6.1%
$ Billions
Country
Japan
United Kingdom
Other
As a % of
Total
Private
December 31,1997
Estimated
Foreign Total
i
$1,263.6
100.0%
39.7%
$1,278.7
100.0%
38.4%
$1,241.6 100.0%__36.6%_
Source: Treasury Foreign Portfolio Investment Survey benchmark as of end-year 1994
and monthly data collected under the Treasury International Capital reporting
system.
Department of the Treasury
Office of Market Finance
,
January 31, 2000-16
SHORT TERM INTEREST RATES
Quarterly Averages
%1
1%
Through
January 26
10
Prime Rate
•
10
8
8
6
4
4
2'
12
1989
1990
Department of the Treasury
OH,ce of Market Finance
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
January 31, 2000·17
SHORT TERM INTEREST RATES
Weekly Averages
%1
1%
8
8
•
Through
Prime Rate
January 26
7
7
Commercial
Paper
.
6
l'.
l
• ...•••••••••••••••
.-••••••
·........
....._.....•...............0..
0
...........
.........
•
Federal Funds
5
6
•
4
3 Month
Treasury Bill
4
3"
" I I
Apr
May
II
Jun
Jul
5
II
Aug
1999
Sep
Oct
'3
II
Nov
Dec
Jan
2000
Department ot the Treasury
Otf,ce of Market Finance
January 31. 2000-18
LONG TERM MARKET RATES
Quarterly Averages
%1
1%
10
10
NewAa
Through
Janua ry 26
.
.
corp;ates
9
•••••
•• A---..
~~
8
~
/_......,.' "",_1 ../
30-Year Treasury
.,.~~•
~
'-
'~
7
'~'"
I-..••,.~~-•
~~"'"""
~,
~...""'"
.-......
•
6
•
5
30-Year
Municipal Bonds
1989
1990
Department of the Treasury
Office of Market Finance
1991
1992
1993
1994
8
7
f
-.,#'
5
4'
l
••
....
6
.• .... .•.
\
1
.
•••
9
1995
1996
1997
1998
1999
2000
'4
January 31. 2000·19
INTERMEDIATE TERM INTEREST RATES
Weekly Averages
10/0
0/01
FHLMC 30-Year
I
Conventional
~ ' , __ ........ __ ,. ... ,
,
~ .. __ .... ~
w . __
.,....
!/
,
AA 10-Year Industrial
8
6
.
~\
_ ., .,
,,,
\
"........
.'.~". .,"',
.,
"~...
...
".,
,, . '
8
'.,
.'.\.
.'
.
"""-..'
.'
.
'
.
......
.,.,.
.,
,.'
.
..
., ..
.,.,. .,.,.'.
.... -- tf/IJ .,,.
7
.,. tf/IJ-
,., ,.\
7
.....
..... ,.....
,., .....•
6
5 ~~ ... __
Treasury 5-Year
---i 5
10-Year InflationIndexed Note Y
."."."."."." .. ..,,.,,.".".".".".".".".".,,.".".".,'-
41-=
•
"."."."/
~4
"
3'
II
Apr
May
II
Jun
"
Jul
I II
Aug
"
Sep
II
Oct
1999
Department of the Treasury
OH,ce 01 Market Finance
2
13
II
Nov
Dec
Jan
2000
Salomon 10-yr. AA Industrial is a Thursday rate.
The first 10-year inflation-indexed note settled on February 6, 1997.
January 31. 2000?0
MARKET YIELDS ON GOVERNMENTS
0/0
0/0
•
6.51-
-16.5
January 31, 2000
I
I
November 1,1999
6.01-
[
."
i"
.
W,
,I
,
I
7" r"
I,," . .. ' ' '.
%1
(
I ''".
I
J
'"
0"",
1%
46.0
.,.
~L
5.5 I -
'"
6.51,,f!
~'
~".
0'
r.
6.0
26
28 130
Years to Maturity
Department of the Treasury
Office of Market Fmance
January 3t. 2000·2t
PRIVATE HOLDINGS OF TREASURY MARKETABLE DEBT
BY MATURITY
$Bil. I
3,000 I- Dover 10 years
2,500
D
D
2-10 years
[J,
_.
/ ///~/
// //
2,000
"
,
/
/
/
/
/~0%///
/
/,/ // /
/ /
/~ /(
~('/:/
/>/:,/~~/
/ / / // / / ' ,
~/'
,~<,/ / // '/////////// /~/ //>~//// /~/< /,/
'/
/ ' ,/
/
/
/
/
1,500
472.5
~~/~/:/;';;/~
1-2 years
'
,,'
/
/
/' /'
/ /
' /
// ///
"
/
,/
,
//%/:
/////,'/ ;;'/
0'%'/<:/~, //////>~//;-~
/ //?/,
//
/
"
/
/
/
/
/
,', / '
/, / / / , ' //
/
,/
/
,',
'
,
/
/
/
"
/
/'
,/
,"
,
/
'/
// /
/
/
"
/
/
/
/
/
/ " ,
/ /
//'
'
,///'
/'
///,/,,'
// / /,"/~,,',
' ,
"
,"
870.9
, /
1,000
500
1989
1990
1991
1992
1993 1994 1995
As of December 31
1996
1997
1998
1999
Department at the Treasury
OHlce
at Market Finance
January 31.2000-22
PRIVATE HOLDINGS OF TREASURY MARKETABLE DEBT
Percent Distribution By Maturity
Coupons
DOver 10 years
D
2-10 years
o 1-2 years
o 1 year & under
•
Bills
100%
17
/
80
'/
,;, 1
/
',///
60
~
,
31
"
40
20
o
1988
Department of the Treasury
Office of Market Finance
1989
1990
1991
1992
1993 1994 1995
As of December 31
1996
1997
1998
1999
January 3 t, 2000,23
AVERAGE LENGTH OF THE MARKETABLE DEBTY
Privately Held
years----------------------------------------------------------------------~
..
June 1947
10 Years
5 Months
10
December 31, 1999
5 Years, 6 Months
Months
9
8
7
J
64'
F
M
A
J
M
J
A
SON
0
6
December 1975
2 Years
5 Months
5
4
3
2'
I
I
1945
I
I
I
I
I
I
!
I
I
I
!
)
)
I
J
!
!
I
I
!
I
I
I
!
,
!
!
,
!
!
r
I
I
,
!
I
I
I
I
I
!
!
,
I
I
I
I
I
I
I
I
I
49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 9799
1
Excludes inllation-indexed securities; including liS the average length was 5 years, 10 months.
as of December 31, 1999.
Departmenl ollhe Treasury
011 Ice 01 Markel Finance
JanlJary 31 2000·24
MATURING COUPON ISSUES
November 1999 -
March 2000
(in millions of dollars)
December 31, 1999
I
Held by
Maturing Coupons
81/2%
57/8%
71/8%
51/2%
67/8%
51/2%
51/2%
63/4%
55/8%
87/8%
63/8%
81/4%
61/4%
51/2%
57/8%
53/8%
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Bond
Note
Note
Note
Note
Total
Federal Reserve
10,673
20,421
12,496
17,776
13,188
17,026
10,535
12,433
15,634
10,496
20,763
4,224
12,752
16,580
12,464
14,939
02/15/00
02/15/00
02/29/00
02/29/00
03/31/00
03/31/00
04/15/00
04/30/00
04/30/00
05/15/00
05/15/00
05/31/00 21
05/31/00
05/31/00
06/30/00
06/30/00
222,400
Totals
--
-
-
----
-
-
-
1,304
2,166
1,663
1,555
1,417
2,098
568
1,720
2,149
486
2,927
2,177 31
1,614
2,224
1,571
1,538
27,177
I
Private
Investors
Foreign 11
Investors
9,369
18,255
10,833
16,221
11,771
14,928
9,967
10,713
13,485
10,010
17,836
2,047
11,138
14,356
10,893
13,401
100
3,594
809
1,673
1,464
2,093
1,226
1,862
3,367
49
5,532
0
1,681
4,469
3,783
2,471
195,223
34,171
I
i
-
1 IF.A.B.
custody accounts for foreign official institutions; included in Private Investors.
2 IOn January 14, Treasury announced the call for redemption at par on May 15, 2000 the 8 1/4%
2000-05, issued May 15, 1975, due May 15,2005 (CUSIP NO. 912810BU1).
3/ Government account holdings included.
Department of the Treasury
Office of Market Finance
January 3 t 2000·25
TREASURY MARKETABLE MATURITIES
Privately Held, Excluding Bills
$Bif.
38
36
34
32
30
28
26
24
22
20
18
16
14
12
10
8
6
4
2
0
38
36
34
32
30
28
26
24
22
20
18
16
14
12
10
8
6
4
2
0
2000
29.9
I
J
N
_
Securities issued prior to 1998
. . New issues calendar year 1998
Department 01 the Treasury
Office 01 Market Finance
0
~ New issues calendar year 1999
F:;:::::J
Issued or announced through January 28. 2000
January 31 2000-2fi
TREASURY MARKETABLE MATURITIES
Privately Held, Excluding Bills
.~
34
32
30
1
28
26
24
22
20
18
16
14
12
- ----rI-2 0 04
~~
~3
I
2002
11$::t=r--
275
20.5
16.8
11.9
11.7
11.4
11.7
10.1
121
111
10.9
34
32
30
28
26
24
22
20
18
16
14
- - - r - - - r 1 - 3 B - B---r-111
324
../
281
/
12
10
8
6
46
44
42
40
38
36
34
32
30
28
2003
45.5
22
42
40
38
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TENTATIVE SCHEDULE OF ISSUES TO BE ANNOUNCED
AND AUCTIONED IN FEBRUARY 2000 y
Monday
Tuesday
1
Wednesday
2
Auction
52 week?:J
7
8
14
15
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9
3
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16
Friday
Thursday
4
11
10
Auction
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17
18
24
25
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22
21
23
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2 year note Y
Holiday
28
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29
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52 week~
-
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-
Y
Department of the Treasury
Office of Market Finance
Does not include weekly bills
YFor settlement February 3
;V For settlement February 15
YFor settlement February 29
WFor settlement March 2
February 2 2000-31
TENTATIVE SCHEDULE OF ISSUES TO BE ANNOUNCED
AND AUCTIONED IN MARCH 2000 Y
Monday
Tuesday
I
6
7
Wednesday
Friday
Thursday
1
2
3
8
9
10
16
17
23
24
30
31
13
14
15
20
21
22
Announce
2 year note
27
28
29
Auction
2 year note 'g
Y Does not include weekly bills
'gFor settlement March 31
Department ot the Treasury
Office of Market Finance
February 2. 2000-32
TENTATIVE SCHEDULE OF ISSUES TO BE ANNOUNCED
AND AUCTIONED IN APRIL 2000 1/
Monday
I
Tuesday
Wednesday
Friday
Thursday
3
4
5
Announce
Inflation-indexed
Bond
6
7
10
11
12 Auction
Inflation-indexed
BondY
13
14
17
18
19
20
21
27
28
Announce
2 year
24
25
26
Auction
2 year~
.!IOoes not include weekly bills
yFor settlement April 17
;ljFor settlement May 1
Department of the Treasury
OI1lce 01 Market Finance
February 2,2000·33
MINUTES OF THE MEETING OF THE
TREASURY BORROWING ADVISORY COMMITTEE
OF THE BOND MARKET ASSOCIATION
February 1,2000
The Committee convened at 9:00 a.m. at the Treasury Department for the portion of the
meeting that was open to the pUblic. All members were present except Messrs. White and Lyski.
The Federal Register announcement of the meeting and a list of Committee members are
attached.
Under Secretary for Domestic Finance, Gary Gensler, welcomed the Committee and the
public to the meeting. John Auten, Director, Office of Macroeconomic Analysis, summarized
the current state of the U.S. economy (statement attached). Paul Malvey, Acting Director. Office
of Market Finance, presented the chart show, updating Treasury borrowing estimates and
historical debt and interest rate statistics.
The public meeting ended at 9:24 a.m.
The Committee reconvened in closed session at the Madison Hotel at 10:20 a.m. All
members were present except Messrs. White and Lyski. Assistant Secretary for Financial
Markets, Lee Sachs, gave the Committee the charge, which is also attached.
The Committee began by reviewing long-run proforma financing plans (attached) as a
basis for discussing the question of how Treasury should make average maturity decisions as the
national debt is paid down. The Committee noted that there is no research regarding the optimal
average maturity of debt, but that in an environment of declining debt it seemed irrational to
lengthen the average maturity. Therefore, they recommended a shortening in the average
maturity, after any up drift is first stabilized, as the debt is paid down. To accomplish this, they
recommend Treasury commit to reducing longer-term debt issuance and to conduct buybacks.
However, one result of this will likely be that liquidity in the long-end of the Treasury market is
significantly reduced. The Committee repeatedly emphasized that inflation-indexed securities
(TIS) should be greatly reduced as part of the overall plan to decrease longer-term debt.
The discussion then turned to other adjustments Treasury needs to make to its financing
plans over the shorter term. As frequently noted in previous Committee meetings over the past
year, the Committee expressed a preference for eliminating at least one 52-week bill per quarter
and leaving the 2-year auction schedule as is. However, members thought that to be able to
reliquify the 13- and 26-week bills, the 52-week bills should be reduced to a quarterly cycle.
Accordingly, the Committee recommended cutting 52-week bills from thirteen per year (one
every four weeks) to four per year (one every thirteen weeks), beginning with a 52-week bill
thirteen weeks after the bill that settles on March 2. If there is opportunity, some of the financing
should be redistributed to the regular weekly bills. Members reiterated that the 52-week bill is a
.,
candidate for elimination in the future, as it is viewed as providing the least utility to Treasury
and the market relative to other offerings.
On the question ofa regular reopening policy, the consensus of the Committee
members was that such a policy would have a positive impact on liquidity, particularly if the
fiscal outlook continues positive, and with the anticipated reductions in auction sizes. The
consensus of the Committee is to have a systematic pattern ofreopenings of the IO-year and 30year securities. From a liquidity perspective, the Committee recommended that Treasury issue a
large new 30-year bond at this refunding, followed by a smaller reopening.
The Committee recommended a second reopening of the 6% 10-year notes of8/15/09.
By a vote of 11 to 5 with 1 abstention, the Committee recommended issuing $10 billion of a new
30 1/4 year bond. The 30 114 -year maturity reflected a Committee preference for the more
popular May and November coupons. Regarding the IO-year note, the Committee recommended
a second reopening of the IO-year note, for $8 billion, for liquidity reasons and also, to regularize
a cycle for new IO-year note issuance in May and November.
Looking ahead to the April-June quarter the Committee recommended that Treasury issue
$10 billion of new IO-year notes and $14 billion of new 5-year notes at the May quarterly
refunding. They also proposed that Treasury announce, either at this refunding or some time
before the April30-year lIS auction, that we will eliminate one 30-year lIS per year. They cited
several reasons for this move: current market conditions are different than at the implementation
of the program, both with regard to forecasted surpluses and higher real rates; the negative
impact on the liquidity of other sectors of the Treasury market; cost structure versus nominal
securities; the lengthening impact of lIS on the average maturity of the debt; and the relative
proportion of debt represented by lIS. During the discussion on ITS, some members suggested
completely eliminating the 30-year, while maintaining the 10-year program. Other members
suggested another alternative might be to do large/small reopenings with 30-year lIS, for
example, issuing a new security at $6 billion in April with a reopening of $3 billion in October.
Returning to the question of buybacks, some members of the Committee recommended a
day or two lead time, at least initially, but the consensus was to shorten the lead time to that
comparable to what the Fed allows in a coupon pass. Regarding the size of buyback operations,
the Committee expressed a preference for eventually more sizeable operations consistent with
market conditions.
The Committee next discussed the question regarding the implications for fmancial
markets and the possible risks to the government as Treasury debt declines. With regard to
hedging and pricing practices, members reported substantial increases in the use of agencies and
swaps as hedging vehicles. In addition, they noted agency and swaps use by broader classes of
investors, including end users and dealers, with some members suggesting that end users were
utilizing them to an even greater extent than dealers. Members of the Committee noted that the
liquidity of these instruments has grown in a favorable market environment, and cautioned that it
..,,
is still uncertain and unproven how these instruments will perfonn under more adverse marker
conditions.
With regard to the increasing globalization of the fixed income markets, members noted
that, while in the past Treasuries have been the benchmark, as European and other markets grow
while Treasury debt declines, Treasuries will soon be less of a benchmark. Given this, and that
about 40 percent of U.S. Treasury debt is held by foreign investors, the impact on the Treasury
markets' benchmark status may be to diminish its importance more rapidly as foreign investors
look for broader investment choices.
Concerning the growth of Government sponsored enterprises, members of the Comminee
again mentioned that increased agency debt has helped to provide hedging and pricing vehicles
for participants. This, however, has been in a benign and untested credit environment. There
was no consensus on how to assess the nature and severity of the potential risks to the
Government of Government sponsored enterprises
The meeting adjourned at 12:23 p.m.
The Committee reconvened at the Madison Hotel at 6:20 p.m. All members were present
except Messrs. White and Lyski. The Chairman presented the Committee report to
Undersecretary Gensler, Assistant Secretary Sachs, and Deputy Assistant Secretary Paulus. A
brief discussion followed the Chairman's presentation, but did not raise significant questions
regarding the report's content.
The meeting adjourned at 6:30 p.m.
Q2frn~/
0
Paul F. Malvey
Acting Director.
Office of Market Finance
February 2, 2000
Certified by:
Kenneth M. deRegt, Chairman
Treasury Borrowing Advisory Committee
of The Bond Market Association
February 2, 2000
.,
is still uncertain and unproven how these instruments will perfonn under more adverse market
conditions.
With regard to the increasing globalization of the fixed income markets, members noted
that, while in the past Treasuries have been the benchmark, as European and other markets grow
while Treasury debt declines, Treasuries will soon be less of a benchmark. Given this, and that
about 40 percent ofD.S. Treasury debt is held by foreign investors, the impact on the Treasury
markets' benchmark status may be to diminish its importance more rapidly as foreign investors
look for broader investment choices.
Concerning the growth of Government sponsored enterprises, members of the Committee
again mentioned that increased agency debt has helped to provide hedging and pricing vehicles
for participants. This, however, has been in a benign and untested credit environment. There
was no consensus on how to assess the nature and severity of the potential risks to the
Government of Government sponsored enterprises
The meeting adjourned at 12:23 p.m.
The Committee reconvened at the Madison Hotel at 6:20 p.m. All members were present
except Messrs. White and Lyski. The Chairman presented the Committee report to
Undersecretary Gensler, Assistant Secretary Sachs, and Deputy Assistant Secretary Paulus. A
brief discussion followed the Chainnan's presentation, but did not raise significant questions
regarding the report's content.
The meeting adjourned at 6:30 p.m.
Q2rrn~~
f
Paul F. Malvey
Acting Director.
Office of Market Finance
February 2, 2000
Certified by:
Kenneth M. deRegt, Chainnan
Treasury Borrowing Advisory Committee
of The Bond Market Association
February 2, 2000
February 2, 2000
COMl\flTTEE CHARGE
The Treasury Department would like the Committee's advice on the following:
•
Given the fiscal forecasts, Treasury needs to make additional adjustments to its financing
plans this year. We are now seeking the Committee's specific advice regarding:
•
•
Reducing the frequency of issuance of 52-week bills or 2-year notes. If a
reduction is recommended, what specific issues should we eliminate':'
Announcing a regular reopening policy for the quarterly refunding issues.
How we should proceed initially with buybacks, in terms of targeted maturity
ranges, notice period, and size of a given operation.
•
The composition of a financing to refund approximately $27.6 billion of privately held
notes maturing on February 15 and to issue from $30 billion to $35 billion in
5-year and 10-year notes and 30-year bonds. Depending upon the Committee' s
recommendation regarding regular reopenings should this financing range be adjusted?
•
The composition of Treasury financing for the remainder of the January-March quarter
and for the April-June quarter.
•
As the amount of Treasury debt has continued to decline, observers have commented on
the implications for financial markets and possible risks to the government of the
following. We would like the Committee's views on these issues.
•
•
•
The effects on hedging and pricing practices (including the use of derivatives) in
fixed-income markets
Increasing globalization of fixed income markets.
The growth of Government Sponsored Enterprises.
How should average maturity decisions be made with respect to managing the national
debt as we continue to reduce the stock of such debt?
February' 2.2000
COMMITTEE CHARGE
The Treasury Department would like the Committee's advice on the following
•
Given the fiscal forecasts, Treasury needs to make additional adjustments to its financing
plans this year. We are now seeking the Committee's specific advice regarding:
Reducing the frequency of issuance of 52-week bills or 2-year notes. If a
reduction is recommended, what specific issues should we eliminate'}
Announcing a regular reopening policy for the quarterly refunding issues.
How we should proceed initially with buybacks, in terms of targeted maturity
ranges, notice period, and size of a given operation.
•
The composition of a financing to refund approximately $27.6 billion of privately held
notes maturing on February 15 and to issue from $30 billion to $35 billion in
5-year and la-year notes and 30-year bonds. Depending upon the Committee's
recommendation regarding regular reopenings should this financing range be adjusted?
•
The composition of Treasury financing for the remainder of the January-March quarter
and for the April-June quarter.
As the amount of Treasury debt has continued to decline, observers have commented on
the implications for financial markets and possible risks to the government of the
following. We would like the Committee's views on these issues.
•
•
•
The effects on hedging and pricing practices (including the use of derivatives) in
fixed-income markets.
Increasing globalization of fixed income markets.
The growth of Government Sponsored Enterprises.
How should average maturity decisions be made with respect to managing the national
debt as we continue to reduce the stock of such debt?
F ebrua~· 2. 2000
COMMITTEE CHARGE
The Treasury Department would like the Committee's advice on the following:
•
Given the fiscal forecasts, Treasury needs to make additional adjustments to its financing
plans this year. We are now seeking the Committee's specific advice regarding:
•
•
•
Reducing the frequency of issuance of 52-week bills or 2-year notes. If a
reduction is recommended, what specific issues should we eliminate"
Announcing a regular reopening policy for the quarterly refunding issues.
How we should proceed initially with buybacks, in terms of targeted maturity
ranges, notice period, and size of a given operation
•
The composition of a financing to refund approximately $27.6 billion of privately held
notes maturing on February 15 and to issue from $30 billion to $35 billion in
5-year and 10-year notes and 30-year bonds. Depending upon the Committee' s
recommendation regarding regular reopenings should this financing range be adjusted?
•
The composition of Treasury financing for the remainder of the January-March quarter
and for the April-June quarter.
•
As the amount of Treasury debt has continued to decline, observers have commented on
the implications for financial markets and possible risks to the government of the
following. We would like the Committee's views on these issues.
•
•
•
•
The effects on hedging and pricing practices (including the use of derivatives) in
fixed-income markets.
Increasing globalization of fixed income markets.
The growth of Government Sponsored Enterprises.
How should average maturity decisions be made with respect to managing the national
debt as we continue to reduce the stock of such debt?
1948
Federal Register I Vol. 65. No. 8/ Wednesday. January 12. 2000 / Notices
91 (1979). To address whether this
condition adequately protects affected
employees. a petition for partial
revocation under 49 U.S.C. 10502(d)
must be filed. Provided no formal
expression of intent to file an offer of
financial assistance (OFA) has been
received. this exemption will be
effective on February 11. 2000. unless
stayed pending reconsideration.
Petitions to stav that do not involve
environmental'issues. 2 formal
expressions of intent to file an OFA
under 49 CFR 1152.27(c)(2}.J and trail
use/rail banking requests under 49 CFR
1152.29 must be filed by January 24.
2000. Petitions to reopen or requests for
public use conditions under 49 CFR
1152.28 must be filed by February 1.
2000. with: Surface Transportation
Board. Office of the Secretary. Case
Control Unit. 1925 K Street. NW.
Washington. DC 20423.
A copy of any petition filed with the
Board should be sent to applicant's
representative: James P. Gatlin. General
Attorney. Union Pacific Railroad
Company. 1416 Dodge Street. Room
830, Omaha. NE 68179.
H the verified notice contains falr oJr
misleading information, the exeII' 40n
is void ab initio.
UP has filed an environment report
which addresses the effects, if my, of
the abandonment and disco' 4Duance
on the environment and hi ..oric
resources. The Section of Alvironmental
Analysis (SEA) will iss' an
environmental assessr Jnt (EA) by
January 14, 2000. lnt ested persons
may obtain a copy the EA by writing
to SEA (Room 50' Surface
Transportation rard, Washington. DC
20423) or by C .lllg SEA, at (202) 5651545. Comm .£5 on environmental and
ZThe Boarr Jill grant I stay if In informed
iecisioD Or> .vironmenlll issues (whether raised
I)' I party
by the Board' s SectioD of
:oYiroD' 4111 Analysis ill iu independent
DYWIi' AODI CllDDot be made before the
.oD'S effwc:tive date. See uemption of Oul".y /I~ Rail Lines. 5 1.C.C.2d 371 (1989). Any
'" at for I suy &bould be filed IS soon IS possible
.....t the Bo.rd may take IppropriltelCtion before
lie exemptioD'S effective date.
lEach offer of financi&l uaW.lDC8 mlU1 be
a:omplDied by the filina tw. which CWTIIDtly is
It It $1000. See 49 Cl'R 1002.2(1)(251.
.
historic preservation ma"ers must
filed within 15 days after the EA
becomes available to the public
Environmental. historic pres 'Iation.
public use. or trail use/rail Ix> ..mg
conditions will be imposed here
appropriate, in a subsequt> decision.
Pursuant to the provis; .is of 49 CFR
1152.29(e){2). UP shall e a notice of
consummation with l~ Board to signify
that it has exercised ,8 authority
granted and fully" dldoned its line. If
consummation h: not been effected by
t.i·P·s filing of a' Lice of consummation
by Januarv 12 J01. and there:lre no
I~~alllr ~u' ory barriers to
cunsumma' n. thtl authoritv to
abandon' 11 automatically expire.
Board ~isions and notices are
availal> on our website at
"WW .STB.DDT.COV."
I> "ded: Janua~' 5. 2000.
I the Board. David M. Konschnik.
r ktor. Office or Proceedings.
emOD A. Williams.
Sp.crr!lary.
[FR
Doc.
8ILUHG
QO-604
cooe
Filed )-11-00; 8:45
Il1"
..,~
DEPARTMENT OF THE TREASURY
Departmental Offices, Debt
Management Advisory Committee;
Meeting
Notice is hereby given. pursuant to 5
U.S.C. App. § 10(a)(2). that a meeting
will be held at the U.S. Treasury
Department. 15th and Pennsylvania
Avenue. N.W .. Washington. D.C .. on
February 1. 2000. of the follOwing debt
management advisory commi"ee: The
Bond Market Association. Treasury
Borrowing Advisory Commi"ee.
The agenda for the meeung provides
for a technical background briefing by
Treasury staff. followed by a charge by
the Secretary of the Treasury or his
designate that the commi"ee discuss
particular issues. and a working session.
FollOwing the working session. the
commi"ee will present a written report
of its recommendations.
The background briefing by Treasury
staff will be held at 9;00 a.m. Eastern
time and will tw open to the publIc. T
remaining sessions and the comnllt1
reporting session ",;11 be closed to Je
public, pursuant tn 5 U.S.C. Apr
§ 10(d}.
The notice shall constitute ..ly
determination. pursuant to ,Ie authority
placed in heads of depart' .ents by 5
U.S.c. App. § 10(d) and ested in me by
Treasury Department ,roer No. 101~S.
that the closed portias of the meeting
are concerned wit' miormation that is
exempt from dir JOsure under 5 U.s.c.
§ 552b(c)(9)(.4 \ fhe public intp-rest
requires that <.u:h meP.ling<; n., dO",.>{jlo
t.be public ~ .""ause the Trpasury
Departm v t require .. fr<lnk and t1:li
advice' ..Jm represtlntatives of the
finanr .u community prior to making Its
fina' Jecision on major financing
or rations. Historically. this advice has
~ ~'8n offered by debt management
advisory committees established by the
several major segments of the financial
community. When so utilized. such a
committee is recognized to be an
advisory committee under 5 U.S.C. App.
§J.
Although the Treasury's final
announcement of financing plans may
not reflect the recommendations
provided in reports of the advisory
commi"ee. premature disclosure of the
committee's deliberations and reports
would be likely to lead to significant
financial speculation in the securities
market. Thus. these meetings fall withiD
the exemption covered by 5 U.S.C.
§ 552b(c)(9)(A).
The Office of Financial Markets is
responsible for maintaining records of
debt management adVisory committee
meetings and for providing annual
reports setting forth a summary of
commi"ee activities and such other
matters as may be informative to the
public consistent with the policy of 5
U.S.C. § 552b.
Dated: January 6. 2000.
LeeS.cba,
A.ssistant Secrr!rary (Financial Markets/.
(FR Doc. ~88 Filed 1-11~; 8:45 amI
IIILUNG COOl 4I1o-21-M
TREASURY BORROWING ADVISORY COMMITTEE OF THE
BOND MARKET ASSOCIATION
CHAIRMAN
Kenneth M. deRegt
Managing Director
Morgan Stanley Dean Witter & Co.
1585 Broadway
New Yodc, NY 10036
VICE CHAIRMAN
James R. Capra
President
Capra Asset Management, Inc.
555 Theodore Fremd Avenue
Suite C-204
Rye, NY 10580
Daniel S. Ahearn
President
Capital Markets Strategies Co.
50 Congress Street, Suite 816
Boston, MA 02109
Stanley Druckerunmiller
Managing Director
Soros Fund Management
th
888 7 Avenue, Suite 3300
New York, NY 10106
Richard A. Axilrod
Managing Director
Moore Capital Management, Inc.
1251 Avenue of the Americas, 53 rd Fl.
New York, NY 10020
Stephen C. Francis
Vice Chairman
Fisher, Francis, Trees & Watts,'Inc.
200 Park Avenue
New York, NY 10166
Richard S. Davis
Senior Vice President Head of Fixed Income Investments
Metlife Investments
334 Madison A venue, PO Box 633
Convent Station, NJ 07961-0633
Lisa Hess
Managing Director
Zesiger Capital Group LLC
320 Park Avenue
New York, NY 10022
1
Gedale B. Horowitz
Senior Managing Director
Salomon Smith Barney
388 Greenwich Street, 39th FI
New York. NY 10013-2396
William H. Pike
Managing Director
Chase Securities Inc.
270 Park Avenue
New York. NY 10017
Timothy W. Jay
Managing Director
Lehman Government Securities, Inc.
th
200 Vesey Street. 9 Fl.
New York. NY 10285
Joseph Rosenberg
Senior Investment Strategist
Loews Corp.
667 Madison Avenue
New York. NY 10021-8087
Thomas L. Kalaris
President
Barclays Capital Inc.
222 Broadway
New York. NY 10038
Morgan Stark
Principal
Ramius Capital Group
757 Third Avenue, 27 th Fl.
New York. NY 10017
Barbara Kenworthy
Managing Director
of Mutual Funds - Taxable
Prudential Insurance
McCarter Highway
2 Gateway Center, 7th Fl;oor
Newark. NJ 07102-5029
Craig Wardlaw
Executive Vice President
Bank of America
Mail Code NCI 007-0606
Charlotte, NC 28255-0001
Wayne D. Lyski
Chairman & Chief Investment Officer
Alliance Fixed Income Investors
Alliance Capital Management Corporation
1345 Avenue of the Americas
New York. NY 10105
Mark B. Werner
Managing Director
JP Morgan Securities
60 Wall Street
New York, NY 10260
Michael Mortara
Partner, Co-Head
Fixed Income Division
Goldman, Sachs & Co.
85 Broad Street, 26 th Fl.
New York, NY 10004
Charles D. White
Managing Director
Wells Fargo
Mail Station S4753-040
3300 West Sahara Avenue
Las Vegas, NY 89102
2
LONG !'UN TIlEASURY PIIlAllCINC MODEl.
SClNAAIO:
(1/27/00 update 1
BIJIlGET SUIIPLUS ZQUA.L TO NDf 010 ESTDCATES (OPr - B\JIlGE1' SUlU'LUS
NO Bt1Y'BACJtS
ASSUKES Nr:'!' NOIOCItT,uu: ISstW«:E EQUAl.S URO
ASSUKES AU. COUPONS AIlE HELD AT CUIUU2tr 1ZVELS
om.y :
• IHPLAT!:P. SCDL\ItIOI
JC&rutal:lle I •• u ....:e
"
19'3
19"
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Total
Net
227.'
186.7
186.8
140.0
21.0
-109.'
-9B.O
-166.0
-146.0
-163.0
-176.0
-189.0
-205.0
Bill.
Net
25.6
39.0
29.2
29.7
-59.7
-65.8
16.4
-'"7.8
-45.6
-58.'
-ISO.'
-220.1
-202.8
Coupora
Net
201.9
147.7
157.'
110.3
10.7
-43.6
-114.'
-118.2
-100.'
-10'.6
-25.6
11.1
-2.2
Coupora
Mat
)01.2
152.'
3U.'
439.6
UO.7
505.0
U9.0
'59.2
'37.4
441.6
362.6
305.9
339.2
---------------------- Coupons Gro ••
2
1
Total
5
UI.6
67.0
510.1
140.'
217.1
500.1
72.0
138.S
219.4
72.4
506.2
140.7
215.5
71.1
151.7
5U.'
220.5
561.4
7'.9
15'.6
187.0
461.4
38.5
125.0
200.0
0.0
65.0
1".6
186.0
34.1.0
0.0
U.O
183.0
337.0
0.0
6'.0
183.0
337.0
0.0
64.0
183.0
337 .0
0.0
64.0
337.0
183.0
0.0
64.0
337.0
183.0
0.0
64.0
---------------------------7
10
10
10.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
'5.0
50.2
51.2
62.4
57.0
46.5
46 .0
46.0
'6.0
46.0
46 .0
'6.0
46.0
OUtscanchnQs
FY
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
.998
999
:000
001
002
003
004
005
Total
1555.2
165'.7
1841.9
2113. 8
2363.8
2562.3
2719.9
2870.8
3011.2
2998.8
2856.6
2728.0
25U.0
2416.0
2253.0
2077.0
1888.0
1683.0
Bill.
289.5
310.1
371.1
'18.2
500.5
506.3
527.5
565.'
577.6
508.2
"1.7
'5'.0
406.2
360.6
302.2
151.8
-68.3
-271.1
------------- Coupons
<1
1-5
234.7
553.0
236.6
578.3
255.2
610.1
275.6
761.2
30B.2
866.3
351.8
978.7
350.4
1128.3
1157.5
'37.5
1212.3
'81.0
509.7
1199.0
1089.2
49B.9
461.1
9".0
816.7
'17.'
441.6
683.'
362.6
629.2
105.9
629.5
339.2
603.5
)39.2
S78.'
--------------------------------:>10
5-10
TIPS
232.5
247.'
267.6
280.6
295.2
306.7
290.0
290.1
306.6
106.6
296.3
331.1
))7.0
341.3
346.9
35'.8
lSS.6
355.9
2405.6
282.1
317.9
358.2
392.8
418.8
'23.6
'20.3
433.S
'52.3
475.6
448.5
450.5
'50.9
450.0
U8.8
441.8
446.1
0
0
0
0
0
0
0
0
a
24.'
58.8
87.3
112.3
136.3
144.2
161.2
192.2
216.2
( _ s i t ion ot OUtsta",s..ng Debt 1\1
py
1988
1989
1990
1991
1992
1993
1994
1995
199'
1997
1998
1999
2000
2001
2002
2003
200'4
2005
Toeal
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
B.Us
18 .6
11.1
20.1
20.1
21.2
19.8
19 .4
19."7
19.2
16.9
15.'
16.6
IS.9
14.9
13.5
7.4
-3. 7
-16.3
--- .. --------<1
15.1
14.1
11.9
13 .0
13.0
13.7
12.9
15.2
16.0
11.0
17.'
16.'
17.1
11.3
16.2
14 .9
11.1
20.'
Coupons
1-5
35.6
35.0
34.2
16 .0
36.7
38.2
U.S
40.l
40.l
40.0
31.1
34.7
31.9
28.3
21.2
30.6
32.3
34 .8
-_ ..... _--------_.
5-10
14. ,
15.0
14 .S
13 .J
12 .S
12.0
10.7
10.1
10.2
10.2
10.4
12.1
13 .2
14 .1
IS.S
17 .2
19.0
21.'
,10
15.8
17 .1
11.3
16.9
16.6
16.3
15.6
14.6
14.4
15.1
16 .6
16.4
17.6
18.7
20.1
21.8
23.9
26.8
TIPS
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.8
2.1
) . ;I
'.4
5.6
6.5
8.2
10.l
13. 0
Average Matur1ty
.. /oTIPS
.. /TIPS
5.8
6.0
6.1
6.0
5.9
5.S
5.7
5.3
5.3
5.3
5.7
5.8
6.1
6.3
6.8
7.5
8.3
9.'
5.'
5.8
6.0
6.5
6.8
7.3
8.1
9.0
10.2
38.8
22.0
22.5
22.0
10.0
10.0
30.0
20.0
20.0
20.0
20.0
20.0
20.0
TIPS
0.0
0.0
0.0
0.0
2'.'
34.4
33.6
25.0
24.0
240.0
24.0
2'.0
2'.0
um:; IlUN TR£\SUIIY PIHANClJlC IC)DEL
SCSNMlO:
B\JDGE'!' SUlU'U1S !QUAI. TO RDf CIO I.STIXATES Corp-BUDGET SUlU'U1S OAILY;
Bt1Y1IAC': $25 BIL PEIl YEAIl CAVG ICA'MJIUTY OP BUYBACJU> IS 20 Y1lS I
~ NET IIONICnABLE ISstJAIICE EQUALS %DO
ASSUMES ALL COUPONS AU HELD AT c:uJtU:In' tzI/EL.S
Total
"
1993
1994
1995
1996
1991
1998
19"
1000
1001
2002
2003
2004
2005
C11 27 /00 up:lue}
Net
227.4
186.7
186.8
140.0
21.0
-109.4
-98.0
-166. a
-146.0
-163.0
-176.0
-189.0
-205.0
Bilb
Net
25.5
39.0
29.2
29.7
-5'.7
-65.1
16.4
-22.8
-20.6
-33 .4
-125 .•
-195.1
-n7.8
Coupoca
Coupoca
llet
.... t
201.'
147.7
157.6
110.3
80.7
-43.6
-114.'
-118.2
-100.4
-104.6
-25.6
31.1
308.2
3S2.4
341.6
CH.6
410.7
505.0
.U.O
C59.1
'37.'
CU.6
362.6
305.9
339.2
-2.2
---------------------- Coupoca Gro ••
Total
2
3
S
510.1
SOO.l
506.2
5(9.9
561.4
461. 4
374.6
341.0
337.0
337.0
337.0
337.0
337.0
111.5
2n.1
219.'
235.S
220.5
187.0
200.0
186.0
183.0
183.0
183.0
183.0
183.0
Not.: Net bill l •• uanC. l. calculated a. the r •• ldual. glvan the
"
Total
1999
1555.2
1654.7
1841.9
2113. 8
2363.8
1562.3
2719.9
2870.8
3011.2
2998.8
2856.6
2728. a
2000
2001
2002
2003
2004
2005
2416.0
2253.0
207'.0
1888.0
1683.0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
2562.0
Bill.
289.5
310.1
371.1
438.2
500.5
506.3
527.5
565.4
577.6
508.2
441.7
454.0
431.1
410.6
377 .2
251.8
56.7
-121.1
------------- COUPOD8
<1
1-5
553.0
234.7
578.3
236.6
630.1
255.2
275.6
761.2
866.3
308.2
978.7
351.8
350.4
1128.3
C37.5
1157.5
481.0
1212.3
509.7
1199.0
(98. ,
1089.2
461.1
946.0
816.7
437 .4
683.4
441.6
362.6
629.2
305.9
629.5
339.2
603.5
339.2
578.6
67.0
72.0
72.4
71.3
".,
38.5
0.0
0.0
0.0
0.0
0.0
0.0
0.0
flD&Dc~
Total
1988
1989
1990
1991
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1991
1993
1994
1995
It 96
1997
1998
1999
2000
2001
2002
2003
2004
2005
Bill.
18.6
18.1
20.1
20.7
21.2
19 .8
19 .4
19.7
19 .2
16.9
15.4
16.6
16 .8
17 .0
16.9
12.2
3.0
-7.3
<1
15.1
14.3
13 .9
13.0
13.0
13.7
12.9
15.2
16.0
17.0
17.4
16.9
17 .1
18 .3
16.:2
H.9
18.1
20.4
COUPOJU
1-5
35.6
35.0
14.1
36.0
36.1
38.2
U.S
40.3
40.3
40.0
38.1
l4.7
31.9
28.3
28.2
30.6
32.3
34.8
lCO.C
UI.8
140.7
151.7
154.6
125.0
65.0
64.0
64.0
64.0
64.0
64.0
64.0
7
30.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
TIPS
4)) .8
a
a
a
452.3
475.6
U8.S
425.5
400.9
375.0
148.8
]22.8
296.1
24.4
58.8
17 .3
112.1
136.3
144.2
168.2
192.2
216.2
5-10
!C.9
15.0
!C.5
13.3
12.5
12.0
'10
15.8
17.1
17.3
16.9
16.6
11>.3
TIPS
10.1
15.6
14.6
a
a
a
a
o
a
10.1
10.2
10.2
10.4
12.1
13.2
14.4
15.1
16.6
16.4
14.1
16.6
16.6
15.5
17.2
19.0
21.4
16.8
16.'
17.3
17.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.8
2.1
3.2
'.4
5.6
6.S
8.2
10.3
13.0
10
C5.0
50.2
51.2
62.4
57.0
46.5
46.0
46.0
46.0
46.0
46.0
46.0
46.0
a.ad aDd gro •• COUPOD l •• uaoC •.
Averaoe
>10
245.6
282.1
317.'
3S8.2
392.8
418.8
423.6
420.3
5-10
232.S
247.4
267 .6
280.6
295.2
306.7
290.0
290.1
306.6
306.6
296.3
331.1
337.0
341.3
146.9
354.8
355.6
35S.'
:ompositioD of OUtnandU1\1 Debt C"
py
°IHFI.ATEDo SCEH.\IlIOI
Ma~uruy
./oTIPS
./TIPS
5.8
6.0
6.1
6.0
5.9
5.8
5.7
5.1
5.3
5.3
5.7
5.8
5.9
5.4
5.8
6.0
6.3
5.'
6.'
6.1
6.4
6.8
7.4
6.7
7.1
7.7
8.4
30
38.8
22.0
22.5
22.0
30.0
)0.0
)0.0
20.0
20.0
20.0
20.0
20.0
20.0
TIPS
0.0
0.0
0.0
0.0
24.4
14.4
33.6
25.0
24.0
24.0
24.0
24.0
24.0
t.ONG RUN TJU:ASURY FlNAJCIHG JC)DEL
BI.ltXiET SUIlPLUS EQUAL Ttl JIDI CBO ESTIMATES 'OFl'-BI.ltXiET SUIlPLOS OHLY, "DlFI.ATED" SClXAlUO)
IUYL\.CIt 525 BIL PEII YEU '"VG KA.'l'tlRITY 0' BI1'lBAaS IS 20 T1\S)
.\SSUMES NET NONICItT.uu: ISSt.L\NC% EOUI\LS UltO
REDUC! 10' S lIND )0' S TO IIVG ISSUE SIZE 0' 59 IlL. I.LL OTHEJ! COUPONS I\Il£ HELD liT CUJ\REN:' LEVELS
scEHAlUO:
"
199)
19,.
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
No~e:
(1/%7100 "pdUe)
...
To~al
Bills
Coupo...
Coupo...
Ne~
Ne~
Ne~
~
227.'
186.7
186.1
140.0
21.0
-109.'
-98.0
25.6
39.0
%9.2
29.7
-59.7
-65.8
16.4
201.'
147.7
157.6
110.3
10.7
-43.6
-114.4
-12S.2
-110 .•
-11'.6
-35.6
21.1
-12.2
-166.0
-12.8
-146.0
-163.0
-176.0
-189.0
-205.0
-10.6
-23.'
-ll5.4
Net bill
-185.1
-167.8
~s.u&nce
~.
301.%
352.4
3'1.6
439.6
nO.7
505.0
'19.0
459.2
437.4
441.6
362.6
305.9
33'.2
calculated . . the
---•••••••• - •••••• - •• - Coupon. Gross
To~&l
%
)
5
510.1
181.'
67.0
140.4
500.1
217.1
72.0
138 .•
506.2
2U.'
72.4
140.7
549.'
235.5
78.3
151.7
561.4
220.5
"4.'
154.6
461..
187.0
38.5
125.0
374.6
200.0
0.0
65.0
331.0
186.0
0.0
64.0
327.0
183.0
0.0
64.0
327.0
183.0
0.0
64.0
327.0
183.0
0.0
64.0
327.0
183.0
0.0
64.0
327.0
183.0
0.0
64.0
r.s~d... l.
g~V.D ~be
f~c~
7
30.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
need aDd gross coupo.,
10
'5.0
50.2
51.2
62.'
57.0
4'.5
38.0
30
38.8
22.0
22.5
22.0
30.0
30.0
30.0
18.0
18.0
18.0
18.0
38.0
38.0
18.0
18.0
46.0
38.0
38.0
38.0
~s.uance.
OUtuandl..,gs
"
1988
1989
1990
1991
1992
1993
1994
1995
To~a1
1555.2
1654.7
1841.9
2113.8
2363.8
2562.3
2'719.9
2870.8
3011.2
1996
1997
2998.S
1998
1999
2000
2001
2002
2003
2004
2005
2856.6
2728.0
2562.0
2416.0
2253.0
2077.0
1888.0
1683.0
C~sitio.,
ot
TO~Al
1988
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
371.1
438.2
500.5
506.3
527.5
565.4
577 .6
508.2
441. 7
454.0
441.2
'30.6
407.2
291.8
106.7
-61.1
••••• -.------ Coupons
<1
1-5
234.7
553.0
236.6
578.3
255.2
630.1
761.2
275.6
308.2
866.3
978.7
351.8
350.4
1128.3
1157.5
437.5
481.0
1212.3
509.7
1199. a
498.9
1089.2
461.1
"6.0
816.7
437.4
441.6
683.'
362.6
629.2
629.5
305.9
339.2
603.5
OU~s~and~ Deb~
I'Y
1989
1990
1991
Bills
289.5
310.1
339.2
<1
15.1
20.1
13.9
13.0
13.0
21.2
»10
245.6
247 .,
282.1
267.6
280.6
295.2
)06.7
317.9
358.2
392.8
418.8
'23.6
420.3
433.8
'52.3
24.'
475.6
5S.8
U8.S
423.5
396.9
290.0
290.1
306.6
306.6
296.)
331.1
32J.0
325.3
284.1
5-10
14.9
15.0
14.5
13.3
12.5
~10
TIPS
15.8
17.1
11.3
16.9
16.6
0.0
0.0
322.8
315.6
369.0
340.8
312.8
14.3
Coupo".
1-5
35.6
35.0
14.2
36.0
36.7
13. 7
38.2
12.0
16.3
12.9
15.2
16.0
41.5
40.3
10.7
10.1
10.2
10.2
10.'
12.1
12.8
13.5
H.'
15.7
16.9
18.6
15.6
14.6
14.'
15.1
16.6
16.'
16.5
16.'
16.5
16.6
16.7
17.1
16.9
15.'
16.6
17.'
16.9
17.2
17 .8
18 .2
17 .1
'0.3
40.0
38.1
H.7
31.9
18.3
16.2
28.3
28.2
14 .9
30.6
18.1
20.'
32.3
-3.7
o
o
o
o
o
o
o
o
309.5
322.9
19.8
1'.2
5.7
o
87.3
112.3
136.3
144.2
168.2
192.2
216.2
19.'
19.7
19 .2
TIPS
I')
Bil15
18 .6
18.7
20.7
577 .0
IIverAge
5-10
232.5
17 .0
34.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.8
2.1
3.2
•••
5.6
6.5
8.2
10.3
13.0
w/oTIPS
5.8
6.0
6.1
6.0
5.9
5.8
5.7
5.3
5.3
5.3
5.7
5.8
5.8
5.8
6.0
6.2
6.5
7.0
5.4
5.8
6.0
6.2
6.3
6.5
6.9
7.'
8.1
TIPS
0.0
0.0
0.0
0.0
24.'
H.'
33.6
25.0
24.0
24.0
2'.0
24.0
24.0
WNG ItUN TItU.SURY FINANCING MODEL
SCIJIAIUO:
(1/27100 update)
BUDGrT SUIlPLUS EQUAL TO HEW CJIO &STDIATES 1OFP'-BUtIGn SUIlPLUS ONLY; "IIII'LATED" SCl!H.\ltIO)
BUYBACIt $25 BIL IN 2000. S50 aIL Pat YEAA THEI\U.PTD IAVIi .....TURITY OP BUYBAOtS IS 20 YlI.S)
ASSUMES NET NONKIt'r.... u: ISSUAlIC!: EOUAI.S ZPCI
REDUCE 10'S AND 30'S TO AVG ISSUE SIZE OP S9 IlL
M&rUtable Issuance
Total
Net
227.4
186.7
186 .•
HO.O
21. 0
-109.4
-98.0
-166.0
-146.0
-16).0
-176.0
rr
1993
19,.
1995
1996
1997
1998
1999
2000
2001
2002
200)
2004
2005
No~e:
-18'. a
-205.0
Net bl.ll
COUPODJI
Net
201.'
U.,."
15".'
110.l
10.7
-41.6
-lH.4
-128.2
-110.'
-lU.6
-35.6
21.1
-12.2
BUh
llet
25.6
39.0
29.2
2'.7
-59.7
-65.&
16 .4
-12.&
14 .•
1.6
-90.4
-160.1
-142.8
1. •• u&.Dce
l.. calculated
COUPODJI
Nat
)01.2
352.4
In.6
439.6
nO.7
505.0
"9.0
459.2
437.4
441.6
362.6
)05.9
339.2
..
---------------------- Coupons Gro ••
Total
2
3
5
111.6
510.1
67 .0
UO.4
217.1
500.1
72.0
ll8.8
72.4
506.2
UO.7
219.'
2lS.5
78.3
151.7
5".9
561.C
220.5
74.9
154.6
187.0
461.4
lB.5
125.0
200.0
3H.6
0.0
65.0
331.0
186.0
0.0
".0
)27.0
1&3.0
0.0
64.0
327.0
183.0
0.0
64.0
183.0
327 .0
0.0
64 .0
18) .0
327 .0
0.0
64.0
327.0
18) .0
0.0
64.0
---------------.-------.-.-.,
)0
lO.l
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
the re.l.dual. gl-ven the t.......,CUlg need and gro •• coupon
10
45.0
50.2
51.2
62.4
57.0
46.5
46.0
3&.0
3S .0
38.0
38.0
38.0
38.0
1. •• 1.&&Dce.
OUtst&ftdl.llgs
py
19&8
1989
1990
1991
1992
1993
1994
1995
1996
1""
1998
1999
2000
2001
2002
2003
2004
2005
Total
1555.2
1654.7
1841.9
2113.8
2363.8
2562.3
2719.9
2870.8
3011.2
2998.8
2856.6
2728.0
2562.0
2416.0
2253.0
2077.0
1888.0
1683. 0
B.ll.
2&9.5
310.1
371.1
438.2
500.5
506.3
527.5
565.4
577.6
508.2
441.7
454.0
441.2
455.6
457.2
366.8
206.7
63. ,
------------- Coupona
<1
1-5
234.7
553.0
236.6
578.3
255.2
610.1
275.6
761.2
308.2
866.3
978.7
351.8
350 .•
1128.3
43'7.5
1157.5
481.0
1212.3
509.7
1199.0
498.9
1089.2
461.1
946.0
43'7.4
816.7
641.6
683.4
362.6
629.2
305.9
629.5
339.2
603.5
339.2
577.0
Coeposition of Outstandl.ftq Debt
f'Y
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
200e
2005
Total
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Bl.lh
18.6
18.7
20.1
20.7
21.2
19.8
19 .•
19.7
19 .2
16.9
15.4
16.6
1'7.2
18.9
20.5
17.8
11.1
3.8
-------.------------------.----->10
5-10
TIPS
2)2.5
247 .4
267.6
280.6
295.2
306.7
290.0
290.1
306.6
306.6
296.3
ll1.1
32'.0
)25.l
322.9
322.8
315.6
)0'.5
2'5.6
282.1
317 .9
358.2
392.8
418.8
423.6
420.)
433.8
'52.3
475.6
448.5
423.5
371.9
319 .0
265.8
212.8
15'.1
0
0
0
0
0
0
0
0
0
24.4
58.8
87.3
112.3
136.3
1".2
168.2
192.2
216.2
(\1
------------<1
15.1
14.3
13.9
13.0
13.0
13.7
12.9
15.2
16.0
17.0
17.4
16.9
17.1
lB.l
16.2
14. ,
lB .1
20.'
Coupons
1-5
3S.6
35.0
H.2
36.0
36.7
38.2
U.S
40.1
40.3
40.0
38.1
34.7
31.9
28.)
28.2
)0.6
32.3
34.7
------ ... _-----_.
S-10
14.9
15.0
14.5
13.1
12.5
12.0
10.7
10.1
10.2
10.2
10.'
12.1
12.8
13.5
>10
15.8
17 .1
17 .)
16 .,
16 .6
16.3
15.6
14 .6
14 .•
15.1
16.6
l6.'
16.5
15.'
14 .•
14. J
15.7
16.9
18.6
12.9
11.4
9.6
TIPS
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.8
4.1
3.2
C.C
5.6
6.5
8.2
10.3
13.0
Average Katurny
w/oTIPS
wlTIPS
5.8
6.0
6.1
6.0
5.9
5.8
5.7
5.3
5.3
5.4
5.3
5.7
5.8
5.8
6.0
5 .•
6.2
5.6
6.1
6.1
5.5
6.2
5.4
5.4
6.4
5.3
6.6
)8.8
22.0
22.5
22.0
lO.O
30.0
30.0
18 .0
18.0
18.0
18 .0
18.0
18.0
TIPS
0.0
0.0
0.0
0.0
24.4
H.4
33.6
25.0
24.0
24.0
24.0
24.0
24.0
lDlICi JlUN TIIEASUIIY
rt~INC
IClDEL
Cl/l7/00 update)
BI.ltIGE't ~PU1S EOUAl. TO NZW 00 ES"I'DIATES IOrJl'-BUDGrr SUlU'WS ONLY: "IHFL.\TEP" Sc:EHAJlIO)
Bt1YBAO: S2S BU. DI 2000, S50 BIt. PEI\ Y1\ ~ IAvti MA'n1IUTY OF I!UY1IACIt.S IS 20 Y1\S THRU 01 AN:: 14 IN O'-CS
~O:
ASSUKES NET NCltII«TAJlLZ ISSUANCZ EQUALS %EJlO
JIEDUCE 10'S AND 30'S TO Ave ISSUE SIZE OF 59 BIt.
IlAr.e table
I •• uance
f'Y
1993
1"4
1995
I'"
1"7
1998
1999
2000
2001
2002
2003
2004
2005
Note: Net
Total
Nac
227.4
116.7
186.1
140.0
21.0
-109.4
-98.0
-166.0
-146.0
-163.0
-176.0
-189.0
-205.0
b~ll
BUh
Nat
2S.6
39.0
29.2
29.7
-59.7
-65.1
16.4
-12.8
14 .4
1.6
-90.4
-160.1
-142.8
1.' a u.&Jlce
~.
Coupo ...
..ac
201.'
147.7
157.6
110.3
10.7
-43.6
-114.4
-148.2
-110.'
-114.6
-35.6
21.1
-12.2
Coupe...
teat
301.2
3S2.4
3".6
439.6
<180.7
505.0
489.0
459.2
437.4
441.6
362.6
305.9
339.2
caleulated a. cbe
---------------------- Coupo ... Gro ••
Total
2
3
5
181.6
67.0
S10.1
140.4
72.0
217 .1
SOO.l
131.1
506.2
140.7
2U.'
72.'
549. ,
23S.S
71.3
151.7
220.5
74.9
561.4
154.6
187.0
461.4
31.5
125.0
200.0
374.6
0.0
65.0
186.0
0.0
331. 0
54.0
183.0
327.0
0.0
64.0
183.0
327.0
0.0
64.0
183.0
0.0
327.0
64.0
183.0
0.0
64.0
327.0
327.0
183.0
0.0
64.0
re.~dUA1.
g~ven
--------------------.------7
10
30
30.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
45.0
50.2
51.2
62.4
57.0
46.5
46.0
38.0
38.0
38.0
38.0
38.0
38.0
the fU1&Dc.ulg naed aDd grn •• coupon
l. • • u&nc:e.
OutstanclUlgs
FY
1988
1989
1990
1991
1992
1993
199.
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Total
1555.2
1654.7
1841.9
2113.8
2363.8
2562.3
2719.9
2870.8
3011.2
2998.8
2856.6
2728.0
2562.0
2416.0
2253.0
2077 . 0
1888.0
1683.0
Billa
289.5
310.1
371.1
438.2
500.5
506.3
527.5
565.4
577.6
508.2
441.7
454.0
441.2
455.6
457.2
366.8
206.7
63. 9
------------- Coupo ...
<1
1-5
553.0
234.7
S7S.3
236.6
255.2
630.1
761.2
275.6
308.2
866.3
978.7
351.8
350.4
1128.3
1157.5
437.5
481.0
1212.3
509.7
1199.0
49B.9
1089.2
461.1
946.0
437 .4
116.7
683.4
441.6
)62.6
629.2
305.9
629.5
)39.2
603.5
))9 .2
577 .0
-.------------------------.-----5-10
TIPS
~10
232.5
247.4
267 .6
2SO.6
295.2
306.7
290.0
290.1
306.6
306.6
296.3
331.1
329.0
325.3
297.9
272.8
240.6
209.5
245.6
282,1
317.9
3SS.2
392.8
418.8
423. 6
420.3
431.8
452.3
475.6
448.S
423.5
371. 9
344.0
315.B
287.8
259.1
0
0
6.0
0
0
0
0
0
0
0
H.4
SB.8
87,3
112.3
136.J
144.2
168.2
192.2
216.2
6.1
6.0
5.'
5.8
5.7
5.3
5.3
5.3
5.7
5.8
5.8
5.6
5.6
5.8
5.'
6.2
COIIpOsi tion of Outstanding Debt. 1\'
FY
To~al
1988
1989
1990
1991
1992
1993
1994
100.0
100.0
100.0
100.0
100.0
100,0
100.0
100.0
100.0
100.0
100.0
100.0
100,0
100.0
100.0
100.0
100.0
100.0
Ins
1996
1997
1998
1999
1000
1001
lO02
lO03
!004
:005
B.lls
18.6
18.7
20.1
20.7
21.2
19.8
19 .4
19.7
19 .2
16.9
15.4
16.6
17.2
18.9
20.5
17 .8
11.1
3.8
Coupons -- ... _---------_.
--- .. --------<1
1-5
>10
5-10
15.1
14 .3
13.9
11.0
13.0
13.7
12.9
15.2
16 .0
11.0
17.4
16.9
17.1
11.3
16.2
14 .9
11.1
20.4
35.6
35.0
)4 .2
36.0
36.7
38.2
41.5
40.3
40.3
40.0
38.1
)4.7
31.9
28.3
28.2
30.6
32.3
)4.7
14 .9
15.0
14.5
13. 3
12 .5
12.0
10.1
10.1
10.2
10.2
10.4
12,1
12.8
1l.5
13 .)
1l. 2
12.9
12.6
15.8
17.1
17.3
16.9
16.6
16.)
15.6
14.6
14.4
15.1
16 .6
16 .4
16.5
15 4
15.4
n.3
15.'
15.6
Averaoe Matur1ty
"/oTIPS
5.8
TIPS
0.0
0.0
0.0
0 .0
0.0
0.0
0.0
0.0
O. 0
O.
.1
.2
4.4
5.6
6.5
8.2
10.1
1).0
"/TIPS
5.4
5.B
6.0
6.2
6.1
6.2
6.S
6.9
7.3
3B.B
22.0
22.5
22.0
30.0
30.0
30.0
18 .0
18.0
18.0
IB .0
18.0
18.0
TIPS
0.0
0.0
0.0
0.0
2<1. "
34.4
33.6
25.0
24.0
24.0
H.O
H.O
24.0
atJDGI:T SUltPWS IQUAt. 1"0 IIDf ClIO asTDlAT1tS IOPP-BurxzT StJlU'WS DIlLY; "DIPLATEXI" S~O)
BUY1IACJt S25 BIL III 2000. S50 BU. I'D n DI 2001-02 AlIt) S100 BlL I'D n TIIEIUtAn'D. IAV'G KAT IS ABOl.":' lS Y1t$)
ASStIKItS lin IICNICItTABLE ISstW111:2 IQUAt.S UIIO
ItEDUI:Z 2' S 1"0 8 ISSUES I'D n UG III 2000 02
RE.DUI:!: 10' S .\lID ] 0 • S TO AV'G ISstJE SUE op U BIL
SCIIIdlo:
Jl&rltet@le 1 •• u&Dc:e
Total
llee
227.4
116.1
116.8
140.0
21.0
-109.4
-91.0
-166.0
-146.0
-163.0
-176.0
-189.0
-205.0
"un
1'"
1"5
I'"
1997
1'"
1'"
2000
2001
2002
2003
200.
2005
Note: Net bill
COupclaa
llee
201.t
147.1
157.6
110.3
10.7
-4].6
-114.4
-162.2
-171.'
-141.6
-35.6
21.1
-12.2
Bill.
. .e
25.'
It.O
19.2
29.7
-59.7
-65.8
16.'
21.2
75.4
28.6
-'0.4
-110.1
-92.8
1 •• ua.oc:e
COupclaa
Mae
30'.2
152.'
3U.'
439.6
4.0.7
505.0
'''.0
459.2
'37.4
'07.6
101.6
2".9
271.2
lo. c:alc:uJ.ated u
Gro••
5
ltO.'
---------------------- Coupoaa
Toc&l
510.1
500.1
506.2
5.,.,
561.4
'61.4
]7&.6
297.0
266.0
266.0
266.0
266.0
266.0
2
111.'
217.1
2n.'
2]5.5
220.5
187.0
200.0
152.0
122.0
122.0
122.0
122.0
122.0
ttl. re.ic1u.al. given ttle
3
n.o
72.0
72.4
71.3
7'.'
U.S
0.0
0.0
0.0
0.0
0.0
0.0
0.0
t icaDc: UIg
131.'
ltO.7
151.7
154.'
125.0
65.0
64.0
64.0
64.0
64.0
64.0
64.0
Deed aDc1
----.-------------------... -7
]0
10
30.]
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
45.0
50.2
51.2
62.4
57.0
U.S
46.0
38.0
31.0
38.0
38.0
38.0
18.0
gro.. c:oupon i •• u&nce.
Outatanc1ings
UII
"un
1990
un
1992
un
U,.
1995
1996
1997
1998
199'
2000
2001
2002
2003
200.
2005
~.1tion
py
1988
1989
1"0
un
1"2
19'3
1".
U'5
199'
1'"
1998
U"
2000
2001
2002
2001
200.
2005
Total
1555.2
165'.7
lU1.9
2111.8
2363.8
2562.3
2719.9
2870.8
1011.2
2998.8
2856.6
2728.0
2562.0
2416.0
2253.0
2077.0
1888.0
1683.0
Bi.ll.
289.5
310.1
171.1
438.2
500.5
506.]
527.5
565.'
577.6
508.2
441.7
'5,&'0
415.2
550.6
579.2
538.8
421.7
315.9
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2026222611
fro.:
~tment
DEPARTMENT
Of Treasury
OF
06/02/00 04:07 PM
THE
Page 32 of 62
TREASURY
omCE OF Pt.JBUC AFFAIRS • 1500 PENNSYLVANIA AVENt.:E, N.W. • WASHINGTON, D.C.• 20220 • (202) 622-2!1fiO
FOR RELEASE UPON DELIVERY
Expectea at 10:00 a.m. EDT
June 13, 1995
S'1'A'l'EJmN'l' OJ'
DEPAll'l'XE.N'1' 01' '1'HE TREAStrRy
LESLIE B. SAMUELS
SECRE'1'ARY (TAX POLZCY)
~SIS'1'AN'1'
B!!JI'ORlI '1'lIJ:
CCKKI'l'TZB OB
FCR~Ia.
aZLA'1'ICHS
U»%'1'zn S'1'A'1'ES SENATH
Mr. Chairman and members of the committee, I am pleased today
to recommend, on banal! of the Administration, favorable action on
seven bilateral tax treaties and protocols that the President has
transmitted to the senate and that are the SUbject of this hearing.
My colleague, Mr. Joseph H. Guttentaq, will discuss one of these
agreements, the protocol to the Income Tax Convention with Mexico.
These agreements each would provide significant benefits to the
United States, and the Treasury hopes that the senate will take
prompt and favorable action on all of these agreements.
The treaties and protocols before the Committee today
represent a cross-section ot the United States tax treaty program.
There are agreements with t~o of our largest trading partners -Canada and France.
Two are with sma ller, but nevert:he less
significant partners -- Sweden and Portugal.
There also are two
treaties with countries that are likely to become significant
trading partners in the future -- Kazakhstan and Ukraine.
Each
agreement will generate substantial benefits tor U.S. taxpayers and
tax authorities, and will serve to increase desirable international
economic activity.
To help frame our discussions, I would like to describe in
general terms the U.S. tax treaty program. The United States has
a network of 41 bilateral income tax treaties, the first of which
was negotiated in 1939.
We have treaties with most of our
significant trading partners. With the exceptions of Portugal and
Turkey, we have treaties in force with all 24 of our fellow members
of the Organization tor Economic cooperation and Development
(OECD).
The Treasury Department receives regular and numerous requests
to enter tax treaty negotiations.
As a result it has been
necessary for us to establish priorities. These priorities are n~t
new: they are reflected in the treaties that the senate approved ~n
199J as well as the treaties that you are considering today.
In response to prior direction from the Senate as well as the
Treasury's own policies, the Treasury"s first priority for treaty
RR-366
PC»' press releases, speeches, puhlic schEdules and aJfici.al biographies, call our 24..lzuurfa.:x; line at (202) 622-204-0
2026222611
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~tment
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2 -
negotiations is to renegotiate outdated treaties that lack
effective anti-abuse clauses and that do 'not reflect recent changes
in U. S. tax, leqislation.
Examples in this category are the
agreements w1th Canada, France and Sweden. other treaties in this
category that are currently being renegotiated include Austria
Luxembourg and Switzerland. We have made it clear to our treat~
partners that we will not tolerate continuation of treaty
relationships that fail to reflect important u.S. treaty policies.
A second priority is to conclude treaties that are likely to
provide the greatest benef its to U. s. taxpayers.
As discussed
below, these benefits are important to the competitive posture of
u.s. taxpayers that enter a treaty partner's marketplace. Such
treaties could include treaties with expanding economies with Which
we lack a treaty, or revised treaties with existing treaty partners
but that contain substantially improved provisions.
Examples in
this category include the treaty with Portugal, as well as the
agreements with Canada and France.
-A third priority is to conclude treaties with countries with
which we lack a treaty, but that have the potential to be
significant trading partners.
The list of such countries has
always been a long one, and it has become even longer since the
late 1980's and the opening of the Iron curtain. Therefore it has
become necessary to consider additional factors in setting
priorities among this category.
One such factor is the
international economic and foreign policy of the united states.
Treasury tries to focus its efforts in this category on those
countries with which strong political and economic relations are a
high priority.
The existence of a tax treaty can help remove
impediments to trade and investment in such countries and thereby
help establish economic ties that may contribute to the country's
stability and independence.
Consideration of this factor is not
new.
In 1.993 the Senate considered and approved treaties with
three countries that fit this description: the Russian Federation,
the Czech Republic, and Slovakia.
The treaties before you today
contain two examples from this category: Ukraine and Kazakhstan.
Benefits Provided by Income Tax
Trea~ies
Irrespective of the category in which a particular country may
fall we seak to achieve the same two basic objectives through the
treaty.
First,
it reduces income ta~-related barriers. to
international trade and investment. An act1ve treaty program ~s a
significant element in the overall international e~onomic policy of
the united States. A tax treaty has a substantial positive impact
on the competitive position of U.s. businesses that enter a treaty
partner's marketplace.
A second general obj ecti ve of our tax treaty proqram is to
combat tax avoidance and evasion.
A treaty provides the tax
2026222611
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-
administrations of both treaty partners with certain tools with
which to combat tax evasion.
While the domes·tic tax legislation of the united States and
many other countries in many ways is intended to further the same
general objectives as our treaty program, a treaty network goes
beyond what domestic legislation can aChieve.
Legislation is by
its nature unilateral and cannot easily distinguish among
countries. It cannot take into account other countries' rules for
the taxation of particular classes of Income, and how those rules
interact with U.S. statutory rules.
Legislation also cannot
reflect variations in the united States' bilateral relations with
our treaty partners. A treaty, on the other hand, can make useful
distinctions, and alter, in an appropriate manner, domestic
statutory law as it applies to income flowing between the treaty
partners.
8Qnefits to Taxpayers
An income tax treaty removes impediments t.o international
trade and investment in three ways.
First, it reduces the
withholding taxes on flows of investment income that the United
States and most other countries impose.
Second, it establishes
rules that assign to one country or the other the primary right of
taxation with respect to an item of income, helping to prevent
"doUble taxation," which occurs when both countries impose tax on
the same income. Third, the treaty provides a dispute resolution
mechanism to prevent dOUble taxation that sometimes can arise in
spite of the treaty. These and other benefits provided by a tax
treaty help to minimize the effects of tax considerations on
investment location decisions, facilitating the cross-border flows
of trade, services and technology. I would like to briefly discuss
each of these aspects of an income tax treaty.
High withholding taxes are an impediment to international
investment. Under Oni ted States domestic law, all payments to nonU.S. persons of dividends and royalties and certain payments of
interest are subject to withholding tax equal to 30 percent of the
gross amount paid.
Since this tax is imposed on a gross rather
than net amount, it imposes a high cost on investors receiving such
payments.
Indeed, in many cases the cost of such taxes can be
prohibitive. Most of our trading partners impose similar levels of
withholding tax on these types of income.
Tax treaties remove this burden by reducing the levels of
withholding tax that the treaty partners may impose on these types
of income.
In general, U. s. policy is to reduce the rate of
taxation on interest and royalties to zero. Dividends normally are
subj ect to tax at one of two rates, depending on the amount of
stock that the recipient owns in the company distributing the
dividend.
If the recipient is a corporation owning a significant
percentage of shares in the distributing company -- usually 10
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~rtment
Of Treasury
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- 4 -
percent -- the rate of tax is usually limited to 5 percent.
all other cases the tax is generally limited to 15 percent.
In
The extent to which this policy is realized depends on a
number of factors. Although generalizations often are difficult to
make in the context of complex negotiations, it is fair to say that
we are more successful in reducing these rates with countries that
az:e relatively developed and where there are SUbstantial reciprocal
flows.
We also achieve lesser, but still very significant
reductions
with
countries
where
the
flows
tend
to
be
disproportionately in favor of the United states.
In the latter
case, the treaty partner may perce~ve that it is making a
concession in favor of the United states without receiving a
corresponding benefit. For this reason and others the withholding
rates tend to vary somewhat from treaty to treaty. All treaties,
however, achieve SUbstantial reductions in withholding taxes.
Eliminating double taxation is another paramount objective of
any income tax treaty. One of the principal ways this is achieved
is through assignment of primary taxing jurisdiction in particular
factual settings to one treaty partner or the other.
In the
absence of a treaty, a U.s. company operating a branch or division
or providing services in another country might be subject to income
tax in both countries on the income generated by such operations.
The resulting double taxation can impose an oppressive tinancial
burden on the operation and might wall make it economically
unfeasible.
The tax treaty lays out ground rules providing that one
country or the other, but not both, will have primary taxing
jurisdiction over branch operations and individuals performing
services. In general terms, the treaty provides that if the branch
operations hav~ sufficient substance and continuity, the country
where the activities occur will have primary jurisdiction to tax.
In other cases, where the operations are relatively minor, the home
country retains the primary jurisdiction to tax. These provisions
are especially important in treaties with less-developed countries,
which in the absence of a treaty frequently will tax a branch
operation even if the level of activity conducted in the country is
negligible. Und~r these favorable treaty rules,U. s. manufacturers
may establish a significant foreign presence through which products
are sold without subjecting themselves to foreign tax. Similarly,
u.s. residents generally may live and work abroad for short periods
wi thout
becoming
SUbj ect
to
the
other
country t s
taxing
jurisdiction.
These rules are general guidelines that do not address every
conceivable situation. consequently, there will be cases in which
dOUble taxation occurs in spite of the treaty. In such cases, the
treaty provides mechanisms enabling the tax authorities of the two
governments -- known as the "competent authorities" in tax treaty
parlance -to consult and reach an agreement under Which the
2026222611
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FrOl: Deo3rtment Of Treasury
-
5 -
taxpay@r' s income is allocated between the two taxing jurisdictions
on a consistent basis, thereby preventing the double taxation.
In a world in which most major economic powers have extensive
tax treaty networks, the absence of a· U. s. tax treaty with a
particular country can be a distinct disadvantage to u.s.
businesses competing in that foreign market, and to the ability of
the U~ited states to attract foreign investments from that country_
Secur1ng a more level playing field for U.s. companies is
particularly important given the sUbstantial and increasing volume
of cross-border investment by our major trading partners. In 1980
the level of u.s. direct investment abroad was about the same as
that of the European Community an~ Japan together.
However, by
1990, the level of direct investment abroad from the European
community and Japan had risen to about double that of the United
states.
Prevention of Tax Evasion
All the aspects of tax treaties that I have been discussing
involve benefits that the treaties provide to taxpayers, especially
multinational companies, but also to individual citizens.
While
providing these benefits certainly is a major purpose of any tax
treaty, it is not the only purpose. The second major objective of
our income tax treaty program is to prevent tax evasion and abuse
of the treaties. Tax treaties achieve this objective in at least
two major ways.
First, they provide for exchange of information
between the tax authorities.
Second, they contain provisions
designed to ensure that residents of the treaty partner generally
may enjoy the benefits of the treaty only if they have a
substantial nexus with their country of residence.
Under the tax treaties, the competent authorities are
authorized
to
exchange
information,
including
otherwise
confidential taxpayer in.formation, as may be necessary for the
proper administration of the countries' tax laws. This aspect of
our tax treaty program is one of the most important features of a
tax treaty from the standpoint of the Un! ted states.
The
information that is exchanged may be used for a variety of
purposes.
For instance, the information may be used to identify
unreported income or to investigate a transfer pricing case.
In
recent years information exchange has become a priority for the
United states in its tax treaty program.
To highlight the importance of this aspect of the tax treaty
program, the Department ot Justice has written a letter expressing
its support for these treaties, a copy of which is appended to this
testimony for the Committee's information.
A second major objective is to obtain comprehensive provisions
designed to prevent abuse of the treaty by p~rsons wh~ are no~ bona
fide residents of the treaty partner.
Th~s pract1ce, Wh1Ch is
2026222611
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6 -
known as "treaty shopping," can take a number of forms, but its
general characteristic is that a resident of a third state that has
either no treaty with the United States or a relatively unfavorable
one establishes an entity in a treaty partner that has a relatively
favorable treaty with the United states.
This entity is used to
hold title to the person's U.S. investments, which could run the
gamut from portfolio sto'ck investments to a major operating
company, or otherwise engage in treaty-favored activity in the
united States.
By placing the investment in the treaty partner,
the person is able to withdraw the returns from the U.S. investment
subject only to the favorable rates provided in the tax treaty,
rather than the higher rates that would be imposed if the person
had invested directly in the United States.
In the past this committee has expressed strong concerns about
treaty shoppinq, and the Treasury Department shares those concerns.
If treaty shopping is allowed to occur, then there is less
incentive for the third country with which the United States has no
treaty to negotiate a treaty with the United states.
With no
treaty, the country maintains its barriers to u.s. investors.
There-may be good reasons why the United states has not concluded
a treaty with a particular country. For instance, we generally do
not conclude tax treaties with jurisdictions that dO not impose
significant taxes, because there is little danger of double
taxation of income in such a case and it would be inappropriate to
reduce u.s. taxation on inbound investment returns if the other
country cannot offer a corresponding benef it in exchange for
favorable U.S. treatment.
If investors from such countries were
able to enjoy the benefits of a treaty between the United states
and another country, and at the same time enjoy the benefits of a
tax haven regime in their home country, this policy would be
undermined.
In recognition of these concerns, the Treasury Department has
included in all its recent tax treaties comprehensive "limitation
on benefits" provisions that limit the benefits of the treaty to
bona fide residents of the treaty partner.
These provisions are
not uniform, as each country has its own characteristics that make
it more or less inviting to treaty Shopping in particular ways.
Consequently, each provision must to some extent be tailored to fit
the facts and circumstances of the treaty partners's internal laws
and practices.
Transfer Pricinq
Several of the aspects of income tax treaties that I have been
describing are highly relevant to an issue that has been a
contentious one in recent years and that is of very serious concern
to the Administration. That issue is transfer pricing.
Transfer pricing relates to the division of the taxable income
of a multinational enterprise among the jurisdictions where it does
20262226 t t
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- 7 -
business.
If a multinational manipulates the prices charged in
transactions between its affiliates in different countries, the
income reported for tax purposes in one country may be artificially
depressed, and the tax administration in that country will collect
less tax from the enterprise than it should. Accordingly, transfer
pricing is an important subject not only in this country but in
most other industriali~ed countries as well.
In analyzing the prices charged ,in any transaction between
affiliated parties, it is necessary to have a benchmark by which to
evaluate the prices charged. The benchmark adopted by the United
States and all our major trading partners is the arm's length
standard.
Under the arm's length standard, the pr ice charged
should be the same as it would have been had the parties to the
transaction been unrelated to one another -- in other words, the
same as if they had bargained at "armis length. 1I
one of the principal advantages of this approach is its
neutrality: it does not ask the multinational to report a result
different from that which would have been achieved by unrelated
parties. This neutrality means that multinational enterprises are
treated neither more nor less favorably than unrelated parties.
Consistent with the domestic practice of all major trading
nations, all of our comprehensive income tax treaties adopt the
arm I s length standard as the agreed benchmark to be used in
addressing a transfer pricing case. Adoption of a common approach
to these cases is another benefit provided by tax treaties.
A
common approach guarantees the possibility of achieving a
consistent allocation of income between the treaty partners.
Without such an assurance, it is possible that the two tax
authorities would determine inconsistent allocations of income to
their respective jurisdictions, resulting in either double or under
taxation.
Double taxation would occur when part of the
multinational's income is claimed by both jurisdictions.
Under
taxation would occur when part of the multinational's income is
claimed by neither jurisdiction.
By adopting a common standard, the risks of double and under
taxation are minimized.
Furthermore, when double taxation does
occur, the competent authorities of the two countries are empowered
to consult and aqree on an equitable division of income based upon
this common reference point. Without this common reference point,
reaching mutual agreement would be difficult.
One of the principal criticisms of the arm's length standard
is that it requires judgements to be made about the price unrelated
parties would have agreed to under similar circumstances.
Generally this sort of judgment requires one to refer to
transactions between unrelated parties.
In some cases this
information can be difficult to obtain. This difficulty has been
cited in support of replacing or supplementing the arm's length
2026222611
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- B standard
states.
not be
approach
by an alternative approach similar to that employed by the
Further, it has been suggested that these treaties should
approved unless they permit a standardized formulary
in addition to or in place of the arm's length standard.
Obviously, this hearing on seven income tax treaties and
protocols is not the time or place to debate this issue.
I will
say, however, that the paramount consideration in selecting an
approach ~or the analysis or transfer pricing issues is that there
be broad international consensus in favor of its use and a
commitment to administer the approach in a similar way.
Without
that consensus, widespread dOUble and even under taxation will
inevitably occur.
Therefore, a unilateral move, or even an
announcement that a country is considering a move to a different
approach, can be expected to lead to more problems than it solves.
The united states and its trading partners have made a
concerted effort in the last two years to address the shortcomings
of the arm's length standard.
We believe that these efforts will
maintain the arm's length standard as a viable approach. However,
if the united states and its partners decide one day that the arm's
length standard should be abandoned in favor of some other
approach, I can assure this Committee that our tax treaties will
not stand in our ~ay.
In such a case, we will agree on a new
approach and will develop guidelines for uniform application of
that approach. The tax treaties would inevitably give way in the
face of this new consensus.
Basis tor Negotiations
Each of these treaties reflects current u.s. treaty policy, as
developed jointly by the Treasury Department and the Congress in
recent years.
The provisions in each treaty borrow heavily from
recent treaties approved by the Senate, particularly the treaties
wi th the Czech Republic, Germany, Mexico, the Netherlands and
Spain. Many aspects of these treaties in turn are der i ved from the
1992 OECD Model Income Tax Convention and its predecessor, the 1977
OECD Kodel.
The United States is an active participant in the
aevelopment of the OECD Model, and we are generally able to use
most of its provisions as a basis for negotiations. This ability
greatly facilitates the process, as most of our treaty partners
also are relatively comfortable with the OECD Model.
These treaties are not based on aU. S. Model Income Tax
Convention. The united states has published model treaties in the
past, most recently in 1991.
In 1992 that treaty was withdrawn
because it. did not reflect recent legislative and other policy
changes in the united States and becaUSe certain of its provisions,
most notably the limitation on benefits provision, were found
deficient. Accordingly, in evaluating these treaties, it generally
is not useful to make comparisons to the former U.s. model treaty,
26222611
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- 9
as the former mOdel did not serve as the basis for concludinq the
seven agreements you have been asked to considQr.
The fact that the 1981 Model was withdrawn three years ago
does not mean that we believe that there is no useful role for a
U.S. model. It is true that most countries use the OECD Model, or
a model treaty developed by the united Nations, as the basis for
their negotiations. However, at least two aspects of united States
tax policy make it desirable for this country to have its own model
treaty.
First, our legislation is uniquely complex.
Any treaty
must accommodate the provisions of our internal law to an extent
not found in other countries.
Examples. include the treatment of
foreign-owned real property, the branch profits tax, the treatment
o~ real estate mortgage conduits, and taxation of u.s. citizens on
their Worldwide income regardless of their residence. Second, our
treaty policy demands certain additional provisions not directly
reflected in internal legislation. Our insistence that every U.S.
tax treaty contain a comprehensive limitation on benefits provision
is one example. only a United States model in~ome tax convention
can fully accommodate these prerequisi tas. Therefore, we have been
developing a new U.s. model treaty in recent months, and we intend
to complete that project and publish a new model treaty as soon as
time and resources permit.
A model treaty is not a panacea, however. Even after the U.S.
publishes a new model treaty, no treaty will ever be an exact
duplicate of a model, nor should it be.
While any two treaties
will usually have a number of provisions that are virtually
identical, certain aspects of each treaty must be tailored to the
individual facts and circumstances of the two treaty partners.
Numerous features of the treaty partner I s legislation and its
interaction with U.S. legislation must be considered in negotiating
an appropriate treaty.
Examples include the treatment of
partnerships and other transparent entities, whether the country
eliminates double taxation through an exemption or credit system,
whether the country has bank secrecy legislation that needs to be
modified by treaty, and whether and" to what extent the country
imposes Withholding taxes on outbound flows of investment income.
Consequently, a negotiated treaty needs to take into account all of
these and other aspects of the treaty partner's tax system in order
to arrive at an acceptable treaty from the perspective of the
United states.
Accordinqly, a simple side-by-side comparison of
two actual treaties, or between a proposed treaty and a model
treaty, will not enable one to draw meaningful conclusions as to
whether a proposed treaty is appropriate and should be ratified.
Finding the answer to that important question is a more complicated
exercise, and one that the Treasury goes through before any treaty
or protocol is signed.
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10 -
Evaluation ot Individual Treaties
In addition to keeping in mind that each treaty must be
adapted to the individual facts and circumstances of each treaty
partner, it also is important to remember that each treaty is the
result of a negotiated bargain between two countries that often
have conflicting objectives. Each country has certain issues that
it considers non-negotiable. The United StatQs, which insists on
effective anti-abuse and exchange of information provisions, and
which must accommodate its uniquely complex internal laws, probably
has more non-negotiable issues than most countries. obtaining the
agreement of our treaty partners on these critical issues sometimes
requires concessions on our part.
Similarly, other countries
sometimes must make concessions to obtain our agreement on issues
that are critical to them. The give and take that is inherent in
the negotiating process leading to a treaty is not unlike the
process that results in legislation in this body.
Therefore, no
two treaties are exactly the same, and no treaty is entirely ideal
from the point of view of either treaty partner.
An example of the result of the negotiation process is
provided by the treatment of income from container leasing.
For
many years the Treasury Department I s policy r,as been that container
leasing income should be treated as shipping in~ome taxable only in
the country of residence of the recipient.
The basis for this
position is that container leasinq is more like shipping income
than royalty income or equipment leasing income.
Therefore we try
to include this treatment in all treaties.
It also will be
included in the new model treaty.
We often succeed in obtaining the desired treatment. However,
as part of the give and take of the negotiatinq process we are
sometimes not able to obtain full shipping income treatment.
In
such cases, we strive to obtain incidental shipping income
treatment and business profits treatment for container leasing
income not incidental to a shipping business.
Business profits
treatment gives the same result as shipping income treatment when
the lessor does not have a permanent establishment in the source
state.
Developing countries, however, often treat container
leasing income as royalty income subject to withholding at source.
We have consistently objected to this treatment and will continue
to do so. In some cases we have agreed to royalty treatment, but
with a zero rate of withholding, which gives the same result as
business prof its treatment.
It is our continuinq policy and
intention to include full shipping income treatment for container
leasing income, with business profits treatment as the fall-back
alternative. The treaties with all seven of the countries we are
dealing with today reflect our success in achieving this objective.
In evaluating the benefits provided to taxpayers and the tax
authorities by any treaty, it would be a mistake to focus solely on
the provisions that differ from other trea.ties. It is important to
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bear in mind that most of the provisions in any two treaties are
very similar and in some cases idantical. Perhaps because of their
similarity, many or these provisions are routine and noncontroversial,
and they attract little attention.
Their
importance,
however,
should not be underestimated.
These
provisions are responsible for many of the benefits that a tax
treaty provides to taxpayers and tax authorities. Therefore, when
evaluating the overall benefits provided by an income tax treaty,
it is important to consider not only the bene.fits of lowered
withholding rates and other non-standard prOVisions, but also the
benefits provided by these more standard provisions. Many of these
rules provide taxpayers with more favorable treatment than
otherwise would be available, as well as the benefits of certainty
and transparency.
Others improve the ability of the tax
authorities to administer the tax laws.
For example, each proposed treaty establishes relatively
uniform rules for taxing income other than investment income,
including business profits, capital gains, and personal services.
social security benefits under each proposed treaty will be subject
to tax in the country making the payment.
Each treaty reflects standard o.s. policy for tne taxation of
dividends paid by regulated investment companies (RIes) and real
estate investment trusts (REITs).
Special rules are provided to
prevent the use of these entities to transform what should be relatively high-taxed income into income taxed at much lower rates.
Each treaty allows the u.s. to impose the branch profits tax at the
treaty's direct dividend rate.. In addition, in conformity with
what has become standard u.s. treaty policy, excess inclusions with
respect to residual interests in real estate mortgage investment
conduits are subject to the U.S. statutory withholding rate of 30
percent.
The proposed treaties also contain provisions designed to
improve tax administration, including rules concerning exchange of
information, mutual assistance, and nondiscrimination.
They
contain rules necessary for the administration of the treaty,
includinq rules for the resolution of disputes and the exchange of
information. Each treaty permits the General Accounting Office and
the Tax Writing committees of Congress to obtain access to certain
tax information exchanged under treaty for use in their oversight
of the administration of u.s. tax laws and treaties.
Each treaty also contains a comprehensive limitation on
benefits provision designed to ensure that residents of each State
may enjoy treaty benefits only if they have a substantial nexus
with that State, or otherwise can establish a substantial nontreaty shopping motive for establishing themselves in their state
of residence.
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Finally, the treaties with France, Portugal and Sweden, and
the protocol with Canada contain provisions not found in previous
tax treaties in any country. These provisions reflect the Treasury
Department's policy that tax discrimination disputes between two
nations generally should be resolved within the ambit of the tax
treaty, and not under any other dispute resolution mechanisms,
includinq the World Trade Organization (WTO).
The General
Agreement on Trade in Services (GATS) already affords some
protection, as it provides that national treatment disputes
involving taxation measures will be resolved under tax treaties
where the measure at issue falls within the scope of a tax treaty.
With respect to treaties existing when the WTO entered into force
(January 1,1995), the GATS also provides that the parties to a tax
treaty are not permitted to bring the issue of whether a measure is
within the scope of a tax treaty to the Council for Trade in
services unless both parties to the tax treaty agree.
For this
rule to apply to tax treaties that enter into force after January
1, 1995, a specific provision must be included in the treaty. The
provision we have included in these tax treaties sets forth this
rule, providing that if there is a dispute as to whether a taxation
measure falls under the tax treaty, such dispute will be resolved
solely under the tax treaty in accordance with the dispute
resolution mechanisms provided in the tax treaty.
Further, no
national treatment or most-favored nation obligation provided under
another aqr.eement will apply to a taxation measure (with the
exception of the General Aqreement on Tariffs and Trade as it
applies to trade in goods).
I hope that the Senate shares the
Treasury"s firm conviction that taxation disputes should be handled
exclusively within the tax treaty and not in the World Trade
Organization or elsewhere.
I would like to add that two of the treaties before you -- the
treaties with Kazakhstan and Ukraine
do not contain this
provision. Althouqh neither of these countries has acceded to the
GATS, we believe that it would be appropriate to have similar
provisions in the treaties so that a protocol or renegotiation
would not be required later.
The State Department therefore
undertook to exchange diplomatic notes with the qovernments of
these countries.
We have completed an exchange of notes with
Ukraine. These notes reflect the mutual understanding of the two
governments that the treaty will be subject to the same restriction
as the other agreements you are considering. We are continuing to
work with the government of Kazakhstan and believe that similar
notes will be exchanged shortly.
Finally, some treaties will have special provisions not found
in other agreements.
These provisions accoun:t for unique or
unusual aspects of the treaty partner's internal laws or
circumstances.
For example, the Canadian Protocol contains
provisions that deal with taxes at death, and the Portuguese treaty
contains a special provision in the limitation on benefits article
to deal with PortUgal's offshore sector.
Further, treaties with
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countries that are not as economically advanced as some of our
other treaty partners frequently contain different withholding and
other provisions that reflect their transitional economic status.
All of these features should be regarded as a strength rather than
weakness of the tax treaty program, since it is these differences
that enable each treaty to deal with the differing circumstances of
the two treaty partners in a balanced way.
I now would like to discuss the most important aspects of each
agreement that you have been asked to consider. We have submitted
Technical Explanations of each agreement that contain detailed
discussions of each treaty and protocol.
These Technical
Explanations serve as an official guide to each agreement,
reflecting the policies .behind each provision, as well as
understandings reached between the negotiators regarding the
application and interpretation of various provisions.
canadian Protocol
The Protocol to the Canadian treaty would significantly change
our taxation relationship with Canada. Since Canada is one of our
most important economic partners, these proposed amendments have
attracted considerable positive attention in the business communities of the United states and Canada.
The amendments are also
strongly supported by the tax administrations in both countries.
The negotiation of this Protocol initially was motivated by
Canada's de~ire to alleviate the impact of 1988 U.S. estate tax
legislation on estates of Canadian decedents with u.s. property. It
quickly became clear that other changes should be made to
accomplish several important objectives. The Protocol accordingly
amends a number of prOVisions of the Convention to reflect better
current tax law and treaty policy in both countries, to resolVe
certain technical problems that had been identified in the present
Convention, and to achieve greater consistency with the principles
underlying the North American Free Trade Agreement.
The Protocol was signed on March 17, 1995.
It amends the
existing convention with Canada, which was signed in 1980 and
amended by Protocols in 198J and 1984. A very similar Protocol was
signed in August, 1994 and submitted to the Senate.
We
subsequently realized that a few minor technical changes were
appropriate. Most of these technical changes relate to the rules
on death taxation. This Protocol incorporates these changes, and
replaces the 1994 Protocol, which has been formally withdrawn from
Senate consideration.
The Protocol reduces the rates of withholding at source on
diVidend, interest and royalty income in a manner that will have a
Significant positive impact on cross-border flows of capital and
technology between the united. States and Canada.
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The direct i~vestment dividend rate will be reduced over a
three year ~hase-l.n period from 10 to 5 percent, which is the
l,?west rate ~n any current u. s. or Canadian treaty. This reduction
w~ll
~ff~ct ,very
large amounts of dividends flowing from
subsid1ar1es 1n one country to parent corporations in the other
and will make cross-border invest~ent more attractive.
'
The Protocol also reduces the rate of withholding on crossborder flows of interest from 15 to 10 percent.
Although higher
than t;he pr~ferred u: s. position of exemption at source, this
red~c~l.on
wl.ll prov1de a substantial benefit to many u.s.
recl.pl.ents of Canadian-source interest payments.
It will have a
lesser effect on u.s. outflows of interest to Canada, because much
of this flow is already exempt from U.S. tax under the portfolio
interest provisions of the Code.
The Protocol also significantly reduces withholding taxes on
royalties. While Canada has been willing to exempt royalties for
copyrights of most literary and artistic works, it previously had
opposed lowering the rate below 10 percent for software or other
royal ties.
However, in an effort to encourage transfers of
technology between the United states and Canada, Canada agreed in
this protocol to confirm that software royalties are exempt at
source and to broaden significantly the categories of royalties
subject to exemption at source to include royalties paid in respect
of patents, as well as royalties paid in respect ot information
concerning industrial, cODlll\ercial, or scientific experience ("knowhow") •
canada has agreed to a similar provision with only one
other country; that other provision applies only to transactions
between unrelated persons and is, therefore, significantly more
limited than the provision in the Protocol.
The United states held strongly to the view throughout the
negotiations that the nature of U.S.-Canadian economic relations
demands the lowest possible withholding rates. We negotiated this
Protocol from the same policy perspective that led to the NAFTAi a
desire for open economic borders. Although Canada was not prepared
to reduce withholding rates as much as the United States.would have
liked, we agreed to discuss further reductions in withholding rates
within three years of the entry into force of this Protocol.
Canada's agreement to the sUbst~ntial reductions provi~ed bY,the
Protocol, coupled with the comm1tment to hold further d~scuss1ons
in the near future, represents a significant positive step.
The Protocol does not change the existing conven~ion's
treatment of income from container leasing as taxable only ~n the
state of residence of the recipient.
As I indicated two aspects of our tax treaty program that
have a center-stage position are cooperation in tax compli~nce and
the prevention of abuse of the treaty. This protocol coz:ta1~s four
sets of· provisions that significantly advance these ob)ect1ves.
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First, the Protocol adds a comprehensive limitation on
benefits article. The present treaty has no general anti-treatyshopping rules. The limitation on benefits rules are unilateral,
at Canada's request. Thus, they apply only to limit benefits that
the u.s. otherwise must grant with respect to U.S. source income of
Canadian residents.
The inclusion of specific treaty shopping
rules does not limit either State's right to invoke applicable
anti-abuse principles to deny benefits where necessary to prevent
abuse of the treaty.
Although both t~e United states and Canada
believe that such principles are inherently applicable under all
their treaties, we aqreed to include an explicit statement to that
effect to preclude any argument that the unilateral nature of the
anti-treaty-shopping provisions might prevent Canada from applying
such principles. The statement is drafted reciprocally to clarify
that the United states may apply such principles as well.
Second, the Protocol will broaden the information exchange
provisions to include all national taxes. With respect to Canadian
taxes, the present treaty covers only taxes imposed under the
Income Tax Act, and any national taxes on estates and gifts.
Third, the Protocol adds detailed rules under which each State
will, within appropriate limits, assist the other in the collection
of its taxes. We have collection assistance provisions in several
other income tax treaties, including our recent treaty with the
Netherlands (and both the current and pending treaties with France
and Sweden), and in many of our estate tax treaties.
Because of
the close workinq relationship between u. S. and Canadian tax
authorities and the similarity of u.S. and Canadian law, we believe
that Canada is an appropriate partner for collection assistance.
The collection assistance provisions fully protect taxpayer
riqhts. For example, collection assistance may be requested only
for finally determined claims. If at any point in the process the
claim loses that status, the request must be withdrawn promptly.
In addition, no assistance is to be provided in respect of an individual who was a citizen of, or an entity that was a resident of,
the requested State at the time to which the claim relates.
Fourth, the Protocol will strengthen the dispute resolution
mechanisms by amending an aspect of the present Convention that
created potential for abuse.
Unlike most treaties, the present
Convention provides that the State making a transfer pricing
adjustment must withdraw it, to the extent necessary to avoid
double taxation, it the adjustment has not been reported to the
~ther State within six years of the end of the taxable year to
which it relates.
This requirement could permit a taxpayer to
force withdrawal of the initial adjustment by delaying cooperation
with the tax authorities. To eliminate this potential for abuse,
the Protocol removes the obligation of a State to withdraw its
adjustment in such circumstances.
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The Protocol also provides that the States may by mutual
agreement, implement an arbitration procedure for the r~solution of
disP':ltes under the Convention.
However, cons istent with this
comm1ttee's 1990 report on the U.S.-Germany income tax treaty and
with the similar provisions of the income tax treaties with the
Netherlands and Mexico approved by this committee in 1993
the
arbitration procedure provided for in this Protocol will not' take
effect automatically. As in the case of the Netherlands and Mexico
treaties, the arbitration procedure can be put into effect only
through an exchange of notes between the u.S. and canadian
Governments, after we have had experience that such a provision can
operate effectively and efficiently.
The Protocol provides that
the appropriate authorities of the United states and Canada will
consul t, after three years, on whether and when it would be
appropriate to bring the provision into effect.
Another important aspect of this Protocol is that it addresses
taxes imposed by reason ot death. Canada has replaced its estate
tax reqime with an income tax on gains accrued and deemed realized
by the decedent at death. Since the U.S. tax at death is an estate
tax, the two systems could not, absent special treaty rules, be
coordinated in a way that would allow re!ieffrom double taxation.
In the absence of treaty relief, the combined U.S. and Canadian
taxes at death can exceed 75 percent. The death tax provisions of
the Protocol are an important example of how treaties can be used
to surmount technical differences between the tax laws of the two
countries and provide appropriate relief trom double taxation to
ordinary citizens as well as multinational corporations. Prior to
and during the negotiation of these provisions, we took advantage
of the opportunity to discuss the policy and technical issues
involved with the staffs of this C01IllIlittee, the tax-writing
committees, and the Joint committee on Taxation.
The value of
these discussions is manifested in the successful results of our
negotiations, which reflect such discussions.
Finally, the Protocol will broaden the scope of the nondiscrimination article to include all national-level taxes in both
states. Under the present treaty, Canadian coverage is limited to
taxes imposed under the Income Tax Act.
Thus, for example, t~e
Canadian Goods and Services Tax would be added to the taxes 1n
respect of which Canada would be obligated to provide non-discrimination protection.
The Protocol will enter into force upon the exchange of
instruments o~ ratification. For withholding taxes on dividends,
interest and royalties, it will have effect for amounts paid or
credited on or after the first day of the second month of the year
following its entry into force. For other taxes,. the, Protocol ~ill
have effect on the first day of the year follow1ng lts entry ~nto
force.
The reduction to 5 percent in the withholding rate on
direct investment dividends will be phased in over a three year
period. The rate will be reduced to 7 percent in 1995, 6 percent
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in 1996, and 5 percent beginning in 1997~ The branch tax rate will
be reduced to 6 percent in 1996 and 5 percent thereafter.
lrench Tr •• ~y
The proposed treaty with France would replace the existing
treaty signed in 1967 and amended by protocols signed in 1970,
1978, 19B4, and 1988. The treaty follows the existing one in most
res~e~ts but is updated tO,reflect curr~nt tax laws and tax treaty
pol~c~es of the two c~untr~es.
It clar1fies some important issues
affecting United states investors and business operations in
France,
and it introduces a modern limitation on benefits
provision.
The treaty would maintain the existing treaty's rates of tax
on dire~t and portfolio dividends, which· are 5 and 15 percent,
respectively.
For certain portfolio dividends paid by a French
company to a U.S. shareholder, France will allow a tax credit for
all or a portion of the French corporate tax paid on distributed
profits,
which
effectively eliminates the
French dividend
withholding tax. This is a significant benefit to u.s. investors,
including pension funds and other tax-exempt organizations that
invest in France.
The treaty maintains the existing treaty's exemption at source
for interest.
Under the treaty, income from container leasing is treated as
shipping income if the income is incidental to income from the
operation of ships and aircraft in international traffic.
other
income from container leasing is treated as business profits.
Consequently, such income is taxable at source only to the extent
that it is attributable to a permanent establishment located in the
source country.
The treaty also maintains the existing treaty's exemption at
source for copyright royalties and a tax of not more than 5 percent
on other royalties. The proposed treaty clarifies the scope of the
tax exemption for copyright royalties, which includes royalties
paid to producers and performers (as well as creators), and
royalties tor software programs.
This provision makes the rules
clear not only for future years, but also for copyright royalties
paid trom 1991 to the present, representing a further significant
benefit to u.S. investors.
Like all recent u.s. treaties, the French treaty incorporates
a comprehensive limitation on benefits provision. The provision is
broadly similar to the corresponding provision in the Nethe~lan~s
treaty that was ratified in 1993, although the French verS10n 15
substantially less detailed.
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Like the Canadian Protocol, the ,Protocol to the proposed
treaty ~lso provides t~at t~e states may, by future exchange of
notes, ~mplement an arb~trat~on procedure for dispute resolution.
Finally, the proposed treaty covers the U.s. excise tax
imposed on insurance premiums paid to foreign insurers.
In
accordance with the prior direction of this committee
this
provision was included in the proposed treaty only after' prior
consultation with the appr~priate committees of Congress, and only
after the Treasury Department was satisfied that the French
taxation of French insurance companies results in a burden that is
substantial in relation to the U. s. taxation of U. s. insurance
companies.
The treaty will enter into force when both governments have
completed their respective constitutional and statutory procedures
and have exchanged instruments of ratification.
The provisions
with respect to withholding taxes on dividends, interest and
royalties and the U.s. excise tax on French insurers and reinsurers
generally will take effect fpr amounts paid or credited on or after
the first day of the second month following entry into force of the
treaty. ' The provisions relating to the French div.idend tax credit
will apply to dividends paid on or after January 1, 1991.
The
provisions for royalties will also apply for royalties paid on or
after January 1, 1991.
The other provisions of the treaty will
take effect for taxable periods beginning, or taxable events
occurring, on or after January 1 of the year following the entry
into force.
Portuguese Treaty
The proposed treaty between the united states and Portugal is
the first tax treaty between our countries. The treaty is based on
the OECD model income tax treaty and is similar in many respects to
the U.S. income tax treaty with Spain. It closes an important gap
in the United states tax treaty network and is expected to provide
a strong boost to our economic relations with Portugal. The treaty
represents something of a hybrid between a treaty with a developing
country and. a treaty with a, highly developed country, which is
consistent with the fact that Portugal, while a member of the
European Union, is relatively less developed by the standards of
that organization. For example, Portugal's 1993 per capita gross
domestic product of $8,700 is less than half of France's $18,200.
With respect to investment income, the ~r~aty wo~ld lower
withholding taxes on cross-border payments of d~v~dends, ~nterest,
a.nd royalties.
The tax on dividends is qradually lowere~ from
statutory rates to roughly follow portuqal'~ gradu~l,adopt~on of
European Union norms with respect to w1thhol~~nq taxe~ on
dividends.
Initially the tax on both portfol~o and d1rect
dividends would be limited to 15 percent.
In 1997 the rate ,on
direct dividends would be lowered to 10 percent, and the rate w~ll
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19 -
decline to 5 percent when Portugal fully adopts the European Union
directive with respect to such dividends.
An unusual feature of this treaty is that it allows Portugal
to continue to impose its 5 percent "substitute inheritance tax" on
most dividends. Portugal imposes this tax on its own residents as
well as on nonresidents, has never agreed to waive it in any
treaty, and would not change its policy in this case. It views the
tax as being more in the nature of an estate tax than an income tax
and, therefore, not properly the subject of an income tax treaty.
portugal did, however, agree for the first time effectively to cap
the tax at the current rate.
This concession, together with
Portugal's agreement to reduce the withholding tax on direct
dividends to 5 percent, will put U.S. companies in a favorable
position to compete in the portuguese market.
The rate of tax on interest and royalties is generally reduced
to 10 percent. Interest paid by or to the Government of one of the
states or to a wholly-owned government institution is exempt from
tax, as is interest paid on a long-term loan (5 years or more) made
by a bank.
These rates are significantly lower than the rates
Portugal now applies to u.s. investors.
Income from container leasing is treated as royalty income,
although a zero rate of withholding tax is provided in a protocol
to the treaty, which effectively means that such income is subject
to the same trQatment as business profits. However, treatment of
income from container leasing as royalty income is unusual, and the
Treasury Department does not view it as a precedent for U.s. policy
in future treaty negotiations.
As in all other recent U. s. income tax treaties, treaty
benefits will be available only to residents of the two countries
who satisfy certain requirements.
The Portuguese treaty also
contains a provision specifically directed at Portugal's offshore
sector. Under this prOVision a person who would otherwise satisfy
the requirements of the limitation on benefits provision will not
be allowed treaty benefits if it is entitled to tax benefits that
apply to tax-free zones in Madeira and the Azores.
The proposed treaty will enter into force on the date the
instruments of ratification are exchanged, and its provisions will
generally have effect on the following January 1.
Syedisb Treaty
The proposed treaty with Sweden replaces the present ~ncome
tax treaty between the two countries.
The present treaty 1S the
oldest tax treaty in force for both countr~es; it was si~ned.in
19)9, and was amended by a protocol signed 1n 1963.
Cons1der1ng
the fact that it is more than half a century old, the pres~nt
treaty deals remarkably well with the basic issues of the taxat10n
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of cross-border flows of income and cooperation between the tax
authorities of the two countries. It does not, however, deal with
certain taxes, such as the branch profits tax that were not in
. the present treaty was negotiated
'
effect at the t1me
or with
certain issues, such as treaty shopping, that were not ~f concern
at that time.
The proposed treaty limits withholding tax rates at source on
payments of dividends, interest and royalties. The treaty provides
that the tax in the source country on dividends paid to a resident
of the other country may not exceed 15 percent in the case of
portfolio dividends and 5 percent in the case of direct investment
dividends.
The treaty provides for exemption at source for
interest and royalties. These are the same rates that are provided
for in the present treaty.
The proposed treaty treats income from container leasinq as
shipping income taxable only in the state of residence of the
recipient.
The proposed treaty limits the applicability of the Swedish
capital tax with respect to certain U.S. citizens and residents who
are not Swedish residents, or who are only temporarily resident in
Sweden. The treaty also exempts the Swedish Nobel Foundation from
U.S. tax on its U.S.-source investment income. The proposed treaty
also retains the provision on assistance in collection contained in
our present treaty with Sweden.
Like the proposed treaty with France, the propos ad treaty
covers the u.s. excise tax imposed on insurance premiums paid to
foreign insurers.
AS in the case of the French prOVision, this
provision was included in the proposed treaty only after prior
consultation with the appropriate committees of congress, and only
after the Treasury Department was satisfied that the swedish
taxation of Swedish insurance companies results in a burden that is
substantial in relation to the U. S • taxation of U. S . insurance
companies.
The proposed Convention is subject to ratification and enters
into force on the exchange of instruments ot ratification. with
respect to the united states taxes payable at source, it will have
effect for amounts paid or credited on or after the first day of
January following entry into force, and in the case of other U.S.
taxes
for taxable· year beginning on or after that date.
The
treat~ will have effect with respect to Swedish 'income taxes ;or
any income derived on or after the first day of January follow~ng
entry into force, and with respect to swedish capital taxes for any
taxes that are assessed in or after the second calendar year
following entry into force (i.e., 1997 if the treaty enters into
force in 1995).
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Kazakhstan Treaty
The proposed treaty with Kazakhstan would replace, with
respect to Kazakhstan, the treaty entered into between the united
states and the former Union of Soviet Socialist Republics in 1973.
The proposed treaty is based on the OECD model income tax treaty
and on the current tax laws and income tax treaty policies of the
two countries.
It is an important step in furthering the U. s.
policy ot supporting the expansion of free enterprise in the newly
independent states.
The proposed treaty would limit withholding tax at source on
dividends, interest and royalties. The rate on portfolio dividends
would be 15 percent and the rate on direct investment dividends
would be 5 percent. The direct investment rate of 5 percent would
also apply for purposes of imposing the branch profits tax on the
dividend equivalent amount.
The rate of tax on interest would
generally be 10 percent.
The tax would be reduced to zero,
however, if the interest were paid by or to the government of the
United States or Kazakhstan, or if the interest were paid on a loan
of more than three years made,' guaranteed or insured by an export
credit agency (including the Export Import Bank- or the Overseas
Private Investment corporation).
The rate on royalties would
generally be 10 percent.
Under the treaty, income from container leasing is treated as
shipping income taxable only in the state of residence of the
reCipient.
The treaty confirms that wage and interest expenses are
deductible for purposes of determining the Razakhstan income tax
liability of U.S.-owned enterprises, helping to ensure that the
Kazakhstan income tax will be creditable for U.s. tax purposes.
Like the canadian protocol and the French treaty, the Protocol
to the proposed treaty also provides that the States may, by future
exchange of notes, implement an arbitration procedure for dispute
resolution.
The treaty will generally take effect on January 1 of the year
in which 'the twa countries exchange instruments of ratification.
with respect to taxes withheld at source (on dividends, interest,
and royalties), the treaty will apply to amounts paid or credited
on or after the tirst day of the second month following the
exchange of instruments.
Ukrainian Treaty
The proposed
Ukraine, the 1973
the farmer Union
treaty is based on
treaty with Ukraine replaces, with respect to
income tax treaty between the United States and
of Soviet socialist Republics.
The proposed
the OECD model income tax treaty and the current
ltiZ'l2611
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Of Ireasury
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U. S. Depanment of Justice
Office of Legislative Affajrs
omc:. or 111& AaiJIIJII AlUJ11III1 GcocnJ
WtWtilttlDlt. D. C. 201JO
Janu,ary 20, 1995
Honorable Jesse Helms
Chainnan
committee on Foreign Relations
united states senate
Washington, D.C. 205~O
Dear Mr. Chairman:
Seven ·income·tax treaties (or protocols) are pending before
the Foreign Relations committee, including treaties or protocols
with Canada, France, Kazakhstan, Mexico, Portugal, Sweden and the
Ukraine. The Department of Justice would like to take this
opportunity to urge that the Committee and the Senate approve
these agreements at the earliest date praotioable.
The civil and criminal enforcement actions of the Tax
Division of the Justice Department are increasingly dependent on
our ability to obtain foreign evidence (usually in the form of
bank records) or foreign assets. Therefore, it is especially
helpful to us that the treaties forwarded by the President have
exchange of information provisions that will improve the ability
of federal investigators and litigators to obtain evidence
including bank rec~rds and witness testimony, for civil and
criminal tax matters. These provisions will also improve the
ability of federal authorities to obtain evidence in a form
admissible for U.s. court proceedings.
Further, three of these pacts (the proposed protocol with
Canada and the proposed updated treaties with France and Sweden)
contain a particularly useful provision' for mutual collection
assistance (MeA) already found in sever~l existing tax
conventions including the recently ratified Netherlands
ConVention.
Under the Canadian provision, for example, federal tax
authorities would be permitted to reach assets in Canada under
the same circumstances in which collection can be undertaken for
assets located in the United states following proper assessment
'Nl6Tl1611
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Page 55 of 62
procedures. This provision contains features aimed at bringing
international tax collection assistance up to the efficiency
levels of domestic tax collections, while, at the same time,
preserv1nq all the rights due taxpayers and property owners under
the domestic laws ot the respective countries. This provision
does not obligate the united States to collect Canadian taxes'
owed by u.s. citizens or corporations.
The Cepartment believes that. all seven pacts will greatly
enhance the tax enforcement capabilities of the United states
government and lead to a significant increase in the collection
of unpaid taxes properly due the public treasury.
The Office of Management and Budget has advised that there
is no objection to the submission of this report from the
standpoint of the Administration's program.
sincerely,
~.
Anthony
Assistant Attorney General
D EPA R T 1\'[ E N T
0 F
THE
T REA SUR Y
TREASURY;~JN
E W S
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N. W. e WASHINGTON, D.C.e 20220 e (202) 622-2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
February 2, 2000
CONTACT:
Office of Financing
202/691-3550
TREASURY FEBRUARY QUARTERLY FINANCING
The Treasury will auction $12,000 million of 4-3/4-year 5-7/8% notes,
$10,000 million of 10-year notes, and $10,000 million of 30-1/4-year bonds
to refund $27,624 million of publicly held securities maturing February 15,
2000, and to raise about $4,376 million of new cash.
In addition to the public holdings, Federal Reserve Banks hold $3,470
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 $3,594 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.
TreasuryDirect customers requested that we reinvest their maturing
holdings of approximately $159 million into the 4-3/4-year note, $11 million
into the 10-year note, and $1 million into the 30-1/4-year bond.
All of the auctions being announced today will be conducted in the
single-price auction format.
All competitive and noncompetitive awards will
be at the highest yield of accepted competitive tenders.
All of the securities being offered today are eligible for the STRIPS
program.
This offering of Treasury securities is governed by the terms and conditions set forth in the Uniform Offering Circular for the Sale and Issue of
Marketable Book-Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as
amended) .
Details about the notes and bond are given in the attached offering
highlights.
000
L8-367
Attachment
For press releases, speeches, public schedules and official biographies, call our 24-lzour fax lille at (202) 622-20.10
HIGHLIGHTS
OF
TREASURY
FEBRUARY
2000
OFFERINGS
QUARTERLY
~"O
·1.'"IIK
1>UU141C
FINANCING
February 2.
Offering Amount . . . . . . . . . . . . . . . . . . . $12,000 mi11ion
2000
ulillion
$10,000 mi11ion
$1.0.000
10-year notes
B-2010
912827 5Z 1
February 9, 2000
February 15, 2000
February 15, 2000
February 15, 2010
Determined based on the highest
accepted competitive bid
Determined at auction
August 15 and February 15
30-1/4-year bonds
Bonds of May 2030
912810 FM 5
February 10, 2000
February 15, 2000
November 15, 1999
May 15, 2030
Determined based on the highest
accepted competitive bid
Determined at auction
May 15 and November 15 (first
payment on May 15, 2000)
$1,000
Description of Offering:
Term and type of security ......... 4-3!4-year notes
(reopening)
Series . . . . . . . " . . . . . . . . . . . . . . . . . . . H-2004
CUSIP number . . . . . . . . . . . . . . . . . . . . . .
Auction date . . . . . . . . . . . . . . . . . . . '"
Issue date . . . . . . . . . . . . . . . . . . . . . . . .
Dated date . . . . . . . . . . . . . . . . . . . . . . . .
Maturity date . . . . . . . . . . . . . . . . . . . . .
Interest rate . . . . . . . . . . . . . . . . . . . . .
912827 5S 7
February 8, 2000
February 15, 2000
November 15, 1999
November 15, 2004
5-7/8%
Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determined at auction
Interest payment dates . . . . . . . . . . . . May 15 and November 15
Minimum bid amount and multiples .. $1,000
Accrued interest payable
by investor . . . . . . . . . . . . . . . . . . . . . $14.84890 per $1,000
(from November IS, 1999,
to February 15, 2000)
Premium or discount- . . . . . . . . . . . . . . . Determined at auction
STRIPS Information:
Minimum amount required ........... $1,600,000
Corpus CUSIP number . . . . . . . . . . . . . . . 912820 EE 3
Due date(s) and CUSIP number(s)
for additional TINT(s)
Not applicable
$1,000
Determined at auction
Determined at auction
(from November 15, 1999,
to February 15, 2000)
Determined at auction
Determined at auction
912820 EM 5
Determined at auction
912803 CH 4
Not applicable
May 15, 2029--912833 XS 4
November 15, 2029--912833 XT 2
May 15, 2030--912833 XU 9
None
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids ........ Accepted in full up to $5,000,000 at the highest accepted yield.
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 Standard time on auction day
Competitive tenders ........ Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Terms . . . . . . . . . . . . . . By charge to a funds account at a Federal Reserve Bank on issue date, or payment of full par amount
with tender. TreasuryDirect customers can use the Pay Direct feature which authorizes a charge to
their account of record at their financial institution on issue date.
From: Department Of Treasury
2026222611
DEPARTIVIENT
OF
06/02/00 04:07 PM
THE
Page 30 of 62
TREASURY
NEWS
OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. - 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
JUNE 13, 1995
DEPUTY SECRETARY NEWMAN ANNOUNCES HE IS LEAVING TREASURY
Treasury Secretary Robert E. Rubin announced today that Deputy Secretary Frank
Newman plans to leave the Treasury Department to return to the private sector.
In a letter today to President Clinton, Newman said his decision to leave was a
difficult one, and he praised the President and Rubin for their leadership. Newman, in the
letter, said he would be happy to stay for an appropriate amount of time to help with
transition.
Secretary Rubin praised Newman for his service to Treasury and the country as both
Deputy Secretary and in his previous capacity of Under Secretary for Domestic Finance.
"Frank has been an outstanding Deputy Secretary and Under Secretary," Rubin said.
"His successes are many, including playing a pivotal role in both the passage of legislation
for interstate banking and legislation for community development and the reduction of
regulatory burden, as well as his leadership on the financial management functions of
Treasury. His efforts as part of the President's Management Council have made the
department work better and more efficiently. I and the rest of the department will miss
him."
Newman was sworn in as Deputy Secretary on Sept. 29, 1994, after serving as Under
Secretary since May 12, 1993.
"1 have worked to contribute to the specific substantive accomplishments of your
administration, as well as to the process of governing and managing the very broad range of
activities of the Treasury Department, II Newman wrote i.n his letter. "I will leave with a
sense of pride in having been part of your administration's significant achievements for the
good of the economy and the financial system. "
He added, "While in many ways I am reluctant to leave the Treasury, I know that as
an individual citizen, I will have great confidence in the exceptional abilities and judgment of
Secretary Rubin, his policy and management team, and the professional Treasury staff.
It
RR-368
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2026222611
frQllJOepartment Of Treasury
06/02/00 04:07 PM
Page 31 of 62
He represented Treasury on the President"s Working Group on Financial Markets,
which includes the chairs of the Federal Reserve Board, the Securities and Exchange
Commission and the Commodities Futures Trading Commission. He was chairman of the
Advanced Counterfeit Deterrence Steering Committee, and was a member of the President's
Management Council, which is comprised of the Chief Operating Officer of each department
and major executive branch agency.
.
Newman came to Treasury after six years with BankAmerica Corporation, where he
was chief financial officer and vice chairman of the board 'of directors. Prior to joining
BankAmerica in 1986, Newman spent 13 years with Wells Fargo Bank in San Francisco.
He moved through the ranks at Wells Fargo to be named executive vice president and chief
financial officer in 1980.
Prior to joining Wells Fargo in 1973, he was a vice president at Citicorp from 1969
to 1973 and a manager of the consulting firm of Peat Marwick, Livingston & Co. in Boston
from 1966 to 1969.
-30-
FOR IMMEDIATE RELEASE
February 2, 2000
STATEMENT BY TREASURY SECRETARY LAWRENCE H. SUMMERS AND
COUNCIL OF ECONOMIC ADVISERS CHAIRMAN MARTIN N. BAILY
The Administration respects the independence of the Federal Reserve in making decisions about
our nation's monetary policy. We share the Federal Reserve's goals of maintaining healthy
economic growth while preserving low inflation.
Supported by sound economic policies, including budget discipline, the economy continues to
grow, and this month reached a record 107 months of expansion. Solid investment, strong
productivity gains, and the creation of good jobs have contributed to improved living standards
for all Americans. We are committed to sustaining this economic success into the future.
~30~
L8-369
- For press releases, speeches, public schedules and official biographies, call our 24.1zour fax line at (202) 622·2040
-
'U 5 Government Prtnhnq O"oee , Sr36 .
~. ;..;:;
llEPARTi\ilENT
TREASURY
OF
THE
TREASU){Y
NEWS
OFFICE OF PUBLIC AFFAIRS e1500PENNSYLVANIAAVENVE, N.W.• WASHINGTON, D.C .• 20220. (202) 622·2960
EMBARGOED UNTiL 10:30 AM EST
Text as Prepared for Delivery
February 3, 2000
DEPUTY TREASURY SECRETARY STUART E. EIZENSTAT REMARKS TO
BOARD OF DIRECTORS OF THE UNITED SOUTH AND EASTERN TRIBES
WASHINGTON, DC
It is a privilege for me to meet with leaders of the Indian nations of the South and
East today to discuss how Treasury can assist in the work you are doing to promote
greater prosperity and economic opportunity for the people of your Tribes. I am well
aware of the services USET provides to each of you in discharging your responsibilities
of tribal leadership, by representing you before government bodies and in speaking out
publicly and proudly about the contributions your Tribes make to the United States. On
behalf of Secretary Summers, 1 especially want to thank you for the assistance you are
giving to Treasury's Community Development Financial Institutions Fund in preparing
the Native American Lending Study requested by the Congress, to our Office of Thrift
Supervision in helping organize the Native American Conference to be held in
Connecticut in July, and to the IRS in modernizing its programs of tax administration and
taxpayer education in Indian communities.
I see by your program that I am the last of thirty speakers you have heard over the
past four days. 1 will not try to summarize all that has been said before. 1 would only say
that there is a strong commitment throughout our government to work with you on issues
of your concern. And, as you have seen, there are a large number of dedicated and
talented people engaged with these issues at a policy level, who respect your institutions
and believe that working with you for the benefit of your people is the work they want to
do in public life.
ln his State of the Union speech last week, President Clinton described the
extraordinary progress the American economy has made in recent years. He said that to
keep our expansion going into the 21 sL century, we would need to open new markets, start
new businesses and hire new workers in places that have 110t shared that prosperity. At
the top of his list in that regard were Indian reservations He described an expanded
program to "honor", as he put it, "our historic responsibility to empower the first
Americans. "
L8-370
__For press releas.es. 'speeches, public schedules amt ~fficial biographies, call our 24-hour fax line at (202)·622.2040
2
In this Administration we take that responsibility seriously, The Administration's
Fiscal Year 2000 Budget increases tllllding for programs assisting Native Americans and
Indian reservations by $1.2 billion, You have been briefed over the last three days on a
series of programs in the tields of health, housing, education and economic development.
All have common elements of respect for your sovereignty, a desire tor your input, and a
belief that real progress can be made on what for so long have seemed intractable
problems.
Until quite recently, Treasury played little role in the economic affairs oflndian
country. A few years ago, however, our then Comptroller of the Currency, Eugene
Ludwig, began to address the inadequacy of banking services on reservations, which had
very few branch banks and almost no ATM machines. The Comptroller's Office
sponsored a banking and economic development conference in 1998 and, in conjunction
with the Office of Thrift Supervision, the Federal Reserve and the FDIC has been
engaged in a series of actions to educate banks and thrifts to the needs of reservations and
bring tribes into pal1nership with nearby financial institutions to stimulate more lending
and investment. Those activities began a process where, for the first time in its history,
the Treasury reached out to find new and imaginative ways to make its resources
available to Native American community. Our Department has learned much from these
experiences. In this regard, we are indebted to many patient and understanding tribal
leaders, several of whom are in this room. We are, I believe, beginning to make some
concrete contributions to Native American communities,
OTS has co-sponsored conferences on Indian housing and economic development
issues in each oftlle past two years. This year's conference; in Connecticut in July, will
be tailored to the needs of the Eastern and Southern tribes. Representatives of federal
agencies and Indian leaders will participate in practical workshops covering such subjects
as private tinancing, government loans and operating a business.
Since 1996, $7 7 million in awards have been given to ten Community
Development Financial Institutions that are serving Native American communities
throughout the country. These awards are used to assist new small business start-ups,
consumer loans, home mortgages, and technical assistance During this past year, the
CDFI Fund has been conducting a comprehensive study on barriers to capital access and
credit for Native American communities. In the course of this study, on which you were
briefed yesterday, the Fund has held 13 regional workshops with Tribal leaders,
economists, public officials and representatives of private sector financial institutions.
They identified existing barriers and their impact on Native American access to capital
and credit, described their impact, and developed strategies and actions for improvement.
The final study repol1 should come out this fall I am sure it will recommend practical
and beneticial ways to increase capital access and invcstment to your communities and
help establish morc self-sustaining reservation economies.
Another part of Treasury, the Internal Revenue Service, has established a new
otlice devoted exclusively to working with Indian tribes on a government-to-government
basis. This office, whose new director Christie Jacobs was introduced to you on Tuesday,
2
will offer "one stop" service to tribes and their members to help them in understanding
and complying with the tax laws.
Our Otfice of Community Development Policy, in cooperation with HUO's
OUice of Native American Programs, is participating in the One-Stop M0I1gage
initiative, to identify and eliminate public and private sector barriers to homeowners hip in
Indian Country and encourage grass-roots intermediaries to help prepare households for
home ownership. In addition, we are working with the Business Roundtable to extend its
BusinessLINC initiative, which tries to foster successful business relationships between
tribes, their members and outside investors and firms
Through all of Treasury's activities in Indian country runs the common belief that
the promise of sovereignty and the substantial reduction of poveJ1y and dependency rests
on the ability of Indian communities to plan and implement their own economic future.
Some tribes have made impressive strides in economic development. Others are just
beginning to deal with the oppOItunities and the struggles of fuller palticipation in the
nation's economy.
We stand ready to work with you on a government-to-government basis to
facilitate this objective We can help build bridges of understanding and cooperation
between tribal communities and outside investors and financial institutions. We can help
develop the array of public and private institutions necessary for expanding access to
capital and tinancing business on. We can provide technical assistance to tribal
enterprises, businesses and community development financial institutions.
We need your continued advice and assistance as we try to enrich Treasury's
activities in Native American communities over the next several years. So I hope that you
will welcome the Department of the Treasury onto your communities as a friend, and
make full use of the resources and people we have available to help you. I hope you will
continue to give us the benefit of your views and your experience, so that we can be more
effective in the exciting new ventures we have undertaken.
We look forward to a very constructive relationship with USET members, and
with the other tribes across the country, so that you can play an active part in the great
adventure of developing the American economy for all our people in the 21 ,I century
Thank you.
-30-
D EPA R T l\tl E N T
>
0 F
THE
T REA SUR Y
~~/78~9~. . . . . . . . . . . . . . . . . . . . . ..
....................
OmCE OF PUBUC AffAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIllNGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
February 3. 2000
~~THE
REGIONAL AND GLOBAL CHALLENGE OF TAX EVASION,
CORRUPTION AND MONEY LAUNDERING"
TREASURY SECRETARY LAWRENCE H. SUMMERS
REMARKS AT THE ANNUAL MEETING OF THE
COMMITTEE OF HEMISPHERIC FINANCIAL ISSUES
CA~ClTN, MEXICO
We live in new global economy - a nl:\\ economy fueled by innovation and technology.
the spread of markets. and the ad\'l:nt of I:merging market economies. These changes hold out
incalculable potential and opportunity for allot" our economies. But we know that they also bring
important challenges in their wake. In the tinancial sector especially. integration and technology
can bring new life to old \'ices: be it a compan~ 's desire to evade the taxes it owes: a criminal's
desire to launder the proceeds of his crime: or the corrupt official's willingness to bend or break
the rules.
In a more integrated world. all ofthesl: pose a serious threat to our economil:s and our
people - because they undennine the good gon:rnance and transparency in institutions on which
economic devdopment and gnl\\lh will im:reasingl~ depend. And that threat does not stem
soldy from the acti\'ities that take place \\ ithin our borders. As interdependence increases - each
country is as vulnerable to financial crime as the weakest link in the chain. In that sense they are
global public "bads" in the same way that I:mironmental degradation and terrorism are. They are
not constrained by national boundaries - and neither must be our solutions.
For all of these reasons. it is right and important that the Finance Ministers of this region
should take this opportunity to commit our countries to enhanced national and regional efforts to
combat these problems. Just as war is too important to be left to the generals - in a new global
economy. the challenge of overcoming corruption and tinancial crime is too important to be a
challenge for law enforcement agencies alonl:.
Let me very briefly discuss each of these threats to good governance and transparency in
our region and our efforts to combat them. including the very important step forward the
countries of this region are taking today in the war against international money laundering.
LS-371
lor press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Pnnt,ng Oll!ce 1998· 619-559
I.
Tax Evasion and Tax Havens
In a more integrated global financial system, offshore jurisdictions have become that
much more accessible - and the scope for tax abuse and avoidance has expanded. This puts
pressure on national tax systems, particularly in the larger economies. It distorts the economy and
the financial system in the jurisdictions that benefit, 'encouraging non-transparency and a culture
of deception. And it threatens to undermine the public trust upon which compliance, in all of our
economies, depends.
For all of these reasons, we have devoted priority attention in the United States to
combating international tax evasion and avoidance:
•
Through greater exchange of information between national tax authorities, including in this
regIon.
•
By promoting, in various international organizations, including the OEeD, measures to
address the concerns raised by non-transparent practices, such as strict bank secrecy, and to
address harmful tax competition.
•
By examining our own laws to determine what changes are required to prevent the
exploitation of tax havens by United States taxpayers. A number of other countries are
working along similar lines.
With these meetings, we are delighted that CHFI will provide another force for
international action with regard to this issue. I panicularly welcome our proposed call for
enhanced effons by the lOB. the World Bank. and member cOl,mtries to provide support for
jurisdictions that are seeking to lessen the regional and global externalities that their financial
regimes may create. The United States and the international community have and must continue
to recognize and respond to the fact that smaller countries may be directly affected by such
efforts, panicularly when they have previously earned considerable economic benefit from
offshore finance.
II.
Corruption
Corruption impedes development hy eroding trust in public institutions. It distorts macroeconomic. monetary and financial policy decisions. adversely affecting public revenues.
discouraging private investment. misdirecting public sector spending. and damaging the
credibility of governments by undermining the confidence of both taxpayers and private
investors. In all of these ways - the core missions of finance and economic ministries are
directly and adversely affected by corruption. But they have not traditionally considered
themselves to be in the frontline of combating it.
Increasingly and rightly. that perception is changing. For. if we have learned anything
from developments in different emerging market and transition economies in the past decade, it
2
is that there is no better antidote to corruption than the market, and the steps that governments
take to enable the market to function. For example:
•
Non-transparent financial procedures. excessive regulations, and under-trained and underpaid civil servants all create incentives for bribery and fraud. By the same token, addressing
these problems greatly constrains their scope.
•
Lack of competition in the financial sector and bribery of financial regulators and supervisors
adversely affects the allocation of private capitaL permits money laundering to flourish, as
well as increasing the vulnerability of financial systems to crises. Properly handled, financial
liberalization can therefore combat corruption and money laundering as well as promote
growth and financial resilience.
I welcome CHFI's proposed new push in this area. including our call for strengthened IFI
efforts. particularly with respect to helping national financial officials find the right ways to
promote integrity and tackle corruption in fi~caL budgetary. customs, procurement and financial
regulatory administration.
Going forward. we must work to support the same objectives in our own countries notably through more effective implementation of the objectives of the Inter-American
Convention Against Corruption. to bring this Hemisphere into line with the OECD and Council
of Europe. In this context I believe a follow-up OAS mechanism for multilateral and mutual
review and evaluation of implementation progress can and should playa useful role and bring
this Hemisphere into line with anti-corruption efforts in the OECD and the Council of Europe.
III.
Mone~'
Laundering: A Comprehensi\'e Approach
Money laundering matters for two rt:asons. First. because it is both the lifeblood for
criminals and a means by which they may be caught. And second. because it taints our financial
institutions and if left unchecked. eats away at public trust in their integrity.
Addressing this many-layered thn:at is a challenge of national policy. Last year.
President Clinton published the United States' first National Money Laundering Strategy. a
comprehensive set of concrete actions we are taking to address the problem. some of which were
included in the Money Laundering Act of )999 that was submitted to Congress in the Fall. If
passed. that legislation would for the first time make it a crime to launder money derived from
foreign official corruption. It would also make hulk cash smuggling of more than $ I 0.000 a
crime- and give our law enforcement ofticials new tools to go after the largest known money
laundering system in this hemisphere. the Black Market Colombian Peso Exchange,
As the latter example highlights. this is equally a challenge of regional and international
cooperation. That is why developing and expanding the work of the Financial Action Task Force
(FATF) - and its Caribbean regional equivalent. the Caribbean Financial Action Task Force
3
(CF ATF) - is so important. And it is why the creation of a regional counterpart to FA TF and
CFATF in South America is so'Weicome.
International fora such as the FA TF and the CF A TF provide recommendations for
specific actions that governments can take to help shield their financial systems from dirty
money, and prevent its movement across international borders for criminal purposes. Equally
important, these bodies provide mechanisms. such as the Self Evaluation and Mutual Evaluation
programs, to ensure that member governments effectively implement these recommendations.
As I said at the beginning of my remarks. those who engage in financial crime de-rive
maximum advantage out of international integration. and so must the governments who want to
stop them. We need to expand the community of nations that subscribes to these kinds of
protective measures if they are to be truly effective. In that sense the new South American F ATF
is an idea whose time has come. I thank and salute here the governments of Argentina and Brazil.
for their leadership role in working to establish such a forum.
Countries cannot win the war against international financial crime on their own. With the
creation of a Caribbean and. now. a South American FA TF - they will not have to. What matters
is that every country move quickly to make good on the commitment they will make here today.
to subscribe to these bodies and work to implement effective and truly collaborative solutions.
In that same spirit of collaboration. let me now hand the floor to my friend and colleague
from Argentina. Daniel Marx.
OFfICE OF PUBLIC A'FJI'AIRS .1500 PENNSYLVANIA AVENUE. N.W•• W4SJlINGTON. 'D.C •• 20220. (202) 522-2960
IMBARGOED 'ON'l'IL 2: 30 P. M.
CONTACT:
February 3, 2.000
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WERK BILLS
The Treasury will auction two series of Treasury bills totaling
approxtmately $17,000 million to refund $18,495 million of publicly held
securities maturing February 10, 2000, and to pay down about $1,495 million.
In addition to the public hold~ngs, Pederal Reserve Banks for their own
accounts hold $8,384 million of the maturing bills, which may be refunded at
the highest discount rate of accepted competitive tenders. Amounts issued to
these accounts will be in addition to the offering amount.
The maturing bills held by the public include $3,523 million held
by Federal Reserve Banks as agents for foreign and international monetary
authorities. UP to $3,000 million of theae securities may he refunded within
the offering amount in eaoh of the auctions of 13-week bills and 2G-week
bills at the highest disoount rate of accepted competitive tenders.
Additional amounts may be issued in each auction for such accounts to the extent
that the amount of new bids exceeds $3,000 million.
TreasuryDire~t
customers requested that we reinvest their maturing holdings of approximately $999 million into the 13-week bill and $823 million into
the 26 -week bill.
This offering of Treasury securities is governed by the terms and conditions set forth in the Uniform Offering Circular for the Sale and Issue of
Marketable Book-Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as
amended) .
Details about each of the new securities are given in the attached offering highlights.
000
Ls-:n2
For press releases, speeches, public schedules Qnd official biographies, call our 24-"'OUI fax line at (202) 622-2040
HIGHLZGHTS OF TRBASUKY
O~PBRXN9S
O~
BXLLS
TO BB XSSUBD PBBRUARY 10. 2000
Pebruary 3, 2000
Offering Amount •.•....••..•..•..•...•.. $9,000
Description of Offering:
Term and type of securicy .•....••.•.••.
caSIP number •.•••.•••.••.•••
Auc tiOD cia te •..•....••••....•.•••
Issue date ••.•.•.....•••.•....••.••••..
Macurity date .••.•.••.•••••....•..•.•••
Original issue date •.••.•.•....••.•.•..
Currently outstanding ..••.••.•.••...•..
Minimum bid amount and multiples ••. ~ ••.
0
••••••••••
0
•••••
mi~lion
91-day bill
912795 DV 0
February 7, 2000
February 10, 2000
May 11, 2000
November 12,1999
$11,678 mi1lion
$1,000
$8,000 million
182-day hill
912795 EW 7
February 7, 2000
February 10, 2000
August 10, 2000
February 10, 2000
$1,000
The following rules apply to all securities mentioned above;
Submission of Bids:
Noncompetitive hids ....•..•. Accepted in full up to $1.000,000 at the highest discount rate of
.
accepted competitive bids.
Competitive bids .. ; .••...... (1) Must he 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 81 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 Rate .••••..•.••. 35% of public offering
Maximum Award •.......•.••.•..•• 35% of public offering
Receipt of Tenders:
Noncompetitive tenders .••..• Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders .• o • • • • • • Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank on issue date, or payment
of full par amount with tender. TreasuryDirect customers can use the Pay Direct feature which
authorizes a charge to their account of record at their financial institution on issue date.
EMBARGOED UNTIL
partment of the Treasury
9:45 A.M.
Bureau of Alcohol, Tobacco and Firearms
ATF[N]~
shington, DC 20226
For Immediate Release
Contact: Public Affairs, (202) 927-8500
24 Hour Telephone: (202) 927-8500
February 4,2000
TREASURY, ATF RELEASE FIREARMS REPORT, GUN TRAFFICKING ACTIONS
Treasury Secretary Lawrence H. Summers released a report on Friday announcing that a
small number of firearms dealers account for a majority of crime guns traced to active dealers
and a series of actions in response to the report's findings. Secretary Summers was joined by
Under Secretary for Enforcement James E. Johnson and Director of the Bureau of Alcohol,
Tobacco and Firearms (ATF) Bradley A. Buckles.
"This report provides new analysis leading us to new measures in our continuing efforts
to decrease firearms violence and to keep guns out of the hands of criminals and youth," said
Secretary Summers. "Most important, ATF will conduct intensive inspections of the one-percent
of dealers that account for well over half of all crime guns traced last year. Ifviolations of law
are found, we will take action against these dealers."
The findings are a part of Commerce in Firearms in the United States, which is ATF's
first comprehensive report that presents data on the firearms industry and describes ATF's
regulatory enforcement programs for combating fuearms trafficking. The report documents that:
LS-373
•
1.2 percent of current dealers (1,020 dealers) account for 57 percent of crime gun
traces to active dealers. Each of these dealers had 10 or more crime guns traced to
them. Just 0.2% of dealers (132 dealers) had 50 or more crime guns traced to them,
accounting for 27% of crime gun traces.
•
Congressional reforms enacted in 1993 and 1994 to ensure that only legitimate
dealers, manufacturers and importers obtain federal firearms licenses have resulted in
a substantial drop in the number of firearms licensees, from approximately 284,000 in
1992 to 104,000 today.
•
A small number of retail gun dealers fail to cooperate with ATF requests to trace
crime guns, obstructing criminal investigations in these cases. In 1999,
approximately 50 retail gun dealers either failed entirely to respond to a trace request,
did not respond within the required 24 hours three or more times, or wrongly denied
having information that they in fact had.
•
In 1998 and 1999, firearms dealers voluntarily reported about 1,900 interstate thefts,
involving over 3,700 firearms. Actions to achieve more comprehensive, mandatory
reporting is expected to reveal even greater numbers of thefts.
ATF also announced a series of measures it will take in response to the Commerce in
Firearms Report. These include:
•
Conducting intensive inspections of over 1,000 retail dealers and pawnbrokers who have 10
or more crime guns traced to them in 1999. These dealers account for well over half of all
crime guns traced to active dealers last year.
•
Requiring approximately 450 dealers to provide ATF with certain information (serial
number, manufacturer, importer, model) about secondhand firearms they acquire. These
dealers sold a significant number of new crime guns that were recovered by police and traced
within three years of leaving the gun shop. An estimated two million secondhand guns are
sold in the u.s. each year and they are largely untraceable. This initiative will enable ATF to
trace used guns sold by dealers associated with high numbers of crime guns.
•
Requiring dealers who fail to cooperate with trace requests to send all of their firearms
records to ATF so that the firearms they sell can be traced if they are used in crime. ATF
will also take regulatory enforcement actions with respect to these dealers, as appropriate.
•
Providing the firearms manufacturers and importers, upon request, a list by serial number of
the firearms they sold that were traced as crime guns during the previous year. This will
enable the manufacturers and importers to police the distribution of the firearms they sell.
•
Publishing a Notice of Proposed Rulemaking requiring all Federal Firearms Licensees
(FFLs) to conduct regular inventories and report discrepancies to ATF. This will enable
FFLs to fulfill their statutory obligations to maintain accurate records of the acquisition and
disposition of firearms and report the loss or theft of firearms to ATF.
•
Amending the ATF Federal firearms license application to require dealers renewing their
licenses to certify how many firearms they acquired and disposed of during the preceding
three years. This will provide evidence to enable ATF to deny renewal applications of
dealers who are not actively engaged in the business.
"The prevention of violent crime in America is among ATF' s primary goals. These
measures are another step toward strengthening ATF's ability to effectively prevent and solve
violent crime," said ATF Director Bradley Buckles.
Commerce in Firearms in the United States is the first in an annual series of reports that
will present data collected by ATF and other federal agencies relating to regulation as well as
major developments in the firearms industry. The report can be found on www.atf.gov
# # #
DEPARTMENT
OF
THE
lREASURY'U)
_
1789
TREASURY
NEW S
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE. N.W. • WASHINGTON. D.C.. 20220. (202) 622-2960
Contact· Steve Posner
(202) 622-2960
FOR IMMEDIATE RELEASE
February 4, 2000
MEDIA ADVISORY
TREASURY BRIEFING ON ADl\HNISTR;\ TION'S REVENUE PROPOSALS
Treasury Secretary Lawrence H. Summers will brief on the FY 2001 Budget Greenbook,
"General Explanations of the Administration's Revenue Proposals" at 2 p.m. lVlonday,
February' 7 in the Treasury Department's Diplomatic Reception Room (Room 3311), 1500
Pennsylvania Avenue, N.W. Following the Secretary's briefing, other senior Treasury officials
will be available for further questions on background.
The room will be available for pre-set at 1 p.m.
Media without Treasury, White House, State, Defense or Congressional press credentials
planning to attend should contact Treasury's Office of Public Affairs at (202) 622-2960 with the
following information name, social security number and date of birth. This information may
also be faxed to (202) 622-1999.
Copies of the Greenbook will be available for media at the briefing. In addition, the
Greenbook will be available Monday afternoon on the Treasury website at the following address:
hl1p: H'H'H'.lreas.gOl' /axpolic.v Iibraty R1"11bkOOpdf
-30-
LS - 374
~ press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·u.s
Government Pront,ng OH'ce 1998· 619·559
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR RELEASE AT 3:00 PM
February 4, 2000
Contact: Peter Hollenbach
(202) 691-3502
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR JANUARY 2000
The Bureau of the Public Debt announced activity figures for the month of January 2000, of securities
within the Separate Trading of Registered Interest and Principal of Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$1,879,303,308
Held in UnstrippedFonn
$1,670,493,736
$208,809,572
Held in Stripped Form
$14,394,153
Reconstituted in January
The accompanying table gives a breakdown of STRIPS activity by individual loan description. Th~
balances in this table are subject to audit and subsequent revision. These monthly figures are included
in Table V of the Monthly Statement of the Public Debt, entitled "Holdings of Treasury Securities in
Stripped Fonn."
The Strips Table along with the new Monthly Statement of the Public Debt is available on Public
Debt's Internet homepage at: www.publicdebt.treas.gov.Awide range of information about Public
Debt and Treasury Securities is also available on the homepage.
000
LS-375
TABLE V • HOLDINGS OF TREASURY SECURJnES IN STRIPPED FORM, JANUARY 31, 2000
Corpus
Loan DeSO'1ption
Treasury Bonds:
CUSIP:
STRIP
CUSIP
Pmapal Amount Outstanding in Thousands
Maturity Date
Total
Outstanding
11-5/8
12
10-314
008
DR6
~3/8
OU9
DN5
OPO
054
OT2
0V7
11-314
11-114
10-518
~7/8
~114
OWS
OX3
OYI
DZ8
1-1/4
7-1f2
8-314
8-718
EA2
~118
EBO
ECS
E06
EE4
EFI
EG9
EH7
EJ3
EKO
El8
EM6
EN4
EP9
E07
ES3
9
8-718
8-118
8-1f2
8-314
8-314
7·718
8-118
8-118
8
7-114
7·518
7-1/8
&-1/4
7-1f2
7·518
&-718
6
&-314
&-1f2
&-518
&-3/8
&-118
>1f2
>114
>1/4
&-118
ETI
EV6
F2N4
EX2
EYO
EZ7
FAl
FB9
FE3
FFO
FG8
FJ2
912803AB9
A05
AG8
AJ2
912800AA7
912803AAI
AC7
AE3
AFO
AH6
AK9
AL7
AM5
AN3
AP8
A06
AR4
AS2
ATO
AU7
AV5
AW3
AXI
AY9
AZ6
BAO
BBB
BC6
B04
BE2
BF9
BG1
BH5
BJI
BK8
BL6
B"14
BP7
BV4
BW2
CG6
11/15104
05115105
08115105
02115106
11115114
02115115
08115115
11115115
02115116
05115116
11/15116
05115117
08115117
05115118
11115118
02115119
08115119
02115120
05115120
08115120
02115121
05115121
08115121
11115121
08115/22
11115122
02115123
08115123
11/15124
02115125
08115125
02115126
08115126
11115126
02115127
08115127
11115121
08115128
11115128
02115129
08115129
Total Treasury Bonds. .......... -...... ........
Treasury Innation-Indexed Notes:
CUSIP:
Series: Interest Rate:
912827 JA8
J
3-518
5W8
A
A
A
A
3-3/8
3-518
3-7/8
4-1/4
Total Inflation-Indexed Notes ...
3-7/8
Total Innation-Indexed Bonds .....
912820 BZ9
BV8
CL9
ON4
EK9
07115102
01115107
01115108
01/15109
01/15/10
.......
Treasury Inflation-Indexed Bonds:
CUSIP
Interest Rate:
912810 F05
3-5/8
FH6
Reconstituted
This Month
Portion Held in
Stripped Fonn
Interest Rate:
9128100"17
2M3
3T7
4Y5
Portion Held in
Unstiipped Form
912803 BN2
CF8
04/15f28
04/15/29
8,301,806
4,260,758
4,245,806
1,844,908
2,415,850
9,269,713
4,755,916
5,907,313
4,747,980
3,362,400
7,936
70,400
6,005,584
2,214,384
8,139,159
3,791,200
4,528,640
5.173.916
2,968.659
6,487.654
1,916.000
3,931.200
48,000
279,040
1,000,000
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
10.135.756
22,518,539
11.776.201
10.947.052
11.350.341
11,178,580
18.689.151
17.780.288
10,581.849
10,472.858
3.219.039
2.528.870
11,682.798
19.264.392
8.264.868
2.994.883
8.544.366
10.070.173
6.983,848
9.861.402
15.329.894
9.016.790
3.690.026
11.139,161
18.304.564
3.525.422
2.901.170
7.473,367
11.764.516
7.466.618
8.497.977
5.929.671
9.812.556
17,310.539
11.665,401
10.698.252
11.333.541
11.178,580
4,056,000
779.200
134.400
1.084.160
7.612.320
3.544,000
5,489.600
6.504.000
7.568.000
949,440
1,964.000
7.164,000
12,874.240
1.043.200
4.975.040
2,302.080
17.468,500
1.336,000
7.009,600
7,235.200
4,604,480
7.944.240
8.824,000
5.128.640
1,140.400
3.427.200
2.995,200
4.526.400
923.200
5.208,000
110.800
248.800
16.800
38,400
0
0
230,400
134,400
40.000
78,400
652,960
886,400
372.800
162,000
1,518,400
75,200
258,400
272,640
1.448,160
9.600
679,680
564.800
2,315.425
96,800
78,400
92,800
246,304
112,080
180.800
95,360
196.200
197.600
292.400
350,400
280.000
409,600
28,000
0
16,000
a
0
525,910.975
359.706,609
166,204,366
13.808,249
17.672.350
16.738,747
17,513,096
16,319,040
6,320,164
17,672,350
16,738.747
17,513.096
16,319.040
6,320,164
a
a
0
0
0
0
0
0
0
0
74,563,397
74,563,397
a
0
17,489,894
15,070,780
17,489.894
15,070,780
0
0
0
0
32.560.674
32,560,674
0
C
-
D EPA R T :\. E ~ T
0 F
THE
T R E .\ S lJ R Y
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C•• 20220. (202) 622-2960
EMBARGOED UNTIL 10:00 A.M. EST
Text as prepared for Delivery
February 8, 2000
TREASURY DEPUTY SECRETARY STUART E. EIZENSTAT
TESTIMONY BEFORE THE SENATE BUDGET COMMITTEE
Mr. Chairman, Senator Lautenberg, members of the Committee:
Thank you for the invitation to come here this morning to discuss the tax provisions of
the President's FY 2001 Budget as they relate to education.
I am especially pleased to accompany Secretary Riley. No one in public life, except
President Clinton himself, has had a longer and deeper commitment to improving education,
both as a Governor and a Cabinet member, than Dick Riley. His leadership over the past seven
years has been outstanding.
The new and expanded programs that the Secretary has discussed with you, as well as the
new tax incentives for education I will cover, are possible as a hudgetary matter because of the
unprecedented performance of the American economy. In I t)93, President Clinton outlined an
economic strategy focused on three objectives: fiscal discipline, investments in the nation's
infrastructure, including education, science and technology, and opening up foreign markets.
This strategy has helped foster conditions for what is now the longest economic expansion in
U.S. history. We have experienced, over the last seven years, an extraordinary increase in GDP,
injob growth, in worker productivity and in personal income. Not only have we balanced the
budget but also, we have begun to pay down the national debt. As our budget figures show, we
can afford to make the ne~ investments in education the Secretary spoke of, and at the same time
use the tax system to provide major incentives to modernize our schools and to provide greater
educational opportunity for more Americans. These programs promise continued gains in the
future. By turning out better-educated, more productive young people, by helping workers of all
ages improve their skills, we will keep this great engine of our economy going strong,
With the development of the high-tech, information based economy of the 21 st century, a
high school education is no longer sufficient to provide Americans with the job skills and
knowledge required to participate meaningfully in the new economy. A higher education is
critical in determining who will prosper and who will be left hehind. Real earnings for full-time
male college graduates have increased by 15 percent over the past two decades, while they have
LS-376
-
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·U.S. Government Printing Office 1998· 6 1 9.559
fallen by more than a quarter for male high school dropouts. On average a bachelor's degree is
worth some $17,000 more a year in the workplace than a high school diploma. This difference
equals an estimated $600,000 over a lifetime.
I would add that the same applies to the world economy. In Southeast Asia and
elsewhere, we see that developing countries that have invested in education have become
increasingly competitive, while others lag behind. If other countries are to succeed in the global
economy of this new century, they must take a far higher proportion of their children out of the
factories and farms and put them into schools.
The tax policies in the Budget relating to education are locused on two types of
investments: First, those that help construct, repair and modernize facilities to create a physical
environment that promotes learning, especially in areas of greatest need; second, those that make
it possible for more young people to take advantage of post-secondary education.
School Modernization Bonds
As Secretary Riley testified, there is a great need to modernize our school buildings,
expand facilities and furnish our schools with the equipment needed to maximize the educational
impact in the Information Age. Currently, about one-third ()f all public schools need extensive
repairs. GAO has estimated that $112 billion is needed for this purpose. The average age of a
public school is forty-two years, and school enrollment is higher than ever. Many school
districts, however, have insufficient financial capacity to take on these tasks using the traditional
method of issuing tax-exempt bonds.
The President's proposal provides for the issuance of $24.8 billion in tax credit bonds
over two years to build or renovate up to 6,000 public schools. This proposal would cost $2.4
billion over five years in the budget.
As Secretary Riley testified, the President's proposed School Modernization Bonds
proposal would help the federal government to spur new State and local investment in public
schools by taking up the interest cost. Instead of receiving tax-exempt interest from the school
district, the holder would receive all the interest from the federal government in the form of an
income tax credit. The credit would be counted as part of taxable income, thus generating a net
yield to the taxpayer that would be equivalent to an equally rated taxable bond. The program
would be capped at $11 billion in 2001 and 2002, half of which would go to the 100 school
districts with the largest number of children living in poverty. while the other half would be
allocated among the states based on Education Act Title I grant formulas. An additional $200
million of bond authority would be set aside in both years for schools funded by the Bureau of
Indian Affairs.
This program offers school districts and other issLlcrs a major savings in debt service and
with it, the ability to fund far more improvements. A typic~d 30-year, $10 million issue of taxexempt bonds at 6 percent interest would require annual debt service payments of about
$726,000 for thirty years. Under our proposaL the issuer \\(lliid pay only $430,000 per year for
fifteen years into a sinking fund earning 6 percent intercst. This savings of about $296,000 a
year would make possible an additional borrowing of $(1, () 111111 ion or IS-year tax credit bonds, or
an additional $4.1 million of 30-year tax-exemptions for school construction or renovation.
We also propose to expand the existing Qualified Zone Academy Bond program, which
also uses the tax credit device and is also geared to low-income arcas. We propose this
program's bonding authority be raised from $400 million to S 1.4 billion in 2001 and an additional
$1.4 billion in 2002; that these bonds should be made available lor purchase by the general
public instead of just financial institutions; and that the proceeds be made available for school
construction in addition to the purposes allowed in current I;l\\.' (renovation, new equipment,
curriculum development and teacher training.) This willillake the program more relevant to
current needs and, as in the case of the School Modernization program, speed development of
efficient primary and secondary markets for the bonds. The revenue cost of both tax credit bond
programs would be $2.4 billion in the first five years and $8 billion over ten years.
Closing the Digital Divide
Access to computers and the Internet, and the ability to use this technology effectively, are
becoming increasingly important to full participation in our country's economic, political and
social life. Unequal access to this technology and high tech skills because of income.
educational level, race or geography could deepen the divisions that exist within American
society. President Clinton has it a major priority to bridge the Digital Divide. and give all
Americans the opportunity to acquire the skills they will need in the new economy of the new
century a high priority. To this end, the Budget proposes three tax incentives. The first offers a
50 percent tax credit for corporate cash contributions to Qualified Zone Academies, libraries, and
technology education centers in enterprise zones, empowerment communities and other lowincome areas. The second offers taxpayers a deduction of two times the cost basis for computers
and similar equipment, two years old or less that are donated to libraries and community
technical centers. (A similar deduction is already in the Code but is limited to public schools).
The third allows employers a tax credit for providing English literacy and workshop literacy,
including computer literacy, to their employees. The tax cost of these proposals is $1.2 billion
over five years and $2.1 billion over ten years.
Tuition and Expenses
Forty years ago, fewer than 30 percent of our young people who graduated from high
school went on to college. Today, two out of every three go directly to college. We are closing
in on a long held dream of a college education for every American. Since 1993, the President
and Congress have taken numerous steps to make college more affordable, including direct
student loans, increased Pell Grants, and the Hope Scholarship and Lifetime Learning tax credits.
But tuition costs continue to rise and many students and llh.:ir l~lInilies are still struggling to make
ends meet.
The President has worked with Members of Congress In design a new College
Opportunity Tax Cut that will, when fully phased in. provide lip 10 $2.800 in tax relief for
students or their families. It allows the choice of either a 28 percent Lifetime Learning tax credit
for tuition and required fees of up to $5,000 for FY 100 I and 2002 and $10,000 thereafter or a
deduction up to those limits for such expenses. It can he lI~t'd to defray the cost of college,
...,
J
graduate school or job training throughout life. It can be llsed by more than one member of a
family.
. The College Opportunit,Y Tax Cut is a significant expansion of the Lifetime Learning
CredIt that Congress approved 111 1997. The latter offered a credit of20 percent and is phased
out between $40,000 and $50,000 for single returns and bel\\een $80,000 and $100,000 for joint
returns. The new proposal raises the credit to 28 per cenL and would raise the phase out range to
between $50,000 and $60,000 for single returns and $100.000 to $120,000 for joint returns.
Our proposal also contains the essence of the bipartisan proposal advocated by Senator
Snowe and Senator Schumer. It allows taxpayers to take a deduction in lieu of a credit, in those
cases where the result would be more favorable to them. i:<llllilies subject to the Alternative
Minimum Tax, those with medical deductions or childcarc credits subject to AGI limitations. and
some families in states which allow federal deductions hill IWI credits may prefer to use the
deduction.
Adoption of these proposals will provide significant tax relief to families that are
burdened by the cost of post-secondary education. It will help make lifetime learning a reality.
It will also help Americans acquire the skills they will need in this fast changing world if we are
to continue our leadership in innovation and achieve the kind of productivity gains that underlie
continued high performance by our economy. We believe the cost of this proposal U $11.1
billion over five years and $29.8 billion over ten years is amply justified by the potential
benefits.
Other Education Tax Proposals
In addition to the measures described above, the Administration proposes to reinstate the
exclusion from gross income for graduate courses paid for by an employer, whether or not those
courses are directly related to a taxpayer's current job. Th is pmvision was eliminated for
graduate courses in 1996. Restoring it will encourage retraining (1f current and former
employees to reflect the changing needs of the workplace. This will cost $400 million over five
years.
Millions of students now depend on direct loans and federally guaranteed bank loans to
help finance college and graduate school, and they will continue to do so even with the College
Opportunity Tax Cut in effect. Currently, our tax laws ,dlo\\ ;1 deduction for interest payments
on such loans, but only for 60 months. This limit has caused signiticant administrative
complexity, including in the calculation of the 60-month period incases where students have
more than one loan or when loans are deferred or retinanced. We propose to eliminate the 60month limit. We appreciate the leadership Senator Grassley has shown on this issue and hope to
work with him and the Members of the Committee on this proposal. This will provide longerterm relief to students with significant educational debt. and reduce burdens for taxpayers.
lenders, loan servicing agencies, and the IRS. The cost wi /I he $400 million over tive years and
$900 million over ten years.
We are also proposing an exclusion from gross incoille III certain situations: First. when
the recipient has elected to base the size of repayment installments on the amount of his or her
4
income, and the loan is still not fully paid after 25 years: Second. when scholarships are granted
under the National health Services Corporation Scholarship Pr()~ram and the Armed Forces
Health Professions Scholarship and Financial Assistance Pro~ral1l. A third would exclude
repayment or cancellation of a student loan under those two programs. as well as the Americorps
program, all of which provide important health. educatioll and other services to underserved
areas and the military.
In conclusion, Mr. Chairman. this nation could nol h~l\"(' turned in the economic
performance it has, and could not be the world economic ic;ldcr il is. had we not made a massive
commitment to the education of our people in the last hal r ('-'IIIll!":. beginning with the G.!. Bill
and continuing through the PeB Grants, Hope Scholarships ~lIld Lifetime Learning credits, on to
the Budget the President submitted yesterday. We strongly intend to continue this progress. for
the benefit of our entire country. Secretary Riley and [ strongly commend these new provisions
to you as you begin your work on this year's Budget Resolution.
Thank. you.
-30-
·
D EPA R T :\1 E N T
0 F
TilE
IREASURY ((I)}
T R E :\ SUR Y
NEW S
1789
OrnCE OF PUBUC AFTAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C•• 20220. (202) 622.2960
EMBARGOED UNTIL 10 A.M. EST
Text as Prepared for Delivery
February 8, 2000
TREASURY ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS
EDWIN M. TRUMAN
TESTIMONY BEFORE THE SENATE BANKING COMMITTEE
SUBCOMMITTEE ON ECONOMIC POLICY
Introduction:
Mr. Chairman, thank you for the opportunity to testifY on the issue of dollarization and your
proposed legislation that would establish a framework for potentially sharing seigniorage with
countries that decide to dollarize. Given the interest in dollarization recently expressed in several
Central and South American countries, your initiative is highly relevant. The issue of dollarization
has many economic. financial. and political dimensions. In my testimony this morning, I focus
primarily on the economic and financial aspects.
As the Administration has stated in prior testimony on the subject of doll arizati on, we do not
have a view on whether dollarization is advisable in general. Each country, in principle, can
dollarize unilaterally, and it must bear the responsibility to decide in light of its own economic and
political circumstances if dollarization is the appropriate policy to pursue.
From the U.S. perspective, as Secretary Summers testified last April, it would not be
appropriate for U.S. authorities to adjust the procedures or orientation of U.S. monetary policy in
light of another country's adoption of the dollar; to extend banking supervision to that country's
banks; or to provide access by those banks to the Federal Reserve's discount window. We have
not changed our view. On the issue of sharing seigniorage, as we have said earlier, Congressional
action would be required to permit the United States to pay seigniorage to a dollarizing country.
Further, we believe strongly that, during the process of deciding whether to share seigniorage
with any given country, there should be extensive consultation by the Administration with the
Congress to limit the scope for subsequent problems. The technical issues associated with
dol/arization are many and complex, and we also would certainly want to draw upon the expertise
LS-377
/;or press releases. speeches. public schedules and official biographies. callouT 24.JaoUT fax line at (202) 622·2040
of other agencies, including the Federal Reserve.
Considerations for dollarizing countries
A country's decision to end the legal tender status of its national currency and to bestow that
status on the U.S. dollar is momentous regardless of the circumstances. The reasons a country
may choose to dollarize can be varied, and the benefits are potentially significant. However, it is
essential to remember that dollarization cannot substitute for sound macroeconomic policies,
robust institutions, and flexible markets. The principal benefits of dollarization are the credibility
and policy discipline derived from its implicit irrevocability. Its principal economic cost is the
renunciation of national monetary autonomy.
The basic trade-off associated with dollarization is between the advantages and disadvantages
of a regime with some degree of exchange rate and monetary policy flexibility and a regime with
none. Exchange rate adjustment is a potential shock absorber and also allows greater scope for
national monetary autonomy. However, that potential must be balanced against the added
macroeconomic policy discipline and credibility associated with rejecting all scope for
discretionary monetary policy and adopting the currency and monetary policy of another country
with such credibility. As in all meaningful trade-offs, judgments about the appropriate balance can
differ across countries and their circumstances. Moreover, sound fundamental policies and
institutions are needed to underpin any credible currency regime. In particular, a dollarizing
country, like all countries, should have a sustainable fiscal position, a healthy banking system,
flexible and well-functioning labor markets, open capital markets, and an environment in which
private property is respected and contracts are enforced.
In addition to assessing its economic fundamentals, a country considering dollarization must
weigh carefully the potential benefits against the potential costs. On the one hand, the implicit
irrevocability of dollarization holds the promise of lower interest rates, lower inflation rates,
higher levels of economic activity, greater financial stability, and deeper financial markets. These
benefits can be expected to be especially attractive to a country with a record of financial
instability and high inflation, but financial and fiscal crisis may still occur with dollarization.
On the other hand, the monetary authorities of a dollarizing country would be ceding the
capacity to use monetary or exchange rate policy to cushion the economy against external or
internal disturbances. Moreover, there is no guarantee that the exchange rate used to convert a
country's domestic currency into dollars, thereby fixing that exchange rate irrevocably, will be the
right exchange rate for the near term. Setting that conversion rate either too high or too low
could have adverse implications for the real economy's short-term performance. Over time, if
domestic prices and wages cannot adjust rapidly in response to disturbances, dollarization could
also mean greater volatility in output and employment. Dollarization should not greatly impede
the ability of the authorities to provide very short-term liquidity to individual banking institutions,
but the authorities would lose much of their scope to respond to a systemic threat to the banking
system.
2
For a country that has already made a strong commitment to a pennanently fixed exchange
rate. the balance of considerations with respect to dollarization differs. The scope for adjustment
working through the exchange rate or domestic monetary policy is, in principle at least. already
limited. Therefore. the effective costs of dollarizing may be lower along with the effective
benefits. However. even a fixed exchange rate regime has an exit option, which is presumed to be
lost with dollarization. Nevertheless. it is worth noting that many observers, including Paul
Volcker. have suggested that in the wake of continuing globalization, the years and decades ahead
may see a dramatic decline in the number of independent currencies in the world.
Considerations for the United States
Obviously, countries can choose to adopt the dollar as legal tender without our assent.
However, we hope and expect that countries would consult with us in advance because there are
potential benefits as well as costs to the United States from the adoption of such a policy. The
benefits include increased seigniorage; reduced transaction costs for U. S. resident importers,
exporters, borrowers. and lenders; the possibility of increased business for U.S. banks and other
financial institutions; and the "power and prestige" that might be associated with having a more
international currency. Indirectly. the United States would benefit from increased economic
activity or greater financial stability that would be expected in the countries that doJlarize
successfuJly.
However, dollarization also involves potential costs or burdens for the United States. U. S.
economic and regulatory policy makers could come under pressure from the authorities of the
dollarized country to help support their economy's economic and financial stability. Questions
have likewise been raised about the possible impact attitudes toward the United States in a
dollarized country at times of financial stress. To the extent that dollarization furthered economic
and other ties. this would nonnally be expected to be seen as a benefit to both the United States
and the dollarized country. However, in difficult times, or when U.S. monetary policy is
considered inappropriate or inconvenient for the dollarized country, there would be the risk that
U.S. policies would foster resentment and encourage policy makers to deflect blame for their
countries' problems onto the United States. Finally, if a substantial number oflarge countries
should choose to dollarize. the monetary and exchange rate flexibility currently enjoyed by the
United States itself would potentially be reduced.
Seigniorage sharing
A decision by another country to adopt the dollar as its currency would increase U.S.
seigniorage revenues -in effect lowering the cost of financing U.S. government debt and
improving the U.S. fiscal balance - because such an action would be expected to lead to increased
holdings abroad of dollar currency. However. the size ofthis increase in the short run, let alone
over time. remains an unanswered empirical question. The question of whether it would be
appropriate to share those revenues or savings is an important public policy question. As noted
above, dollarization may bring potential benefits to the United States as well as the dollarizing
country. but also potential costs.
3
Looking at seigniorage sharing narrowly, in principle, a decision by the United States to share
the seigniorage revenues associated with the increased amount of dollars in circulation as a
consequence ofa country's decision to dollarize would not cost the U.S. taxpayer anything.
However, if a country would have dollarized anyway, or has large amounts of dollars circulating
already, then sharing seigniorage with the United States would imply foregoing additional
seigniorage revenues. At the same time, if the benefits of dollarization to a country are
significant, they should outweigh the lost seigniorage. In other words, the deciding factor for
either country should not be whether seigniorage would be shared.
One added potential risk to the United States from the sharing of seigniorage is that it may
imply a degree ofV.S. endorsement or ownership ofa country's decision to dollarize. Unless
carefully designed and implemented, dollarization also could lead to unintended legal or financial
complications and potential liabilities for the United States, particularly if a country seeks creative
ways to meet its banking system's short-run liquidity needs - to provide lender-of-Iast-resort
support for the domestic banking system - by securitizing potential seigniorage flows.
Sharing of dollar seigniorage raises complex questions. For example, where would we draw
the line on the sharing of seigniorage? If the United States decided to share our increased
seigniorage with one dollarizing country does that mean we would stand ready to share it with aU
countries that we view as meeting the economic criteria for dollarization and seigniorage sharing?
How would we decide the right amount of seigniorage to share?
Senator Mack's proposed legislation suggests answers to some of these questions. He has
contributed importantly to the intellectual debate on both dollarization and seigniorage sharing.
The proposed legislation is one approach to arrangements for potential seigniorage sharing, that
is. pass legislation to give the Treasury Secretary discretionary authority to rebate seigniorage to a
specified degree to any country that makes such a request as long as it meets certain conditions.
That approach has the advantage of providing a country that is considering doUarization with a
framework within which to consider its decision and, in the process, may encourage responsible
doUarization.
On the other hand. each country is likely to come to its decision to dollarize in the context of
different economic, financial. and political circumstances. and U.S. attitudes toward that decision
may differ depending on those circumstances. Another approach, therefore, would be to wait
until a country makes a concrete request to share seigniorage and then consider specific legislation
that would enable us to do so under the particular circumstances.
Let me mention some of the technical issues and complexities that would be involved in
seigniorage sharing. The calculation of the appropriate amount of seigniorage to share is tricky.
The Federal Reserve has only estimates of the total amount of dollars circulating outside the
United States. We have no way of knowing the actual amount circulating abroad, and estimates
of the amount used by the residents of any one country a'.;: even rougher. Thus, any formula for
sharing seigniorage inherently would be only an approximation of the actual seigniorage "lost" by
4
the dollarizing country or "gained" by the United States as a result of a country's decision to
doUarize.
Ifit were decided to adopt seigniorage sharing as U.S. policy, important implementation
challenges would arise in order to have reasonable confidence that the "right" amount is shared.
U.S. taxpayers would want some assurance that they are not being exploited by seigniorage
"rebates" to foreign countries in excess of additional seigniorage that is being "gained" by the
United States. While the approach suggested in the proposed legislation is plausible, several
considerations would arise about its actual implementation. These include:
•
Recognition that we would have no way of knowing the actual amount of U.S. currency in
circulation in a given country at any point in time.
•
Second. it can not be fully guaranteed that a country would not receive more than.its "fair
share" of seigniorage revenues. For example, the formula in the Chairman's proposed
legislation assumes implicitly that the dollarized economy has the same income elasticity of
demand for currency as the United States and other countries in the world that use doUars. If
the income elasticity of demand for currency was lower in the doUarizing economy,
seigniorage sharing calculated by the formula would be too large. This would also be the case
if the demand for cash in the dolJarizing country were to fall as the demand for other monetary
aggregates rose, for example. as a result of enhanced intermediation or the repatriation of
flight capital.
•
Third, some might raise questions about the appropriate interest rate to use as a proxy for the
opportunity cost of holding cash in dollars. This is also not a matter that can be settled on a
factual basis. One could argue that the interest rate on U.S. government bonds would be
appropriate because that rate most closely reflects the long-term liability nature of money.
One could also argue that the 90-day Treasury bill rate as specified in the proposed legislation
is more appropriate because it is a good proxy for the opportunity cost of holding reserves, as
well as the net return on the Federal Reserve's portfolio. Given the generally upward slope of
the U.S. yield curve. the use ofa short-term interest rate has the added benefit of being more
conservative from a U.S. perspective than the use of a long-term rate. A third concept might
be the rate that the dollarizing country would have earned on its dollar-denominated assets,
which depends on the composition of its portfolio of such assets.
•
Fourth. any approach for sharing seigniorage with countries that have already officially
dollarized inherently caMot be expected to reflect with complete accuracy a countrYs actual
holding of dollars now or in the future.
•
Fifth. some might raise questions about whether there should be allowance for the ex-ante
partial, but substantial, dollarization of countries, such as Argentina, that ultimately decide to
fully and officially dollarize.
Nevertheless, these questions have reasonable answers as long as one is prepared in some
5
instances to be satisfied with less than full precision.
I should also note that an approach to sharing seigniorage by means of paying interest on a
con sol issued by the United States would raise issues about the status of this security under the
laws that govern the management of U.S. debt. Moreover, issues about the budgetary treatment
and the full legislative implications of sharing seigniorage would have to be addressed.
Let me make one final comment on Chairman Mack's thoughtful legislation. The ten actions
that the Treasury Secretary would be required to take into consideration in determining whether
to certify that a country has officially dollarized, and is eligible for seigniorage sharing, are
definitely relevant. To such actions, however, there may be other important factors to consider
before we decide to share our increased seigniorage. For example, doUarization is more likely to
succeed in a given country if, at the time of dollarization, a country's foreign reserves cover at
least the local currency in circulation, and the commitment of the country's citizens to
dollarization is high. Furthermore, the economic and financial context in which dollarization takes
place can also play an important part in determining its success. Dollarization as a part of a
coherent long-term economic strategy is likely to be a more successful than dollarization in
response to a financial crisis. The latter is more likely to involve hasty decisions with unforeseen
consequences.
Conclusion
In conclusion, again I want to commend you, Mr. Chairman, for your thoughtful proposal and
many contributions to a complex and increasingly relevant policy discussion. We will want to
continue an open dialogue with Congress and other interested parties as we proceed to analyze
further the many facets of this subject.
Thank you, Mr. Chairman, and the other members of this subcommittee for your time. I will
be happy to respond to any questions.
-30-
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
CONTACT:
IMMEDIATE RELEASE
ruary 07, 2
°°°
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
February 10, 2000
May 11, 2000
912795DVO
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.545%
High Rate:
Investment Rate 1/:
5.719%
Price:
98.598
All noncompetitive and successful competitive bidders were awarded
urities at the high rate.
Tenders at the high discount rate were
otted 81%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
Compe tit i ve
Noncompetitive
$
24,419,002
1,454,693
$
25,873,695
PUBLIC SUBTOTAL
SUBTOTAL
7,326,162
1,454,693
8,780,855 2/
230,000
230,000
26,103,695
9,010,855
4,544,485
4,544,485
Foreign Official Refunded
Federal Reserve
Foreign Official Add-On
TOTAL
Accepted
o
$
30,648,180
°
$
13,555,:340
Median rate
5.540%: 50% of the amount of accepted competitive t.ender-s
tendered at or below that rate.
Low rate
5.470%:
5% of the amount.
accepted competitive tenders was tendered at or below that rate.
to-Cover Ratio
=
25,873,695 / 8,780,855
=
Equivalent coupon-issue yield.
Awards to TREASURY DIRECT = $1,103,338,000
LS-378
2.95
:6222611
_fraa: Department Of Treasury
06/02/00 04:07 PM
Page 29 of 62
-
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239
TREASURY SECURITY AUCTION RESOL7S
BUREAU OF
PUBLIC DEBT - WASHINGTON DC
~dE
IMMEDIATE REL..E'ASE
affice of Financing
202-631-3550
CONTACT:
ruatY 07, 2000
RESOL'l'S OF 'I"R.EA$u"RX'S At1c:T!ON OF
term:
1.82-Day Bill
Issue Date:
Macu=i ~y Oat: e :
CUSIP Nu~er:
August lO, 2000
February lO, 2000
9~279SEW7
High Race:
All
.ot!:ed
Investment:.
5.770%
noncompet:.ici~e
~i~ies
2S-WEEK BILLS
Ral:.e 1/:
compe~il:.ive
and successful
bidders were awarded
Ccmpet::.it:ive
$
Noncompetitive
3,000,000
23,506,831
0,001,18':
3.64;0,000
3,84'0,000
129.000
ra~e
27,475,831
5.750%: SO~ of the arnoun~ of
at: or belo .... chat rac.e. Low ::,at.e
issue
I
S,00l,13l
s
1.2..,
acc~?ted com?e~itive
5.6'70::'-:
cecders was :endered ac or
= 20,506f83~
CCUP0:l-
S,OOl.l8l 2/
129,000
s
d-to-Cover Ratio
3,787,765
1,213.'116
3,000,000
Federal Raee:voe
Fore~gn Official Add-On
Equl.valenc
19,293, -US
1,2l3,416
-----------------
SOE't'O'I'AL
accepce~ cc~pe~iClve
Accepced.
----------------20,506,83l
Foreign Officia: Refur-ded
.S ~endered
thous~~ds)
Tende:ed
Tender 1'y?e
A~ards
97.083
at t:.he high race.
Tenders at ~e high discounc ra~e ~e=e
is;'.
All tenders ac lOlJer rates \Jere accepted. in full.
AMOUNTS TENDERED AND ACCEPTED (in
Medi~.
Price:
6.042%
belc~
S~o:
:;:-.e
;nc, 132.
~ende~~
amo~c:
c.ha( ra:=.
= 4.10
yi~ld.
co TRS~URY D:RECT
= S893.930,000
L5-379
TOTRL P.01
DEPARTMENT
Of
THE
TREASURY
NEWS
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
U.S. International Reserve poslhon
The Treasury Department today released
As indicated
ll1
February
8,
2000
u.s. reserve assets data for the week endlOg February 4, 200U
this table, U.S. reserve assets totaled $69,736 million as of February 4, 2000, down from $70,028
nillion as of January 28, 2000.
us millions)
TOTAL
Foreign Currency Reserves
a. Securities
I
1
Euro
4,906
Yen
5,991
TOTAL
10,896
0
Euro
4,914
Yen
5,969
TOTAL
10.884
0
8,448
11,596
20,043
0
0
0
0
8,448
11,554
20002
0
0
Of which. issuer headquartered in the US.
b. Total deposits with:
b.i. Other central banks and SIS
b.ii. Banks headquartered in the U.S.
b.ii. Of which. banks located abroad
b.iii. Banks headquartered outside the U.S.
b.iii. Of which, banks located in the U.S.
IMF Reserve Position
0
0
17,791
17,641
10,248
10.162
2
Special Drawing Rights (SDRs)
Gold Stock
February 4, 2000
69,736
January 28. 2000
70,028
)fficial U.S. Reserve Assets
2
11.048
11 :J48
0
0
3
Other Reserve Assets
I Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
SOMA). valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values. and
Deposits reflect carrying values
U SDR holdings and the reserve position In the IMF are based on IMF data and revalued in dollar terms at the official SDRldoliar exchange
ate. Consistent with current reporting practices. IMF data for January 28, 2000 are final Data for SDR holdings and the reserve pOSition in
he IMF shown as of February 4,2000 (in italics) reflect preliminary adjustments by the Treasury to the January 28.2000 IMF data.
II Gold stock is valued monthly at $42.2222 per fine troy ounce
Values shown are as of December 31. 1999. The November 30, 1999
value was $11.049 million.
3-380
Or press releases, speeches,
U bl"IC
,n::
sch ed u Ies a nd oJJ.cial
biograPhies, call our 24.1zour fax line at (202) 622-2040
·U.S. Government P"ntlnQ Office 1998· 619-559
u.s. International Reserve Position (cont'd)
Predetermined Short-Term Drains on Foreign Currency Assets
February 4. 2000
January 28. 2000
:oreign currency loans and securities
\ggregate short and long positions in forwards and
utures in foreign currencies vis-a-vis the U.S. dollar:
o
o
~.8. Short positions
o
o
o
o
o
o
I.b. Long positions
>ther
Contingent Short-Term Net Drains on Foreign Currency Assets
February 4. 2000
January 28. 2000
:ontingent liabilities in foreign currency
I. Collateral guarantees on debt due within 1 year
1. Other contingent liabilities
oreign currency securities with embedded options
Indrawn, unconditional credit lines
.8. With other central banks
.b. With banks and other financial institutions
headquartered in the U.
.c. With banks and other financial institutions
headquartered outside the U. s.
ggregate short and long positions of options in foreign
urrencies vis-a-vis the U.S. dollar
.8. Short positions
4.a.1. Bought puts
4.a.2. Written calls
b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
o
o
o
o
o
o
o
o
s.
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
t IMMEDIATE RELEASE
)ruary 08, 2000
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 4-3/4-YEAR NOTES
This issue is a reopening of a note originally issued November 15, 1999.
:erest Rate:
~ies :
UP No:
UPS Minimum:
5 7/8%
H-2004
912827SS7
$1,600,000
Issue Date:
Dated Date:
Maturity Date:
High Yield:
6.741%
Price:
February 15, 2000
November 15, 1999
November 15, 2004
96.505
All noncompetitive and successful competitive bidders were awarded
:urities at the high yield.
Tenders at the high yield were
lotted 98%. All tenders at lower yields were accepted in full.
Accrued interest of $ 14.84890 per $1,000 must be paid for the period
1999 to February 15, 2000.
Jm November 15,
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
Competitive
Noncompetitive
$
22,214,080
608,167
PUBLIC SUBTOTAL
22,822,247
Federal Reserve
Foreign Official Inst.
1,129,796
1,100,000
TOTAL
$
25,052,043
Accepted
$
11,392,080
608,167
12,000,247 1/
1,129,796
1,100,000
$
14,230,043
Median yield
6.710%:
50% of the amount of accepted competitive tenders
s tendered at or below that rate.
Low yield
6.650%:
5% of the amount
accepted competitive tenders was tendered at or below that rate.
d-to-cover Ratio
=
22,822,247 / 12,000,247
. Awards to TREASURY DIRECT
=
=
1.90
$332,752,000
-381
http://www.publicdebt.treas.gov
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL 10 AM EST
Text as Prepared for Delivery
February 9, 2000
TREASURY DEPUTY SECRETARY STUART E. EIZENSTAT
TESTIMONY BEFORE THE HOUSE BANKING COMMITTEE
Mr. Chairman, Mr. LaFalce, I want to thank you, and the members of this
committee, for holding this latest in a series of hearings. Your steady focus on
Holocaust related issues has helped elevate them in the moral conscience of the world,
and the work of individual Members of this Committee has given important support to
our government's actions in this area.
I also want to thank you for inviting my long time friend and colleague, Count
Lambsdorff, to join me on this panel. Count Lambsdorff is a dedicated friend of the
United States, a man who has done much during his distinguished political career to
strengthen the relationship between our two countries. In his current capacity as the
Chancellor's special representative, he sits with me as co-chairman of the German
Foundation Initiative negotiations to provide some measure of justice to public and
private sector forced and slave laborers and others who suffered at the hands of German
companies during the Nazi era. It is evidence of the German government's seriousness
of purpose and sense of moral obligation that the Chancellor chose a man of the
Count's public stature to represent his country in these talks. In addition, he has the full
backing of German industry.
Slave and Forced Labor
Ne~otiations
I tum now to the current negotiations on slave and forced labor. They are
focused on the establishment and funding of a new German entity to be called the
Foundation for Remembrance, Responsibility and the Future. It will be the mechanism
through which all those who worked as forced and slave laborers and those who
suffered at the hands of German companies during the Nazi era can receive dignified
payments.
LS - 382
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Since your hearing last September, German industry and government agreed to
raise their combined contribution to the foundation's capitalization to DM 10 billion,
half from German industry and half from the German government. This was
announced on December 17 in Berlin. This offer was a substantial increase over the
initial German proposal of DM 6 billion in October and a subsequent offer of DM 8
billion in November.
All the parties to these negotiations -- The Governments of Belarus, the Czech
Republic, Poland, Russia, Ukraine and the State of Israel, the Conference on
Jewish Material Claims Against Germany, and the lawyers' for the victims -accepted the DM 10 billion offer as the capped amount for the German
Foundation and the sum that will resolve the lawsuits in U.S. courts.
The process that led to this agreement has been long and complicated, and all
the participants have had to show flexibility and good will. We could not have
reached agreement on the DM 10 billion without the personal involvement and
leadership of President Clinton and Chancellor Schroeder, as well as other
senior officials in the U.S. and German governments. I also want to cite the
constant support and personal involvement of Secretary Albright, Secretary
Summers, White House Chief of Staff John Podesta, and National Security
Adviser Sandy Berger.
I should also mention here the very significant contribution of German President
Rau to this process. President Rau has been a consistent voice stressing the moral
aspects of these issues. On December 17, in Berlin, and in the presence of Holocaust
survivors, he said the following:
"I know that for many it is not really money that matters. What they want is for
their suffering to be recognized as suffering, and for the injustices done to them
to be named injustices. I pay tribute to all who were subjected to slave and
forced labor under German rule and, in the name of the German people, beg
forgiveness. "
President Rau' s apology provides assurance to many that the last word on the
Holocaust will not be about money. Given the significance of President's Rau's
statement, I would appreciate be allowed to include it in the record of today's
hearing.
I want to emphasize that despite the critical importance of what was agreed in
Berlin on December 17, final settlement requires subsequent agreements on a
number of issues, most importantly on an equitable allocation of the DM 10
billion among various groups and classes of claimants, and on the substance of
the legislation that will define the administrative structure and operation of the
German Foundation.
2
The Washington Plenary
Last week in Washington, over one hundred delegates, representing all the
parties to the negotiation, assembled at the State Department for our eighth
plenary session. Preparations for this meeting included numerous smaller
meetings between various sides over the preceding six weeks since the Berlin
agreement on the capped amount. The focus of our efforts in Washington were
two: the issue of allocation, and bringing the draft German implementing
legislation into alignment with agreements already reached in negotiations.
Allocation
At the outset, Count Lambsdorff and I agree that it is very important that the
"victim side" be actively engaged in finding the compromises necessary to
ensure that all elements of the Foundation are appropriately funded. To help
focus those discussions, I proposed the following set of principles to guide
discussions:
Slave and Forced labor shall have the highest priority in allocating Foundation
funds. Payments shall include an inclusive category for personal injury and
other cases, including but not limited to, medical experimentation, mothers of
"Kinderheim" cases as well as all other personal injury cases directly involving
German companies.
An allocation shall be made for aryanized property claims against German
companies and for heirless/humanitarian/insurance claims.
An allocation shall be made for the Future Fund for projects of tolerance, taking
into account the heirs of forced labor.
Administrative expenses shall be paid from interest on deposited funds.
Decisions on allocations should be made recognizing that the Foundation
provides a potential remedy for any possible claim against German companies
arising out of the Nazi era.
The United States strongly supports the efforts of the victims' groups to reach
agreement on a fair and equitable allocation that can be set into the German law.
Following these principles should ensure an equitable balance between
competing requirements for the limited funds available.
3
I am pleased to report that at the Washington plenary, very significant progress
was made on allocation, sufficient for me to say that I believe that we may well
be able to conclude this key aspect of the settlement soon.
Draft Le&islation
The German Foundation will be established under German law. We welcome
this for two reasons: first, because it is the vehicle through which the German
government will appropriate their half share of the DM 10 billion, and second, because
it will subject the Foundation to well established oversight and accountability
requirements that charitable organizations in Germany must meet.
But, I will tell this Committee frankly that embodying the results of our ninemonth negotiation in the draft legislation, based on a German Government's draft and
the German legislative process, is a sensitive and difficult undertaking. I am pleased to
say that the German government met intensively with us over the past six weeks, and
engaged all parties to the negotiations at the Washington plenary.
To add weight to the German government's commitment to deal fairly with the
parties to the negotiation, the German delegation to the Washington plenary
included, as in the past, representatives from the five major Bundestag parties,
all of whom took an active and extremely helpful part in discussions and will
take the lead in the legislative process in Germany. In addition, I am pleased to
accept the Bundestag Domestic Affairs Committee invitation to testify next week
in Berlin. I believe that the German government fully recognizes the importance
of submitting draft legislation to the Bundestag that reflects the commitments
and understandings reached during our negotiations.
One of the most difficult tasks we face is to define the scope of the Nazi-era
wrongs perpetrated by German industry that the Foundation will cover in its claims
process. We are working to ensure that the Foundation's coverage is so broad that the
United States will be able to file a Statement of Interest in U.S. courts in all cases
brought against German companies arising out of the Nazi era. This Statement of
Interest is a central element in the achieving the "legal peace" that the German
companies seek. At our plenary meeting last week in Washington, we had a very
productive discussion, and I am gratified that the German government has reaffirmed it
intention to revisit the issue of the Foundation's scope in light of those discussions.
Offsets
Also contained in early drafts of the legislation was a provision that would "take
account of" previous or ongoing payments by the German government to a
4
Holocaust victim but reducing the payments from the German Foundation. I
urgently sought German agreement to drop this provision. It would have
unfairly reduced the payment of thousands of Holocaust survivors -- many of
whom are U.S. citizens -- who were forced to work in unspeakable conditions
under the Nazis. Previous German programs, such as the German Federal
Compensation Law (BEG), make payments to those whose liberty was taken
from them.
I am pleased to report that at the Washington meeting, the German side has
committed to alter this provision in accordance with the concerns expressed by
delegations.
There was also and "anti-accumulation" clause that would limit the amount any
one individual could receive from the German Foundation. Since, the Foundation will
hold accounts to pay claims for injury and property loss from banks and insurance
companies, as well as for other injuries received at the hands of German industry, such
as medical experimentation, this provision was patently unfair.
At the Washington meeting, the German negotiators committed to alter these
two provisions in accordance with the concerns expressed by delegations.
There has been a good deal lot of expectation and confusion over who will benefit
from the successful conclusion of these negotiations. Let me emphasize a few points:
•
American citizens who qualify will receive the same benefits as anybody else, and
their applications will be process by an organization or organizations in the u.s.
Travel to Germany or elsewhere will not be required.
•
American citizens will be able to exclude their benefits from income under a tax
provision in President Clinton's 2001 Budget that provides a clear statutory
exemption for Holocaust-related reparations.
•
No racial, ethnic or religious group will get favorable treatment. A slave or forced
laborer is a victim of the Holocaust, whether he or she is a Czech, Pole, Jew,
Romani or another nationality or religion.
•
Detailed explanations of exactly who is eligible and how to apply for a benefit will
be widely publicized. As I have testified, these important details are still under
negotiations. But, please be assured the outreach effort --once a settlement is
concluded -- will be comprehensive.
•
I am hopeful, however, that those victims who will not directly benefit, indeed all
men of good will, will take real pleasure in the knowledge that at least this group of
5
deserving Holocaust survivors will get recognition for their suffering and at least
some small measure of justice.
•
Despite the large price tag, and the hundreds of thousands of people who will
eventually benefit, a settlement when reached will still only cover a limited number
of Holocaust victims and a limited number of crimes. Other survivors will not
benefit because the crimes committed against them did not involve slave or forced
labor or "aryanization" of property, or stolen insurance policies. In short, they were
not crimes committed by German industry during the Nazi era.
Other Holocaust Related Issues
As I have said, the Holocaust is a compilation of crimes, and we have
approached the issue on many fronts.
I would now like to review the many other areas in which we are engaged, including art
recovery - a subject in which you have taken an especially active role, recovering
insurance policies, the Swiss bank settlement, and other issues.
Art Restitution
On art restitution, work is going ahead in many countries in line with the
principles adopted at the art section of the Washington Conference a year ago
December, at whichyou, Mr. Chairman, presided. Tomorrow you will hear from
representatives of the American museum community as well as others with respect to
how and to what degree these principles have succeeded in guiding the art world and
fostering communication and cooperation among the various players. Major museums,
such as the National Gallery and the Metropolitan Museum of Art in New York City
have been researching their collections. I would note that just last week, the North
Carolina Museum of Art announced that one of its paintings, Madonna and Child in a
Landscape, by the German master Lucas Cranach the Elder, had been stolen by the
Nazis and is actually owned by the heirs of a Viennese physician. In keeping with the
Washington principles, the Museum researched the question of provenance, working in
cooperation with the Holocaust Claims Processing Office of the State of New York and
the Commission for Art Recovery of the World Jewish Congress.
Let me take a moment, however, to highlight how the U.S. Government has
been working to move this process forward. In my testimony last fall, I noted we had
participated in an April 1999 hearing of the Cultural Committee of the Council of
Europe in Paris on "Looted Jewish Cultural Property." As a result of that hearing, the
Committee prepared model legislation on the return of Jewish cultural property. The
Parliamentary Assembly of the Council adopted this resolution last November. This
model legislation should initiate new legislation on this subject in European national
parliaments, similar in scope to the groundbreaking restitution laws adopted by Austria.
6
The Lithuanian Government announced at the end of January that, under the
auspices of the Council of Europe, it was inviting representatives of the world
community to a forum on cultural properties of Holocaust victims to be held in Vilnius
in October.
Germany's Cultural Minister recently announced that Germany will inaugurate a
web site to help restore Nazi-confiscated art to its rightful owners. All major German
museums were called upon to inspect the provenances of the artwork in their
possession. Any artwork -- including coin collections and artifacts -- that are found to
have unclear provenances will be publicized, with pictures, on the web site. This
initiative follows the lead of the web site the French government has posted for many
years to display art returned to France after the War but never claimed.
Holocaust Issues and Switzerland
Regarding Switzerland the Vice President and I visited Switzerland a year ago in
January 1999 and met with then Swiss President Ruth Dreifuss. President Dreifuss
reiterated her government's support for completion of work by various commissions on
Holocaust-related issues. She also noted that the government remains committed to
creating a "Solidarity Foundation" out of Switzerland's gold reserves that would, inter
alia, support Holocaust survivors.
In recent months, it has become apparent that the Swiss Government faces some
domestic opposition to its proposal for a Solidarity Foundation. The timing for
introduction of Foundation legislation remains uncertain; a referendum would be likely
if a bill passes. Many hope that the Government can. move forward to present
Solidarity Foundation to people for approval this year.
In early December, the Vo1cker Committee released its final report that was
critical of Swiss bank behavior for hindering access by heirs to dormant accounts of
Nazi victims after the War. The Committee also revealed that there were more
accounts of Holocaust victims than indicated by earlier surveys. The Committee
recommended that the Swiss Federal Banking Commission authorize publication of the
names of 25,000 account owners that have a strong probability of being related to
victims of Nazi persecution. The Swiss are expected to make a decision on this matter
in March. The Committee also recommended that 59 Swiss banks consolidate their
databases, which are now separate and contain 4.1 million names, to facilitate the
process of matching the names of account owners to those who died in the Holocaust.
We hope that these recommendations can be acted upon favorably.
The Bergier Historical Committee released in December a report that is highly
critical of Swiss government actions during World War II, noting that many refugees
were returned to Nazi-occupied countries and sometimes the Swiss authorities
confiscated the assets of refugees.
7
The Swiss Government very courageously welcomed the release of both reports
and their forthright conclusions. The Government also apologized for the suffering,
deportation, and death caused by Switzerland's World War II policies. (I note
parenthetically that other countries, including the United States, barred entry to
refugees from the Holocaust) We commend Switzerland's response to the Volcker
Committee's and the Bergier Committee's conclusions. It demonstrates openness and a
willingness to look honestly at its past.
Despite the August 1998 settlement of the class action litigation settlement
entered into between Holocaust victims and Swiss banks, the court has not yet approved
a distribution plan, and thus the 1.25 billion dollars to Holocaust victims have not yet
been distributed. The procedures inherent in our class actions often require 18 months
before distributions can be made to claimants. Jupge Korman plans to have a fairness
hearing on the settlement on March 15. In recent weeks, the court has asked the Swiss
authorities to provide the information. I understand the Court needs the refugee
database and a list of German companies whose assets were frozen in Switzerland
during the War. The process for early court approval of the settlement depends on the
court having available all the information necessary to final judicial approval, including
information from the Swiss authorities. With this information, the Court may be able to
approve the distribution plan in March and conclude matters by June.
ConununalProperty
On communal property, we continue to work with the Central European
governments on restituting to rightful owners' property belonging to Europe's religious
communities that both the Nazi regime and subsequent communist governments had
confiscated.
When I commenced working on Holocaust issues in 1995, much of my early
activity was focused on restituting property to rightful owners. Both the Nazi regime
and the communist governments of central and Eastern Europe had confiscated
significant amounts of property belonging to Europe's religious communities. The new
democratic governments had just begun to deal with the issue.
Restituting property is a complex matter. Some of the properties are located in
what are now highly developed urban areas and are being used not merely for
commercial purposes but also for such social purposes as medical treatment and
education. Changing ownership and use after a more than a half century is difficult at
best.
At the same time, governments must realize that honoring property rights is a
pre-requisite to participating in the international marketplace and in attracting
investment. So while initially expensive and politically sensitive, sound property
restitution systems are clearly in the interest of all the central and Eastern European
countries.
8
In my discussions with government officials, I have emphasized a number of
principles that seem to me to be important to keep in mind in addressing property
restitution issues. These principles include:
•
Equitable, transparent and non-discriminatory procedures to evaluate specific
claims.
.
•
Access to archival records and use of alternative forms of evidence if primary
documents no longer exist.
•
Implementation of restitution policies at regional and municipal levels.
•
Non-discriminatory procedures, without citizenship or residence requirements.
•
Clear and simple legal procedures.
• Implementation of court decisions on the basis of equality and non-discrimination.
• Priority of restitution claims before privatization occurs.
•
Provisions for the present occupants of restituted property.
•
Transfer of clear title including the right of resale, not simply the right to use
property, which could be revoked at a later time.
•
Restitution or compensation for communal property irrespective of whether the
property had a religious or secular use.
• Establishment of foundations, managed jointly by local communities and
international groups, to aid in the preparation of claims and to administer restituted
property.
•
Protection of cemeteries and other religious sites.
As I did in my testimony before this committee last September, I am appending
to my written statement a country by country summary of property issues. I want to
discuss in some detail, however, the issues of both private and communal property in
Poland.
In September, the Polish government submitted to parliament legislation dealing
with private property which was non-discriminatory in terms of allowing former Polish
citizens and their heirs who now live outside of Poland to claim their property. This is
in line with the commitment made to me by the Polish government. However, this was
9
amended in committee to add restrictive residency requirements for claimants, which
we believe, are discriminatory and are the kind of limitation we are trying to avoid.
We are emphasizing the importance of the final act reflecting the Polish government's
position. We have raised this issue with visiting Polish officials here in Washington and
our Embassy has raised it in Warsaw. In addition, I believe that Chairman Smith of the
CSCE Commission sent a letter to the President bf the Polish parliament. Polish
officials have informed us that they strongly favor the draft submitted by the
government and are opposed to the amendments.
The return of Jewish communal property in Poland has been slow because of the
difficulty the WJRO and the Polish Jewish community have had in establishing a
foundation to prepare claims and administer some of the returned property.
Negotiations between the two groups broke down last year. To get the two parties back
to the negotiating table, I asked Ambassador Henry Clarke to serve as a mediator to get
them going again. The third of his mediation sessions is now underway in Warsaw. In
addition, I met last week with the WJRO co-chairmen and urged them to give their
negotiators the necessary flexibility to finish this important work. I am optimistic that
the foundation will be up and running soon so that the restitution process can be
accelerated .
Archives
Archival openness is essential, not only to assist in claims and advancing
scholarship, but so that every country can honestly confront its behavior during these
difficult years and draw the lessons needed to advance tolerance and social justice. It is
important that the Russians open up their archives on Raul Wallenberg, that the Vatican
allow research into its archives, and museums allow scholarly and provenance research
into their collections. At a conference in Stockholm last month, attended by delegates
from 46 nations, a declaration was agreed to calling for opening up archives containing
information on the Nazi-World War II era. In addition, following my request to Count
Lambsdorff, he has informed me that many of the companies involved in the German
slave/forced labor initiative have agreed to open their archives to legitimate historical
research from this era. Some have done so already. We are encouraging the broadest
participation of German companies in this effort at openness.
Education and Remembrance
I had the distinct honor of leading the U. S. delegation to The Stockholm
International Forum on the Holocaust, held January 26-28. The Stockholm Forum,
appropriately the first major conference of the new millennium, was an outstanding
success and built upon the previous Holocaust conferences held in London and
Washington. Twenty heads of state and government and delegations from 46 countries
attended. Only his prior commitment to deliver the State of Union address prevented
the President from attending.
10
Delegates committed their countries to promoting holocaust education and
remembrance, encouraging the study of the Holocaust in schools and universities, and
in taking all necessary steps to open relevant archives. As embodied in the "Stockholm
Declaration", these commitments, made by national political leaders, are
unprecedented, and in the words of holocaust survivors with whom I spoke,
"monumental" and "historic". Argentina, Bulgaria, Latvia, and Lithuania requested the
International Holocaust Education Task Force to begin liaison projects on teaching the
Holocaust with them, and, along with Ukraine, expressed interest in Task Force
membership.
The concept of the Stockholm Forum was the personal initiative of Swedish
Prime Minister Persson. In addition to the leadership and inspiration he gave to the
Forum, he also demonstrated exceptional political leadership in exploring the historical
truth of Sweden s wartime neutrality and in remembering the horrible crimes of the
Holocaust era.
I
The work of the International Holocaust Education Task Force continues. It is
translating the experience and expertise gained in teaching the Holocaust in countries
that are members of the Task Force to other countries, to help them develop Holocaust
education and remembrance in their societies. There has been a successful project in
Czechoslovakia aimed at training in the teaching of the Holocaust, and similar projects
have been requested by other countries.
To help support such activities, the Task Force last month established an
endowment fund, to be administered by the Swedish Ministry of Foreign Affairs. Our
government strongly supports this fund, and hopes to be able to announce a
contribution in the near future.
In the same Stockholm Declaration of which I spoke, the participating nations
committed their countries to promoting Holocaust education and remembrance, and
encouraging the study of the Holocaust in their schools and universities.
Persecutee Fund
The December 1997 London Conference on Nazi Gold established the Nazi
Persecutee Relief Fund to provide assistance to needy survivors of Nazi persecution.
Seventeen countries have pledged $61 million. Congress appropriated $25 million over
a three-year period. We allocated the first year's tranche of $4 million to the
Conference on Jewish Material Claims Against Germany to provide support to
survivors living in eastern and central Europe. We are now in the process of allocating
the second tranche of $10 million. I am suggesting that half go to the German
Foundation, $4.5 million to the Claims Conference and $500,000 to several Holocaust
education and research projects.
Insurance
11
You will hear from former Secretary of State Lawrence S. Eagleburger on the
progress of the International Commission on Holocaust Era Insurance Claims
(ICHEIC). The U.S. Government has strongly supported this international effort to
bring justice to victims of Nazi persecution and are pleased that the International
Commission is expected to announce the launch of its full-scale claims and outreach
program this month.
The ICHEIC claims process will use relaxed standards of proof in dealing with
outstanding claims from the Holocaust era and will ensure the opening of companies'
files, the cross-checking of names with Yad Vashem's records of Holocaust victims,
and further research into European archives to find names of potential claimants. The
International Commission has tested its claims procedures in a "fast-track" process for
existing claims previously submitted to regulators cooperating with the Commission.
Substantial progress has been made through this "fast-track" process and has resulted in
the payment of a number of existing claims to Holocaust survivors and their heirs.
Recent focus has been on the cooperation of the ICHEIC with the German
Foundation Initiative. Details of this important linkage are still being negotiated, but we
expect that the German Foundation will recognize the International Commission as the
exclusive mechanism for resolving insurance claims. As a result, all claims against
German insurance companies brought to the Foundation will be processed under the
International Commission's rules and procedures. In addition, the German Foundation
will have a humanitarian insurance fund that shall be passed through to the International
Commission, which shall have responsibility for administering such a fund.
In the most recent discussions of the International Commission's relationship
with the German Foundation, representatives of both European insurance companies
and Jewish organizations tabled proposals to pay outstanding Holocaust-era German
insurance claims, to create a humanitarian fund for nationalized policies, heirless
policies and policies against German companies no longer in existence, as well as for
social purposes as determined by the ICHEIC. Further discussions to consider these
proposals, as well as how to deal with the overall European insurance market, will take
place this month.
The U.S. Government has supported the International Commission on Holocaust
Era Insurance Claims since it began, and we believe it should be considered the
exclusive remedy for resolving insurance claims from the World War II era. As stated
in the MOU signed by the five ICHEIC member companies, those companies
cooperating with the Commission deserve" safe haven" from sanctions, subpoenas, and
hearings relative to the Holocaust period. I recently wrote to the state insurance
commissioners in Washington and California, emphasizing my strong support for the
international efforts to create a claims settlement process under the International
Commission and stressing that, in their legitimate concern for Holocaust survivors,
proposed actions in these states could undermine the work of the ICHEIC. Copies of
these letters are available through the State Department's Office of Holocaust Issues.
12
We strongly encourage all insurers that issued policies during the Holocaust era
-- including those in Germany, Austria, and the Netherlands, including Aegon -- to join
the International Commission and participate in fully in its claims, outreach, and
humanitarian programs. The ICHEIC is the best and most expeditious vehicle for
resolving insurance claims from this period, and membership in the International
Commission provides the only real way of both ensuring that valid claims are paid and
resolving international moral and humanitarian responsibilities, i.e., for heirless and
nationalized claims or companies no longer in existence.
Payments made by ICHEIC member companies to individual claimants, as well
as their contributions to the humanitarian fund, need to be negotiated within the
International Commission. These payments, if credited to the insurance companies,
would avoid double payments by those who participate in the International
Commission.
-30-
13
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Text as Prepared for Delivery
February 9, 2000
TREASURY SECRETARY LAWRENCE H. SUMMERS TESTIMONY
BEFORE THE HOUSE COMMITTEE ON WAYS & MEANS
Mr. Chairman, Mr. Rangel, Members of the Committee, it is a pleasure to speak with you today
about the President's FY 2001 budget. Let me start by thanking this Committee for your hard
work in helping bring about the enviable position in which we now find ourselves
At the outset of this Administration, the President established a three-pronged economic strategy
based on strong fiscal discipline, investing in people, and engaging in the international economy
Partly as a consequence of that strategy we have achieved the first back-to-back unified budget
surpluses in more than 40 years.
It is no coincidence that this month the US economy also achieved the longest expansion on
record This historic accomplishment is a tribute to the hard work and entrepreneurial qualities
of our workers, businesses and farmers But without the budget agreements of 1993 and 1997
between the President and Congress, the economic expansion would not have been as impressive
or as enduring
Last year's surplus of $124 billion was the largest in our history Even using conservative
assumptions, the budget will move still further into the black this year. By the end of September,
we expect that Federal debt held by the public will be $2.4 trillion less than was projected for
that date in 1992. This represents scarce national savings that have been freed up for private
sector investment in the productive economy in American businesses, workers and homes
In 1992, the Federal budget posted a record deficit of $290 billion - almost 5 percent of our
gross domestic product Since then we have achieved not only a unified budget surplus comprising both the operating budget and the Social Security budget - but also a small surplus in
our on-budget account In other words, for the first time since 1960, all of last year's Social
Security surplus was used to improve the government's balance sheet
This dramatic improvement in our tiscal situation reflects some hard choices Federal spending
has fallen below 19 percent ofGDP, a sharp drop from the 22 percent level that prevailed \\hen
L8-383
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the Administration came into office. And we have reduced the Federal civilian payroll by more
than one-sixth in that period, a reduction of377,000 full-time equivalent employees.
As a result of this discipline, we are now in a position to eliminate the debt held by the public by
2013, on a net basis. Paying down the remaining $3.6 trillion of Federal debt will help to
intensify the remarkably positive interaction that we have witnessed between the budget and the
economy over the last several years, whereby what was once a vicious cycle of more debt, higher
interest rates, a weaker economy and still more debt has been replaced with a virtuous circle of
declining debt, lower interest rates, and a stronger economy, in turn producing still less debt,
further downward pressure on interest rates, and stronger growth.
As a result, unemployment is at its lowest rate in 30 years, more than 20 million new jobs have
been created, productivity growth has increased even this far into the expansion, home
ownership rates are at an all-time high, and real wages are rising across the board including for
those at the bottom of the income ladder.
At the same time, our fiscal position also provides us with a rare opportunity to focus on crucial
national priorities. Let me set out the five basic objectives of this budget before discussing each
item in turn.
•
Reducing Federal debt to safeguard our economic expansion.
•
Meeting the needs of an aging society by laying the foundations for the secure retirement of
the baby boom generation.
•
Providing new incentives through the tax system to strengthen our communities and
encourage people to work and save more.
•
Pursuing well-targeted initiatives that invest in health, education and other national priorities.
•
Redoubling our commitment to opening markets and sustaining American leadership in order
to bolster international economic opportunities for America and strengthen our national
security in an uncertain world.
OVERVIEW OF THE FY2001 BUDGET
l.
Safeguarding Our Economy by Reducing Federal Debt
For decades, Treasury's discussions with its Borrowing Advisory Committee centered 011 how
we could finance growing budget deficits and whether the market would have the capacity to
absorb the huge volumes of government debt that we needed to sell. In this new era of rising
projected budget surpluses, our discussions now focus on how we can maintain liquidity in the
market while reducing the volume of debt outstanding.
2
According to OMB and Treasury projections, this challenge will become even more apparent in
the years ahead. Until now, debt reduction has been accomplished solely by retiring Treasury
securities when they fall due. But from now on, we will have another tool available to help us
manage the process of reducing the debt held by the public - namely, the ability to buy debt back
from the public that has not yet matured. Using this tool, we can both reduce debt and bolster
liquidity in our key "benchmark" issues. In the April to June quarter of this year, we expect that
Treasury's net borrowing will result in a record pay down of $152 billion worth of bonds. This
puts us on track to pay down more debt this year than in 1998 and 1999 combined.
As I have explained, under the President's proposals we will eliminate the debt held by the
public by 2013 on a net basis~ This will generate substantial further gains for the American
economy. Reducing Federal debt functions like a tax cut in two respects. First, it removes the
burden of interest and principal payments from the American taxpayer. Second, it maintains
downward pressure on interest rates, and thereby helps reduce payments on home mortgages, car
loans and other forms of consumer credit. We estimate that a I-percentage point reduction in
interest rates results in roughly a $250 billion reduction in mortgage interest expense over a
decade.
Debt reduction also creates fiscal space, widening the range of choices available to us, and
giving us greater capacity to respond to unforeseen problems. Today, the Federal Government is
spending more than $200 billion a year on interest payments that would be eliminated under our
proposals. The President proposes that resources not paid in interest be used to help ease the
burden of the Social Security and Medicare costs that will arise once the baby-boom generation
begins to retire.
II.
Meeting the Needs of an Aging Society
As we create more fiscal space through continued fiscal discipline, we face a fundamental choice
about how best to utilize that space. In this context, it is a vital objective of this budget to
improve our ability to shoulder this country's obligations to its seniors.
Let me focus on two central elements: strengthening Social Security and modernizing Medicare.
1.
Extending the solvency of Social Security to 2050 and beyond
It is a central tenet of our strategy that we will use all of the surpluses from Social Security to
improve the government's net tinancial position. Compared to an alternative scenario, in which
we merely balance the unified budget, the President's framework generates an increasing amount
of savings on interest that would otherwise be paid to holders of the debt Beginning in 2011, we
propose to transfer these interest savings into the Social Security trust funds. These transfers
would extend the solvency of the trust funds until 2050.
At the core of the President's proposal is a high level oftiscal discipline. In the Administration's
framework, every dollar added to the trust funds is "backed" by a dollar's worth of pay down of
the debt held by the public, and hence a dollar's worth of contribution to national savings.
These are serious steps, and constitute important preparation for the retirement of the baby boom
generation.
In line with private sector practice, we also propose to invest a sensible and measured proportion
of the trust funds in the equity market with the safeguard that such investment be limited to 15
percent of the value of the trust funds. This would further extend the solvency of the trust funds
to 2054.
2.
Modernizing Medicare
Since Medicare was launched 35 years ago, accessible and affordable health care has
dramatically improved the lives of Americans over the age of 65. But there is now a very broad
consensus that it is time to reform Medicare to meet the challenges of the new century.
By extending competition
The President put forward a detailed Medicare reform proposal last year, and he remains
committed to enacting comprehensive reform in this Congress. A key element of this proposal is
the move to full price and quality competition between traditional fee-for-service Medicare and
managed-care plans.
By letting consumers realize most of the cost savings from choosing more efficient health plans,
genuine competition will give all health plans a strong incentive to deliver the most value for
money. At the same time, our proposal would ensure that seniors who move to lower-cost plans
do so out of choice and not because of financial coercion. We look forward to working with the
Members of this Committee to achieve these important objectives.
By providing coverage for prescription drugs
A second central element of Medicare reform is a voluntary prescription drug benefit that is
affordable to all Medicare beneficiaries. Drug treatment has become an increasingly important
part of modern health care, and no one would design a Medicare program today that excluded
prescription drug coverage. Yet, roughly 3 out of 5 Medicare beneficiaries do not have
dependable drug coverage today, and a majority of the uninsured have incomes greater than 150
percent of poverty. The Administration's proposal would provide a 50 percent subsidy for all
seniors who choose to purchase the new Medicare drug benefit, with additional subsidies for
lower-income seniors. The budget also includes a reserve fund of $35 billion for 2006 through
20 I 0 to be used to design protections for beneficiaries with extremely high drug spending.
And hy eXlendillK the so/velley
(~lMedicare
A third aspect of responsible Medicare reform is the addition of new resources into the Hospital
Trust Fund. In the coming decades we expect to see a doubling in the number of Medicare
beneficiaries, and continued advances in the ability of modern medicine to improve the length
and quality of seniors' lives. We cannot meet the rising future demands on Medicare through
our structural reforms alone. But by enacting the combination of reforms and transfers in the
President's budget, the projected solvency of the Medicare program could be extended to 2025.
4
In.
Using Tax Cuts to Strengthen Our Communities
The President's budget creates room for prudent and targeted tax cuts totaling $250 billion on a
net basis over the next decade and $350 billion on a gross basis. These tax initiatives would
advance a broad range of national priorities, including i reducing poverty and stimulating the
creation of small businesses in our deprived communities; strengthening incentives to work and
to save; and making it easier for families to care for chronically ill relatives. The proposals
would also close unfair tax loopholes and eliminate tax shelters.
Let me highlight briefly some of the most important tax cut proposals in the President's budget.
Retirement Savings
Almost one in five elderly Americans has no income other than Social Security; two-thirds rely
on Social Security for half or more of their income. Half of all working Americans have no
pension coverage at all through their current job. It is very clear that steps need to be taken to
help Americans take greater responsibility for their own financial security in retirement, and new
incentives should be targeted to moderate and lower-income working families
The President proposes to address-this situation by creating a new, broad-based savings account,
Retirement Savings Accounts. These accounts would give 76 million lower- and middle-income
Americans the opportunity to build wealth and save for their retirement.
Under our plan, individuals could choose whether to participate, on a strictly voluntary basis,
either through a retirement plan sponsored by their employer, or through a special stand-alone
account at a financial institution The employer or the financial institution would match each
individual's contribution and then recover the cost of the match from the Federal government in
the form of a tax credit.
Individuals could contribute up to $1,000 per year. Low-income individuals would qualify for a
two-for-one match on the first $100 contributed, and a dollar-for-dollar match on additional
contributions. Higher income participants could qualify for a 20-percent match, in addition to
the tax incentives that apply to pension or IRA contributions. A person who participated in this
savings program for his or her entire career could accumulate well over two hundred thousand
dollars for his or her retirement.
In addition, the President proposes to make small employers eligible for new tax credits to help
them set up or improve their retirement plans. Related proposals include measures to increase
pension security and pOliability, and to improve disclosure to workers. Overall, the cost of these
initiatives to expand retirement savings would total $77 billion over ten years.
Helping Worki17g Families
The Earned Income Tax Credit has proved one of the most effective means of rewarding work
and lifting people out ofpoveliy. In 1998 alone, the EITC raised the income of4.3 million
5
working people above the poverty level. But many families still remain in poverty. The
President proposes to help more families work their way out of poverty by increasing the Earned
Income Tax Credit for the larger families that are most apt to be poor and relieving the marriage
penalty under the EITe. The increases in the EITC would total $24 billion over the next ten
years.
Under the budget plan we would also reduce the marriage tax penalty, strengthen work
incentives, and cut taxes for the 70 percent offamilies who claim the standard deduction. To
address the marriage penalty in a targeted way, the President proposes to make the standard
deduction for two-earner married couples twice the standard deduction for singles. In 2005,
when it is fully phased in, this proposal would raise the standard deduction for two-earner
married couples by $2,150. Starting in 2005, the proposal would also simplify and reduce taxes
for middle income taxpayers by increasing the standard deduction for single-earner married
couples by $500 and for singles by $250. The proposal would make the child and dependent
care tax credit refundable and raise the maximum credit rate to 50 percent.
Revitalizing ol/r Commllnities.
By expanding the New Markets tax credit the budget would help spur $15 billion in new
investment for businesses in inner cities and poor rural areas. The budget also proposes to extend
and expand incentives for businesses to invest in empowerment zones.
Hea/th
Last year the President proposed a tax credit that compensated families for the cost of looking
after chronically ill relatives. But at $1,000, the credit was insufficient compensation for the
rising burden that these families face. The President's FY2001 proposal triples the credit to
$3,000. We also propose to provide tax credits for workers between jobs who purchase COBRA
coverage from their old employers.
Education
The budget proposes to save taxpayers $30 billion over ten years through the College
Opportunity Tax Cut. When fully phased in, this new tax incentive would give families the
option of taking a tax deduction or claiming a 28 percent credit for up to $10,000 of higher
education costs. This would provide up to $2,800 in tax relief to millions offamilies who are
now struggling to afTord the costs of post-secondary education. We also put forward a tax credit
to help state and local governments build and renovate their schools
Tax Simp/tfica/ion and Fairness
Although the Alternative Minimum Tax was originally intended to ensure that high-income
taxpayers could not use tax breaks to avoid income tax altogether, we recognize that it is
increasingly eating into the take-home pay of middle-income taxpayers, especially those with
large families. We propose to redress this problem by allowing taxpayers to deduct all of their
exemptions for dependents against AMT. By 2010 when it is fully phased-in, this change would
6
halve the number of taxpayers affected by the AMT.
CO/porale Shelters alld Tax Havens
The proliferation of corporate tax shelters presents a growing and unacceptable level of abusive
tax avoidance that reduces government receipts and consequently raises the tax burden on
compliant taxpayers. Corporate tax shelters breed disrespect for the tax system - both by those
who participate in the tax shelter market and by those who perceive unfairness. A perception
that well-advised corporations can and do avoid their legal tax liabilities by engaging in these
tax-engineered transactions may cause a "race to the bottom."
The President's FY 2001 Budget again contains a comprehensive approach to addressing this
problem. Thisapproach is intended to change the dynamics on both the supply and demand side
of this "market," making it a less attractive one for all participants - "merchants" of abusive tax
shelters, their customers, and those who facilitate these tax-engineered transactions. The main
elements of the legislation include: requirements aimed at substantially improving the disclosure
of corporate tax shelter activities; provisions to raise the penalty where there is substantial
understatement of tax owed; and the codification of the economic substance doctrine. Enactment
of corporate tax shelter legislation, combined with the efforts of the restructured IRS, will go a
long way towards deterring abusive transactions before they occur, and uncover and stop these
transactions when they do take place.
Another area that raises similar concerns is the growing use of tax havens. These jurisdictions,
through strict bank secrecy and other means, facilitate tax avoidance and evasion. Curbing this
harmful tax competition should help businesses to compete on a level playing field and
encourage investment growth and jobs. Our budget includes several provisions intended to
reduce the attractiveness of tax havens and to increase access to information about activities in
tax havens.
Other Provisions
There are a number of other important proposals that I would like to mention. These include:
incentives to increase philanthropic donations; tax credits aimed at bridging the "digital divide"
by encouraging investment in technology in deprived communities, and measures to help reduce
pollution and emissions of greenhouse gases.
IV.
Investing in Health, Education and Other National Priorities
The spending proposals in the President's budget are based on two fundamental principles.
The tirst principle is that we use realistic projections of the level of spending needed to maintain
core government functions. To meet this requirement, we begin with a "current services"
baseline under which discretionary spending is held constant on an inflation-adjusted basis
Our budget policy would maintain defense spending at this baseline and reduce non-defense
discretionary spending slightly below it, meaning that existing domestic programs would need to
7
be trimmed by more than enough to finance new initiatives. In 1999, non-defense discretionary
spending was a smaller share of GDP than at any point in at least 40 years; under our policy, it
would represent a yet smaller share over the coming decade. Moreover, total outlays as a
proportion of GDP would decline in 2001 and they would continue to decline on this basis for
the rest of the decade.
The second fundamental principle of the President's spending proposals is to focus on critical
national priorities, including health care, education, law enforcement, and technology. By
focusing our initiatives in these and other key areas, we can meet people's needs in a fiscally
disciplined way.
Let me briefly summarize our proposals in these four areas.
Health Care
The President has proposed a bold initiative to reverse the disturbing increase in the number of
Americans without health insurance. Through the combination of targeted spending proposals
and tax incentives, we can expand health coverage to millions of uninsured Americans.
A central part of this initiative is an expansion of the State Children's Health Insurance Program,
known as S-CHIP, which was introduced two years ago with broad bipartisan support. In the
FY2001 budget we would build on the success of this program by extending it to cover the
parents of eligible children, most of whom are uninsured. Another important element of this
initiative is providing a Medicare buy-in option for people close to the Medicare eligibility age.
This year, to make this option more affordable, our budget includes a tax credit to offset some of
the premium.
Education
Education is another key priority in the President's budget, as has been true since the beginning
of this Administration. Fornext year we are proposing an additional $1 billion for the Head
Start program and almost $150 million for Early Head Start, which would put us within reach of
serving one million children by 2002. We are also proposing sufficient funding to take us
almost halfway to the President's goal of hiring 100,000 new teachers in order to reduce class
sizes.
Law EI!forcemellf
Turning to law enforcement, the budget includes significant new resources to enforce our
nation's gun laws. Last Friday we released a report from the Bureau of Alcohol, Tobacco and
Firearms showing that 1 percent of gun dealers account for well over half of all crime guns
traced last year. The information from gun tracing will help us target our enforcement efforts,
but we also need more agents and inspectors at the ATF and more prosecutors - and our budget
will provide them.
8
At the same time we are requesting funds that would pay for recruiting and training of 50,000
new police officers, and funds that would strengthen the National Money Laundering Strategy.
Money laundering is a growing international problem, and we need this budget allocation to
strengthen u.S. leadership in fighting this problem.
Technology and the Environment
Another important national priority must be investment in the science and technology that will
spur economic growth and improve people's lives in the 21 st century. The President's budget
includes a nearly $3 billion increase in crucial investments, i!lcluding a $1 billion increase in
funding for biomedical research for the National Institutes of Health and a rise in funding for the
National Science Foundation that is double the previous largest increase. These investments will
enable Americans to continue to lead the world in many areas of science and technology,
including biomedical research, nano-technology, and clean energy.
The budget also contains $42 billion for high-priority environmental and natural resource
programs, an increase of $4 billion over last year's enacted level. This includes $1.4 billion in
discretionary funding for the Land's Legacy initiative to expand and protect our open spaces, an
additional $1.3 billion to support farm conservation, and an additional $770 million to help
combat global climate change.
v.
American Leadership in the World
As we enter this new century, it is crucial that we continue to learn the lessons of the last one by
working to build an ever-widening circle of more prosperous and more open international
economies. This enables us to enjoy the benefits of peace and the spread of our core values.
And we benefit more directly in the millions of high-paying jobs that exports create and the
competition and innovation that openness to imports can promote. In short, globalization is not a
zero sum game but a "win-win proposition" for America and its trading partners.
Let me outline several areas where we can strengthen this process while also enhancing our
national security.
China
One of the President's top priorities this year is to seek Congressional approval for the agreement
we negotiated to bring China into the World Trade Organization, by passing Permanent Normal
Trading Relations with China as soon as possible. I firmly believe that China's entry into the
WTO , under the terms of the trade aareement
that we reached last November, is in our economic
b
and national security interest.
•
First, this is a good deal for American workers, farmers and businesses since the
concessions all run one way, in our favor.
9
•
Second, by integrating China into the rules-based world trading system, we will help
promote reform within China and reduce the security threat that an isolated China can pose
to America and the rest of the world.
Mr. Chairman, we will need your support to prevail, and look forward to working with you on
this issue in the weeks and months ahead. We also look forward to working with you to
implement the Caribbean Basin, African Trade, and Balkans Trade Initiatives.
Multilateral Development Banks
Obtaining adequate funding for U. S. participation in the MDBs remains a Treasury priority.
Every dollar we contribute to the multilateral development banks leverages more than $45 in
official lending to countries where more than three-quarters of the world's people live. These
programs are the most effective tools we have for investing in the markets of tomorrow. This
budget's request for $1.35 billion is $40 million less than we requested last year, yet it would
fully cover our annual obligations to the MDBs as well as paying down some of our arrears to a
global system that we were instrumental in creating.
Highly Indebted Poor Countries initiative
I would like to thank Congress for your efforts in the FY2000 budget to provide broader, deeper
and faster debt relief to the world's poorest and most heavily indebted nations. As a result,
progress has been made. Writing off debts owed by countries that will never be able to repay
them is sound financial accounting. It is also a moral imperative at a time when a new
generation of African leaders is trying to open up their economies.
The President is asking for an additional $210 million this year and $600 million over the next
three years to support multilateral and bilateral debt relief for countries under the Highly
Indebted Poor Countries initiative. In doing so he is asking Congress to finish the enormously
important work we began last fall.
Vaccines
The budget also contains requests that would help fulfill the President's Millennium Initiative for
vaccines. By allocating $50 million to the Global Alliance for Vaccines and Immunization, we
could save many children's lives and at the same time help protect the health of American
citizens. The President has also proposed a new tax credit that would help stimulate
development of vaccines for malaria, HI V-AIDS and tuberculosis.
VI.
Concluding Remal'ks
I began my remarks today by focusing on the link between fiscal discipline and the performance
of our economy over the last seven years. Having worked hard to help bring us to the
remarkable economic moment that we are now enjoying, the Members of this Committee know
well the value to our economy and our country of further paying down the national debt held by
10
the public. If we can act to reduce the debts we bequeath to our children, while continuing to
fund our obligations to seniors and pursuing the vital purpose of making the economy work for
all our people and communities, then we can maximize the extraordinary opportunities with
which we are now presented. I look forward to working together with this Committee and others
in Congress to turn these high-class challenges into even higher-class solutions. Thank you. I
would now be happy to respond to any questions that you might have.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBUCAFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IM1\1EDIA TE RELEASE
February 9, 2000
STATEMENT BY TREASURY DEPUTY SECRETARY
STUART E. EIZENSTAT
The entry of the far-right Freedom Party into a coalition government with one of
Austria's mainstream parties, the conservative People's Party, has caused great concern
both here and in Europe. The fact that statements of leaders of the Freedom Party have
in the past failed to condemn intolerance and extremism, and attempted to explain away
the Holocaust, understandably creates great concern. However, in the preamble to the
coalition agreement, signed by both parties, the new Austrian government has promised
to uphold tolerance and human rights and to condemn discrimination.
Our friends and we will be watching Austria closely to ensure that the
government lives up to the preamble of the coalition agreement. In doing so, we will
look at what the new government does, as well as what it says. One important
benchmark in this regard is how the new government will deal with unresolved
Holocaust issues.
In this regard, I am pleased to report two positive developments:
First, Austrian Chancellor Schuessel announced today that, in light of an interim
report of the Austrian Historians Commission, he plans to seek prompt compensation
for former forced laborers. In addition, he announced the appointment of the former
head of the Austrian central bank, Maria Schaumayer, as the head of a new office that
will address forced and slave labor compensation.
Second, our first discussions with Austrian officials in the last few days on
proposals to address Holocaust issues were very positive.
Secretary Albright and our Ambassador in Vienna discussed our concerns with
the new government, and I have already had discussions with Austrian leaders and
officials on this matter. In Washington on February 7, I met with Ambassador Moser,
Austria's Ambassador here. During our meeting, we had an extensive conference call
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with a senior Foreign Ministry official in Vienna. We discussed the new government's
commitments to tolerance and to addressing the difficult and painful questions about
Austria's Nazi past.
I am pleased to report that my discussions have been very reassuring. Austrian
officials have since transmitted to me a position paper that provides a road map for
addressing Holocaust-related issues over the next several months. Let me cite the
provisions of this paper, and I hope you will allow this document to be submitted into
the record of this hearing.
Austrian Conmlitments on Holocaust-Related Issues
•
The Austrian Government will support open access to archives in federal agencies
and advocate a similar policy among non-governmental entities.
•
Austria's Historians Commission will continue to submit interim reports on all
aspects of Holocaust related issues. In this regard, the Government has taken note
of the interest of survivor organizations for the adoption of interim measures, which
would benefit aging victims, particularly those who live in difficult financial
circumstances.
•
The Austrian Government will encourage Austrian insurance companies to
participate in the work of the International Commission on Holocaust Era Insurance
Claims, chaired by former Secretary of State Lawrence Eagleburger. In this
regard, the Austrian Government looks forward to the results of the research effort
that Austrian insurance companies are conducting into complex historical and legal
questions.
•
The Austrian authorities will seek to improve the practical application of the 1998
Art Restitution Law, and encourage similar restitution steps among local and
regional governmental bodies.
•
Finally, the position paper refers to the Chancellor's commitment regarding forced
labor compensation and the appointment of a special representative to lead the
Austrian team in the talks and negotiations with the other parties.
Thus, the commitments outlined in the position paper constitute a good basis for the
new government to address Holocaust-related issues and confront its Nazi past. I plan
to have a follow-up discussion with Austrian officials very shortly, and I will work
closely with the Austrian government and survivor groups on this critical issue.
-30-
2
D EPA R T
~1
E N T
0 F
THE
T REA SUR Y
1789
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
EMBARGOED UNlTL 9:00 A.M. EDT
Text as prepared for Delivery
February 10, 2000
TREASURYSECRETARYSU~RS
SENATE COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY
Mr. Chairman, Senator Harkin, Members of this Committee, thank you for giving me the
opportunity to discuss the report of the President's Working Group on Financial Markets on
Over-the-Counter Derivatives Markets and the Commodity Exchange Act. The issues covered in
the report have been a focus of this Committee, and on behalf of the members of the Working
Group, we thank you for the leadership you have demonstrated on these important issues.
The over-the-counter derivatives market is an important component of the American
capital markets and a powerful symbol of the kind of innovation and technology that has made
the American financial system as strong as it is today. Yet the continued development of this
market will depend a great deal on the development of a clear and effective regulatory
environment.
The report of the President's Working Group contains the unanimous recommendations
of a group that included, among others, the Chairmen of the Federal Reserve, the Commodity
Futures Trading Commission and the Securities and Exchange Commission. It recommends the
enactment of legislation to reform the legal framework affecting the aTe derivatives market.
Taken together, these changes would provide legal certainty, contribute to the reduction of
systemic risk, protect retail customers, stimulate the competitiveness of America's financial
markets, and thereby help to create jobs and lower costs for American consumers and businesses.
Let me divide my remarks into three parts:
•
First, the growing importance of aTC derivatives in the US economy.
•
Second the objectives that guided Members of the Working Group when deciding on its
recommendations and the importance of enacting those recommendations within the
shortest reasonable time frame.
•
Third, the six recommendations that the Working Group has produced.
LHS-385
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l.
The Role of OTC Derivatives in the US Economy.
Mr. Chairman, the financial sector is the central nervous system of the American
economy. As our economy and our financial markets have evolved over the past two decades, so
too have the needs of the financial sector. Most notably, in an era of globalization. volatility of
interest rates, increased securitization and the growth of the bond markets relative to the
traditional loan markets, businesses and financial institutions have needed more and better tools
for managing risk.
In that sense, the over-the-counter derivatives market has grown directly in response to
the needs of the private sector. An OTC derivative is an instrument that allows a party seeking to
reduce its risk exposure to transfer that exposure to a counterparty that wants and may be in a
better position to assume the risk. This is a potent development that has significantly enhanced
the ability of businesses to manage their risk profiles, to compete more effectively in the global
marketplace, and to deliver more efficiently and at lower cost a wide range of services and
products to the American consumer.
Because of these rising demands, the notional value of global OTC derivatives has risen
more than five-fold over the past decade, to more than $80 trillion according to estimates
produced by the Bank for International Settlements.
Operating within a proper and appropriate framework of legal certainty, the benefits to
the American economy of OTC derivatives would continue to grow. For example:
•
By helping businesses and financial institutions to hedge their risks more efficiently, OTC
derivatives enable them to pass on the benefits of lower product costs to American
consumers and businesses.
•
By allowing for the transfer of unwanted risk, OTC derivatives promote the more efficient
allocation of capital across the economy, further increasing American productivity.
•
By providing better pricing information, OTe derivatives can help promote greater efficiency
and liquidity of the underlying cash markets that feeds into a stronger economy for all
Americans.
•
And, by enabling more sophisticated management of assets, including mortgages, consumer
loans and corporate debt, OTe derivatives can help lower mortgage payments, Insurance
premiums, and other financing costs for American consumers and businesses.
Thus, OTC derivatives have the potential to bring important benefits to our economy.
The goal of the recommendations of the President's Working Group is to ensure that these
benefits can be realized. At the same time, we need to recall that the emergence of the OTC
derivatives market has come during an era of unprecedented economic strength and prosperity.
It is to be expected that in times of distress some participants in this market, as in other
financial markets, will be adversely affected. What needs to be protected are not individual
2
institutions, but the system as a whole. The challenge is to strike the appropriate balance between
the creation of a regulatory regime of legal certainty that allows the economy to realize the
benefits of OTC derivatives while still providing appropriate protection for retail customers and
the system. In our judgement, the best protection against systemic risk is market discipline.
Now let me tum to the more specific goals of the Working Group in producing the report.
II.
Objectives of the Working Group's Report
Mr. Chairman, the members the President's Working Group believe that a strengthened
OTC derivatives market can contribute to the greater efficiency of the US economy. They further
believe that a failure to act in this area would risk a situation in which the existing legal
framework for our financial markets would seriously lag the development of the markets
themselves.
In the absence of an updated legal and regulatory environment, needless systemic risk
might jeopardize the broader vitality of the American capital markets; innovation might be
stifled by the absence of legal certainty; and American consumers might be deprived of the
benefits that a more appropriate legal framework would deliver. We also risk an erosion of the
competitiveness of American financial markets, with an increasing amount of business moving
offshore to jurisdictions where the regulatory framework has kept up with the pace of change.
It was with these priorities in mind, Mr. Chairman, that last year you requested the
Working Group to study the OTC derivatives market and recommend what changes were
required. The Working Group worked on the assumption that legislative action would be
required within a timeframe appropriate to the growing importance of the aTe derivatives
market - and taking into account this market's potential contribution to the efficient functioning
of the American financial sector and to that of the economy as a whole.
Accordingly, the Working Group sought to achieve four objectives:
•
To reduce systemic risk in the OTC derivatives market by removing legal impediments to
the development of clearing systems and ensuring that those systems are appropriately
regulated.
•
To promote innovation in the OTC derivatives market by providing legal certainty for OTC
derivatives and electronic trading systems. This would strengthen the overall legal
framework governing the OTC derivatives market that, in turn, would stimulate greater
competition, transparency, liquidity, and efficiency and deliver stronger benefits to US
consumers and businesses.
•
To protect retail customers by ensuring that appropriate regulations are in place to deter
unfair practices in all markets in which they participate and by closing existing legal
loopholes that allow unregulated entities to pursue such unfair practices.
3
•
1Il.
To maintain US competitiveness by providing a modernized framework that will lead those
engaged in the financial services industry to continue the operations of their businesses in the
United States. and thereby assuring the continued leadership of American capital markets.
The Recommendations of the President's Working Group.
Before outlining the Working Group's recommendations in greater detail, it bears
emphasis that the Working Group did not reach its conclusions lightly. In view of the technical
nature and history of many of the issues considered, the unanimous nature of our
recommendations is very significant. It is our firm belief that the situation calls for legislation at
the soonest appropriate opportunity. I will now tum to the recommendations.
1. Create an exclusionfrom the CEAfor most swaps agreements.
The Working Group is recommending that an exclusion for certain swaps between
eligible counterparties be codified by Congress in the Commodities Exchange Act. This
exclusion would be similar to the CFTC's 1993 rule exempting swaps. It would not. however,
extend to agreements involving non-financial commodities with finite supplies that could
potentially be subject to manipulation, such as agricultural commodities. The CFTC would retain
exemptive authority for these types of swaps including swaps related to agricultural
commodities. The exclusion would cover equity swaps, a category of swaps where there is also
some amount of legal uncertainty.
Mr. Chairman., this recommendation would provide legal certainty by excluding interest
rate and equity swap agreements from the scope of the CEA, and remove doubts about the
enforceability of these contracts in the courts. It is clear to the Working Group that this exclusion
is the best approach to assure that the OTC derivatives market can develop within the kind of
innovative and legally stable environment on which the continued competitiveness of our
financial markets will depend. The exclusion would also contribute to the permanent clarification
of the status of aTC derivatives that is essential for the integrity of the market.
The current legal uncertainty concerning whether swaps are subject to the CEA has its
roots in the 1974 legislation that created the CFTC. That legislation significantly increased the
scope of the CEA by broadening the definition of what constitutes a "commodity" As a result,
most interest rates, for example, are now considered a "commodity" under the CEA and
exchange-traded interest rate futures are thus regulated by the CFTC. We do not believe that offexchange transactions that are tied to interest rates are themselves futures contracts and therefore
should not be subject to CFTC regulation. To some market participants, however there has been
uncertainty on this critical question.
The Working Group members perceive no compelling evidence of problems involving
the swaps that we are recommending for exclusion that would warrant regulation under the CEA.
Rather, we believe that an exclusion is appropriate because the participants in such transactions
are generally capable of making informed investment decisions and do not require the additional
protections of the CEA. We further believe that the legal certainty provided by statute will be
more durable and reliable than that provided by regulations, which are more easily changed.
4
The CEA is designed primarily to address issues of fraud, manipulation, and price
discovery. Sophisticated participants can protect themselves against fraud or can seek legal
redress if they are defrauded. There is little evidence to suggest that markets for financial aTC
derivatives are readily susceptible to manipulation. And, in the case of derivatives based on
securities, existing securities laws would in any event be applicable to any attempts to
manipulate security prices. In addition, financial aTC derivatives do not yet serve a primary
price discovery function. And the activities of most aTC derivative dealers are already subject to
direct or indirect federal oversight.
2. Create an Exclusion for Electronic Trading Systems.
This recommendation would create an exclusion from the CEA for electronic trading
systems that limit participation to sophisticated parties trading for their own accounts. Again, the
exclusion would not apply to trading systems involving non-financial commodities with a finite
supply such as agricultural commodities.
By confining the exclusion to trading systems involving only qualified participants, this
recommendation is designed to protect retail customers without unnecessarily obstructing
innovation where regulation is not justified. Electronic trading systems promote transparency and
efficiency and thus reduce the cost of trading interest rate and other types of swap contracts. In
that sense the exclusion would strengthen the competitiveness of the American aTC derivatives
market.
At the same time, while agreeing that an exclusion from the CEA is appropriate, the
Working Group has undertaken to monitor the development of electronic trading systems for
OTe derivatives going forward, with a view to evaluating whether limited regulation of these
systems to enhance market transparency and price discovery should become appropriate at a later
date.
3. Permit the Use ofAppropriately Regulated Clearing Systems for OTC derivatives.
The third recommendation of the report would permit the creation of clearing systems for
ore derivatives while requiring that such systems be subject to appropriate regulation. This
proposal is designed to reduce systemic risk by encouraging the creation of appropriately
regulated clearing systems for aTC derivatives.
Well-designed clearinghouses can contribute significantly to reducing systemic risk: first,
by diminishing the likelihood that the failure of a single market participant can have a
disproportionate effect on the market as a whole; and second, by facilitating the offsetting and
netting of contract obligations. A reduction in systemic risk would in turn enhance the stability of
our financial system and increase its competitive edge. Nonetheless, in view of the concentration
?frisk within these entities, the Working Group believes that regulation of such clearing systems
IS appropriate.
5
4. Clarify the Original Intent of the Treasury Amendment
This recommendation would clarify the Treasury Amendment in two ways. First it
would enable the CFTC to address the problems associated with foreign currency "bucket shops"
by codifying the CFTC's authority to regulate such entities and to prosecute such entities when
they attempt to defraud retail customers. This would support the CFTC's objective of regulating
entities that allegedly defraud retail customers, thus strengthening protection for small investors.
Second, the recommendation would preserve CFTC authority over Treasury Amendment
transactions on "organized exchanges" while excluding most other transactions in Treasury
Amendment products from the scope of the CEA.
The Treasury Amendment was originally designed primarily to exclude trading of OTC
derivatives tied to underlying government securities and foreign exchange from the regulatory
scope of the CEA. The exclusion, as currently worded, applies to all such contracts unless the
transaction involved the sale of futures on a "board of trade." But uncertainty persists about the
precise meaning of what constitutes a "board of trade" and whether it could be interpreted to
encompass entities such as investment and commercial banks.
As a result, the Working Group recommends that the tenn "board of trade" be replaced
by the phrase "organized exchange" to provide legal certainty for OTC instruments excluded
under the Treasury Amendment and that an appropriate statutory definition of "organized
exchange" is provided.
5 & 6. Clarify the Exempt Status ofHybrid Instruments.
The final two recommendations are highly technical in nature and designed to enhance
legal certainty by clarifying that hybrid instruments that reference securities can be exempted
from the CEA. The recommendations also resolve potential jurisdictional disputes between the
CFTC and other regulators with respect to such instruments by limiting the exclusive jurisdiction
clause of the CEA.
IV.
Conclusion.
Mr. Chairman, the President's Working Group has presented the Congress with a set of
unanimous recommendations pertaining to the growing and increasingly important market for
ore derivatives in the United States. We believe that these recommendations, taken together,
would reduce systemic risk, promote innovation, competition, efficiency and transparency in our
financial markets; would protect retail customers, and would maintain American leadership in
orc derivatives markets.
In this context, we believe that legislation is necessary. We suggest a paradigm for that
legislation that recognizes that with the appropriate legal framework, the OTC derivatives market
can make a valuable contribution to the efficient functioning of the American capital markets,
with benefits for businesses and consumers. Under the existing regulatory framework, as the
report makes clear, there is a risk that these benefits will not be realized.
6
The Working Group's report focuses on OTC derivatives. There are also important issues
of regulatory relief on exchange-traded derivatives. The Working Group supports the CFTC's
ongoing efforts to explore regulatory relief in this area. I look forward to working with them and
other members of the Working Group to assure that our markets remain the most competitive
and innovative in the world, while assuring the integrity of these markets is protected for all
participants. Thank you. I would now welcome any questions that you may have.
-30-
12611
ff'tJlt-. Bepm'tment Of Treasury
DEPARTlVlRNT
OF
06/02100 03:54 PM
THE
17Rq
Page 9 of 62
TREASURY
NEWS
oFF1CE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE. N.W•• WASlDNGTON, D.C. • 20220 • (202) 622-2960
FOR Il\;IMEDIATE RELEASE
June 21, 1995
Contact:
Jon Murchinson
(202) 622-29hO
RUBIN APPOINTS ADVISORY COMMISSION ON FINANCIAL SERVICES
Treasury Secretary RobertE. Rubin, Wednesday, appointed 13 members of the
Treasury Department's Advisory Commission on Financial Services, which will advise
him during the course of a study of tbe American financial system.
The Interstate Banking and Branching Efficiency Act of 1994, which was signed
into law by President Clinton at the Treasury Department, directs the Secretary of the
Treasury to conduct a study of the American financial servi(;es system. The Secretary
was charged by the Act with appointing a commission to consult with during the course
of the study. The commission consists of a broad representation of providers of and
users of financial services. Secretary Rubin will convene the commission's first meeting
on July 31, 1995.
''Trcasury's examination of the American financial system will make a valuable
contribution in order to ensure that the system will continue to meet the needs of its
users into the next century," Secretary Rubin said. "The Advisory Commission on
Financial Services will play an important role in helping to frame the major policy
challenges in the financial marketplace over the next ten years."
The Treasury study will examine the strengths and weaknesses of the U.S.
financial system in meeting the needs of the system's users_ A final report and
recommendations are due to Congress by December 29, 1995. The report will set forth
a broad vision for the future of financial services a:i1d will focus on the needs of the users
of those services.
A list of the commission. members is attached.
-30RR-386
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-
j222611
~~rtment
Of Treasury
06/02/00 03:54 PM
Page 10 of 62
Department of the Treasury
Advisory Commission on Financial Services
Stephen J. BrQbeck, Executive Director, Consumer Federation of America
John G. Heimann, Glubal Financial Institutions Group Chairman, Merrill Lynch & Co.
Beth Hodges, Executive Vice President, First National Bank of Panhandle, Texas
Mary Agnes Houghton, President, ShoreBank Corporation
Glenn~.
!futchins, General Partner, Blackstone Group
Orin S. Kramer, General Partner, Kramer Spelman, L.P.
Donald A Moore Jr., Managing Director, Morgan Stanley & Co.
Clyde W. Ostler, Vice Chairman, Wells Fargo Bank
Robert C. Pozen. General Counsel and Managing Director, Fidelity Investments
Franklin D. Raines, Vice Chairman, Federal National Mortgage Association
Rachel F. Rohbins, Managing Director and Deputy General Counsel,
J.P. Morgan & Co.
Arthur F. Ryan, Chairman and CEO, The Prudential Insurance Company of America
John F. Sandner, Chairman of the Board, Chicago Mercantile Exchange
June 21, 1995
DEPARTMENT
OF
TREASURY
THE
TREASURY
NEWS
OFFICE OF PUULlC AFJt'AIRS -1500 PENNSYLVANIA AVENUE. N.W. _ WASHINGTON. D.C.- 20220 _ (202) 622·2960
~GOED
~ebruary
UNTIL 2:30 P.M.
10, 2000
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction two series of Treasury bills totaling
$17,000 million to refund $17,363 million of publicly held
lecurities maturing February 17, 2000, and to pay down about $363 million.
~proximately
In addition to the public holdings, Federal Reserve Banks for their own
.ccounts hold $8,232 million of the maturing bills, which may be refunded at
he highest discount rate of accepted competitive tenders. Amounts issued to
hese accounts will be in addition to the offering amount.
The maturing bills held by the public include $2,594 million held by
ederal Reserve Banks as agents for foreign and international monetary
uthorities, which may be refunded within the offering amount at the highest
iscount rate of accepted competitive tenders. Additional amounts may be
ssued for such accounts if the aggregate amount of new bids exceeds the
ggregate amount of maturing bills.
Treasur.YDirect customers requested that we reinvest their maturing holdngs of approximately $968 million into the 13-week bill and $746 million into
he 26-week bill.
This offering of Treasury securities is governed by the terms and conitions set forth in the Uniform Offering Circular for the Sale and Issue of
srketable Book-Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as
lended) •
Details about each of the new securities are given in the attached offer19 highlights.
000
:tachment
o:...press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED FEBRUARY 17, 2000
February 10, 2000
Offering Amount •••••••••...••••••••••••• $9,000 million
$8,000 million
Description of Offering:
Term and type of security •••••.•••••••••
CUSIP number ••••••.••••••.••••••••••••••
Auction date ••••••••••••••••••••••••••••
Issue date ••••••.••.•.••••.••.••••••••••
Maturity date •••••••••••••••••••••••••••
Original issue date •••••••••••••••••••••
Currently outstanding •••••••••••••••••••
Minimum bid ~ount and multiples ••••••••
182-day bill
912795 EE 7
February 14, 2000
February 17, 2000
August 17, 2000
August 19, 1999
$15,048 million
$1,000
91-day bill
912795 DW 8
February 14, 2000
February 17, 2000
May 18, 2000
November 18, 1999
$11,962 million
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids ••••••••• Accepted in full up to $1,000,000 at the highest 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 ~ount, 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.
Maximum Recognized Bid
at a Single Rate •••••••••••• 35% of public offering
Maximum Award ••••••••••••••••••• 35% of public offering
Receipt of Tenders:
Noncompetitive tenders •••.•• Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders •..•••••• Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Te~s: By charge to a funds account at a Federal Reserve Bank on issue date, or payment
of full par amount with tender.
Treasu~Direct customers can use the Pay Direct feature which
authorizes a charge to their account of record at their financial institution 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
CONTACT:
IMMEDIATE RELEASE
Jruary 10, 2000
t
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 30-1/4-YEAR BONDS
~rest
Rate:
Issue Date:
Dated Date:
Maturity Date:
6 1/4%
:ies:
HP No:
912810FM5
UPS Minimum: $32,000
High Yield:
Price:
6.340%
February 15, 2000
15, 1999
May 15, 2030
Novembe~
98.771
All noncompetitive and successful competitive bidders were awarded
:urities at the high yield.
Tenders at the high yield were
.otted 51%. All tenders at lower yields were accepted in full.
Accrued interest of $ 15.79670 per $1,000 must be paid for the period
1999 to February 15, 2000.
)m November 15,
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
$
Competitive
Noncompe tit i ve
13,223,205
33,519
$
10,001,239 1/
13,256,724
PUBLIC SUBTOTAL
1,170,000
100,000
1,170,000
100,000
Federal Reserve
Foreign Official Inst.
9,967,720
33,519
-----------------
$
TOTAL
14,526,724
$
11,271,239
Median yield
6.207%:
50% of the amount of accepted competiti.-Ie te!lde~s
tendered at or below that rate.
Low yield
6.100%:
5% of the amount
accepted competitive tenders was tendered at or below that ~ate.
i-to-cover Ratio
= 13,256,724 / 10,001,239 = 1.33
Awards to TREASURY DIRECT
3-388
= $23,592,000
NATIONAL CHURCH ARSON TASK FORCE
P. O. Box 657Y8
WashltlglCllt, D.C. 20530
FOR IMMEDIATE RELEASE
THURSDAY, FEBRUARY 10, 2000
CR
DO] CONTACT (202) 353·8584
TREASURY CONTACT (202) 622-2960
NA,IIONAL CHUR,CH ARSON TASK FORCE ISSUES THJRD REPORT
Arsons at Houses of Worship Continues to Decline
WASHINGTON, D.C. - The National Church Arson Task Force issued its third
report to the President today, highlighting statistics that indicate the number of arsons at
houses of worship continues to decline. Task Force officials contribute their success, in part,
to continued vigilance, well-publicized arrests and ongoing prevention effortS.
The Task Force's arrest rate of 35 percent continues to be more than twice the national
average for arson cases and 287 defendants have been conv~cted in connection with 206 arsons
or bombings.
"I applaud the Task Force's diligent efforts of the past three years, which have resulted
in the continued decline of arsons at OUI nation's houses of worship. said Treasury Deputy
Secretary Stuart Eizenstat. "The hard work of ATF, the FBI, federal prosecutors and state and
local law enforcement authorities, in conjunction with HUD and FEMA, have led to the
NCATF's success in arresting and prosecuting the arsonists, rebuilding burned houses of
'worship and preventing additional fires."
II
"Vigorous law enforcement efforts, increased coordination among federal, state and
local agencies and the vigilance of the faith community have laid the groundwork for
tremendous progress," said James E. Johnson, Undersecretary of the Treasury for
Enforcement and co~chair of the Task Porce. "This coordinated approach has been vital to our
success and to the continued decline of church arsons. We remain committed and will continue
to aggressively investigate and prosecute those responsible for these horrific cri..mes.
1I
"While these types of cases are often times difficult to investigate and prosecute, our
cooperative efforrs have brought tremendous success," said Bill Lann Lee, Acting Assis1a.l).t
Attorney General and co-chair of the Task Force. "The number of flres at houses of Worship
continues to decline, but even one burned church is too many -- we will not let up OUr efforts."
LS--389
1
flUbl icAff
fIOJill
I:lZlII1I1::m
~L: LJ tTl
rd~t:
L ur L
The Task Force's accomplislunents include:
•
opening 827 investigations into arsons, bombings, or attempted bombings that have
occurred at houses of worship betWeen January 1995 and October 1999, resulting in the
arrest of 364 suspects in connection with 294 of ¢ese investigations;
•
a 35 percent anest rate in Task Force arson cases - more than double the 16 percent
rate of arsons in general;
•
convictions by federal, state and local prosecutors of 287 defendants in connection with
206 arsons or bombings at houses of worship between January 1995 and October 1999.
The Task Force also reported on recent indictments against Jay Scort Ballinger, who is
suspected of starting fires at 29 churches in eight states. The indictments against Ballinger
represent the largest nwnber of fires linked to a single defendant since the Task Force was
created.
The Task Force continues
to work
with
u.s. Attorney's offices, ATF, the FBI and state
and local authorities to investigate and prosecute arsons at houses of worship. The Department
of Housing and Urban Developm.ent and the Fed~ra1 Emergency Management Agency also
continue to assist communities affected by these fires by providing rebuilding assistance and
flre prevention information.
The Third Year Report is available on the internet: at www.atf.rreas.gov.
###
TOT~L
P. 22
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
ENffiARGOED UNTIL 10:00 AM EST
Text as Prepared for Delivery
February 8, 2000
TREASURY SECRETARY LAWRENCE H. SUMMERS
TESTIMONY BEFORE THE SENATE FINANCE COMMITTEE
Mr. Chairman, Senator Moynihan, Members of the Committee, it is a pleasure to speak with you
today about the President's FY 2001 budget. Let me start by thanking this Committee for your
hard work in helping bring about the enviable position in which we now find ourselves.
At the outset of this Administration, the President established a three-pronged economic strategy
based on strong fiscal discipline, investing in people, and engaging in the international economy.
Partly as a consequence of that strategy we have achieved the first back-to-back unified budget
surpluses in more than 40 years.
It is no coincidence that this month the US economy also achieved the longest expansion on
record. This historic accomplishment is a tribute to the hard work and entrepreneurial qualities
of our workers, businesses and farmers. But without the budget agreements of 1993 and 1997
between the President and Congress, the economic expansion would not have been as impressive
or as enduring.
Last year's surplus of $124 billion was the largest in our history. Even using conservative
assumptions, the budget will move still further into the black this year. By the end of September,
we expect that Federal debt held by the public will be $24 trillion less than was projected for
that date in 1992. This represents scarce national savings that have been freed up for private
sector investment in the productive economy in American businesses, workers and homes
In 1992, the Federal budget posted a record deficit of $290 billion - almost 5 percent of our
gross domestic product. Since then we have achieved not only a unified budget surplus comprising both the operating budget and the Social Security budget - but also a small surplus in
our on-budget account. In other words, for the first time since 1960, all of last year's Social
Security surplus was used to improve the government's balance sheet.
This dramatic improvement in our fiscal situation reflects some hard choices Federal spending
has fallen below 19 percent of GOP, a sharp drop from the 22 percent level that prevailed when
the Administration came into otftce. And we have reduced the Federal civilian payroll by more
than one-sixth in that period, a reduction of 377,000 full-time equivalent employees
______ L8-390
For pre~:) eieases, speeches, ?ublic sch£dules and official biographies, call our 24-hour fax line at (202) 622-2040
'U S Government Prlntlnq Office 1998· .,' Q . .,.,9
As a result of this discipline, we are now in a position to eliminate the debt held by the public by
2013, on a net basis. Paying down the remaining $3.6 trillion of Federal debt will help to
intensify the remarkably positive interaction that we have witnessed between the budget and the
economy over the last several years, whereby what was once a vicious cycle of more debt, higher
interest rates, a weaker economy and still more debt has been replaced with a virtuous circle of
declining debt, lower interest rates, and a stronger economy, in turn producing still less debt,
further downward pressure on interest rates, and stronger growth
As a result, unemployment is at its lowest rate in 30 years, more than 20 million new jobs have
been created, productivity growth has increased even this far into the expansion, home
ownership rates are at an all-time high, and real wages are rising across the board including for
those at the bottom of the income ladder.
At the same time, our fiscal position also provides us with a rare opportunity to focus on crucial
national priorities. Let me set out the five basic objectives of this budget before discussing each
item in turn.
•
Reducing Federal debt to safeguard our economic expansion.
•
Meeting the needs of an aging society by laying the foundations for the secure retirement of
the baby boom generation.
•
Providing new incentives through the tax system to strengthen our communities and
encourage people to work and save more.
•
Pursuing well-targeted initiatives that invest in health, education and other national priorities.
•
Redoubling our commitment to opening markets and sustaining American leadership in order
to bolster international economic opportunities for America and strengthen our national
security in an uncertain world.
OVERVIEW OF THE FY2001 BUDGET
l.
Safeguarding Our Economy by Reducing Federal Debt
For decades, Treasury's discussions with its Borrowing Advisory Committee centered on how
we could finance growing budget deficits and whether the market would have the capacity to
absorb the huge volumes of government debt that we needed to sell. In this new era of rising
projected budget surpluses, our discussions now focus on how we can maintain liquidity in the
market while reducing the volume of debt outstanding.
According to orvrn and Treasury projections, this challenge will become even more apparent in
the years ahead. Until now, debt reduction has been accomplished solely by retiring Treasury
2
securities when they fall due. But from now on, we will have another tool available to help us
manage the process of reducing the debt held by the public - namely, the ability to buy debt back
from the public that has not yet matured. Using this tool, we can both reduce debt and bolster
liquidity in our key "benchmark" issues. In the April to June quarter of this year, we expect that
Treasury's net borrowing will result in a record pay down of$152 billion worth of bonds. This
puts us on track to pay down more debt this year than in 1998 and 1999 combined.
As I have explained, under the President's proposals we will eliminate the debt held by the
public by 2013 on a net basis. This will generate substantial further gains for the American
economy. Reducing Federal debt functions like a tax cut in two respects. First, it removes the
burden of interest and principal payments from the American taxpayer. Second, it maintains
downward pressure on interest rates, and thereby helps reduce payments on home mortgages, car
loans and other forms of consumer credit. We estimate that a I-percentage point reduction in
interest rates results in roughly a $250 billion reduction in mortgage interest expense over a
decade.
Debt reduction also creates fiscal space, widening the range of choices available to us, and
giving us greater capacity to respond to unforeseen problems. Today, the Federal Government is
spending more than $200 billion a year on interest payments that would be eliminated under our
proposals. The President proposes that resources not paid in interest be used to help ease the
burden of the Social Security and Medicare costs that will arise once the baby-boom generation
begins to retire
II.
Meeting the Needs of an Aging Society
As we create more fiscal space through continued fiscal discipline, we face a fundamental choice
about how best to utilize that space. In this context, it is a vital objective of this budget to
improve our ability to shoulder this country's obligations to its seniors.
Let me focus on two central elements: strengthening Social Security and modernizing Medicare.
1.
Extending the solvency of SOcilll Security to 2050 llml beyond
It is a central tenet of our strategy that we will use all of the surpluses from Social Security to
improve the government's net financial position. Compared to an alternative scenario, in which
we merely balance the unified budget, the President's framework generates an increasing amount
of savings on interest that would otherwise be paid to holders of the debt. Beginning in 2011, we
propose to transfer these interest savings into the Social Security trust funds. These transfers
would extend the solvency of the trust funds until 2050.
At the core of the President's proposal is a high level of fiscal discipline. In the Administration's
framework, every dollar added to the trust funds is "backed" by a dollar's wOlth of pay down of
the debt held by the public, and hence a dollar's worth of contribution to national savings.
These are serious steps, and constitute important preparation for the retirement of the baby boom
generation.
3
In line with private sector practice, we also propose to invest a sensible and measured proportion
of the trust funds in the equity market with the safeguard that such investment be limited to 15
percent of the value of the trust funds. This would further extend the solvency of the trust funds
to 2054.
2.
Modernizing Medicare
Since Medicare was launched 35 years ago, accessible and affordable health care has
dramatically improved the lives of Americans over the age of 65. But there is now a very broad
consensus that it is time to reform Medicare to meet the challenges of the new century.
By extending competilion
The President put forward a detailed Medicare reform proposal last year, and he remains
committed to enacting comprehensive reform in this Congress. A key element of this proposal is
the move to full price and quality competition between traditional fee-for-service Medicare and
managed-care plans.
By letting consumers realize most of the cost savings from choosing more efficient health plans,
genuine competition will give all health plans a strong incentive to deliver the most value for
money. At the same time, our proposal would ensure that seniors who move to lower-cost plans
do so out of choice and not because of financial coercion. We look forward to working with the
Members of this Committee to achieve these important objectives.
By providing coverage for prescription drugs
A second central element of Medicare reform is a voluntary prescription drug benefit that is
affordable to all Medicare beneficiaries. Drug treatment has become an increasingly important
part of modern health care, and no one would design a Medicare program today that excluded
prescription drug coverage. Yet, roughly 3 out of 5 Medicare beneficiaries do not have
dependable drug coverage today, and a majority of the uninsured have incomes greater than 150
percent of poverty. The Administration's proposal would provide a 50 percent subsidy for all
seniors who choose to purchase the new Medicare drug benefit, with additional subsidies for
lower-income seniors The budget also includes a reserve fund of $3 5 billion for 2006 through
2010 to be used to design protections for beneficiaries with extremely high drug spending.
And by extending the solvency ofMedicare
A third aspect of responsible Medicare reform is the addition of new resources into the Hospital
Trust Fund. In the coming decades we expect to see a doubling in the number of Medicare
beneficiaries, and continued advances in the ability of modern medicine to improve the length
and quality of seniors' lives. We cannot meet the rising future demands on Medicare through
our structural reforms alone. But by enacting the combination of reforms and transfers in the
President's budget, the projected solvency of the Medicare program could be extended to 2025
III.
Using Tax Cuts to Strengthen Our Communities
The President's budget creates room for prudent and targeted tax cuts totaling $250 billion on a
net basis over the next decade and $350 billion on a gross basis. These tax initiatives would
advance a broad range of national priorities, including: reducing poverty and stimulating the
creation of small businesses in our deprived communities; strengthening incentives to work and
to save; and making it easier for families to care for chronically ill relatives. The proposals
would also close unfair tax loopholes and eliminate tax shelters.
Let me highlight briefly some of the most important tax cut proposals in the President's budget.
Retirement Savings
Almost one in five elderly Americans has no income other than Social Security: two-thirds rely
on Social Security for half or more of their income. Half of all working Americans have no
pension coverage at all through their current job. It is very clear that steps need to be taken to
help Americans take greater responsibility for their own financial security in retirement, and new
incentives should be targeted to moderate and lower-income working families.
The President proposes to address this situation by creating a new, broad-based savings account,
Retirement Savings Accounts. These accounts would give 76 million lower- and middle-income
Americans the opportunity to build wealth and save for their retirement.
Under our plan, individuals could choose whether to participate, on a strictly voluntary basis,
either through a retirement plan sponsored by their employer, or through a special stand-alone
account at a financial institution. The employer or the financial institution would match each
individual's contribution, and then recover the cost of the match from the Federal government in
the form of a tax credit.
Individuals could contribute up to $1,000 per year. Low-income individuals would qualify for a
two-for-one match on the first $100 contributed, and a dollar-for-dollar match on additional
contributions. Higher income participants could qualify for a 20-percent match, in addition to
the tax incentives that apply to pension or IRA contributions. A person who participated in this
savings program for their entire career could accumulate well over two hundred thousand dollars
for his or her retirement.
In addition, the President proposes to make small employers eligible for new tax credits to help
them set up or improve their retirement plans. Related proposals include measures to increase
pension security and portability, and to improve disclosure to workers. Overall, the cost of these
initiatives to expand retirement savings would total $77 billion over ten years.
Helping Working Families
The Earned Income Tax Credit has proved one of the most effective means of rewarding work
and lifting people out of poverty. In 1998 alone, the EITC raised the income of 4.3 million
working people above the poverty level. But many families still remain in poverty The
5
President proposes to help more families work their way out of poverty by increasing the earned
income tax credit for the larger families that are most apt to be poor and relieving the marriage
penalty under the EITC. The increases in the EITC would total $24 billion over the next ten
years.
Under the budget plan we would also reduce the marriage tax penalty, strengthen work
incentives, and cut taxes for the 70 percent of families who claim the standard deduction. To
address the marriage penalty in a targeted way, the President proposes to make the standard
deduction for two-earner married couples twice the standard deduction for singles. In 2005,
when it is fully phased in, this proposal would raise the standard deduction for two-earner
married couples by $2,150. Starting in 2005, the proposal would also simplify and reduce taxes
for middle income taxpayers by increasing the standard deduction for single-earner married
couples by $500 and for singles by $250. The proposal would make the child and dependent
care tax credit refundable and raise the maximum credit rate to 50 percent.
Revitalizing our Communities.
By expanding the New Markets tax credit the budget would help spur $15 billion in new
investment for businesses in inner cities and poor rural areas. The budget also proposes to extend
and expand incentives for businesses to invest in empowerment zones.
Health
Last year the President proposed a tax credit that compensated families for the cost of looking
after chronically ill relatives. But at $1,000, the credit was insufficient compensation for the
rising burden that these families face. The President FY2001 proposal triples the credit to
$3,000. We also propose to provide tax credits for workers between jobs who purchase COBRA
coverage from their old employers.
Education
The budget proposes to save taxpayers $30 billion over ten years through the College
Opportunity Tax Cut. When fully phased in, this new tax incentive would give families the
option of taking a tax deduction or claiming a 28 per cent credit for up to $10,000 of higher
education costs. This would provide up to $2,800 in tax relief to millions of families who are
now struggling to afford the costs of post-secondary education. We also put forward a tax credit
to help state and local governments build and renovate their schools.
Tax Simplification and Fairness
Although the Alternative Minimum Tax was originally intended to ensure that high-income
taxpayers could not use tax breaks to avoid income tax altogether, we recognize that it is
increasingly eating into the take-home pay of middle-income taxpayers, especially those with
large families. We propose to redress this problem by allowing taxpayers to deduct all of their
exemptions for dependents against AMT. By 2010 when it is fully phased-in, this change would
halve the number of taxpayers affected by the AMT.
6
Corporate Shelters and Tax Havens
The proliferation of corporate tax shelters presents a growing and unacceptable level of abusive
tax avoidance that reduces government receipts and consequently raises the tax burden on
compliant taxpayers. Corporate tax shelters breed disrespect for the tax system -- both by those
who participate in the tax shelter market and by those who perceive unfairness. A perception
that well-advised corporations can and do avoid their legal tax liabilities by engaging in these
tax-engineered transactions may cause a "race to the bottom."
The President's FY 2001 Budget again contains a comprehensive approach to addressing this
problem. This approach is intended to change the dynamics on both the supply and demand side
of this 'market,' making it a less attractive one for all participants -- 'merchants' of abusive tax
shelters, their customers, and those who facilitate these tax-engineered transactions. The main
elements of the legislation include: requirements aimed at substantially improving the disclosure
of corporate tax shelter activities, provisions to raise the penalty where there is substantial
understatement of tax owed; and the codification of the economic substance doctrine. Enactment
of corporate tax shelter legislation, combined with the efforts of the restructured IRS, will go
along way towards deterring abusive transactions before they occur, and uncover and stop these
transactions when they do take place.
Another area that raises similar concerns is the growing use of tax havens. These jurisdictions,
through strict bank secrecy and other means, facilitate tax avoidance and evasion. Curbing this
harmful tax competition should help businesses to compete on a level playing field and
encourage investment growth and jobs. Our budget includes several provisions intended to
reduce the attractiveness of tax havens and to increase access to information about activities in
tax havens.
Other Provisions
There are a number of other important proposals that I would like to mention. These include:
incentives to increase philanthropic donations; tax credits aimed at bridging the "digital divide",
by encouraging investment in technology in deprived communities, and measures to help reduce
pollution and emissions of greenhouse gases.
IV.
Investing in Health, Education and Other National Priorities
The spending proposals in the President's budget are based on two fundamental principles.
The first principle is that we use realistic projections of the level of spending needed to maintain
core government functions. To meet this requirement, we begin with a "current services"
baseline under which discretionary spending is held constant on an inflation-adjusted basis.
Our budget policy would maintain defense spending at this baseline and reduce non-defense
discretionary spending slightly below it, meaning that existing domestic programs would need to
be trimmed by more than enough to finance new initiatives. In 1999, non-defense discretionary
7
spending was a smaller share ofGDP than at any point in at least 40 years; under our policy, it
would represent a yet smaller share over the coming decade. Moreover, total outlays as a
proportion of GDP would decline in 2001 and they would continue to decline on this basis for
the rest of the decade.
The second fundamental principle of the President's spending proposals is to focus on critical
national priorities, including health care, education, law enforcement, and technology. By
focusing our initiatives in these and other key areas, we can meet people's needs in a fiscally
disciplined way.
Let me briefly summarize our proposals in these four areas.
HealthCare
The President has proposed a bold initiative to reverse the disturbing increase in the number of
Americans without health insurance. Through the combination of targeted spending proposals
and tax incentives, we can expand health coverage to millions of uninsured Americans.
A central part of this initiative is an expansion of the State Children's Health Insurance Program,
known as S-CHIP, which was introduced two years ago with broad bipartisan support. In the
FY2001 budget we would build on the success of this program by extending it to cover the
parents of eligible children, most of whom are uninsured. Another important element of this
initiative is providing a Medicare buy-in option for people close to the Medicare eligibility age.
This year, to make this option more affordable, our budget includes a tax credit to offset some of
the premium.
Education
Education is another key priority in the President's budget, as has been true since the beginning
of this Administration. For next year we are proposing an additional $1 billion for the Head
Start program and almost $150 million for Early Head Start, which would put us within reach of
serving one million children by 2002. We are also proposing sufficient funding to take us
almost halfway to the President's goal of hiring 100,000 new teachers in order to reduce class
sIzes.
Law Eriforcement
Turning to law enforcement, the budget includes significant new resources to enforce our
nation's gun laws. Last Friday we released a report from the Bureau of Alcohol, Tobacco and
Firearms showing that 1- percent of gun dealers account for well over half of all crime guns
traced last year. The information from gun tracing will help us target our enforcement efforts,
but we also need more agents and inspectors at the ATF and more prosecutors - and our budget
will provide them.
At the same time we are requesting funds that would pay for recruiting and training of 50,000
new police officers, and fundsthat would strengthen the National Money Laundering Strategy.
8
Money laundering is a growing international problem, and we need this budget allocation to
strengthen U.S. Leadership in fighting this problem
Technology alld the Ellvironmelll
Another important national priority must be investment in the science and technology that will
spur economic growth and improve people's lives in the 21 st century. The President's budget
includes a nearly $3 billion increase in crucial investments, including a $1 billion increase in
funding for biomedical research for the National Institutes of Health and a rise in funding for the
National Science Foundation that is double the previous largest increase. These investments will
enable Americans to continue to lead the world in many areas of science and technology,
including biomedical research, nano-technology, and clean energy.
The budget also contains $42 billion for high-priority environmental and natural resource
programs, an increase of $4 billion over last year's enacted level. This includes $1.4 billion in
discretionary funding for the Land's Legacy initiative to expand and protect our open spaces, an
additional $1.3 billion to support farm conservation, and an additional $770 million to help
combat global climate change.
V.
American Leadership in the World
As we enter this new century, it is crucial that we continue to learn the lessons of the last one by
working to build an ever-widening circle of more prosperous and more open international
economies. This enables us to enjoy the benefits of peace and the spread of our core values.
And we benefit more directly in the millions of high-paying jobs that exports create and the
competition and innovation that openness to imports can promote. In short, globalization is not a
zero sum game but a "win-win proposition" for America and its trading partners.
Let me outline several areas where we can strengthen this process while also enhancing our
national security.
China
One of the President's top priorities this year is to seek Congressional approval for the agreement
we negotiated to bring China into the World Trade Organization, by passing Permanent Normal
Trading Relations with China as soon as possible. I firmly believe that China's entry into the
WTO, under the terms of the trade agreement that we reached last November, is in our economic
and national security interest.
•
First, this is a good deal for American workers, farmers and businesses since the
concessions all run one way, in our favor.
•
Second, by integrating China into the rules-based world trading system, we will help
promote reform within China and reduce the security threat that an isolated China can pose
to America and the rest of the world.
9
Mr. Chairman, we will need your support to prevail, and look forward to working with you on
this issue in the weeks and months ahead. We also look forward to working with you to
implement the Caribbean Basin, African Trade, and Balkans Trade Initiatives.
!vlllllilateral Developmell1 Banks
Obtaining adequate funding for U. S. participation in the MDBs remains a Treasury priority.
Every dollar we contribute to the multilateral development banks leverages more than $45 in
official lending to countries where more than three-quarters of the world's people live. These
programs are the most effective tools we have for investing in the markets of tomorrow. This
budget's request for $1.35 billion is $40 million less than we requested last year, yet it would
fully cover our annual obligations to the MDBs as well as paying down some of our arrears to a
global system that we were instrumental in creating.
Highly Indebted Poor ('ountries Initiative
Let me thank Members of this Committee for your efforts in the FY2000 budget to provide
broader, deeper and faster debt relief to the world's poorest and most heavily indebted nations.
As a result, progress has been made. Writing off debts owed by countries that will never be able
to repay them is sound financial accounting. It is also a moral imperative at a time when a new
generation of African leaders is trying to open up their economies.
The President is asking for an additional $210 million this year and $600 million over the next
three years to support multilateral and bilateral debt relief for countries under the Highly
Indebted Poor Countries initiative. In doing so he is asking Congress to finish the enormously
important work we began last fall.
faccines
The budget also contains requests that would help fulfill the President's Millennium Initiative for
vaccines. By allocating $50m to the Global Alliance for Vaccines and Immunization, we could
save many children's lives and at the same time help protect the health of American citizens.
The President has also proposed a new tax credit that would help stimulate development of
vaccines for malaria, HIY -AIDS and tuberculosis.
VI.
Concluding Remarks
I began my remarks today by focusing on the link between fiscal discipline and the performance
of our economy over the last seven years. Having worked hard to help bring us to the
remarkable economic moment that we are now enjoying, the Members of this Committee know
well the value to our economy and our country of further paying down the national debt held by
the public. If we can act to reduce the debts we bequeath to our children, while continuing to
fund our obligations to seniors and pursuing the vital purpose of making the economy work for
all our people and communities, then we can maximize the extraordinary opportunities with
10
which we are now presented. I look forward to working together with this Committee and others
in Congress to tum these high-class challenges into even higher-class solutions. Thank you. I
would now be happy to respond to any questions that you might have.
-30-
Federal financing
WASHINGTON, D.C. 20220
FEDERAL FINANCING BANK
S
December 31, 1999
Kerry Lanham, Secretary, Federal Financing Bank (FFB) ,
announced the following activity for the month of November 1999.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $42.8 billion on November 30,
1999, posting an increase of $376.9 million from the level on
October 31, 1999. This net change was the result of an increase
in holdings of agency debt of $709.7 million, and a decrease in
holdings of agency assets of $260.0 million and in holdings of
agency guaranteed loans of $72.8 million.
FFB made 65
disbursements during the month of November.
FFB also received 13
prepayments in November.
Attached to this release are tables presenting FFB November
loan activity and FFB holdings as of November 30, 1999.
1S-391
0
10
m
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Page 2
FEDERAL FINANCING BANK
NOVEMBER 1999 ACTIVITY
Borrower
~NCY
Date
Amount
of Advance
Final
Maturity
Interest
Rate
DEBT
ational
ational
ational
ational
ational
ational
ational
ational
ational
Credit
Credit
Credit
Credit
Credit
Credit
Credit
Credit
Credit
Union
Union
Union
Union
Union
Union
Union
Union
Union
11/01
11/08
11/12
11/18
11/19
11/26
11/26
11/29
11/30
$1,000,000.00
$40,000,000.00
$200,000,000.00
$200,000,000.00
$200,000,000.00
$200,000,000.00
$200,000,000.00
$200,000,000.00
$200,000,000.00
1/27/00
3/02/00
11/19/99
11/26/99
11/26/99
12/02/99
12/03/99
12/06/99
12/07/99
5.239%
5.339%
5.325%
5.367%
5.356%
5.419%
5.419%
5.416%
5.482%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
11/01
11/01
11/02
11/02
11/03
11/03
11/04
11/04
11/05
11:,/05
11/08
11/08
11/09
11/09
11/10
11/10
11/12
11/12
11/15
11/15
11/16
11/16
11/17
11/17
11/18
11/18
11/19
11/19
11/22
11/22
11/23
11/23
11/24
$1,950,000,000.00
$419,300,000.00
$1,735,000,000.00
$348,500,000.00
$1,610,000,000.00
$275,600,000.00
$1,380,000,000.00
$331,900,000.00
$1,670,000,000.00
$153,700,000.00
$1,350,000,000.00
$42,100,000.00
$950,000,000.00
$163,300,000.00
$700,000,000.00
$251,400,000.00
$1,430,000,000.00
$439,900,000.00
$1,830,000,000.00
$428,800,000.00
$1,700,000,000.00
$230,000,000.00
$1,535,000,000.00
$289,000,000.00
$1,330,000,000.00
$301,900,000.00
$1,240,000,000.00
$257,900,000.00
$1,055,000,000.00
$258,000,000.00
$820,000,000.00
$222,300,000.00
$600,000,000.00
11/02/99
11/02/99
11/03/99
11/03/99
11/04/99
11/04/99
11/05/99
11/05/99
11/08/99
11/08/99
11/09/99
11/09/99
11/10/99
11/10/99
11/12/99
11/12/99
11/15/99
11/15/99
11/16/99
11/16/99
11/17/99
11/17/99
11/18/99
11/18/99
11/19/99
11/19/99
11/22/99
11/22/99
11/23/99
11/23/99
11/24/99
11/24/99
11/26/99
5.231%
5.284%
5.239%
5.263%
5.284%
5.242%
5.263%
5.221%
5.242%
5.260%
5.221%
5.325%
5.260%
5.314%
5.325%
5.325%
5.314%
5.354%
5.325%
5.419%
5.354%
5.419%
5.419%
5.367%
5.419%
5.356%
5.367%
5.354%
5.356%
5.398%
5.354%
5.398%
5.398%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
.S. POSTAL SERVICE
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
S. Postal
s. Postal
S. Postal
s. Postal
s. Postal
S. Postal
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
Service
.service
Service
Service
Service
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
B/A
S/A
S/A
S/A
S/A
S/A
Page 3
FEDERAL FINANCING BANK
NOVEMBER 1999 ACTIVITY
Date
Borrower
.S. postal Service
.S. postal Service
.s.
.s.
.s.
Postal
postal
postal
.S. Postal
.s. Postal
Service
Service
Service
Service
Service
Amount
of Advance
11/24
$300,400,000.00
11/26 $1,420,000,000.00
11/26
$350,800,000.00
11/29 $1,800,000,000.00
11/29
$324,500,000.00
11/30 $1,575,000,000.00
11/30
$397,500,000.00
Final
Maturity
Interest
Rate
11/26/99
11/29/99
11/29/99
11/30/99
11/30/99
12/01/99
12/01/99
5.419%
5.398%
5.416%
5.419%
5.482%
5.416%
5.430%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
VERNMENT-GUARANTEED LOANS
ENERAL SERVICES ADMINISTRATION
emphis
tlanta
tlanta
emphis
~L
IRS
CDC
CDC
IRS
Service Cent.
Lab
Lab
Service Cent.
11/10
11/12
11/12
11/22
$3,449.31
$3,378.40
$7,989.80
$7,279.18
1/02/25
1/30/02
1/30/02
1/02/25
6.394%
5.951%
5.951%
6.463%
S/A
S/A
S/A
S/A
11/01
11/03
11/04
11/05
11/09
11/15
11/17
11/17
11/17
11/23
11/23
11/30
$115,000.00
$1,423,000.00
$4,000,000.00
$ 3 2 5 , 0 0 O' • 0 0
$759,000.00
$830,000.00
$11,134,000.00
$3,000,000.00
$700,000.00
$2,152,000.00
$1,121,000.00
$2,000,000.00
1/02/18
12/31/20
1/03/33
10/02/28
12/31/29
1/03/34
3/31/00
1/03/33
1/02/07
1/03/23
12/31/25
1/02/01
6.810%
6.391%
6.315%
6.293%
6.156%
6.081%
5.350%
6.260%
6.167%
6.426%
6.305%
5.834%
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
UTILITIES SERVICE
arshalls Energy Co. #458
nited Power Assoc. #432
ennyrile Elec. #513
range County Elec. #466
::>corro Elec. #541
arlboro Elec. #530
razos Electric #561
emez Mountains Elec. #499
umter Elec. #485
labarna Electric #508
labarna Electric #564
ackson Energy #527
S/A is a Semiannual rate.
Qtr. is a Quarterly rate.
Page 4
FEDERAL FINANCING BANK HOLDINGS
(in millions of dollars)
Program
November 30, 1999
October 31, 1999
Monthly
Net Change
11/1/99-11/30/99
Fiscal Year
Net Change
10/1/99-11/30/99
Agency Debt:
u.S. Postal Service
National Credit Union Adm.-ClF
Subtotal *
$5,472.5
$841.0
$6,313.5
$5,603.8
$0.0
$5,603.8
-$131.3
$841.0
$709.7
-$806.6
$841.0
$34.4
Agency Assets:
FmHA-ROIF
FmHA-RHIF
OHHS-HMO
OHHS-Medical Facilities
Rural Utilities Service-CSO
Subtotal *
$3,410.0
$6,775.0
$1. 7
$3.2
$4.598.9
$14,788.8
$3,410.0
$7,035.0
$1. 7
$3.2
$4,598.9
$15,048.8
$0.0
-$260.0
$0.0
$0.0
$0.0
-$260.0
$0.0
-$350.0
$0.0
$0.0
$0.0
-$350.0
Government-Guaranteed lending:
DOD-Foreign Military Sales
DoEd-HBCU+
OHUD-Community Oev. Block Grant
DHUD-Public Housing Notes
General Services Administration+
DOl-Virgin Islands
DON-Ship lease Financing
Rural Utilities Service
SSA-5tate/local Development Cos.
DOT-Section 511
Subtotal *
$2,595.3
$20.8
$12.9
$1,348.5
$2,392.3
$16.1
$1,138.7
$14,025.3
$186.7
$3.7
$21,740.4
$2,608.3
$20.8
$12.9
$1.419.9
$2.405.0
$16.1
$1.138.7
$13,997.8
$190.0
$3.7
$21,813.1
-$12.9
$0.0
$0.0
-$71.4
-$12.7
$0.0
$0.0
$27.6
-$3.2
$0.0
-$72.8
-$15.6
$9.8
-$0.7
-$71.4
-$12.7
$0.0
$0.0
$140.4
-$7.1
$0.0
$42.6
$42,465.7
$376.9
-$273.0
===
Grand total*
* figures may not total due to rounding
+
rlnl'>~
nn+ ; nr 1 •• rll'> (';=tn; T;=t1 ; 71'>rl ; nTI'>rl'>"T
$42,842.7
DEPARTMENT
OF
THE
TREASURY
NEWS
EMBARGOED UNTIL 9:30 A.M. EST
Text as prepared for Delivery
February 15, 2000
TREASURY ASSIST ANT SECRETARY LEE SACHS
HOUSE AGRICULTURE SUBCOMMITTEE ON RISK MANAGEMENT,
RESEARCH AND SPECIALTY CROPS
Mr. Chairman, Mr. Condit, Members of this Committee, thank you for giving me
the opportunity to discuss the report of the President's Working Group on Financial
Markets on Over-the-Counter Derivatives Markets and the Commodity Exchange Act.
The issues covered in the report have been a focus of this Committee, and on behalf of
the members of the Working Group, we thank you for the leadership you have
demonstrated on these important matters.
The over-the-counter derivatives market is an important component of the
American capital markets and a powerful symbol of the kind of innovation and
technology that has made the American financial system as strong as it is today. Yet the
continued development of this market will depend to a great extent on the development of
a clear and effective regulatory environment.
The report contains the unanimous recommendations of the President's Working
Group on Financial Markets which is chaired by Secretary Summers and includes, among
others, the Chairmen of the Federal Reserve, the Commodity Futures Trading
Commission and the Securities and Exchange Commission. In its report, the Working
Group recommends the enactment of legislation to reform the legal framework affecting
the OTC derivatives market. Taken together, these changes would provide legal
certainty, contribute to the reduction of systemic risk, protect retail customers, and
stimulate the competitiveness of America's financial markets.
Let me divide my remarks into three parts:
•
First, the growing importance of OTC derivatives in the US economy.
•
Second, the objectives that guided Members of the Working Group when deciding on
its recommendations and the importance of enacting those recommendations within
the shortest reasonable time frame; and
LS-392
tOr-press releases, spef'Cha, public sch:muie5 ll'TId official biographies, call our 24.Jzour fax line at (202) 622-2040
•
Third, the six recommendations that the Working Group has produced.
I. The Role of OTe Derivatives in the US Economy
Mr. Chairman, our financial sector is the central nervous system of the American
economy. As our economy and our financial markets have evolved over the past two
decades, so too have the needs of the financial sector. Most notably, in an era of
globalization, volatility of interest rates, increased securitization and the growth of the
bond markets relative to the traditional loan markets, businesses and financial institutions
have required a more diverse and effective set of tools for managing risk.
In that sense, the over-the-counter derivatives market has grown directly in
response to the needs of the private sector. An OTC derivative is an instrument that
allows a party seeking to reduce its risk exposure to transfer that exposure to a
counterparty that wants and may be in a better position to assume the risk. This is an
important development that has significantly enhanced the ability of businesses to
manage their risk profiles, to compete more effectively in the global marketplace, and to
deliver more efficiently and at lower cost a wide range of services and products to the
American consumer.
Because of these rising demands, the notional value of global OTC derivatives
has risen more than five-fold over the past decade, to more than $80 trillion according to
estimates produced by the Bank for International Settlements.
Operating" within a proper and appropriate framework of legal certainty, the
benefits to the American economy of OTC derivatives would continue to grow. For
example:
•
By helping businesses and financial institutions to hedge their risks more efficiently,
OTC derivatives enable them to pass on the benefits of lower product costs to
American consumers and businesses.
•
By allowing for the transfer of unwanted risk, OTC derivatives promote the more
efficient allocation of capital across the economy, further increasing American
productivity.
- • - By providing better pricing information, OTC derivatives can help promote greater
efficiency and liquidity of the underlying cash markets that feeds into a stronger
economy for all Americans.
•
And, by enabling more sophisticated management of assets, including mortgages,
consumer loans and corporate debt, OTC derivatives can help lower mortgage
payments, insurance premiums, and other financing costs for American consumers
and businesses.
2
Thus, OTe derivatives have the potential to bring important benefits to our
economy. The goal of the recommendations of the President's Working Group is to
ensure that these benefits can be realized. At the same time, we need to recall that the
emergence of the OTe derivatives market has come during an era of unprecedented
economic strength and prosperity.
It is to be expected that in times of distress some participants in this market, as in
other financial markets, will be adversely affected. What needs to be protected, however,
are not individual institutions but the system as a whole. The challenge is to strike the
appropriate balance between the creation of a regulatory regime of legal certainty that
allows the economy to realize the benefits of OTC derivatives while still providing
appropriate protection for retail customers and the system. We believe that our
recommendations strike such a balance.
Now let me tum to the more specific goals of the Working Group in producing
the report.
II. Objectives of the Working Group's Report
Mr. ehairman, the members the President's Working Group believe that a
strengthened OTe derivatives market can contribute to the greater efficiency of the US
economy. They further believe that a failure to act in this area would risk a situation in
which the existing legal framework for our financial markets would seriously lag the
development of the markets themselves.
In the absence of an updated legal and regulatory environment, needless systemic
risk might jeopardize the broader vitality of the American capital markets; innovation
might be stifled by the absence of legal certainty; and American consumers might be
deprived of the benefits that a more appropriate legal framework would deliver. We also
risk an erosion of the competitiveness of American financial markets, with an increasing
amount of business moving offshore to jurisdictions where the regulatory framework has
kept up with the pace of change.
It was with these priorities in mind, Mr. Chairman, that last year you requested
the Working Group to study the OTe derivatives market and recommend what changes
were required. The Working Group worked on the assumption that legislative action
would be required within a timeframe appropriate to the growing importance of the OTC
derivatives market - and taking into account this market's potential contribution to the
efficient functioning of the American financial sector and to that of the economy as a
whole.
Accordingly, the Working Group sought to achieve four objectives:
•
To reduce systemic risk in the OTe derivatives market by removing legal
impediments to the development of clearing systems and ensuring that those systems
are appropriately regulated.
3
•
To promote innovation in the OTC derivatives market by providing legal certainty
for OTC derivatives and electronic trading systems. This would strengthen the overall
legal framework governing the OTC derivatives market that, in turn, would stimulate
greater competition, transparency, liquidity, and efficiency and deliver stronger
benefits to US consumers and businesses.
•
To protect retail customers by ensuring that appropriate regulations are in place to
deter unfair practices in all markets in which they participate and by closing existing
legal loopholes that allow unregulated entities to pursue such unfair practices.
•
To maintain US competitiveness by providing a modernized framework that will
lead those engaged in the fInancial services industry to continue the operations of
their businesses in the United States, and thereby assuring the continued leadership of
American capital markets.
III. The Recommendations of the President's Working Group
Before outlining the Working Group's recommendations in greater detail, it bears
emphasis that the Working Group did not reach its conclusions lightly. In view of the
technical nature and history of many of the issues considered, the unanimous nature of
our recommendations is very significant. It is our firm belief that the situation calls for
legislation at the soonest appropriate opportunity.
I will now· turn to the recommendations.
1.
Create an Exclusionfrom the CEAfor most Swaps Agreements
The Working Group is recommending that an exclusion for certain swaps
between eligible counterparties be codified by Congress in the Commodities Exchange
Act. This exclusion would be similar to the CFTC's 1993 rule exempting swaps. It would
not, however, extend to agreements involving non-financial commodities with finite
supplies that could potentially be subject to manipulation, such as agricultural
cornrnodities. The CFTC would retain exemptive authority for these types of swaps
including swaps related to agricultural commodities. The exclusion would cover equity
swaps, a category of swaps about which there is also some amount of legal uncertainty.
Mr. Chairman, this recommendation would provide legal certainty by excluding
interest rate and equity swap agreements from the scope of the CEA and remove doubts
about the enforceability of these contracts in the courts. It is clear to the Working Group
that this exclusion is the best approach to assure that the OTC derivatives market can
develop within the kind of innovative and legally stable environment on which the
continued competitiveness of our financial markets will depend. The exclusion would
also contribute to the permanent clarification of the status of OTC derivatives that is
essential for the integrity of the market.
4
The current legal uncertainty concerning whether swaps are subject to the CEA
has its roots in the 1974 legislation that created the CFTC. That legislation significantly
increased the scope of the CEA by broadening the definition of what constitutes a
"commodity." As a result, most interest rates, for example, are now considered
"commodities" under the CEA, and exchange-traded interest rate futures are thus
regulated by the CFTC. We do not believe that off-exchange transactions that are tied to
interest rates are themselves futures contracts and therefore should not be subject to
CFTC regulation. To some market participants, however, there has been uncertainty on
this critical question.
The Working Group members perceive no compelling evidence of problems
involving the swaps that we are recommending for exclusion that would warrant
regulation under the CEA. Rather, we believe that an exclusion is appropriate because the
participants in such transactions are generally capable of making informed investment
decisions and do not require the additional protections provided under the CEA. We
further believe that the legal certainty provided by statute will be more durable and
reliable than that provided by regulations, which are more easily changed.
The CEA is designed primarily to address issues of fraud, manipulation, and price
discovery. Sophisticated participants can protect themselves against fraud or can seek
legal redress if they are defrauded. There is little evidence to suggest that markets for
financial OTC derivatives are readily susceptible to manipulation. And, in the case of
derivatives based on securities, existing securities laws would in any event be applicable
to any attempts to manipulate security prices. In addition, financial OTC derivatives do
not yet serve a 'primary price discovery function. And the activities of most OTC
derivative dealers are already subject to direct or indirect federal oversight.
2.
Create an Exclusion for Electronic Trading Systems
Our second recommendation would create an exclusion from the CEA for
electronic trading systems that limit participation to sophisticated parties trading for their
own accounts. Again, the exclusion would not apply to trading systems involving nonfinancial commodities with a finite supply such as agricultural commodities.
By confining the exclusion to trading systems involving only qualified
participants, this recommendation is designed to protect retail customers without
unnecessarily obstructing innovation where regulation is not justified. Importantly,
electronic trading systems promote transparency and efficiency and thus reduce the cost
of trading interest rate and other types of swap contracts. In that sense the exclusion
would strengthen the competitiveness of the American OTC derivatives market.
At the same time, while agreeing that an exclusion from the CEA is appropriate,
the Working Group has undertaken to monitor the development of electronic trading
systems for OTC derivatives going forward, with a view to evaluating whether limited
regulation of these systems to enhance market transparency and price discovery should
become appropriate at a later date.
5
3.
Permit the Use of Appropriately Regulated Clearing Systems for OTC
Derivatives
The third recommendation of the report would pennit the creation of clearing
systems for OTC derivatives while requiring that such systems be subject to appropriate
regulation. This proposal is designed to reduce systemic risk by encouraging the creation
of appropriately regulated clearing systems for OTC derivatives.
Well-designed clearinghouses can contribute significantly to reducing systemic
risk: first, by diminishing the likelihood that the failure of a single market participant can
have a disproportionate effect on the market as a whole; and second, by facilitating the
offsetting and netting of contract obligations. A reduction in systemic risk would in tum
enhance the stability of our financial system and increase its competitive edge.
Nonetheless, in view of the concentration of risk within these entities, the Working
Group believes that regulation of such clearing systems is appropriate.
4.
Clarify the Original Intent of the Treasury Amendment
This recommendation would clarify the Treasury Amendment in two ways. First
it would enable the CFTC to address the problems associated with foreign currency
"bucket shops" by codifying the CFTC's authority to regulate such entities and to
prosecute such entities when they attempt to defraud retail customers. This would support
the CFTC's objective of regulating entities that allegedly defraud retail custoffiers, thus
strengthening protection for small investors.
Second, the recommendation would preserve CFTC authority over Treasury
Amendment transactions on "organized exchanges" while excluding most other
transactions in Treasury Amendment products from the scope of the CEA.
The Treasury Amendment was originally designed primarily to exclude trading of
OTC derivatives tied to underlying government securities and foreign exchange from the
regulatory scope of the CEA. The exclusion, as currently worded, applies to all such
contracts unless the transaction involved the sale of futures on a "board of trade." But
uncertainty persists about the precise meaning of what constitutes a "board of trade" and
whether it could be interpreted to encompass entities such as investment and commercial
banks.
As a result, the Working Group recommends that the term "board of trade" be
replaced by the phrase "organized exchange" to provide legal certainty for OTC
instruments excluded under the Treasury Amendment and that an appropriate statutory
definition of "organized exchange" is provided.
5 & 6. Clarify the Exempt Status of Hybrid Instruments
6
The final two recommendations are highly technical in nature and designed to
enhance legal certainty by clarifying that hybrid instruments that reference securities can
be exempted from the CEA. The recommendations also resolve potential jurisdictional
disputes between the CFTC and other regulators with respect to such instruments by
limiting the exclusive jurisdiction clause of the CEA.
IV. Conclusion
Mr. Chairman, the President's Working Group has presented the Congress with a
set of unanimous recommendations pertaining to the growing and increasingly important
market for OTC derivatives in the United States. We believe that these recommendations,
taken together, would reduce systemic risk, promote innovation, competition, efficiency
and transparency in our financial markets; would protect retail customers, and help to
maintain American leadership in OTC derivatives markets.
In this context, we believe that legislation is necessary. We suggest a paradigm
for that legislation that recognizes that with the appropriate legal framework, the OTC
derivatives market can make a valuable contribution to the efficient functioning of the
American capital markets, with be~efits for both businesses and consumers. Under the
existing regulatory framework, as the report makes clear, there is a risk that these benefits
will not be fully realized.
The Working Group's report focuses on OTC derivatives. At the same time, while
not the subject of our report, we recognize the importance of ensuring an appropriate and
not overly burdensome regulatory environment for exchange-traded derivatives. The
Working Group supports the CFTC's ongoing efforts to explore regulatory relief in this
area, without prejudging the results of their analysis. We look forward to working with
them and other members of the Working Group to assure that our markets remain the
most competitive and innovative in the world, while assuring the integrity of these
markets is protected for all participants.
Thank you. I would now welcome any questions that you may have.
-30-
7
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIllNGTON, D.C .• 20220 • (202) 622-2960
For Immediate Release
February 16, 2000
Contact: Maria Ibanez
202-622-2960
TREASURY APPLIES SUDAN SANCTIONS TO JOINT OIL VENTURE The Treasury Department announced today that economic sanctions against Sudan have
been applied to Sudan's state-owned oil enterprise Sudapet Ltd. and to the Greater Nile
Petroleum Operating Company Ltd. (GNPOC), ajoint venture in Sudan between the
Government of Sudan, three foreign oil companies, and Sudapet. The foreign joint venture
partners, which have not been designated, are the state-owned China National Petroleum
Corporation (CNPC), Malaysia's state-owned oil company Petronas, and Canada's Talisman
Energy Corporation.
The addition of GNPOC and Sudapet to the list of entities owned or controlled by or
acting on behalf of the Government of Sudan means that U.S. persons and their foreign branches
are prohibited from engaging in most trade and financial transactions with these entities, and that
any GNPOC or Sudapet assets within the possession or control of U.S. persons are frozen.
Doing business with GNPOC or Sudapet, like doing business with the Government of
Sudan, carries criminal penalties of up to $500,000 per violation for corporations and up to
$250,000 for individuals, as well as imprisonment of up to 10 years. Civil penalties of up to
$11,000 per violation may be imposed administratively by Treasury's Office of Foreign Assets
Control (OF AC).
Today's announcement increases to 125 the total number of Government of Sudan
entities designated by OFAC pursuant to Executive Order 13067 of November 3, 1997.
-30LS-393
Forpress releases, speeches. Public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
.
·U.S. Govemment Printing Office: 1998· 619-559
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:
l"OR IMMEDIATE RELEASE
l"ebruary 14, 2000
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
February 17, 2000
May 18, 2000
912795DW8
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
5.510%
Investment Rate 1/:
5.682%
Price:
98.607
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 15%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
$
24,116,280
1,346,135
284,573
284,573
25,746,988
9,003,001
4,506,564
10,427
4,506,564
10,427
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
$
7,372,293
1,346,135
8,718,428 2/
25,462,415
PUBLIC SUBTOTAL
TOTAL
$
30,263,979
$
13,519,992
Median rate
5.490%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
5.430%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-cover Ratio
=
25,462,415 / 8,718,428
=
2.92
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,058,149,000
L8-394
http://www.publicdebt.treas.gov
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
February 14, 2000
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
February 17, 2000
August 17, 2000
912795EE7
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.760%
High Rate:
Investment Rate 1/:
Price:
6.032%
97.088
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 68%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
$
19,044,192
1,211,697
2,309,527
2,309,527
22,565,416
8,003,439
3,725,000
85,473
3,725,000
85,473
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
$
4,482,215
1,211,697
5,693,912 2/
20,255,889
PUBLIC SUBTOTAL
TOTAL
$
26,375,889
$
11,813,912
Median rate
5.750%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
5.680%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-cover Ratio
=
20,255,889 / 5,693,912
=
3.56
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $827,295,000
http://www.publicdebt.treas.gov
L8-395
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
1789
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C .• 20220 • (202) 622-2960
u.s. International Reserve Position
February 15, 2000
The Treasury Deparunent today released U.S. reserve assets data for the week ending February 11, 2000.
As indicated in this table, U.S. reserve assets totaled $69,570 million as of February 11,2000, down from
$69,786 million as of February 4, 2000.
(in
us millions)
I. Official U.S. Reserve Assets
TOTAL
1. Foreign Currency Reserves
a. Securities
L
1
Februa~
Februarv 4. 2000
69,786
Euro
Yen
11.2000
69,570
TOTAL
Euro
Yen
TOTAL
4,914
5,969
10,884
0
4,954
5,890
10,844
0
8,448
11,554
20,002
0
0
8,529
11,400
19,929
0
0
Of which, issuer headquartered in the U.S.
b. Total deposits with:
b.I. Other central banles and SIS
b.ll. Sanies headquartered In the U.S.
bjL Of which, banks located abroad
b.iii. Banles headquartered outside the U.S.
b.iii. Of which, banks located in the U.S.
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
4. Gold Stock 3
5. Other Reserve Assets
2
0
0
0
0
17,509
17,444
10,343
10,304
11,048
11,048
0
0
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates. Foreign currency holdings listed as securities reflect marked-ta-market values, and
deposits reflect carrying values.
2J SDR holdings and the reserve position in the IMF are based on IMF data and revalued in dollar terms at the official SDRJdoliar exchange
rate. Consistent with current reporting practices, IMF data for February 4, 2000 are final. Data for SDR holdings and the reserve position in
the IMF shown as of February 11, 2000 (in italics) reflect preliminary adjustments by the Treasury to the February 4, 2000 IMF data.
3J Gold stock is valued monthly at $42.2222 per fine troy ounce. Values shown are as of December 31, 1999. The November 30, 1999
value was $11,049 million.
LS-396
u.s. International Reserve Position (cont'd)
II. Predetermined Short-Term Drains on Foreign Currency Assets
February 4, 2000
1. Foreign currency loans and securities
2. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the U.S. dollar:
2.B. Short positions
2.b. Long positions
3. Other
February 11, 2000
o
o
o
o
o
o
o
o
III. Contingent Short-Term Net Drains on Foreign Currency Assets
February 4, 2000
1. Contingent liabilities in foreign currency
February 11, 2000
o
o
o
o
o
o
o
o
1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
~. Foreign currency securities with embedded options
13. Undrawn, unconditional credit lines
3.B. With other central banks
3.b. With banks and other financial institutions
headquartered in the U. S.
3.e. With banks and other financial institutions
headquartered outside the U. S.
~. Aggregate short and long positions of options in foreign
currencies vis-a-vis the U.S. dollar
4.a. Short positions
4.8.1. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622·2960
Contact:
EMBARGORD UNTIL 2: 30 P.M.
Pebruary 15, 2000
office of Financing
202/691-3550
TREASURY TO AUCTION CASH MANAGEMENT BILLS
The Treasury will auction approximately $30,000 million of 69-day
Tr9asury cash management bills to be issued February 18, 2000.
Competitive and noncompetitive tenders for bills to be issued in
the Treasury/Reserve Automated Debt Entry System (TRADES) will be received
through the Federal Reserve System.
Tenders will~ be accepted for bills
to be maintained on the book-entry records of the Department of the Treasury
(TreasuryDirecc).
Tenders will ~ be received at the Bureau of the Public
Debt, Washington, D.C.
Additional amounts of the bills may be issued to Federal Reserve Banks
as agents for foreign and international monetary authorities at the higbest
discount rate of accepted competitive tenders.
The auction being announced today will be conducted in the single-price
auction format. All competitive and noncompetitive awards will be at the
highest discount rate of accepted competitive tenders.
This offering of Treasury securities is governed by the terms and conditions set forch in the Oniform Offering Circu1ar for the Sale and ISSU9 of
Marketable Book-Bntry Treasury Bills, Notes, and Bonds (31 CFR Part 356. as
amended) .
NOTE:
Competitive bids in cash management bill auctions must be
expressed as a discount rate with two decimals, e.g., 7.10%.
Details about the new security are given in the attached offering
highlights.
18-397
000
For press releases, speeches, public schedules and official biographies, call Dur 24-hour fax line III (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERING
OF 69-DAY CASH MANAGEMENT BILL
February 15, 2000
Offering Amount .....•........•..•.. $30,000 million
Description of Offering:
Term and type of security ....••...•
CUSIP number .•.•..•................
Auction date ...•....•...•. '" •....•.
Issue date .•...•...••............••
Maturity date ......................
Orig~al issue date .•..•...........
Currently outstanding ...•..•.•..•..
Minimum bid amount and multiples ••.
Submission of Bids:
Noncompetitive bide
Competitive bids ...•..•
(1)
(2 )
(3 )
69-day Cash Management Bill
912795 DT 5
February 17, 2000
February 18, 2000
April 27, 2000
April 29, 1999
$38,283 million
$1,000
Accepted in full up to $1,000,000 at
the highest accepted discount rate.
Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
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.
Net long position must be determined as
of one half-hour prior to the closing
time for receipt of competitive tenders.
Recognized Bid
at a Single Rate .......... 35% of public offering
Max~um
Max~
Award ................ 35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Prior to 12:00 noon Eastern Standard time
on auction day
Competitive tenders .•...... Prior to 1:00 p.m. Eastern Standard time
on auction day
Payment Terms ................ By charge to a funds account at a Federal
Reserve Bank on issue date, or payment of
full par amount with tender.
DEPARTMENT
OF
THE
lREASURY")
TREASURY
NEW S
omCE OF PUBUCAFFAIRS· 1500 PENNSYLVANIAAVENVE, N.W .• WASfllNGTON, D.C.. 20220. (202) 622-2960
EMBARGOED UNTIL 10:00 A.M. EST
Text as prepared for Delivery
February 16, 2000
TREASURY ASSISTANT SECRETARY GREGORY A. BAER
HOUSE BANKING SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND
CONSUMER CREDIT
Madam Chairwoman, Congressman Vento, and Members of the Subcommittee, I
appreciate this opportunity to present the Administration's views on the potential merger of the
bank and thrift deposit insurance funds and related deposit insurance issues. We commend the
Committee for giving this topic the attention its deserves.
The Administration supports merging the FDIC's Bank Insurance Fund (BIF) and Savings
Association Insurance Fund (SAIF), as it has for several years. A merger of the two funds would
produce a single, more diversified and less risky fund, diminishing the chances that a series of
bank or thrift failures could deplete the funds and necessitate a call on taxpayers. We believe that
now is the optimal time to merge the funds, when both are in good health and the banking and
thrift industries are in strong condition. Let me divide my remarks into three parts: first, the
benefits of merging the deposit insurance funds expeditiously; second, questions concerning the
adequacy of the current designated reserve ratio of 1.25 percent; and third, the appropriateness of
rebating insurance reserves at some level above 1.25 percent.
Merging the Deposit Insurance Funds: Background
In 1995, the Treasury Department, the FDIC, and the Office of Thrift Supervision (OTS)
jointly proposed a solution to problems with SAIF. At that time, SAIF had inadequate reserves
and income. Its assessment base had been declining for several years, threatening SAIF's ability
to meet its obligation to pay the interest on Financing Corporation (FICO) bonds issued in the late
1980s to replenish the former thrift deposit insurance fund. The prospect of a long-term,
significant differential between SAIF and BIF premiums had given SAIF members strong
incentives to shrink their SAIF-insured deposits, which only served to exacerbate SAIF's
problems.
The Treasury-FDIC-OTS proposal had three key components: capitalization of SAIF;
spreading of the FICO interest obligation across all insured depository institutions; and merger of
BIF and SAIF.
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Congress enacted the first two of these reforms in the Deposit Insurance Funds Act of
1996, which President Clinton signed into law as part of the Omnibus Appropriations legislation
for Fiscal Year 1997.
•
The Act required thrift institutions to capitalize SAIF by paying a special assessment on their
deposits. This assessment raised SAIF's fund balance to the targeted level of 1.25 percent of
insured deposits.
•
The Act also spread the obligation for FICO interest costs across all FDIC-insured depository
institutions, rather than on only SAIF-member savings associations. FICO interest payments
were therefore supported by a large and growing assessment base, instead of a small and
declining one
The thrift special assessment and the spreading of FICO interest costs allowed subsequent
SAIF premiums to decline and eliminated the premium disparity between BIF and SAlF. Banks
and thrifts are thus currently subject to the same risk-based premium rates. Both SAIF and BIF
now have fund balances in excess of the 1.25 percent designated reserve ratio: as of September
1999, SAIF's fund balance stood at 1.44 percent of insured deposits, while BlF's reserve ratio was
138 percent. I
Why Merging the Deposit Insurance Funds Make Sense
With both funds healthy, the Administration believes that now is the time to merge the
deposit insurance funds. There are several reasons to support such a merger.
First, a merger of BlF and SAIF would strengthen the deposit insurance system because a
larger, combined fund would benefit from greater diversification of risks than either the bank or
thrift fund separately.
FDIC staff studies published last year found that banking industry consolidation has
increased risks to BIF over the past decade. With an increasing percentage of industry assets
spread over a decreasing number of banks, the probability that the failure of one of these large
organizations would deplete BIF's resources has increased. According to the studies, the failure of
a top 10 banking organization would carry a 12.5 percent chance of causi ng the fund to become
2
insolvent
I The SAIF fund balance includes the SAIF Special Reserve. which was set aside from SAIF as of January I. 1999 and
merged back with SAIF as of November 12. 1999.
~ Oshinsky. Robert. "Effects of Bank Consolidation on the Bank Insurance Fund." Working Paper Series. FDIC
Division of Research and Statistics. Working Paper 99-3. and Oshinsky. Robert. "Merging the BIF and the SAW
Would a Merger Improve the FlUlds' Viability:' Working Paper Series. FDIC Division of Research and StatistICS.
Working Paper 99-4.
2
Thus, a larger merged fund would provide a small but helpful offset to the increased risks
that BIF currently faces from banking industry consolidation. Whereas the largest holder of BIFinsured deposits currently accounts for 8.7 percent of these deposits and the five largest holders of
BIF-insured deposits account for 22.0 percent, those percentages would fall to 6.5 percent and 19.6
percent, respectively, in a merged fund]
SAlF has similar large-firm concentrations, although its risk diversification over the last
decade has improved as some SAlF-insured thrifts and their deposits were purchased by
commercial banks (so-called "Oakar" transactions). SAIF also faces product concentrations, as
many of its members have significant holdings of residential mortgages, and geographic
concentrations.
Second, it makes sense to merge the funds while the industry is strong and while the
merger would not unfairly burden either BlF or SAIF members. Based on September 1999 data, a
combined fund would have a reserve balance of $39.7 billion, and insured deposits of $284
trillion, for a reserve ratio of 1.40 percent. That would represent only a slight dilution for SAlF
members (currently facing a reserve ratio of 1.44 percent), and a slight improvement for BIF
members (whose fund currently has a 1.38 percent reserve ratio). Given the current designated
reserve ratio and premium rates, neither thrifts nor banks would face higher costs as a result.
A third reason to merge BIF and SAlF is to guarantee that a premium disparity for the
same product -- FDIC insurance -- will not arise again. Banks and thrifts with equivalent risks
should pay the same premiums for their deposit insurance. Yet, as we have seen in the past,
factors unique to one fund or the other might force FDIC in the future to set different risk-based
premium rates for BIF and SAlF. The experience of the years leading up to the 1996 SAIF
legislation demonstrates that depository institutions react to the emergence of such a differential by
going to great lengths to find ways to reduce their reliance on the more expensive deposits. This
activity represents a wasteful expenditure of resources, and a drain on industry efficiency and
competitiveness.
Fourth, it is increasingly hard to maintain that SAIF is the deposit insurance fund for
thrifts, while BIF insures banks. Both already are hybrid funds. Each insures the deposits of
commercial banks, savings banks, and savings associations. As of September 1999, BlF-member
banks accounted for over 37 percent of SAlF-insured deposits. And 31 percent of the total insured
deposits of savings associations and savings banks are insured by BIF. A fund merger would
simply recognize the commingling of the insurance funds that has already taken place and that is
likely to continue.
Adequacy of the 1.25 Percent Designated Reserve Ratio
Your invitation also asked for the Administration's views on the adequacy of the statutory
designated reserve ratio, and the feasibility of imposing a cap on the insurance funds and rebating
1
Source Office of Thrift Supervision. based on FDIC data.
3
reserves above that level. I will discuss each issue in tum, but would like to start with one general
observation. Any discussion about the appropriate level for the deposit insurance funds must come
with a high level of humility and a clear recognition of the uncertainty of any predictions in this
area. First, it is worth remembering that the thrift crisis - and in particular, the inability of deposit
insurance reserves to cover losses from thrift failures - cost the taxpayers of this country over $125
billion. Although the banking industry is justifiably unhappy at the $793 million per year in FICO
interest payments that it and the thrift industry make to finance the S&L cleanup, taxpayers
currently make $2.3 billion in annual interest payments on REFCorp bonds and billions more on
Treasury bonds issued for the same purpose. Second, it is also worth remembering that in 1981
the reserve ratio for the Bank Insurance Fund was at 1.24 percent, almost exactly at the fund's
current designated reserve ratio. There were doubtless some in 1981 who may have believed that
1.24 percent was enough Yet ten years later, in 1991, the reserve ratio was negative 0.36 percent
This leads to your questions about the adequacy of the designated reserve ratio, currently at
1 25 percent of insured deposits, in light of the effects of prompt corrective action, national
depositor preference, and the recently enacted financial modernization legislation.
The target of $1.25 in reserves for every $100 of insured deposits was established in the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Although its origins are
somewhat obscure, we understand that a ratio of 1.25 percent was selected because it was
considered generally in line with the FDIC's previous practice.
Congress and the regulators have in the past decade taken steps to reduce the likelihood of
losses to the FDIC insurance funds. Nonetheless, as explained below, we believe it would be
premature to conclude that these steps provide sufficient assurance to justify a rethinking of the
current reserve ratio policy.
•
Prompt corrective action, a system of capital-based supervIsIOn, was enacted as part of the
FDIC Improvement Act of 1991 (FDICIA). It was intended to prevent regulatory forbearance
by mandating increasingly stringent regulatory sanctions as an institution's capital declines,
with closure of the institution required while the institution still has positive net worth.
Although prompt corrective action holds the promise of lowering the number and severity of
bank and thrift failures, it has not been tested during an economic downturn. We believe that
more work needs to be done in evaluating the efficacy of prompt corrective action - In
particular, whether capital is proving to be a leading or lagging indicator of bank condition
•
FDICIA also required the FDIC, when deciding how to resolve a depository institution facing
default, to choose the method of resolution least costly to the deposit insurance fund, which
generally would mean not protecting uninsured depositors and other creditors. Although there
is an exception to the least-cost rule where systemic risk may be threatened, that exception
cannot easily be invoked, and there are significant financial consequences for the industry if it
is invoked.
•
A law enacted in 1993 gave depositors a preference over general creditors in their claims
against the estate of a failed bank. This could help the FDIC recover a greater portion of the
4
funds it disburses. This benefit could be diminished, however, to the extent that the general
creditors collateralize their claims or quickly withdraw their funds at the early signs of trouble.
•
It may also be noted that interstate banking and expansion of bank powers, coupled with better
risk management techniques, should help the industry diversify and thereby reduce risks to the
deposit insurance funds. Yet as banking organizations take advantage of these new powers,
new kinds of operational and other risks may also arise.
We hope and expect that the deposit insurance reforms of the early 1990s will provide
added protection to the FDIC over the long term. But we believe that it would be premature to
argue that they justify any change in reserve policy for the deposit insurance funds. Since these
reforms were implemented, we have been in the longest economic expansion in the nation's
history. We simply do not know what effect these reforms will have during a period of significant
financial distress
Indeed, we believe that industry consolidation may be a more significant factor affecting
the deposit insurance funds' risk profile going forward. Using a model based on historical loss and
failure rates, FDIC staff estimates that the probability of BIF insolvency, albeit small, has
increased by more than half due to industry consolidation. It should be noted that the analysis
shows that even a significant increase in the designated reserve ratio would not completely erase
the increased concentration risk to BIF4
Capping the Deposit Insurance Fund and the Question of Rebates
Madam Chairwoman, you asked for comment on an appropriate cap for a merged insurance
fund, specifically inquiring whether a 1.5 percent cap would be appropriate. You also sought our
views on rebates, considering the history and statutory authority of both the FDIC and NCUA. We
consider these two issues to be linked, since imposing a maximum insurance fund size would
implicitly require some sort of payment to insurance fund members if the maximum level were
reached.
As we understand the current proposals for rebates, they would change current law to allow
payments of rebates out of the fund's principal balance or interest income so long as the fund
remained above a specified level, such as 1.5 percent. We oppose a structure that caps the
insurance fund and mandates rebates of any "excess" reserves above that cap.
A rebate of "excess" reserves that could result from imposing a maximum insurance fund
size would represent a break with past and current FDIC rebate structures:
•
From 1950 through the 1980s, the law provided that FDIC pay rebates equal to a specified
fraction (2/3 or 60 percent at various times) of its net assessment income. Net assessment
~ Oshinsky. Working Paper 99-3.
5
income was the excess - if any -- of premiums paid over expenses and losses for a given
period. The fund's principal balance and interest income were not available for rebates.
•
Beginning in 1980, the amount of net assessment income rebated was tied to a range for the
insurance fund reserve ratio, but growing losses forced FDIC to reduce and ultimately
eliminate its rebates by the mid-1980s. In 1989, Congress prohibited rebates if the insurance
fund was not at its designated reserve ratio, and abolished rebate authority in 1991.
•
Congress restored rebates for BIF (but not for SAIF) in 1996. Healthy institutions can receive
a "refund" of premiums paid for the assessment period only to the extent that the funds are not
needed to meet the designated reserve ratio. Under its current authority, therefore, the FDIC
pays no refunds since healthy institutions pay no premiums
We oppose, for the following reasons, a change to current law that would allow banks and
thrifts not only to pay no premiums but also to receive payments from the principal balance and
interest income of the fund
First, we do not find sufficient evidence for concluding that any insurance fund net worth
above 1. 5 percent represents "excess" capital that should be returned to insured institutions rather
than retained by the insurer. We believe that those seeking to cap insurance fund reserves should
bear the burden of proving that current fund net worth levels are excessive, and we are aware of no
actuarial study reaching that conclusion. Indeed, at its current level of capitalization, BIF's
reserves could be entirely depleted by the failure of the largest one or two BIF members. Even if
merged with SAIF, the combined fund would not be able to withstand the failure of more than a
few of the largest institutions. To be sure, under current law the FDIC would have the authority to
replenish the fund through assessments on the industry. But such assessments would probably
come at a time when the industry is least able to pay them, and could have a pro-cyclical economic
effect. Thus, we believe that allowing the insurance funds to continue building up reserves
through interest income during good economic times is good policy.
Second, rebates would exacerbate what is already a poor set of incentives around deposit
insurance. FDICIA wisely required the FDIC to tie the deposit insurance premium paid by each
insured depository institution to the risks that it poses to the fund. However, a provision to which
the Administration objected in the 1996 SAIF legislation has significantly restricted the FDIC's
ability to charge premiums. The FDIC may not charge premiums to institutions that are well
capitalized and do not have "financial, operational, or compliance weaknesses ranging from
moderately severe to unsatisfactory" if the premiums are not needed to maintain the designated
reserve ratio. As a result, more than 90 percent of banks and thrifts currently pay no premiums at
all Reserves have continued to grow not because of premium income, but only because interest
earned on holdings of Treasury securities has outpaced fund expenses and losses.
It is worth thinking about what the absence of insurance premiums means in practical
terms: a well-capitalized institution with significant non-deposit liabilities can convert those
liabilities to federally insured deposits without incurring any insurance premium charges at all
Indeed, there are reports that a major financial services company that owns insured depository
6
institutions is planning to do exactly that with billions of dollars of liabilities. Put another way,
such an institution can impose a large new contingent liability on the insurance fund, and
ultimately the taxpayers, without paying compensation for it. The failure to charge such premiums
creates clear incentives for risk taking.
Rebating funds in excess of some cap on insurance reserves could take bad incentives and
make them perverse. In essence, the FDIC would be paying institutions for the risks that they
impose on the insurance funds.
Third, banks and thrifts obtain insured deposit funding at low cost because depositors know
that they are protected not only by the FDIC insurance funds, but also by the full faith and credit of
the United States. As the ultimate guarantor of depositors' funds, taxpayers are providing every
bank with a product of significant financial value. The Government does not explicitly charge for
full faith and credit support to deposit insurance. Yet the subsidy value provided by this credit
enhancement would likely rise if FDIC reserves are prevented from growing. This, too, would
increase incentives for institution risk taking that could raise the Government's loss exposure.
Finally, allowing insurance fund reserves to rise in good economic times is simply sound
financial policy that should benefit depository institutions and the FDIC. As I noted earlier, should
a downturn occur, FDIC would have more reserves upon which to draw than if the fund were
capped This could help to postpone the date of any future increase in premiums, or reduce the
magnitude of any such increase.
Comparison to the NeVA Structure
In asking for our views about rebates, you requested that we consider the history and
statutory authority of the National Credit Union Administration (NCUA) to pay rebates to
members.
Both the FDIC and NCUA designate a reserve target for their respective insurance funds.
The FDIC targets a fund level that would meet the designated reserve ratio, currently 1.25 percent
of insured deposits Under certain conditions, FDIC may raise the designated reserve ratio. The
NCU A must establish a target level for its Share Insurance Fund (SIF) reserves between 1.2
percent and 1. 5 percent of insured credit union shares; the current target level is 1.3 percent. 5
FDIC cannot charge premiums to healthy institutions if insurance fund reserves exceed 1.25
percent. NCUA cannot charge premiums if insurance fund reserves exceed 1.3 percent.
Nonetheless, there are significant differences between FDIC-insured institutions and credit
unions in how they contribute to their respective insurance funds and account for those
contri bution s.
, The SIF must also maintain an "available assets" (liquid net worth) ratio of 1 percent of insured shares
7
•
Contributions hy Insured Institutions: FDIC sets premiums for banks and thrifts in amounts
necessary to meet the designated reserve ratio. NCUA requires credit unions to meet the SIF
target reserve level primarily by maintaining on deposit in the SIF an amount equal to 1
percent of their insured shares. (The amount that each credit union has on deposit is adjusted
regularly to account for growth in its insured shares.) Credit unions may also be required to
pay premiums to meet target reserves, depending on investment income, expenses, and losses.
•
AccOlllltingfor Contrihutions to Insurance Fund,,: Banks and thrifts record the premiums that
they pay as expenses. Credit unions expense any insurance premiums they may pay, but
record the I percent deposit that they place with the NCUA as an asset on their books.
•
Premium Rate Structure:
•
Shor{fal/s in Insurance Funds: If an FDIC insurance fund balance falls below 1.25 percent of
FDIC premiums are tied to the risks of the insured institutions.
NCUA may charge only flat-rate premiums based on credit unions' insured shares.
insured deposits, FDIC must charge sufficient premiums to eliminate the shortfall, but may
allow insured institutions to replenish the fund over a period of up to 15 years. NCUA may
charge premiums if SIF's reserves fall below 1.3 percent, and must charge premiums if
reserves fall below 1.2 percent. If the fund falls below I percent, credit unions must expense a
proportional amount of the 1 percent deposit, and have to replenish any shortfall from 1
percent generally within one year.
The NCUA makes distributions of reserves to credit unions if SIF reserves exceed the
target level, and NCUA may not set the target reserve level above 1.5 percent. Credit unions
receive distributions from SIF in proportion to their 1 percent deposit.
It is difficult to evaluate how the reserve cap and rebate structure might work if applied to
the FDIC without considering other key elements of the credit union insurance fund structure.
Any perverse incentives caused by a rebate are diminished in the context of the NCUA
structure, since even if rebates are paid, individual credit unions must make ongoing contributions
to SIF in proportion to their insured share growth. Under the current FDIC structure, no such
ongoing contributions are required.
If the FDIC were to adopt the NCU A's one percent deposit approach, including the
ongoing contributions for institution growth, higher capital requirements for banks and thrifts
would be necessary. The accounting treatment of the 1 percent deposit double counts a portion of
the buffer to absorb losses - that is, the sum of industry net worth and insurance reserves To
compensate for this double counting, credit union net worth requirements were set at a level higher
than that applicable to banks and thrifts
But the credit union reserve cap and rebate structure must also be seen in the context of the
structure and risk profile of the credit union industry. Industry consolidation does not pose nearly
the same degree of risk to the credit union insurance fund as it does to the FDIC The Treasury' s
8
report on credit unions found that the failure of the largest credit union, or three of the largest
credit unions, would require credit unions to write-off only 20 percent of deposits at the SIF.
Recommendations for Other Legislative or Regulatory Actions
Your invitation asked whether we have related legislative or regulatory recommendations
(apart from a fund merger). I spoke earlier of our concerns with the provisions of current law that
greatly restrict the FDIC's ability to tie insurance premiums to risk. We believe that the FDIC
should have more flexibility to improve the pricing of deposit insurance. Specifically, premium
rates or the premium assessment base should be changed to reflect more accurately the FDIC's risk
position by accounting for secured borrowings. Since the FDIC stands in line behind secured
creditors in the resolution of a failed bank, the FDIC should be permitted to take account of a
bank's secured liabilities in determining premiums. For example, a bank that replaces unsecured
borrowing with Federal Home Loan Bank advances or repurchase agreements has effectively
moved the FDIC to a lower position in claims on the bank's assets, yet the FDIC has received no
compensation for the increased risk. As I mentioned earlier, one concern with the federal
depositor preference law is that it gives a weak bank's creditors an incentive to secure their
interest Doing so gives those creditors a priority claim on the bank's assets (usually the best
assets) while increasing the FDIC's expected losses should the bank fail.
In addition, we believe that Congress should rescind the Federal Home Loan Bank's so6
called superl ien on member assets
This statutory provision gives priority to a FHLBank' s
security interest in the assets of a failed bank, even if it has not perfected its security interest in
such collateral. Consequently, the FHLBanks typically require a blanket lien over a large portion
of a member's assets, essentially giving the FHLBanks a claim over those assets superior to that
available to the FDIC. The superlien was instituted in 1987 in order to encourage the FHLBanks
to continue lending to troubled thrifts - it form of forbearance. We see no reason to continue
giving a government sponsored enterprise credit protection unavailable to any other creditor,
especially since it could put the FDIC in a worse position.
Conclusion
In conclusion, we continue to support a merger of the FDIC's two insurance funds, which
would strengthen the deposit insurance system by increasing its risk diversification and ensuring
that premium disparities between institutions with equivalent risks do not arise again. We believe
that Congress should proceed to merge the funds without incorporating other, more problematic
changes to the deposit insurance system.
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usc
j·DO(e)
9
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlllNGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL 1:30 P.M. EST
Text as Prepared for Delivery
February 16, 2000
TREASURY UNDER SECRETARY TIMOTHY GEITHNER
TESTIMONY BEFORE THE HOUSE SUBCOMMITTEE ON ASIA AND THE PACIFIC
Introduction:
Thank you for giving me the opportunity today to offer the perspective of the Treasury
Department on U.S. policy toward Indonesia.
Indonesia's future is critical to the stability and prosperity of Southeast Asia and the
region as a whole. The United States has a major stake in the success of the political transition
now underway and in seeing the foundation laid for a strong and durable economic recovery.
I will focus my remarks on three subjects:
The sources of the economic recovery underway in the region and what lessons
this holds for policy makers in Indonesia.
A review of the major economic policy challenges facing the new Indonesian
government.
The broad strategy we have adopted to support recovery in Indonesia.
Sources of Recovery in Asia
Your hearing takes place in the context of a remarkable improvement in economic and
financial prospects for emerging Asia as a whole.
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Growth across the region has recovered more rapidly than expected, with most
economies in the region estimated to have expanded at a rate of 4 to 9 percent in
1999.
With the restoration of investor confidence, currencies have stabilized, and interest
rate spreads over U.S. securities have approached pre-crisis levels (and in some
cases fallen below).
The process of repairing financial systems has begun, and corporate restructuring
is underway.
Current account surpluses are adjusting to more moderate levels as domestic
demand strengthens.
These improvements came from a complex and varied mix of factors across countries.
But the dominant lesson of the financial crises of the last several years is that countries that react
rapidly with strong, credible stabilization and reform programs are likely to fare better than those
that find it difficult to do so.
In Asia, the common elements of success were:
The development and implementation of a sound framework for monetary and
fiscal policies that gave investors the confidence necessary to stabilize exchange
rates.
Rapid implementation of a credible plan to restructure the financial and corporate
sectors so that the overhang of debt could be lifted and private sector lending and
growth could resume.
Early progress toward creating the right legal and regulatory infrastructure for
private investment and growth (especially a functioning and credible legal system
that protects property rights and a working insolvency regime), and improved
transparency by regulatory agencies, corporations and financial institutions.
Commitment to openness to trade and foreign capital.
Political leadership that inspires confidence, at home and in global financial
markets, in its commitment and its capacity to get things done.
Where these conditions were satisfied, the financial support and advice provided by the
international institutions were remarkably effective in generating positive economic results.
Where they were not, or where a positive commitment on paper was overwhelmed by political
uncertainty or undermined by political constraints on implementation, the crisis was much deeper
2
and more protracted and recovery much more difficult to establish. This is, in a sense, the story
of Indonesia since the fall of 1997.
Indonesia's Economic Challenges
Indonesia has taken some important steps to lay the foundation for economic recovery.
The macroeconomic environment has stabilized, and output has begun to expand again.
After the deep declines of 1998 and early 1999, the economy is expected to expand at an
estimated l. 8% annual rate in FY 1999 (ends March 31), and the government expects it to grow 3
- 4% in FY2000. Inflation has been reduced sharply to near zero, from a high of more than 75%
in late 1998. Nominal interest rates have fallen dramatically, with the yield on one-month central
bank certificates now only 11 % (down from around 65% in late 1998). Real interest rates have
also declined from their peak in mid 1999. The rupiah has strengthened significantly from the
depths of the crisis, though it is still estimated to be about 25% below the pre-crisis level in real
trade-weighted terms.
The new government has adopted a new framework for economic policy, with the support
of the IMF, World Bank and Asian Development Bank, which holds the prospect of maintaining
macroeconomic stability and creating greater confidence among domestic and foreign investors.
On February 4, the IMF Board of Directors, with U.S. support, approved a new three-year
program for Indonesia. Now, Indonesia must focus on implementation of its policy agenda.
In our view, Indonesia faces four main economic challenges.
1. The Macroeconomic Dimensions of Growth
Indonesia can take considerable comfort in the progress achieved in stabilizing inflation,
the recovery in the exchange rate, and the fall in interest rates.
Going forward, Indonesia faces a difficult balance between the near-term need to stimulate
the economy, invest in social programs and recapitalize the banking system, and the longer term
challenge of reducing public debt and reducing dependence on foreign official assistance.
In the economic program outlined in the agreement with the IMF, the government decided
to avoid a further expansion in the fiscal deficit (targeted in the program at nearly five- percent of
GDP for FY2000). With ambitious targets for government asset sales and privatization of stateowned enterprises, the government hopes to begin to reduce the large public debt burden.
Over the medium term, once the recovery is more firmly established, the government will
have to put in place a credible program for reducing the public debt burden further, and as it
moves toward fiscal decentralization, will have to ensure that the transfer of fiscal resources to the
regions is accompanied by a commensurate transfer of responsibilities and capacity.
3
In this context, it is critically important that the government commit to preserve the
independence of the central bank, whose policies have been responsible for much of the return to
stability.
The government's macroeconomic framework is designed so that, by the end of the IMF
program, Indonesia would no longer need exceptional balance of payments support or further
debt rescheduling.
2. Financial Sector and Corporate Sector Restructuring
Economic growth will not recover with any strength in Indonesia without a recovery in
private sector activity. A recovery in private investment now depends critically on progress
toward repairing the financial sector and restructuring insolvent banks and corporations.
The Indonesian government's efforts to restructure, recapitalize, and privatize both the
state-owned and nationalized banks (which together now account for about 70% of banking
system liabilities) have been painfully slow and inadequate. The Indonesian Bank Restructuring
Agency (IBRA), which now holds assets amounting to roughly 50% ofGDP, has made alarmingly
little progress in recovering non-performing loans and disposing of the assets that it now holds.
Restructuring has been hampered by private debtors' belief that they ultimately will not be forced
to pay, foreign banks' reluctance to invest due to concerns about transparency and governance,
and political pressure on IBRA not to write down or collect on claims. Restructuring delays have
severely impeded the growth of bank credit and added to the government's fiscal costs and
already high debt burden.
Financial and corporate sector restructuring is the central focus of the government's
program with the IMF. The program outlines several priorities for the financial sector: first,
restructuring and privatization of state-controlled banks, which the Indonesian government
committed to begin before the end of March; second, improving supervision and governance in
the banking sector; third, minimizing the public cost of the remaining recapitalization; and fourth,
deepening bond and equity markets, which will provide alternatives to bank finance.
On the corporate debt restructuring side, the IMF program calls for: stronger powers for
IBRA, able to restructure debt without political interference, and mandated to send recalcitrant
debtors to bankruptcy court; better implementation of the bankruptcy law, so that the threat of
bankruptcy proceedings provides troubled debtors with a real incentive to restructure debt with
creditors; and measures to combat corruption in the judiciary, including stepped-Up investigation
of bankruptcy judges suspected of corruption.
3. Bolstering Tramparency and the Rule of Law
The challenge of creating a legal system that allows creditors to enforce their rights,
permits the bankruptcy regime to work, and provides a mechanism to begin to unravel the legacy
of corruption this government inherited is essential to recovery in Indonesia.
4
This is why the work of the newly appointed Indonesian Attorney General is so important
to the success of the economic program. This is why the U.S. and other countries, working with
the international financial institutions, made judicial reform a centerpiece of the recent
consultative group meeting of donors.
Foreign investment and domestic flight capital are unlikely to return to Indonesia in the
amount necessary to finance future growth until investors are more confident that they will be
treated fairly by the legal system, that they will be protected from discrimination, and that they
will be safe from the selective assignment of privileged economic rights that prevailed under the
Suharto regime. This confidence is critical to an effective process of unwinding the complex
interests tied up in the claims now held by the government.
The IMF program outlines measures for greater transparency in many areas, including
fiscal management (both in central and regional governments), the operations of the central bank,
the judicial system, and commercial bank and corporate governance (including accountability and
disclosure standards).
The IMF LOI includes a strong commitment to audit the Indonesian military, including
extra-budgetary sources of income, and to report findings to civilian authorities. The Indonesian
Coordinating Minister for Economics and Industry, Kwik Kian Gie, has assured us that the audit
has begun and will be completed by August 3 1.
The LOI also contains commitments to speed up the resolution of disputes with
independent power producers (IPPs). The new government has committed to become directly
involved in accelerating negotiations between the state power company and the IPPs and has
already taken the step of replacing the state power company's management, and ensuring that
various lawsuits against several IPPs were dropped.
The new government has moved to address one of the most conspicuous recent examples
of public corruption in the Bank Bali case. An independent investigation of the scandal by was
undertaken by PriceWaterhouseCoopers (PWC) and released publicly by the Indonesian
government in October. The Indonesian attorney general took up the investigation where PWC
left off and has committed to follow through on the investigation. The attorney general has
named several suspects, including a former cabinet minister.
4. Investing in Human Capital
Delivering a more substantial and broad-based improvement in the economic welfare of
Indonesians is a fourth important challenge for the new government. A broad majority of
Indonesians will not support the economic reform program unless they believe that it will bring
about a tangible improvement in their welfare. In an increasingly constrained budgetary
environment, given the costs of resuscitating the banking sector, it will be vital to ensure that
social investments are better targeted to the people who need them most. This means:
5
Building on past successes in community-based provision of basic social services,
with greater decentralization and transparency and wider participation to command
credibility and popular trust.
Maintaining and extending the impressive efforts that have been made to keep
children in school through the crisis -- an investment that will payoff many times
over in faster growth and greater social cohesion in the years to come.
Focussing on greater and more effective provision of critical health services -particularly basic preventive care.
In the area of labor conditions, Indonesia has made considerable progress during the past
year in affording its workers rights of association and collective bargaining. Partly in response to
the urging of the United States and the IMF, Indonesia ratified ILO Convention 87 (Freedom of
Association) in 1998. During 1999 Indonesia ratified ILO Conventions 105 (abolition of forced
labor), III (employment discrimination), and 138 (child labor), becoming the first East Asian
country to ratify all seven of the core ILO conventions. We have been informed that Indonesia
intends to introduce new labor legislation by October of this year, which would bring its laws into
conformance with the ILO conventions.
An Agenda for Immediate Action
Our hope is that the new Indonesian government will move quickly to take advantage of
its electoral mandate, and the broad political support in favor of economic reform, to move
quickly to implement the new program. Among the most important steps the new government
could take to establish its credibility with its citizens and with investors are:
Demonstrating that officials of ffiRA, Bank Indonesia, and other economic
agencies can carry out their official duties without fear of inordinate political
interference or constraints.
Indicating the government intends to get out of the banking business, by
transferring controlling shares of government-owned banks to the private sector.
An important step will be ffiRA's sale of shares in Bank Central Asia (BCA),
which is expected before end-March.
Replacing management responsible for the large losses of state-owned banks.
Demonstrating progress on disposal of assets by IBRA, even where this means
writing down debt. An important indicator will be the planned sale of ffiRA' s
stake in the leading Indonesian vehicle maker Astra International. This would be a
significant step toward meeting IBRA's key end-March asset sales target.
6
Sending a clear signal to large debtors that unless they cooperate, they will be
prosecuted and their assets seized. Specifically, IBRA needs to pursue high-profile
recalcitrant debtors through the insolvency system.
Demonstrating a willingness to see foreign investors as part of the solution to
Indonesia's corporate and financial sector debt problems -- and not part of the
problem -- through the sale of a substantial stake in a large Indonesian corporation
or bank to foreign investors. As is has been true elsewhere in Asia, foreign banks
could be an important source of support for financial sector modernization in
Indonesia, not only as sources of needed capital but greater financial resilience in
the future.
Investigating and prosecuting judges who have engaged in corrupt practices. The
word must go out that in a new Indonesia, no one is above the law and the laws
will be fairly enforced.
Conclusion
The United States and the international community should be prepared to help Indonesia
with its ambitious reform agenda. On the economic and financial front, we can be most effective
in the following areas:
Supporting an adequate scale of official finance in this period of economic distress
and transition. The new IMF supported program approved earlier this month will
provide approximately $5 billion in financing -- dependent on continued and
forceful implementation of conditions -- over the next three years. The World
Bank and Asian Development Bank together have about $7.8 billion in alreadyapproved loans in the pipeline that have yet to be disbursed.
Focusing the international financial institutions on the core challenges facing the
new government, with reforms concentrated on those steps necessary to restore an
environment conducive to private enterprise and new investment, an adequate
safety net with important investments in health and education, and growth oriented
macroeconomic policies.
Supporting an appropriate breathing space on external debt service, including a
rescheduling of Paris Club obligations. We have signaled that we are ready to
work with other Paris Club creditors to achieve a further rescheduling of
Indonesia's obligations. This would provide another two years of relief to
strengthen the government's capacity to carry through with its economic policy
agenda.
7
Providing an expanded program of technical assistance, in cooperation with State,
AID and other agencies, targeted toward public debt management, fiscal
decentralization, financial and corporate restructuring, and law enforcement.
Indonesia's most pressing economic challenges are in many ways more political than
economic. Progress depends critically on the political capacity of the government to act.
The new government has outlined a credible program of political change and economic
reform. Combined with the general improvement in the economic environment in Asia and the
world economy as a whole, this creates the potential for substantial and enduring improvement in
economic conditions for the people of this important nation.
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8
DEPARTMENT
OF
THE
TREASURY
NEWS
ornCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
February 16, 2000
STATEMENT BY TREASURY DEPUTY SECRETARY STUART E. EIZENSTAT
Deputy Secretary Stuart E. Eizenstat praised the International Commission on
Holocaust Era Insurance Claims (ICHEIC) for its announcement today that it is initiating
the claims process for unpaid insurance that date from the Nazi era.
Mr. Eizenstat said, "The announcement today that the ICHEIC is beginning a
massive, world-wide outreach program to identify those with unpaid insurance claims
that date to the Nazi era represents the latest tangible evidence of the renewed
commitment, of both governments and the international business community, to seek
justice for Holocaust survivors and their families."
In particular, Mr. Eizenstat praised the role of former Secretary of State
Eagleburger who serves as ICHEIC Chairman.
-30-
LS - 400
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·U S Government Printing Office 1998 - 619-559
DEPARTMENT
OF
THE
TREASURY
1789
OFFlCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
February 16, 2000
TREASURY DEPUTY SECRETARY STUART E. EIZENSTAT
REMARKS BEFORE THE BUNDESTAG COMMITTEE ON DOMESTIC AFFAIRS
BERLIN, GERMANY
I want to thank you for inviting me to testify before this committee today. Although I
have tried to make my statement comprehensive, I hope you will permit me to supplement
this statement at a later time should there be additional points which need to be raised.
I want to start by commending Germany for its efforts on this truly historic initiative.
For the past fifty years, Germany has set an example for the rest of the world on how to
deal with a horrific aspect of its past. Despite having provided more than 100 billion
Deutsch Marks in compensation to victims of Nazi persecution and having proposed to cut
some 30 billion Deutsch Marks from the government's budget, your government was
willing to provide 5 billion Deutsch Marks to a Foundation that should be viewed as a
culmination to Germany's efforts to deal with its past. This is truly remarkable. The fact
that the overwhelming majority of German citizens support this initiative, despite the fact
that the government is attempting to reduce drastically the budget, is also truly
extraordinary .
At the historic December 17 announcement in Berlin of the German Government's and
German companies commitment to contribute a total of DM 10 billion to the Foundation,
Count Lambsdorff and I both pointed out that there were a number of implementation
issues that needed to be addressed before any funds could be distributed. One of the most
significant of these, and one that all of the participants have been focusing on since Berlin,
is the German legislation that is necessary to establish the Foundation.
We fully recognize and respect the constitutional role of the Bundestag and understand
that it is your prerogative to approve the legislation. I am particularly grateful for this
opportunity to testify before you and recognize just how unusual it is to have a foreign
government official testify concerning domestic legislation. I appreciate the government's
willingness to share its draft legislation for comment by the victims' representatives and the
United States Government, as well as your openness. This is more than a courtesy. It is a
LS - 401
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
·U S Government PrmllnQ Office 1998· 619·559
recognition of the moral dimension of our common efforts. But it is also essential if there
is to be legal peace for German companies.
This is not an ordinary piece of legislation, however. As you begin your review, I
know that you will appreciate the unique nature of this legislation and will view this
historic initiative in the proper context. For almost one year, the United States
Government, the German Government, the Governments of Israel, Belarus, the Czech
Republic, Poland, Russia, and Ukraine, as well as representatives of German companies
and victims' groups, have engaged in extensive discussions on a "bracketed text," a
document that was to set the parameters of the Foundation Initiative of the German
Economy, initially to be established as a charitable foundation. Members of the Bundestag
attended each of the plenary sessions, and I am sure that you have a good appreciation of
this.
This negotiation was a carefully balanced process in which every effort was made to
recognize the interests of all the participants. It resulted in a document that reflected a
series of compromises that are necessary for everyone to accomplish what we all want
accomplished. Now that the German Government and the German companies have agreed
on a unified Foundation, the Foundation will be established instead by a public law. It is
critical that those compromises be reflected in the public law.
I want to note how important is was that members of all five of the parties
represented in the Bundestag could participate in all of the plenary meetings, including the
most recent Washington plenary. These members have had the opportunity to hear first
hand the views of the different participants interested in the draft legislation. All of the
victims' groups made it clear to the Parliamentarians that the legislation needs to reflect the
compromises and agreements that were reached during the many months of discussions of
the substantive issues. If it fails to do so, it is unlikely that the plaintiffs' lawyers will in
fact agree to dismiss their cases or that the U.S. Government can provide the breadth of
legal peace the German companies desire and deserve.
I believe the German government fully recognizes the importance of passing
legislation that the victim groups and the United States Government can support as faithful
to our negotiations, and that it recognizes the importance of creating a structure and a
process that, once enacted, can allow the legal peace German industry seeks. For this same
reason, it is important that the Bundestag approve legislation that can be supported by all
the parties to this process.
As you know, the early drafts of the legislation proposed for submission to the
Bundestag by the German cabinet contained provisions over which a number of victims'
representatives, as well as my government, expressed grave concern. We believed they did
not accurately reflect the results of our prior negotiations. At the recent January 31February 1 plenary session in Washington, we had a very productive discussion of these
concerns. Bundestag members participated actively. I am very gratified that the German
government has reaffirmed its intention to revisit these provisions in light of our discussion.
I want to use today's hearing to provide you with what we believe has been agreed
to by all of the participants and our views as to what would need to be included in the
legislation in order for this historic initiative to be successful. Again, we fully recognize
that it is the Bundestag that will determine the final shape of the legislation. But it would
be highly unproductive to pass legislation that could not lead to the legal peace which is
essential for the German Foundation Initiative to succeed. Before I begin discussing the
legislation, however, I want to note that the DM lO billion capped amount has been agreed
to by all of the participants and nothing I will say would increase the obligation of either
the German Government or German companies by one pfennig or reopen any issues closed
over the years since the end of the Second World War.
One issue we resolved in the recent negotiations in Washington concerned offsets -whether the payments by the Foundation should be offset by payments previously made
under German government compensation programs. The most recent draft of the legislation
provided that there should be offsets for prior BEG and other government payments. In
response to the unanimous concern expressed by the victims' groups that such offsets did
not reflect the agreements reached during the previous nine months of negotiations, the
German Government agreed to remove this provision. All parties now agree there will be
no offsets, except for payments victims have already received from the companies, either
directly or through third parties, for which they performed slave and forced labor. Your
government's responsiveness to the legitimate concerns of the victims' groups should be
praised, and I hope you will reflect that result in the legislation. We hope that this spirit of
cooperation continues as all of the participants work to make this historic initiative a
reality.
I. Scope
One of the seminal elements to this process has been the legitimate demand from
German companies that, in return for their participation in funding a German Foundation,
they receive legal peace in U.S. courts from pending and future lawsuits arising out of the
Nazi era. One of the major breakthroughs in our negotiations occurred when we reached
agreement with the German companies on the mechanism for achieving such peace. This
would involve the named plaintiffs voluntarily dismissing their cases and the United States
Government filing "Statements of Interest" in current and future cases, consensual and
non-consensual, against German companies involving Nazi era acts. This Statement would
provide that the Foundation should be regarded as the exclusive remedy for claims against
German companies arising out of the Nazi era and that dismissal of such cases would be in
the foreign policy interest of the United States. While under this mechanism, German
companies will not be "immune" from suits in the United States, the fact that the United
States Government will file a Statement of Interest in all cases brought against German
companies, asserting that dismissal of such cases would be in its foreign policy interest
will, we expect, contribute to the legal peace we all desire.
From the beginning, the German companies have insisted that the United States file
statements of interest in all cases. From the beginning, we have said that in order for the
United States to do so the Foundation would have to provide a potential remedy in all such
cases. This includes providing a potential remedy for any claimant, whether an individual
or legal person, and for any type of claim, including for property damage or personal
injury. In short, the breadth of legal peace achievable is coterminus with the breadth of
potential claimants who can utilize the Foundation - otherwise it is not the "exclusive"
remedy - all within the DM 10 billion capped amount.
In order to satisfy the concerns of their clients, the German companies' own attorneys
suggested, and all the victims' representatives agreed, the idea of including a "catch-all"
clause which would provide a potential remedy for all cases not explicitly covered by other
sections of the legislation. They and we agree that there are multiple protections that will
prevent this catch-all from undermining the other purposes of the Foundation, such as the
overall cap and the subcap for this catch-all provision and the ability of the Foundation
Board to deny claims given prior treaties and agreements. Under the current draft, while
Section II's so-called "opening clause" allows payments for all personal injury claims,
including medical experimentation and Kinderheim cases, no similar catch-all exists for
property-related claims. Currently, the Foundation covers only a partial subset of raciallymotivated property claims, but fails to cover other property claims where German
companies were directly involved - even though German companies support their inclusion
so they can achieve comprehensive legal peace.
An important part of ensuring that the Foundation provide a potential remedy for all
types of claims against German companies so that the United States can file its Statement of
Interest in all such cases is that all claimants, including individuals, legal persons, and all
legal heirs, have the right to present their claim to the Foundation.
The most recent draft provides that only individuals are eligible for benefits from the
Foundation. Thus, legal persons, such as victims' organizations would be precluded from
filing a claim with the Foundation. We are told that in at least one of the current lawsuits
the plaintiff is not an individual, but rather an organization. In order for us to file a
Statement of Interest in this and all cases involving legal persons, as the companies insist,
the Foundation would have to allow both individuals and legal persons with a potential
remedy.
In addition, Section 13 of the current draft limits the heirs who are eligible to receive
payments for property damage to surviving spouse and children. There is currently a case
pending against German banks in which the plaintiff is the legal heir of the original owner
of the property. The original owner had never married. Not only would it be patently
unfair to exclude this and other legal heirs from receiving a payment for property damage,
but if this limitation is maintained, the United States would not be able to file Statements of
Interest in cases for property damage where the plaintiff is a legal heir, but neither a
surviving spouse nor child.
In my meetings with Count Lambsdorff last week, we once again proposed that a
"catch-all," such as the German companies support, be added to the draft to cover these
cases and any others. In addition to covering all racially-motivated property claims,
Category C would be expanded to cover all other claims submitted by those who believe
they suffered injustices during the Nazi-era where German companies were directly
involved, not otherwise covered by the Foundation law. One of the issues that was
discussed at length was the need to allocate a separate amount of the DM 10 billion for
property claims (Category C) and to create a mechanism to rule on such claims. It was
agreed that the Claims Conference and the plaintiffs' attorneys would have to reach
agreement on how the amount allocated to deal with property issues would be split between
a humanitarian and claims portion. It is understood that the mechanism to address these
claims would be outside the Foundation. On Monday I had a very productive discussion
with the Claims Conference and the plaintiffs' attorneys concerning how such a mechanism
might be structured. In addition to further developing ideas for this mechanism, we need
to ensure that all property claims against German companies and other claims against
German companies not covered by other provisions of the law are covered by this category.
We are aware that elements within the German Government have rejected the notion of
allowing the Foundation to address non-racial property claims. Frankly, this is a mistake.
We hope that this decision will be reviewed and reversed by the German Cabinet. The
German Government believes these are really reparations claims and that the issue of
reparations is closed. The issue of reparations is sensitive, and I do not believe a debate on
that issue will be productive. What I can say -- and what I have assured your government - is that we have no intention of allowing the Foundation legislation to affect the wording
or interpretation of any pre-existing treaty. We have proposed the following language to
make this clear, which could be included in the Executive Agreement:
Recognizing that unilateral declarations as well as bilateral and multilateral treaties
and agreements, which were intended to deal with the consequences of the Second
World War and the Nazi-era, including reparations issues, shall not be affected in
their wording and existing interpretation by the Executive Agreement or the
Foundation Law and that it is not intended to affect any issue which might have
been treated by such documents, including reparations issues.
We received initial positive reaction from Count Lambsdorff last week, but await a formal
response.
We understand, however, that the German Government would like us to go further.
We are therefore reviewing whether we can provide any additional assurances to the
German Government regarding any reparations claims against it. This, however, will not
dispense for the need for inclusion of a catch-all as outlined above. I want to make clear
that the language concerning reparations and any additional steps we might consider taking
are only offered in connection with the inclusion of a comprehensive catch-all. Such
claims against German companies that would be covered under this catch-all are highly
unlikely. In fact, we do not believe any of the cases currently pending against German
companies concern non-racial property claims. Moreover, the inclusion of such a catch-all
adds no additional cost to anyone -- government or companies.
Let me stress again one essential point. United States has no independent interest in
the Foundation covering non-racial property claims. We understand and sympathize with
your reasons for not wanting to do so. This issue only arises because of the companies'
demand that the Foundation lead to universal legal peace. The United States has no
objection to excluding non-racial property claims from the scope of the Foundation so long
as it is clear that the U.S. will not file Statements of Interest in cases asserting such claims
in U.S. courts, either in the cases currently pending or in the future.
II.
Eli~ibi1ity/Payment
Criteria
At our last plenary in Washington, Count Lambsdorff confirmed to us that the
current provisions in the draft legislation on allocation are in some respects a place holder.
If the parties to the negotiations can reach agreement on allocation amounts and rules, he
told us, the German Government is willing to ask you to put that agreement into the law.
This week I had several productive discussions with various groups on allocation and we
hope to continue those tomorrow during the plenary. I found a great amount of agreement
among victims' representatives. I hope that we can reach an agreement soon on this very
sensitive issue and that such agreement can be incorporated into the law. A number of
items, however, can be addressed now.
During our nine-months of negotiations on the bracketed text, a number of agreements
were reached concerning the eligibility and payment criteria. It is important that these are
reflected in the legislation. First, there was broad agreement that while the partner
organizations should be given discretion to vary the per capita payments to Category B
beneficiaries, all Category A beneficiaries should receive the same amount. It is very
important to the victims' groups that the law require that all Category A laborers receive
the same amount. The current draft provides that Category A beneficiaries may receive up
to DM 15,000. Acquiescing to this request of all of the victims' groups would have no
effect on the exposure of either the German Government or companies. Therefore, we
hope that the legislation can take into consideration this consensus.
Second, in our last plenary session in Washington it was agreed that payments to those
victims who suffered separate wrongs should not be limited to a fixed amount. The draft
should make clear that one's ability to receive payment under Category A will not have an
impact on the amount of money the claimant can receive under Category C. The current
draft provides that if someone was a slave laborer and suffered property damage would be
allowed to receive only DM 15,000 in total. This should be revised to reflect the
agreement reached at our last plenary in Washington.
Third, there was general agreement that, recognizing the consensus that the vast
majority of the Foundation funds should be used to be living victims, any funds allocated
for labor or property claims that are not used should not flow to the Future Fund. Rather,
these unused funds should be redistributed to the different partner organizations for
distribution to survivors. In addition, funds not needed by one partner organization should
be made available to other partner organizations to meet any shortfalls. The current draft
provides that the Board of Trustees shall decide on the use of all unused funds. However,
because there is general consensus that these unused funds should, in the first instance,
flow to survivors, it does not seem necessary to postpone this decision for the Board to
make.
Fourth, all of the victims' groups believe that there needs to be a separate suballocation for non-labor related personal injury cases, such as cases involving medical
experimentation and Kinderheim cases. We agree. The draft currently combines these
cases in the so-called "opening clause" in Section 11, which allows the partner
organizations the discretion to make payments to relocated and agricultural forced workers.
This would not require allocating any additional funds to those to be distributed to partner
organizations. Rather, it would simply set aside an amount in each partner organization's
allocation to be used for non-labor personal injury cases. Any funds allocated for these
personal injury cases, but not used, could then be used for Category B distributions. It is
important to keep this separate so as not to risk dilution of funds allocated for forced
laborers in the event of an unanticipated number of miscellaneous personal injury claims.
III. Definition of German companies
It is important that close attention is paid to the definition of "German companies" in
the legislation, as, among other things, this could have an impact on which companies
benefit from the Statement of Interest we would be committing to file in our Statements of
Interest. The current definition in the draft provides that German companies are "all
companies headquartered in the territory of the German Reich in its 1937 borders as well as
their parent companies and subsidiaries, even if they were located outside of Germany," as
well as those enterprises in which German companies hold or have held at least a 25 %
interest. This current definition is problematic. None of the victims' groups support such
a broad definition.
From the beginning of this process the concept has been that the German Foundation
Initiative is a German project, involving the German Government and German companies.
Thus, we had only contemplated committing to file Statements of Interest in cases brought
against German companies, that is those headquartered in Germany, as well as against their
foreign subsidiaries if sued for the same acts. We had not anticipated filing Statements of
Interest in cases being brought against foreign parents of German subsidiaries, for example
Ford, which is not participating in the German Foundation Initiative.
Recentl y, however, the German Government and German companies have pressed us
to broaden our commitment so that foreign parents of German companies would benefit
from our Statement of Interest. We have taken this issue under review and are currently
considering whether to commit to file a Statement of Interest where a U.S. parent is being
sued exclusively for acts committed by its German subsidiary. In any event, we would not
contemplate filing our Statement of Interest in cases against U.S. companies for Nazi-era
activities not involving activities in Germany of its German subsidiary. It is important that
the definition mirror the commitment the United States is able to make with respect to
filing its Statement of Interest and that once we work out our position on this issue
conforming changes would need to be made in the legislation.
As the Bundestag takes the legislation under review, h is important to note that one of
the conditions the victims' groups insisted upon when they accepted the DM 10 billion
capped amount was that this would not include any contributions made by United States
parent companies. Some United States parent companies have expressed interest in
contributing to a mirror fund in the United States. Any funds contributed separately by
United States companies would not go to the German Foundation, and thereby reduce the
German"companies' DM 5 billion obligation. Rather, U.S. companies would contribute to
their own fund in the United States. It is very important that we not dilute potential
additional contributions. The DM 5 billion must come exclusively from German
companies. Non-German contributions should be above and beyond that amount.
In addition, we have received information that suggests that under German law, 25 %
stock ownership, or even 50% or more stock ownership, does not provide "control" over a
foreign company. We understand that at least one company that has majority ownership of
another German insurance company is resisting joining the International Commission for
Holocaust Era Insurance Claims, which I will discuss in greater detail shortly, because it
claims such ownership does not provide it with "control" over its subsidiary's policy.
Again, we believe this is a German project, and therefore, to the extent foreign subsidiaries
are included in the definition, it should be only those subsidiaries actually controlled by a
German company, not just those that happen to have partial German ownership. It may be
that the best measure of such "control" is whole ownership.
IV. Banking/property claims
As I noted previously, during our recent plenary in Washington we discussed the need
to allocate a separate amount for property claims, within the DM 10 billion capped amount
and to create a mechanism to rule on such claims. This mechanism, which would fall
outside the Foundation, would need to receive and process all non-insurance property
claims against German companies. There was general agreement that the division of
money between property claims and humanitarian funds will need to be agreed upon by the
various victims' groups.
With respect to the mechanism to address non-insurance property claims, we intend to
work closely with those interested in this issue, and would hope that the legislation could
be conformed to reflect the agreements that are reached.
We have had extensive discussions with the German Government concerning the
broadening of the scope of Category C. It currently covers only a sub-set of raciallymotivated property claims, mainly claims by those living in Central and Eastern Europe.
We share the views of all of the victims' groups that it needs to be extended to include all
racially-motivated property claims, as well as other claims not otherwise covered by the
Foundation as determined by the panel charged with receiving and processing these claims.
We recognize that the extensive German Indemnification Laws provided compensation or
restitution to the vast majority of those who suffered property damage during the Nazi era
and do not suggest that the Foundation should reopen these cases. It is our view that all
claims that were or could have been addressed under the extensive German
Indemnification Laws are barred, except under special circumstances to be determined by
the panel. Although the German Government has rejected the notion of broadening the
coverage of Category C to cover, among other things, all racially-motivated property
claims, we hope that this decision can be reconsidered by the German Cabinet.
I have already discussed a number of the other outstanding issues concerning property
issues in the context of the scope of the Foundation. I would like to note one more: the
victims' groups have unanimously criticized the provision in the current German draft
which place~ a DM 15,000 per capita cap on Category C payments. We share the victims'
groups concerns. There simply should not be a per capita claim cap on these payments.
Those who have brought cases against German companies alleging damage to property will
never not agree to dismiss their suit in favor of a process in which their ability to recover is
so limited. They recognize, however, that they should only be able to receive a pro-rata
recovery up to a sub-cap for this type of claim. We and the victims' groups support a
scheme whereby if the awards approved by the Category C panel exceed the amount
allocated for property claims then the awards should be pro-rated within this sub-cap.
We hope that, since this proposal is supported by the vast majority of victims'
representatives, and would not increase the exposure of the Gennan Government and
companies, that it will be looked upon favorably and incorporated in the legislation.
V. Composition of the Board of Trustees
The victims' groups have asked that victims' representatives and survivors themselves
be adequately represented in the composition of the Board of Trustees. In addition, there is
some concern that other groups which have not partici.pated in the discussions are not
adequately represented. We recognize that it would be very difficult to increase the size of
the Board, without diminishing its ability to be a timely decision-making body. In order to
address these concerns, we have the following recommendations.
First, the current proposal provides that the United States Government would appoint
an attorney to the Board. We suggest that the group of plaintiffs' attorneys that has
participated in this process, rather than the United States Government, appoint such an
attorney to the Board.
Second, we suggest that the legislation establish two advisory committees -- a
Lawyers' Committee and a Victims' Committee. These five person committees, whose
members would serve in a voluntary capacity, would report directly to the Board of
Directors. In order to address the attorneys' concerns that they are not adequately
represented in the decision-making apparatus of the Foundation, this Committee should
fairly represent the lawyers who have participated in the Foundation discussions. The
Victims' Committee could consist of at least two members of groups that do not have
representation on the Board of Trustees and at least two survivors.
Third, the Chairman of the Board appointed by the Chancellor should be a person of
international stature, with relevant international experience. During the negotiations there
was unanimous support for this idea.
Finally, the legislation should provide that at least one of the three members of the
Board of Directors should be a victims' representative.
VI. Waiver
One of the more sensitive issues during the entire negotiating process has been the
scope of the waiver a claimant must sign in return for receiving payment from Foundation
funds. There was agreement reached in Washington two weeks ago that no beneficiary
under the Foundation should be required to waive entitlement to any government payment,
for example, BEG or social security, in order to receive a payment from the Foundation.
Once again, I applaud your government for agreeing to revise the current draft which had
provided that a successful claimant would in fact have waive such entitlement. Once again,
they have responded to the concerns expressed by all of the victims' groups.
There was no agreement reached, however, concerning other aspects of the scope of
the waiver. The German Government promised to review this issue in light of the victims'
concerns, which we share.
The current draft of the legislation provides that every beneficiary, when making
application, "shall declare that by receiving a payment under this law he irrevocably waives
any further claim against" both the Government and German companies. Requiring a
waiver of such broad scope cannot be justified.
All of the victims' groups believe that the scope of the waiver should mirror the scope
of the claim. We share this view. Thus, an applicant should be required to waive only
further claims against the German Government or German companies that directly relate to
his claim to the Foundation. Therefore, a Category A or Category B applicant should,
upon payment, only be required to waive all labor claims against the German Government
and German companies, but should not also be required to waive a claim for stolen art or
property damage as well. Similarly, a Category C applicant, should only be required to
waive further claims concerning the specific property that is the subject of the particular
claim and not all labor related claims as well. Thus, a claimant eligible to receive a
payment under Category C for an aryanization claim against a bank would not be required
to forego the right to pursue a claim against a particular piece of property, such as a
painting.
VII. Insurance
Since the announcement of the establishment of the German Foundation Initiative last
February 16, we have worked on the assumption that this process would have to be
coordinated with the International Commission on Holocaust Insurance Claims (ICHEIC),
which had already been established and was designed to address all Holocaust-era insurance
claims. While the relationship between the two processes is still being negotiated, I would
like to provide the Committee with some background concerning the ICHEIC and a sense
of how these two processes will eventually be coordinated.
The U.S. Government has strongly supported the international effort to bring justice to
victims of Nazi persecution and is pleased that the ICHEIC is expected to announced the
launch of its full-scale' claims and outreach program yesterday.
The ICHEIC claims process will use relaxed standards of proof in dealing with
outstanding claims from the Holocaust era and will ensure the opening of companies' files,
the cross-checking of names with Yad Vashem's records of Holocaust victims, and further
research into European archives to find names of potential claimants. The International
Commission has tested its claims procedures in a "fast-track" process for existing claims
previously submitted to regulators cooperating with the Commission. Substantial progress
has been made through this "fast-track" process and has resulted in the payment of a
number of existing claims to Holocaust survivors and their heirs.
All claims against German insurance companies brought to the Foundation will be
processed under the International Commission's rules and procedures, and according to
Section 11 of the draft legislation, the special provisions of the International Commission
on Holocaust Era Insurance Claims shall be unaffected. This is an important recognition
that ICHEIC will be the exclusive remedy for dealing with insurance claims.
The draft law provides that the DM 10 billion capped amount includes funds to pay
insurance claims under ICHEIC, as well as administrative and any pre-paid amounts. The
inclusion of this provision must await the outcome of ongoing negotiations in ICHEIC with
German insurers. The International Commission's relationship with the German
Foundation and the allocation of Foundation funds for insurance are the subjects of ongoing
negotiations. However, the German Foundation will have a humanitarian insurance func~
that shall be passed through to the International Commission, which shall have
responsibility for administering such a fund.
Representatives of both European insurance companies and Jewish organizations have
tabled proposals to pay outstanding Holocaust-era German insurance claims, to create a
humanitarian fund for nationalized policies, heirless policies and policies against German
companies no longer in existence, as well as for social purposes as determined by the
ICHEIC. The outcome of these discussions should be reflected in the draft legislation.
The U.S. Government has supported the International Commission on Holocaust Era
Insurance Claims since it began, and we believe it s~ould be considered the exclusive
remedy for resolving insurance claims from the World War II era. As stated in the MOU
signed by the five ICHEIC member companies, those companies cooperating with the
Commission deserve "safe haven" from sanctions, subpoenas, and hearings relative to the
Holocaust period. I recently wrote to the state insurance commissioners in Washington and
California, emphasizing my strong support for the international efforts to create a claims
settlement process under the International Commission and stressing that, in their legitimate
concern for Holocaust survivors, proposed actions in these states could undermine the work
of the ICHEIC.
We have strongly encouraged and will continue to encourage all insurers that issued
policies during the Holocaust era to join the International Commission and participate fully
in its claims, outreach, and humanitarian programs. The ICHEIC is the best and most
expeditious vehicle for resolving insurance claims from this period, and membership in the
International Commission provides the only real way of both ensuring that valid claims are
paid and resolving international moral and humanitarian responsibilities, i.e., for heirless
and nationalized claims or companies no longer in existence.
As it currently stands, with respect to German insurance companies, only those who
are beneficiaries of policies with companies participating in the ICHEIC process have a
potential remedy outside of litigation. Currently, only Allianz is a member. Efforts need
to be undertaken to persuade or require all German insurance companies that issued policies
or today own companies that issued policies, to join ICHEIC and participate fully in its
programs, including claims, humanitarian fund, public outreach, and audit programs. How
can we do justice if people with real claims for real insurance policies have no redress?
We have repeatedly stressed that it is essential that all those who are beneficiaries of
insurance policies issued by a German company prior to the end of World War II should
have a forum for their claims. °In order for the United States to file Statements of Interest
in all cases against German insurance companies arising from the Nazi-era, there must be
an alternative potential remedy for all those with Nazi-era claims against any German
insurer. If the ICHEIC proves unable to attract all German insurers, other methods need to
be used to ensure that no policy with a German insurer goes unpaid.
In all of the discussions of the draft texts, all parties assumed claims on insurance
policies would be paid over and above the fixed amount agreed upon. We are now told by
German companies that claims must be paid within the DM 10 billion. I believe we can
use a capped reserve in the Future Fund, inside the DM 10 billion to cover claims written
by German companies for the German market. It is not possible, however, to include
policies written outside of Germany, for example in Central and Eastern Europe, by nonGerman subsidiaries of German companies within the DM 10 billion. Why should RAS,
an Italian company which wrote policies in Central and Eastern Europe, receive the
benefits from this German Foundation, including a Statement of Interest, simply because it
was acquired by Allianz in the 1980s?
VIII. Heirs of Forced/Slave Laborers and the Future Fund
One of the major breakthroughs during this complex nine month negotiation was
reaching unanimous agreement that heirs of those forced and slave laborers who have
perished would not be entitled to direct payments from the Foundation. It was also agreed,
however, that the heirs of those forced and slave laborers who died subsequent to the
February 16, 1999 announcement of the establishment of the German Foundation Initiative
would be eligible for direct payments. All of this was done largely for practical
considerations, as the number of such heirs would be in the millions and there would
simply not be enough money available to make payments to both survivors and heirs.
Instead of receiving direct payments from the Foundation, it was agreed that the Future
Fund would "support projects that serve to benefit the heirs." This could include, among
other things, educational scholarships for heirs of former forced/slave laborers.
Section 2 of the current draft provides that the Future Fund will "take appropriately
into account" heirs. This Section, however, needs to incorporate the language that was
agreed to during the negotiations. In order for the plaintiffs' attorneys to dismiss cases
brought by heirs and for the United States' Statement of Interest to say that the Future Fund
is a fair resolution for heirs, it is imperative that the legislation provide for specific noncompensation benefits for heirs.
The current draft also provides that only the surviving spouse and children of those
forced and slave laborers who died on or after February 16, 1999 are entitled to receive
payment from Foundation funds. All of the victims' groups believe that the heirs eligible
to recover should not be so limited. We share this view. Rather, all legal heirs of those
forced and slave laborers who died on or after February 16, 1999 should be entitled to
receive payment from Foundation funds. Again, broadening this provision is not only the
fair thing to do, but will not increase the exposure of either the German Government or
companIes.
IX. Miscellaneous
Before concluding, I would like to run through a number of procedural issues
concerning the Foundation.
First, decisions by partner organizations will be made using relaxed standards of
proof. This needs to be reflected in Section 11(2).
Second, given that the average age of survivors is approaching 80, every effort must
be made to distribute the money to the victims as soon as possible. Section 17(2) currently
provides that the Foundation shall make funds available to the partner organizations on a
quarterly basis. However, this distribution approach should not be followed if it will slow
down payments to beneficiaries. If a particular partner organization is able to process all of
its claims within the first four months, then it should receive all of the money necessary to
pay these claims at that time.
Third, Section 18(1) currently provides that "the Foundation and its partner
organizations shall be authorized to solicit authorities and other public institutions such
information as is necessary to the fulfillment of their mission." It is important that the
Foundation and its partner organizations be authorized to solicit such information from
private institutions as well. After all, the vast majority of these cases concern the behavior
of German private companies and these companies might have information that would be
useful in assisting the partner organizations in making decisions on the submitted claims.
Fourth, in order for the United States to state in its Statement of Interest that the
Foundation is a fair and equitable remedy for these claims, it is important that the
Foundation and its partner organizations be subject to a annual public audit. Section 8
currently provides that only the Foundation shall be audited.
Fifth, it is important to remember that this Foundation is more than simply about
making dignified payments to likely more than one million survivors who suffered under
the Nazi regime. It is also designed, through the Future Fund, to educate people around
the world about what happened in Germany between 1933 and 1945 so as to ensure that
these unspeakable acts are never repeated. It is vitally important that as part of this
educational effort German companies archive all of their documents relating to this awful
period so as to provide the public with all of the details regarding the activities of German
companies during this period. To many of the victims' representative and victims, this
archiving of company documents is just as important, and would have a longer-lasting
impact, as the billions of deutsch marks that will be distributed to the survivors. A number
of German companies have already begun to do so. The legislation should encourage or
perhaps even require all to do so.
Sixth, it is critically important that the German companies deposit their DM 5 billion
contribution as soon as possible in' an interest bearing account. The interest should support
the purposes of the Foundation and would be the source used to pay administrative
expenses and negotiated legal fees. The legislation should support the agreement we have
reached with Count Lambdorff and the companies on this point.
Finally, as you are aware, the Foundation will provide payments to survivors worldwide through partner organizations. Partner organizations have only been identified,
however, to cover Jews worldwide and survivors in Belarus, the Czech Republic, Poland,
Russia, the Ukraine. Partner organizations to cover the remaining non-Jewish survivors
need to be identified as soon as possible. If such organizations are not identified, then the
Foundation must be able to provide direct payments to individuals not covered by a partner
organization. Section 10, however, currently precludes the Foundation from making
payments directly to the beneficiaries. It would quite regrettable if the Foundation is
operating, the funds are available, and a beneficiary living in Australia or some other
country is unable to receive payment because a partner organization to cover Australia or
that country had not been identified and the Foundation could not make the payment
directly to the claimant. We understand the concern that such a system might leave the
Foundation vulnerable to appeals in the German legal system. However, in order for the
German companies to attain the legal peace we all believe the deserve, it is essential that a
solution be found.
Conclusion
I have attempted to outline both the various agreements and compromises that have
been worked-out during the nine-months of negotiation, which need to be reflected in the
legislation.
In addition, I have given you the United States' views on a number of the outstanding
issues. In almost every case, our views converge with those of the victims' groups.
It is my sincere hope that as you undertake this historic task of reviewing and
approving this unique piece of legislation that you do so bearing in mind that all of the
participants in this process need to be able to support the legislation. Otherwise, the
plaintiffs' lawyers will not agree to dismiss their cases, the United States will not be able to
file its Statement of Interest, over a million survivors will not receive long-awaited
dignified payments in recognition of their suffering and the German Government and
companies' unprecedented initiative will not become a reality.
Once again, I want to commend your country for undertaking this historic endeavor,
one which in addition to providing a measure of justice to many victims of the Nazi era,
will further strengthen the already strong U.S.-German relationship. I thank you for giving
me this opportunity to address this Committee.
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OrnCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 1:00 PM
AS PREPARED FOR DELIVERY
February 16, 2000
Remarks by Under Secretary of the Treasury for Domestic Finance Gary Gensler
to the Exchequer Club
Washington, D.C.
Good afternoon and thank you for inviting me to speak here today.
The reform of our nation's financial services laws is one of the major achievements of this
Administration. Washington has struggled for over two decades to make these changes, and we
are proud to have been part of this historic legislation. We now have a tremendous amount of
work ahead of us to implement the provisions of the Act. We are working closely with our
colleagues at the financial regulatory agencies to make the promise of fewer barriers, more
consumer choice, lower costs, and better service a reality.
Even as we work to carry out the many mandates of the statute, new issues and challenges
for the financial industry will continue to arise. As new technologies create significant
opportunities, they also raise new challenges. This afternoon, I would like to discuss three issues
facing the financial services industry that have been raised by new technologies - financial privacy,
the use of electronic signatures and records, and computer security.
E-Commerce and the Financial Services Industry
As significant as financial modernization legislation has been for the financial services
industry, something more dramatic is facing today's financial institutions. That is the rapid
changes brought on by new technology, in particular by the Internet and electronic commerce.
LS-402
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There may be no part of our economy that is more suited to delivery over the Internet than
financial services. Financial services and products are not physical goods. Investments,
mortgages, consumer loans, deposits, bill payment, and insurance have no physical form. The
stored value and risks they represent are best presented in charts, graphs, and words. The
Internet can bring this data to consumers in the comfort of their home. Electronic commerce will
most certainly reduce costs, improve efficiency, and increase competition. Consumers of financial
services will benefit greatly.
But consumer confidence is critical to achieving the full promise of electronic commerce.
E-commerce is still at an early stage of development. The large-scale computer attacks of the last
two weeks highlight some of the uncertainties with its growth. In this environment, it is critical
that both the government and industry take steps to foster consumer confidence.
Privacy
The first challenge is to protect the privacy of consumers while preserving the benefits of
competition and innovation brought about by technology.
Today's ordinary desktop computer is significantly more powerful than the mainframe of
thirty years ago. Vast amounts of information can be stored, sorted, manipulated, and analyzed at
lower and lower costs. At the same time, the increasing use of credit and debit cards and other
electronic means of payments and receipts allows financial services companies to collect a far
greater amount of information about its customers. Direct deposit now means that a bank knows
not only what you spend, but also how much you earn, and from whom. These trends provide the
means and opportunity for financial services firms to mine consumer information for profit.
Today, many Americans increasingly feel their privacy is threatened by those with whom
they do business. Americans want the ability to earn, invest, and spend their money without
having to expose their lives to those who process their transactions. Just as they would not expect
a letter carrier to read their mail or record their correspondents, they do not expect a bank
processing a check to record, store, and evaluate their personal behavior.
The question of consumer control over personal information will become more pressing as
technological innovation continues. I encourage those of you who work with financial institutions
to get out ahead of this issue. Indeed, some institutions already have.
2
If you have any doubt as to the resonance of this issue with consumers and with
lawmakers, just look at how far the debate has moved in the last nine months. When the
President outlined his "Financial Privacy and Consumer Protection in the 21 st Century" initiative
last May, many viewed the proposal as ambitious. Protecting financial privacy led the list of key
principles for consumer protection.
The President's recommendations on financial privacy called for legislation providing
consumers with notice and choice regarding the use of their financial data -- the right to say "no"
to information sharing that they find inappropriate or invasive. Central to this is the idea that
one's personal information is not the exclusive property of the institutions that hold it -- that
people have a legitimate right to a say in how it is used and distributed.
Only six months later, we made significant progress on these goals in the financial
modernization bill. We believe that the requirements for clearly stated privacy policies, for
consumer notices and for the right to opt out of third-party information sharing are important
advances in privacy protections for all Americans.
Treasury has been pleased to have had a role in the interagency development of privacy
rules implementing this statute. This has been a major undertaking, with eight agencies working
to issue consistent rules on one of the bill's most complicated and important issues. The timetable
has been very tight, but there has been a high level of cooperation among all of those involved in
the process. The agencies have taken a balanced approach that minimizes burdens on financial
institutions, while providing very effective privacy protection consistent with the statute. The
regulators are looking forward to receiving comments from you and, we expect, many others.
As important as the Act and the implementing rules are, this Administration believes that
more can be done to protect personal financial privacy. The President has called on Treasury,
working with other parts of the Administration, to develop legislation to enhance consumer
privacy beyond existing law. These proposals are still in development. We are consulting with
industry, consumer groups, and Congress to fulfill the President's mandate.
The additional consumer choice provided in the financial modernization bill was an
important step in protecting financial privacy, but consumer choice for sharing with third parties
should be a floor, not a ceiling. As the President has indicated, our new proposals will address
information sharing within financial conglomerates. We are also looking at a range of other
options, again with the desire to find balanced proposals that will both enhance privacy protection
and allow financial institutions to provide quality services.
3
Electronic Si&nature Le&islation
The Administration supports electronic commerce and has been working to promote its
development wherever possible. As part of this effort, we need to make sure that our laws keep
up with rapidly changing technologies and markets. The application of laws written before the
Internet was even an idea can create uncertainty that is not in the interest of either business or
consumers. The President has directed every federal agency to conduct a top-to-bottom review
to find and eliminate policies, requirements, rules, and regulations that could be a barrier to the
growth of electronic commerce. We also have asked the public for their ideas on the subject, and
I encourage you to talk to us about your concerns.
At the same time, Congress, working with the Administration, is taking a critical step
toward facilitating e-commerce through digital signature legislation. Two digital signature bills,
S. 761 and H. R. 1714, passed their respective Houses last year, and appear to be on their way to
conference.
The use of electronic signatures and records could revolutionize the way mortgage and
consumer loans, financial accounts and investments, and retirement plans are provided to
consumers. These bills would allow any contract that can be entered into in writing to be entered
into electronically. We support this move to validate the use of electronic signatures and
documents in place of paper.
In addition, the House version would allow for electronic delivery of a broad range of
records, disclosures, and notices that are now provided in writing. This, too, could be a very
important step forward. We must be careful, however, that as we take this step, we continue to
provide the consumer protections that Congress and the states have previously enacted.
Consumer protection laws in the financial services area generally are designed to ensure
that consumers are provided with the information they need to make sound financial decisions.
They include the Truth-in-Lending Act, Real Estate Settlement Protection Act (RESPA), the
Truth-in-Savings Act, the Consumer Leasing Act, and the Electronic Funds Transfer Act. Add to
that the provisions of Employee Retirement Income Security Act (ERISA), federal securities laws
and state law requirements concerning insurance contracts.
A good digital signature bill will ensure that consumer protections in the electronic world
are equivalent to those in the paper world. A bill that promotes both electronic commerce and
consumer protection is in everyone's interest. We believe that with some modest, common-sense
changes, that goal is well within reach.
4
Many concerns could be addressed by providing authority to regulatory agencies to
interpret the provisions of the legislation. This authority would not allow regulators to contravene
the statute, but to provide necessary guidance as to how the legislation would apply in specific
contexts. This would not only ensure that adequate consumer protections are maintained, but
would also provide financial institutions with much greater legal certainty in conducting business
with customers electronically.
Other changes are needed to ensure that consumer consent to electronic notice is truly
informed, electronic notices function effectively, that records cannot be altered by either party
after a transaction is consummated, and that the bill does not have unintended consequences
outside of the realm of business-to-business and business-to-consumer transactions.
We hope that agreement can be reached on important changes that will strengthen
consumer confidence in the electronic marketplace. We are looking forward to working with
Congress, industry, and consumer groups to produce a win-win bill this year.
Computer Security
The third area I would like to talk about is computer security and defenses. As the
financial services industry and the economy increasingly move on-line, we may become more
susceptible to disruption. As reported last week, a number of major Internet sites were disrupted
for significant periods by a technique known as distributed denial of service. Computer hackers
bombarded these sites with bogus requests, effectively blocking access for legitimate users.
Malicious hacking is by no means novel, but last week's events serve as a wake-up call.
The sheer numbers of users and the scope of the problem is changing. With more commercial
activity being conducted online, an increasing share of our overall economy is potentially subject
to disruption. Just as importantly, the means needed to cause economic disruption are easier than
ever to come by. Hacking tools are posted freely on the Web, and access is as cheap and as
portable as a laptop computer.
That is why in 1998 the President called on federal agencies and the private sector to
develop better computer defenses. The first industry to act was the financial services industry. In
October 1999, Secretary Summers announced the formation of the financial industry's computer
defense center. This effort, led by the private sector, helps some of the largest financial
institutions receive advance notice of potential attacks. In fact, as reported in the press, they
received warnings concerning the possibility of distributed denial of service attacks before these
attacks began. We encourage financial institutions of any size to consider how best to protect
themselves against computer attacks and to explore appropriate means of information sharing.
5
Conclusion
The implementation of the financial modernization legislation and the continuing
challenges of evolving technology will have important implications for the shape of the financial
services industry in the future. I believe that the now-constant change driving financial services
markets will produce -- perhaps sooner than we think -- an industry that looks very different from
the one we now know. While there are a lot of uncharted waters ahead of us in this process, I
believe that change will ultimately be very good for the industry, consumers, and the economy.
Thank you. I will be happy to take your questions.
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6
DEI' A It T MEN T
0 .,'
THE
NEWS
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TREASURY
l' I~ E A S tJ R Y
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on:lCE 0'" PUBLIC AFFAlkS -1$00 PJ::NNSYLVMoJJi\ AYI::NU£, N.W. _ WASHINGTON, D.C.- 20210. (202) 622·2%0
EMBARGOED ONT~L 2:30 P.M.
February 16, 2000
CONTACT:
TREASURY TO AUCTION $12,000
MILLIO~
Office of Financing
202/6.91-3550
OF 2-YEAR NOTES
The Treasury will auction $12,000 million of 2-yanr notos to refund
$27,053 million of publicly held securities maturing February 29, 2000,
and to pay down about $15,053 million.
In addition to the public holdings, Federal Reserve Banks hold $3,219
million of the maturing securities for their own accounts, which mny be
refunded by issuing an additional amount of the new securi~y_
The maturing securities held by the public include $2,381 million held
by Federal Reserve Banks as ag~nts for foreign and international monetary
authorities. Amounts bid for these accounts by Federal Renerve Banks will
be added to the offering.
T4aasu~irect
holdings of
customers requested that we reinvest their maturing
$636 million into the 2-year note.
approxima~ely
Tho auction 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 notos being offered today are eligible for the STRIPS program.
This offering of Treasury securities is governed by the terms and conditions see forth in the uniform Offering circular for the Sale and Issue
of Marketable Book-Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356,
as amended).
Details about the
highlights.
n~ securi~y
are given in the attnched offering
If the auction of 2-ye~ not os to be held Wednesday, February 23, 2000,
results in a yield in a range of 6.250 percent through and including 6.374
percent, the 2-year notes will be conaidered un additional iasue of the
outstanding. 6-1/4% 5-yenr notes of Series D-2002 (CUSIP No. 912B272LS)
originally issued February 28, 1997. The additional issue of the notes would
have the same CUSIP number as the outstanding notes, which are currently
outstanding in the amount of $13,800 million.
If the auction results in tho issuance of an additional amount of the
Series D-2002 notes rather than a new 2-year note, it will be notod on tho
Treasury auction results presg re1QaG8.
In the event o£ a rooponing, a l l
amounts outstanding for CUSIP No. 9128272L5( including the 5-yeur notes
issued February 28, 1997, would bo eligible for the STRIPS program.
L8-403
000
Attachmont
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H~GHLIGHTS
OF TREASURY
OFFER~NG
TO THE PUBLIC OF
2-YEAR NOTES TO BE ISSUED FEBRUARY 29,
2000
February 16,
~OOO
Offering Amount ••..•••.•••.•.•.•.•••••••.. $12,000 million
Description of Offering:
Term and type of socurity ••••••.•.•.....••
Series .....••••••..••...•••.••.•..•••••••.
CUSIP number .•.•.•.•..•.•.•..•.••..•.•••••
Auction date •.•••.••............••••..•..•
Iasue date ........••....•..........•....••
Dated date ...•••...••..•...•••••••••••••••
Maturity date ••••••••••.•.••••..••.•••••••
Interest rate •.•.•••.•.•••.•..••..•...•••.
2-year notes
S-2002
912827 6A 5
February 23, 2000
February 29, 2000
Fobrua.:ry 29,2000
February 28, 2002
Determined based on the highost
accepted competitivo bid
Yield ......••••... __ .. _ . _ . . . . . . . . . . . . . . . . . Determinf"ld at a.uction
Interest payment datea •.. _._ .•.••..••.•.•. August 31 nod Fabruary 28
Minimum bid amount and multiples •.•••••.•• $l,OOO
Accrued interest payable by invontor •••••• None
Premium or discount •••••••.••••••••••••••• Determined at auction
STRXPS Information:
Minimum ~ount required •••..••....... _ .... Detormined at auction
Corpus COSIP number ••••••••••••.••..••••• 912820 EN 3
Due date(s) and CUSIP number(s)
for additional TINT(s) •••••••••••••••••• Not QPplic~le
Submission of Bids;
Accepted in fu11 up to $5,000,000 at the highest
Noncompetitive bids:
accepted yield.
Competitive bids:
(1) Must be oxpressed as a yield with three decimals, e.g., 7.123%.
(2) Net long position for each bidder muGt bo reported when the sum
of the total bid amount, at nIl yields, and the not long position
io $2 billion or greator.
(3) Net long position must be determined as of one half-hour prior to
the closing time for receipt of competitive tendera.
Maximum Recognized Bid at a Single yield •••.•• 35% of public offering
M~~ Award ••.••.••••..••••.••••.••.......•. 35% of public offering
Receipt of Tenders:
Noncompetitive tenders:
Prior to 12:00 noon Eastern Standa.rd time
on auction day.
Competitive t~ndors:
Prior to 1:00 p.m. Eastern Standard t~e
on auction day.
Pa~nt
Terms~
By charge to a funds account at a Federal Reserve Bank
on iaDue date, or payment of full par rumount with tender.
TroasuryDirect
customers can use the Puy Direct featuro which authorizos a charge to
their account of record at their finunciul institution on iosue date.
DEPARTIVIENT
OF
THE
lREASURY {.J
TREASURY
NEW S
1789
OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
February 17, 2000
STATEMENT BY TREASURY DEPUTY SECRETARY
STUART E. EIZENSTAT
I came to Berlin this week for two reasons:
•
To continue discussions with all the participants at the plenary on the allocation of
the 10 billion D-Marks capped amount that we agreed upon at our meetings here
in the middle of December; and
•
To present to the Bundestag Interior Committee some of the critical provisions
that need to be incorporated in the legislation to establish the Foundation.
We made considerable progress during our meetings here over the past two days.
For the first time, all representatives of the victims presented comprehensive
proposals for allocating the 10 billion D-Marks. The parties came to Berlin with
proposals that were serious, realistic, and not far apart.
We recognize that all parties will have to show flexibility and understanding to
reach an agreement. We continue to be committed to a fair and equitable allocation,
and we appreciate the German Government's commitment to incorporate an
agreement on such an allocation into the legislation establishing the foundation.
Through our discussions, we were able to further narrow our differences so that
we are now within striking distance of an agreement on allocation.
The watchword of all the delegations today was "flexibility." Everyone pledged
willingness to move away from "red lines" and to seek ways to bridge our
increasingly small differences.
Secondly, everyone agreed on the need to accelerate the discussions, recognizing
the urgency of the situation, namely that elderly survivors should not continue to be
made to wait for the dignified payment they so deserve. We plan to continue our
discussions in Washington on March 7 and 8, when I hope we will be able to achieve
an agreement on allocation at that session.
LS - 404
-For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
With regard to the German legislation to establish the Foundation, I want to thank
the members of the Bundestag Domestic Affairs Committee for inviting me to testify
before them yesterday. My written statement is available on Embassy Berlin's web
site: www.usembassy.de. There are also some hard copies available here today.
As I told the Bundestag yesterday, we commend Germany for its efforts on
this truly historic initiative. For the past fifty years, Germany has set an example for
the rest of the world on how to deal with a horrific aspect of its past. The German
government's willingness to provide 5 billion D-Marks during a period of budget
cutting is truly extraordinary. The tremendous support of German citizens is deeply
appreciated as well.
My discussion with the Interior Committee was detailed and serious.
Committee members demonstrated through their comments their commitment to the
Foundation legislation. They recognized that the legislation must reflect the
compromises that eight governments, a number of victims' representatives and the
German companies have spent nearly a year negotiating in order to achieve the
comprehensive legal peace the German companies seek and deserve. The members
assured me that they would take account of what we had accomplished. I think all
understood that the overarching aim of our talks was to provide a measure of justice
for the victims as soon as possible.
Purpose of the Legislation
At its core, the Foundation legislation aims to provide dignified payments to
former forced and slave laborers and to others that suffered at the hands of German
companies. We seek a foundation with a breadth of coverage that will establish a
new direction in the never-ending effort to deal with the consequences of the
Holocaust. Dignified payments will be accompanied by provisions that allow
German companies to achieve the broadest possible legal peace, thus building a
cooperative rather than adversarial basis for the future. Every change I suggested
over the past several weeks was to this end. It will do little good to pass legislation
that fails to achieve legal peace. I want to note that the 10 billion D-Mark capped
amount has been agreed to by all of the participants and nothing I will say would
increase the obligation of either the German Government or German companies by
one pfennig or reopen any issues closed over the years since the end of the Second
World War.
I want to stress that, although we want the Foundation to be as inclusive as
possible, we have no intention of allowing the Foundation legislation to affect the
wording or interpretation of any pre-existing treaty or agreements, including those
dealing with reparations issues.
•
I cannot overemphasize the issue and importance of scope.
My testimony touched on a variety of issues important to all of the
participants in the negotiations. Allow me to address a few of them now:
HIGHLIGHTS OF TREASURY OFFBRINGS OF BILLS
TO BB ISSUBD FBBRUARY 24, 2000
February 17, 2000
Of f ering Amount ...••••••••..•..•••.•..• $ 9,000 million
Description of Offering:
Te~ and type of security .•.•..••••••..
CUSIP number ••.••••••••••••••..••...•••
Auction date ••••••••••..•.••••••••••.••
Issue date .•••••••••••.••••..••••••••••
Maturity date •.•••••••••••••••••••.••••
Original issue date •••.•••••••••••.•.••
Currently outstanding ••••••••••••••••••
MinLmum bid amount and multiples •••••••
91-day bill
912795 DX 6
February 22, 2000
February 24, 2000
May 25, 2000
May 27, 1999
$26,944 million
$1,000
$8,000 million
182-day bill
912795 EX 5
February 22, 2000
February 24, 2000
August 24, 2000
February 24, 2000
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids ••••••••• Accepted in full up to $1,000,000 at the highest 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 deter.mined as of one half-hour prior
to the closing time for receipt of competitive tenders.
MaxLmum Recognized Bid
at a Single Rate ••••••••••.• 35% of public offering
Max~
Award ••..•••......•.•.. 35% of public offering
Receipt of Tenders:
Noncompetitive tenders .•.... Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders ..••.•••• Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Terms: By charge to a funds account at a Federal Reserve Bank on issue date, or payment
of full par amount with tender.
Treasu~Direct customers can use the Pay Direct feature which
authorizes a charge to their account of record at their financial institution on issue date.
•
First, I stressed that individuals. upon receipt of payment from foundation funds.
should be required to waive further claims only with respect to the specific claim
that was filed.
•
Second, I spoke about insurance, one of the most difficult outstanding issues. We
view the International Commission for Holocaust Era Insurance Claims as the
best and most expeditious vehicle for resolving claims. I welcome the
International Commission's announcement that it began this week its claims
process and its massive, worldwide outreach program to identify those with
unpaid claims. We need to negotiate the relationship of insurance issues in the
German foundation with the International Commission process. Efforts need to
be undertaken to persuade or require all German insurance companies that issued
policies, or today own companies that issued policies, to join the International
Commission and participate fully in its programs, including claims. humanitarian
fund, public outreach, and audit programs. How can we do justice if people with
real claims for real insurance policies have no redress?
It is also critically important that the German companies deposit their 5 billion
D-Mark contribution as soon as possible in an interest bearing account. The interest
should support the purposes of the Foundation and would be a source used to pay
administrative expenses and negotiated legal fees.
In conclusion, let me reiterate that the progress we made in the last couple of
days takes us to within striking distance of an agreement on allocation and some of
the other outstanding issues. The only way we can resolve the remaining issues in a
speedy fashion, however, is for everyone to continue to approach these discussions
with the flexibility and spirit of cooperation that has brought us to the brink of
achieving something truly historic.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
OF .... CE 01' PUBLIC AFFAIRS el500 PENNSYLVANIA AVI::JIoUl. N.W. e WASlflNGTON, D.c.e 20220 e (202.622·29"0
EMBARGOED UNTIL 2: 3 0 P. M.
February 17, 2000
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK AND 26-WEEK BILLS
The Treasury will auction two series of Treasury bills totaling
approximately $17,000 million to refund $16,555 million of publicly held
securities maturing February 24, 2000, and to raise about $445 million of new
cash.
In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $7,998 million of the maturing bills, which may be refunded at
the highest discount rate of accepted competitive tenders. Amounts issued to
these accounts will be in addition to the offering amount.
The maturing bills held by the public include $3,859 million held
by Pederal Reserve Banks 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 highest discount rate of accepted competitive tenders. Additional amounts may be issued in each auction for such accounts to the extent
that the amount of new bids exceeds $3,000 million.
Treasu~Direct customers requested that we reinvest their maturing holdings of approximately $938 million into the 13-week bill and $785 million
into the 26-week bill.
This offering of Treasury securities is governed by the terms and conditions set forth in the Unifor.m Offering Circular for the Sale and Issue of
Marketable Book-Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as
amended) •
Details about each of the new securities are given in the attached
offering highlights.
L8-406
000
Attachment
_ For press releases, speeches, public schedules and official biographies, call our 24·hour fax line at (202) 622·2040
HIGHLIGHTS OF TREASURY OFFBRINGS OF BILLS
TO BB ISSUBD FEBRUARY 24, 2000
February 17, 2000
Offering Amount ..•••...•..•••.•••..•.•• $9,000 million
Description of Offering:
Ter.m and type of security •••••••...•.••
CUSIP number ••.•..••.••••••••.•••••••••
Auction date •••••••••••••••••••••••••••
IS8ue date ..•••.•••••••••••••••••.•••••
Maturity date ••••••••••••••.•••••••••••
Original issue date •••.••••••.•••••••••
Currently out8tanding •••••••••••••••••.
Min~ bid amount and multiples •••••••
91-day bill
912795 DX 6
February 22, 2000
February 24, 2000
May 25, 2000
May 27, 1999
$26,944 million
$1,000
$8,000 million
182-day bill
912795 EX 5
February 22, 2000
February 24, 2000
Augu8t 24, 2000
February 24, 2000
$1,000
The following rules apply to all 8ecurities mentioned above:
Subads8ion of Bids:
Noncompetitive bids ••••••••• Accepted in full up to $1,000,000 at the highest discount rate of
accepted competitive bids.
Competitive bid8 •••••••••..• (1) Must be expre88ed a8 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 p08ition must be determined a8 of one half-hour prior
to the closing time for receipt of competitive tenders.
Max~
ReCognized Bid
at a Single Rate ..••••••...• 35% of public offering
Max~
Award •••••••.•...•....• 35% of public offering
Receipt of Tenders:
Noncompetitive tenders •••••• Prior to 12:00 noon Bastern Standard t~ on auction day
Competitive tenders .•••..•.. Prior to 1:00 p.m. Bastern Standard time on auction day
Payment Ter.ms: By charge to a funds account at a Federal Reserve Bank on issue date, or payment
of full par amount with tender.
Treasu~Direct customers can use the Pay Direct feature which
authorizes a charge to their account of record at their financial institution 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
February 17, 2000
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 69-DAY BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
69-Day Bill
February 18, 2000
April 27, 2000
912795DT5
5.70 %
High Rate:
Investment Rate 1/:
5.86 %
Price:
98.908
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 45%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
$
56,196,420
2,000
$
30,003,920
2,000
TOTAL
$
56,198,420
$
30,005,920
Median rate
5.67 %: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
5.62 %:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
56,198,420 / 30,005,920
=
1.87
1/ Equivalent coupon-issue yield.
http://www.publicdebt.treas.gov
L8-407
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
February 17, 2000
Contact: Peter Hollenbach
(202) 691-3502
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY TORNADOES IN GEORGIA
The Bureau of Public Debt took action to assist victims of tornadoes in Georgia 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
Georgia affected by the storms. These procedures will remain in effect through March 31, 2000.
Public Debt's action waives the normal six-month minimum holding period for Series EE and
Series I 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.
Georgia counties involved are Colquitt, Grady, Mitchell and Tift. 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.publicdebUreas.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.
L8-408
PA-439
000
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR Th1MEDIATE RELEASE
February 18, 2000
Contact: Office of Financing
(202) 691-3550
TREASURY'S INFLATION-INDEXED SECURITIES
MARCH REFERENCE CPI NUMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (Cpn numbers and
daily index ratios for the month of March for the following Treasury inflation-indexed securities:
(1) the 3-3/8% 100year 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, (4) the 3-5/8% 30-year bonds due
April 15, 2028, (5) the 3-7/8% 1O-year notes due January 15,2009, (6) the 3-7/8% 30-year
bonds due April 15, 2029, and (7) the 4-114% 1O-year notes due January 15,2010. This
information is based on the non-seasonally adjusted U.S. 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.
In addition to the publication of the reference CPI's (Ref Cpn 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 405. The information is
also available on the Internet at Public Debt's website (http://www.publicdebt.treas.gov).
The information for April is expected to be released on March 17, 2000.
000
Attachment
PA-440
http://www.publicdebt.treas.gov
TREASURY INFLATION·INDEXED SECURITIES
Ref CPI and Index Ratios for
March 2000
Security:
Description:
CUSIP Number:
Daled Dale:
OrlglnallSlue Dale:
AddltlonallSlue Dale:
3-7/8% 10-Year Notell
Series A·2009
9128274Y5
January 15, 1999
January 15,1999
July 15, 1999
3-7/8% 30·Year Bondi
Bondll of April 2029
912810FH6
April 15, 1999
April 15, 1999
Oclober 15, 1999
4-1/4% 10·Year Notes
Series A·2010
9128275W8
January 15, 2000
January 18, 2000
Malurlty Dale:
Ref CPI on Daled Dale:
January 15, 2009
164.00000
April 15, 2029
164.39333
January 15, 2010
168.24516
Date
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
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
31
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
CPI-U (NSA) for:
Ref CPI
Index Ratio
Index Ratio
Index Ratio
168.30000
168.31290
168.32581
168.33871
168.35161
168.36452
168.37742
168.39032
168.40323
168.41613
168.42903
168.44194
168.45484
168.46774
168.48065
168.49355
168.50645
168.51935
168.53226
168.54516
168.55806
168.57097
168.58387
168.59677
168.60968
168.62258
168.63548
168.84839
168.66129
168.67419
168.68710
1.02622
1.02630
1.02638
1.02646
1.02653
1.02661
1.02669
1.02677
1.02685
1.02693
1.02701
1.02709
1.02716
1.02724
1.02732
1.02740
1.02748
1.02756
1.02764
1.02771
1.02779
1.02787
1.02795
1.02803
1.02811
1.02819
1.02827
1.02834
1.02842
1.02850
1.02858
1.02378
1.02384
1.02392
1.02400
1.02408
1.02416
1.02424
1.02431
1.02439
1.02447
1.02455
1.02463
1.02471
1.02478
1.02486
1.02494
1.02502
1.02510
1.02518
1.02526
1.02533
1.02541
1.02549
1.02557
1.02565
1.02573
1.02580
1.02588
1.02596
1.02604
1.02612
1.00033
1.00040
1.00048
1.00056
1.00063
1.00071
1.00079
1.00066
1.00094
1.00102
1.00109
1.00117
1.00125
1.00132
1.00140
1.00148
1.00155
1.00163
1.00171
1.00178
1.00186
1.00194
1.00201
1.00209
1.00217
1.00224
1.00232
1.00240
1.00247
1.00255
1.00263
November 1999
168.3
December 1999
I
I
I
168.3
January 2000
.-
168.7
I
I
TREASURY INFLATION-INDEXED SECURITIES
Ref CPI and Index Rallos for
March 2000
Security:
Description:
CUSIP Number:
Dated Date:
Original Issue Date:
Additional Issue Date:
3-3/8Y. 10-Year Notes
Series A-2007
9128272M3
January 15, 1997
February 8, 1997
April 15, 1997
3·S/8Y. 5-Year Notet
Series J-2002
9128273A8
July 15, 1997
July 15, 1997
October 15, 1997
3·S/8Y. 10-Year Notes
Series A-2008
9128273TI
January 15, 1998
January 15, 1998
October 15, 1998
3·S/8Y. 30·Year Bond.
Bonds of April 2028
912810FD5
April 15, 1998
April 15, 1998
July 15,1998
Maturity Date:
Ref CPI on Dated Date:
January 15, 2007
158.43548
July 15, 2002
160.15484
January 15, 2008
161.55484
April 15, 2028
161.74000
Date
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
March
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
31
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
2000
CPI·U (NSA) for:
RefCPI
Ind8J( Ratio
Index Ratio
Index Ratio
Index Ratio
168.30000
168.31290
168.32581
168.33871
168.35161
168.36452
168.37742
166.39032
168.40323
168.41613
168.42903
168.44194
166.45484
168.46774
168.48065
168.49355
188.50645
168.51935
168.53226
168.54516
168.55806
166.57097
168.58387
168.59677
166.60968
168.62258
168.63548
166.64639
168.66129
168.67419
168.66710
1.06226
1.06234
1.06242
1.06251
1.06259
1.06267
1.06275
1.06283
1.06291
1.06300
1.06308
1.06316
1.06324
1.06332
1.06340
1.06348
1.06357
1.06365
1.06373
1.06381
1.06389
1.06397
1.06405
1.06414
1.06422
1.06430
1.06438
1.06446
1.06454
1.06462
1.06471
1.05086
1.05094
1.05102
1.05110
1.05118
1.05126
1.05134
1.05142
1.05150
1.05158
1.05166
1.05174
1.05182
1.05191
1.05199
1.05207
1.05215
1.05223
1.05231
1.05239
1.05247
1.05255
1.05263
1.05271
1.05279
1.05287
1.05295
1.05303
1.05311
1.05319
1.05328
1.04175
1.04183
1.04191
1.04199
1.04207
1.04215
1.04223
1.04231
1.04239
1.04247
1.04255
1.04263
1.04271
1.04279
1.04287
1.04295
1.04303
1.04311
1.04319
1.04327
1.04335
1.04343
1.04351
1.04359
1.04367
1.04375
1.04383
1.04391
1.04399
1.04407
1.04415
1.04056
1.04064
1.04072
1.04080
1.04088
1.04096
1.04104
1.04112
1.04120
1.04128
1.04136
1.04144
1.04152
1.04160
1.04168
1.04176
1.04184
1.04192
1.04199
1.04207
1.04215
1.04223
1.04231
1.04239
1.04247
1.04255
1.04263
1.04271
1.04279
1.04267
1.04295
November 1999
168.3
December 1999
168.3
January 2000
I
166.7
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
February 22, 2000
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
91-Day Bill
February 24, 2000
May 25, 2000
912795DX6
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.640%
High Rate:
Investment Rate 1/:
Price:
5.818%
98.574
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 82%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
s
Competitive
Noncompetitive
21,649,911
1,313,548
647,400
647,400
23,610,859
9,000,449
4,183,180
4,183,180
Foreign Official Refunded
SUBTOTAL
7,039,501
1,313,548
8,353,049 2/
22,963,459
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Add-On
°
°
s
TOTAL
$
27,794,039
$
13,183,629
Median rate
5.600%: 50% of the amount of accepted competitive tenders
w'as tendered at or below that rate.
Low rate
5.550%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
22,963,459 / 8,353,049
= 2.75
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,027,819,000
http://www.publicdebt.treas.gov
LS--410
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
February 22, 2000
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
February 24, 2000
August 24, 2000
912795EX5
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.765%
High Rate:
Investment Rate 1/:
6.038%
Price:
97.085
All noncompetitive and successful competitive bidders were awarded
securities at the high rate.
Tenders at the high discount rate were
allotted 77%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
$
$
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
$
3,886,790
1,113,537
5,000,327 2/
19,147,327
PUBLIC SUBTOTAL
TOTAL
18,033,790
1,113,537
3,000,000
3,000,000
22,147,327
8,000,327
3,815,000
128,000
3,815,000
128,000
26,090,327
$
11,943,327
Median rate
5.750%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
5.660%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
19,147,327 / 5,000,327
=
3.83
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $853,158,000
http://www.publicdebt.treas.gov
LS--411
DEPARTMENT
OF
THE
TREASURY
~/7~8q~. . . . . . . . . . . . . . . . . ..
....................
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
February 22, 2000
U.S. International Reserve Position
The Treasury Department toda\, released U.s. [e,ern assets data for the week ending Februan'
1~,
2UOu .
.\, inrucated 111 this table, l'.s. resen'c assets totaled 569,475 million as of February 18, 2000, down from 569,9(19
million as of Februan' 11. 2000.
(in US millions)
I. Official U.S. Reserve Assets
1. Foreign Currency Reserves
a. Securities
I
1
February 18 1 2000
69,475
Februa!y 111 2000
69,909
TOTAL
Euro
4,954
Yen
5,890
Of which, issuer headquartered in the US
Euro
TOTAL
10,844
Yen
TOTAL
4,959
5,789
10,748
0
8,536
11,206
19,743
0
b. Total deposits with:
b.i, Other central banks and BIS
b.ii. Banks headquartered in the U.S.
b.ii. Of which, banks located abroad
b.iii. Banks headquartered outside the U.S.
b.iii. Of which, banks located In the US
2. IMF Reserve Position
2
3. Special Drawing Rights (SDRs)
4. Gold Stock
2
3
5. Other Reserve Assets
8,529
11,400
19,929
0
0
0
0
0
0
0
0
17,727
17,631
10,361
10,305
11,048
11,048
0
0
11 Includes holdings of the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at current market exchange rates Foreign currency holdings listed as seCUrities reflect marked-to-market values. and
deposits reflect carrying values
21 SDR holdings and the reserve pOSition In the IMF are based on IMF data and revalued In dollar terms at the offiCial SDRJdoliar exchange
rate Consistent With current reporting practices, IMF data for February 11, 2000 are final. Data for SDR holdings and the reserve position In
the IMF shown as of February 18, 2000 (In Italics) reflect preliminary adjustments by the Treasury to the February 11, 2000 IMF data
31 Gold stock IS valued monthly at S42 2222 per fine troy ounce
value was $11.049 million
Values shown are as of December 31, 1999. The November 30, 1999
LS-412
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u.s. International Reserve Position (cont'd)
II. Predetermined Short-Term Drains on Foreign Currency Assets
February 18, 2000
February 11, 2000
1 Foreign currency loans and securities
2. Aggregate short and long positions in forwards and
futures In foreign currencies vis-a-vIs the U.S. dollar:
2.a. Short positions
2.b. Long positions
3. Other
o
o
o
o
o
o
o
o
III. Contingent Short-Term Net Drains on Foreign Currency Assets
February 18. 2000
February 11, 2000
1. Contingent liabilities In foreign currency
1.a. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
2. Foreign currency securities with embedded options
3. Undrawn, unconditional credit lines
Ja. With other central banks
Jb. With banks and other financial institutions
headquartered in the U. S.
3.c. With banks and other financial institutions
headquartered outside the U. S
4. Aggregate short and long positions of options in foreign
currencies vis-a-vIs the U.S. dollar
4.a. Short positions
4.a.1. Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
o
o
o
o
o
o
o
o
l> E P \ R T ,. F '\ T
IREASURY
() F
T II F
T R E .\ S l' R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
February 23. 2000
Contact: Public Affairs
(202) 622-2960
TREASURY NAMES COLOMBIAN DRUG KINGPINS TO TRAFFICKERS LIST
The Treasury Department today added the names ofIvan and Julio Fabio Urdinola
Grajales. among the most wealthy and powerful drug kingpins operating in Colombia today. their
fronts from the North Valle drug cartel, and additional fronts belonging to Cali cartel kingpins
Gilberto and Miguel Rodriguez Orejuela to the list of Specially Designated Narcotics Traffickers
(SDNTs).
The Treasury action blocks the assets of SDNTs found in U.S. jurisdiction and prohibits
Americans from doing business with them. further exposing, isolating, and incapacitating
Colombian drug cartels and their agents. The two drug kingpins named to the SDNT list today
by Treasury have risen to prominence with the decline of the Cali cartel and are responsible for
huge volumes of drugs that have entered the United States. In addition to the two drug kingpins,
Treasury added 20 businesses and 9 associated individuals that it has determined are acting as
fronts for the North Valle and Cali drug cartels.
This action is part of the ongoing interagency effort of the Treasury, Justice and State
Departments to carry out President Clinton's Executive Order 12978, signed on October 21.
1995, which applies economic sanctions against the Colombian drug cartels. The list of SDNTs
includes kingpins, associates and businesses from Colombia's Cali, North Coast and North Valle
drug cartels.
With the addition of the names released today, the assets of a total of 527 businesses and
individuals are blocked under the 1995 Executive Order and are prohibited from American
financial and business dealings. The list of businesses and individuals named by Treasury today
as SDNTs is available at .\V\V\v.ustreas.uo\otac. The list will be published in the Federal
Register at a later date.
-30LS-413
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·u.s. Government Printing OffICe
1998· 61!Ot-559
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
~iJ78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . ..
..............................
OFF1CE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
February 23, 2000
Contact Steven Posner
(202) 622-2960
u.s., U.K. TO NEGOTIATE REVISION TO ESTATE AND GIFT TAX TREATY
The United States and the United Kingdom have scheduled negotiations of a revision to
their estate and gift tax treaty. The negotiations are scheduled to be held in London this spring
The revision would modifY the treaty currently in force between the two countries, which has
been in effect since 1979 The two Governments have decided that the current treaty needs to be
updated to take into account developments in both countries' tax systems and policies.
The Treasury Department invites written comments from the public regarding the
upcoming negotiations. Comments on the proposed treaty revision should be sent to Philip R
West, International Tax Counsel, Room 1000 Main Treasury, Washington, DC 20220, with a
copy to Patricia A. Brown, Deputy International Tax Counsel, Room 4224 Main Treasury,
Washington, DC 20220 Comments may also be sent by fax to (202) 622-0646, or bye-mail to
PhiI.West@do.treas.gov, with a copy to Patricia.A.Brown@dotreasgov
-30-
LS - 414
For press
re/~, 6jwecher.,
public schedules and official biographies, call our 24-hour fax line at (202) 622·2040
Ii\
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
202-691-3550
CONTACT:
FOR IMMEDIATE RELEASE
February 23, 2000
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Interest Rate:
Series:
CUSIP No:
STRIPS Minimum:
Issue Date:
Dated Date:
Maturity Date:
6 112%
S-2002
9128276A5
$400,000
High Yield:
Price:
6.590%
February 29, 2000
February 29, 2000
February 28, 2002
99.834
All noncompetitive and successful competitive bidders were awarded
securities at the high yield.
Tenders at the high yield were
allotted 18%. All tenders at lower yields were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
$
Competitive
Noncompetitive
30,464,413
1,509,473
$
12,009,321 1/
31,973,886
PUBLIC SUBTOTAL
3,218,610
1, 300,000
3,218,610
1, 300,000
Federal Reserve
Foreign Official Inst.
$
TOTAL
36,492,496
10,499,848
1,509,473
$
16,527,931
Median yield
6.570%:
50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low yield
6.520%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
31,973,886 / 12,009,321
1/ Awards to TREASURY DIRECT
=
=
2.66
$963,608,000
http://www.publicdebt.treas.gov
LS--415
DEPARTlVIENT
OF
THE
TREASURY
~~/78~9~~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
....................................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
February 24, 2000
Contact. Helaine Klasky
(202) 622-2910
u.s. DISAPPOINTED WITH
WTO FSC RULING,
VOWS TO WORK WITH EU TO REACH SOLUTION
Treasury Secretary Lawrence H Summers and United States Trade Representative
Charlene Barshefsky announced today that the WTO Appellate Body ruled against the United
States in the dispute involving the Foreign Sales Corporation ("FSC") provisions of U S tax lay.
"I am disappointed that the WTO Appellate Body has upheld the panel's ruling,"
Secretary Summers stated. "The FSC rules are widely viewed as creating a level playing field
with European tax systems and are important to our business community We will work closely
with the Europeans, the business community and the Congress to achieve a constructive
solution"
"We strongly disagree with the Appellate Body's ruling," stated Ambassador Barshefsky
"Our view remains that the FSC is completely consistent with U. S WTO obligations. We respect
our WTO obligations, and will seek a solution that ensures that U S firms and workers are not at
a competitive disadvantage with their European counterparts It is in neither the interest of the
US nor the EU to allow this case to damage our bilateral relationship or to impede progress on a
range of U.S -EU activities"
Background
The Appellate Body decision arose out of an EL: complaint against the FSC provisions,
which allow a portion of a U S taxpa\'ing firm' s foreign-source income to be exempt from U S
income tax Congress enacted the FSC specificall\ to conform to principles adopted by the
GATT in 1981 and those principles were IIlcorporated into the WTO agreements In 1997, the
EU alleged that the FSC provisions \lOlate l· S obligations under the WTO Subsidies and
Agriculture agreements A WTO dispute settlell1ent panel sided \vith the EU last fall. and the
Appellate Body has upheld the dispute selllel1lent panel·s findings
The FSC was introduced in the earl\ I 080!:> after its predecessor prOVisions, the Domestic
International Sales Corporation (DISC) rules. v,ere found to be a prohibited export subsidy under
General Agreement on Tariffs and Trade (GA TT) subsidy rules In adopting the ruling against
the DISC and certain European tax prO\lsions. the GATT Council issued an "understandinl.!,"
(now also reflected in the WTO Subsidies Agreement) encompassing the following principles
Ls-417
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t
- economic processes (including transactions involving exported goods) located outside the
territorial limits of the exporting country need not be subject to taxation~
- such processes should not be regarded as export activities,
- arm's length pricing should be observed for tax purposes in transactions between exporting
enterprises and related foreign buyers; and
- GATT (and now WTO) subsidy disciplines do not prohibit the adoption of measures to avoid
double taxation of foreign source income
The FSC provisions permit a portion of income generated outside the territorial limits of
the United States to be exempt from U S income tax To qualify for these exemptions, the FSC
must have a foreign presence, meet certain management requirements and meet certain economic
process requirements addressing both the extent and nature of the sales activities undertaken
abroad as well as requiring that a minimum level of direct costs be incurred abroad with respect to
certain sales activities (e.g, advertising, order processing, etc) If export property is sold to a
FSC by a related person (or a commission is paid by a related person to a FSC with respect to
export property), the taxable income of the FSC and related person is based on transfer pricing
rules designed to conform to the arm's length pricing standard in the Subsidies Agreement
(Another qualification limits the tax exemption to a portion of export income resulting from the
sale of products of which at least 50 percent of the "fair market value" is attributable to domestic
content )
- 30 -
DEPARTMENT
OF
THE
TREASURY
TREASURY
NEWS
OFFICE OF PUBLIC A}'FAIRS -1500 PENNSYLVANIA AVENUE. N.W. _ WASHINGTON. D.C.- 20220 _ (202) 622-2960
EMBARGOED UNTIL 2:30 P.M.
February 24, 2000
CONTACT:
Office of Financing
202/691-3550
TREASURY OFFERS 13-WEEK, 26-WEEK, AND 52-WEEK BILLS
The Treasury will auction three series of Treasury bills totaling
approximately $27,000 million to refund $27,298 million of publicly held
securities maturing March 2, 2000, and to pay down about $298 million.
In addition to the public holdings, Federal Reserve Banks for their own
accounts hold $13,185 million of the maturing bills, which may be refunded at
the highest discount rate of accepted competitive tenders. Amounts issued
to these accounts will be in addition to the offering amount.
The maturing bills held by the public include $6,345 million held
by Federal Reserve Banks 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- and 26-week bills at the
highest discount rate of accepted competitive tenders. Additional amounts may
be issued in each auction for such accounts to the extent that the amount of
new bids exceeds $3,000 million.
Of the $6,345 million maturing bills held by
monetary authorities, $1,612 million is considered
52-week issue; additional amounts may be issued in
for such accounts to the extent that the amount of
amount.
foreign and international
to be held in the original
the 52-week bill auction
new bids exceeds that
TreasuryDirect customers requested that we reinvest their maturing
holdings of approximately $937 million into the 13-week bill, $716 million
into the 26-week bill, and $591 million into the 52-week bill.
This offering of Treasury securities is governed by the ter.ms and conditions set forth in the Unifor.m Offering Circular for the Sale and Issue of
Marketable Book-Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356, as
amended) •
Details about each of the new securities are given in the attached
offering highlights.
LS--419
000
Attachment
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OFFERINGS OF BILLS
TO BE ISSUED MARCH 2, 2000
February 24, 2000
Offering Amount •..••••••.•••••••••• $9,000 million
Description of Offering:
Term and type of security ••••••••••
CUSIP number •••••••••••••••••••••••
Auction date •••••••••••••••••••••••
Issue date •••••••••••••••••••••••••
Maturity date ••••••••••••••••••••••
Original issue date ••••••••••••••••
Currently outstanding ••••••••••••••
Minimum bid amount and multiples •••
91-day bill
912795 DY 4
February 28, 2000
March 2, 2000
June 1, 2000
December 2, 1999
$12,377 million
$1,000
$8,000 million
$10,000 million
182-day bill
912795 EY 3
February 28, 2000
March 2, 2000
August 31, 2000
March 2, 2000
364-day bill
912795 FV 8
February 29, 2000
March 2, 2000
March 1, 2001
March 2, 2000
$1,000
$1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids •••••• Accepted in full up to $1,000,000 at the highest 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 time for receipt of competitive tenders.
Maximum Recognized Bid
at a Single Rate •..•••••• 35% of public offering
Maximum Award •••.••••••.••.• 35% of public offering
Receipt of Tenders:
Noncompetitive tenders ••• Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders ••..•. Prior to 1:00 p.m. Eastern Standard time on auction day
Payment Terms ..•......•.•.•. By charge to a funds account at a Federal Reserve Bank on issue date, or
payment of full par amount with tender.
Treasu~Direct customers can use
the Pay Direct feature which authorizes a charge to their account of record
at their financial institution on issue date.
DEPARTMENT
IREASURY
OF
THE
TREASURY
rg) NEW S
178'l
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE. N.W.• WASHINGTON. D.C. • 20220 • (202) 622·2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
February 29, 2000
DEPUTY TREASURY CHIEF FINANCIAL OFFICER STEVEN APP TESTIMONY
BEFORE THE HOUSE COMMITTEE ON GOVERNMENT REFORM
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT
Mr. Chairman and members of the Subcommittee, good morning and thank you for inviting me
here today to discuss financial management in the Department of the Treasury and the Internal
Revenue Service (IRS). Throughout the fiscal year (FY) 1999 financial reporting cycle senior
Treasury officials, from the Department's Assistant Secretary for Management and Chief
Financial Officer (ASMlCFO) to the IRS' Deputy Commissioner, have provided critical
oversight to improve the audit results at the Internal Revenue Service (IRS) -- a commitment we
made to you a year ago.
While we are pleased with the continued progress that has been made across the Treasury
Department, both in the timeliness and quality of our FY 1999 audit results, the remaining
financial reporting deficiencies on the IRS administrative accounts have resulted in the sole
qualification of opinion on the Department' s FY 1999 Accountability Report. That said, we are
encouraged by the General Accounting OfTice' s (GAO' s) reported findings of progress in seven
areas of financial reporting at IRS. particularl\' the progress made on the balance sheet Working
closely with IRS, and our audit partners in the GAO. the Treasury Inspector General, and
Treasury Inspector General for Tax Administration (TIGT A) offices, we intend to build on these
positive. albeit incremental, results and strive for unqualified opinions at both the IRS and the
Department as a whole for the FY :WOO financial reporting cycle. It should be noted, however,
that the path to improved. short-term audit results will remain labor intensive for the next few
years, until core financial and management svstems can be reconfigured and/or replaced
Department management fully recognizes the leadershIp role Treasury must play in sound
financial reporting and will continue to support the IRS efTorts to sustain the progress made
during FY 1999. strengthen the CFO structure and management team within the IRS, and build
the financial systems needed to imprO\e both tinancial reporting and, more importantly,
management of IRS resources
L8-420
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.
A sea chanRe in transparency ana accolll1tuhilit.l',
This is perhaps most visible in the IMF's new policies on the public release of
documents. For example. since last June. in large part as a result of Administration and
Congressional urging. there is now a presumption that the full set of program documents
considered by the IMF Board - including Letters of Intent - \\'hich detail the policy
commitments that countries haw undertaken as a condition for IMF support will be
released, Since June 3. 58 arrangements ha\'(: been discussed by the Board. and program
documents were released in 50 of these cases,
Similarly. all of the multilateral development banks have in place mechanisms for
public information disclosure and increased public participation, Increasingly the
institutions use their Internet websites to post a large volume of project information and
appraisal documents and other information, At the \","orld Bank. disclosure of the Country
Assistance Strategies (C ASs). the Bank's key planning document for future lending. is
no\-\' routine.
New emphases in proKram con/em,
We have advocated substantial changes in the scope and nature of the conditionality
for IMF and other international official support: to place greater emphasis on the
importance of market opening and liberalization of trade: to focus more on the
development of the institutions and pol ic ies that \\ i II ~d 10\\ markets to operate: to take
better account of the impact on the poor of economic adjustments: to increase national
ownership and participation in reforms: and for the f\\ultilateral Development Banks to
place greater weight on el1\'ironmental. lahur and social issues in the design of programs.
For example. as part of its recent 1\11-' program. Indonesia abolished import
monopolies for soyheans and wheat: agreed to phase out allnon-taritl barriers affecting
imports: dissolved all cartels for pl~\\ood. cement and paper: removed restrictions on
foreign investment in the \\holesale and resale trades: and allowed foreign banks to bu:domestic ones.
We have consistently worked to maJ..e go\ernancl' and effective use of funds a core
part of IFI procedures. Most recentl~. in light uf our e-..:pericncc in Russia. we havc led
the call from the G7 for authoritatl\ e and s~ stematic rc\'ic\\s by the IMF and the World
Bank to find ways to strengthen sat\:guarJs on the use of thcir funds in all of their lending
activities.
DEPARTMENT
lREASURY
OF
THE
TREASURY
i') NEW S
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASlflNGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL I :00 PM EST
Text as Prepared for Delivery
February 28, 2000
"TACKLING THE GROWTH OF CORPORATE TAX SHELTERS"
TREASURY SECRETARY LAWRENCE H. SUMMERS REMARKS TO
THE FEDERAL BAR ASSOCIATION, WASHINGTON, DC
Good morning I am pleased to be here today to discuss what may be the most serious
compliance issue threatening the American tax system today the rapid growth of abusive
corporate tax shelters. President Clinton and Vice-President Gore and we at the Treasury and the
IRS have felt continuing concern at this growing problem. I want to reflect today on where we
are on these crucial issues and where we are going.
Today, the Administration is announcing a series of reforms that, combined with other steps we
are taking, will constitute the most comprehensive effort to date to curb abusive corporate tax
shelters These proposals will be the focus of my remarks today. But let me begin by outlining
why we in the Administration - and so many others, including the staff of the Joint Committee
on Taxation, the American Bar Association, the Nev. York State Bar Association and other
bodies - now believe reform to be necessarv
Let me be clear our aim is to curb illegitimate tax avoidance We have no quarrel with the
natural desire of companies and individuals to minimize their tax burden by legitimate means.
We well remember the words of Learned Hand "There is nothing sinister in arranging one's
affairs as to keep taxes as low as possible Every'body does so, rich or poor; for nobody owes any
public duty to pay more than the lav,' demands, to demand more in the name of morals is mere
cant. "
We must, however, draw the line at the pursuit of engineered transactions that are devoid of
economic substance These transactions have no goal other than to reduce a corporation's tax
liabilities. In doing so, they undermine the Integrity! of the tax system
In the early 1980s, widespread abuse of the tax system by wealthy individuals undermined our
tax base and generated cynicism about the fairness of the tax code. Litigation to pursue abusive
shelters also consumed large amounts of I RS time and money Congress responded appropriately
by enacting reforms that went a long way towards restoring trust in the integrity of the code.
18-421
Far press releases) speeches, public schedules and official biographies, call our 24.hour fax line at (202) 622-2040
.
Today there is growing evidence that abusive corporate tax shelters pose a similar threat to our
tax system. Since 1990, the gap between book income and taxable income has more than
doubled, in real terms, to more than $90 billion and is now wider than at any time since the mid1980s. Even in a very good year for the corporate sector, last year corporate tax receipts fell by 2
percent. Although some of this gap can be attributed to other causes, there is no doubt that there
has been a striking growth in abusive tax shelters.
As we made clear in the Treasury's White Paper on corporate tax shelters last year, abusive
shelters have a number of malign effects
•
Shelters reduce the corporate tax base and thus raise the burden on other taxpayers
•
Shelters undermine the vitality of our voluntary tax system. Companies feel obliged to follow
the lead of competitors who abuse the tax code in a "race to the bottom". The New York
State Bar recently highlighted the "corrosive effect" of shelters, stating "The constant
promotion of these frequently artificial transactions breeds significant disrespect for the tax
system, encouraging responsible corporate taxpayers to follow the lead of other taxpayers
who have engaged in tax advantaged transactions"
•
Shelters complicate the tax code by forcing legislators to take remedial action In the past few
years alone, nearly 30 narrow statutory provisions have been adopted in response to abuses
further complicating the code
•
And shelters divert resources from productive investment in the real economy As a former
tax official, now a leading member of a well-known law firm, has said "You can't
underestimate how many of America' s greatest minds are being devoted to what economists
would all say is totally useless economic activity."
The Treasury, the IRS. and Congress have already taken aggressive action to curb visible
shelters. It is suggestive of the scale of the problem that specific action over the last ten years
will save the American taxpayer almost S80 billion over the next decade
These include
•
Closure of the so-called Lease-In Lease-Out (L1LO) shelter whereby companies attempted to
avoid tax through circular transactions In one extreme case, a company leased a town hall
from a Swiss municipality and leased it back the same day This measure saved $10.2 billion.
•
Closure of the so-called BOSS shelter v.'here companies would generate an artificial tax loss
that can be used to offset other income This action is also expected to save billions of dollars
for the tax system
•
Closure of the liquidating REIT transaction that saved the taxpayer $34 billion Corporations
used the unintended confluence of two unrelated tax provisions to avoid paying taxes on
Income.
2
•
And today we are issuing guidance to close the so-called "debt straddle". This is a shelter
designed to create an artificial tax loss by setting up two debt instruments, the interest rate on
one of which resets to zero, generating a loss, while the interest rate on the other doubles.
The debt straddle is reminiscent of the old butterfly straddles in the commodity markets and
is best described as "heads I win, tails I win".
These and other steps have produced important progress. But they have been - necessarily - ad
hoc. Treasury and the IRS have come to understand new tax shelters only by capturing them on
audit, picking up reports in the trade press, receiving anonymous tips and finding irregularities
on tax returns. What we see, we can act upon What we cannot see, by definition, we cannot act
upon. But what we fear is that visible corporate tax shelters are only the tip of a very large
iceberg.
And there are now clear signs that abuse of the corporate tax code is becoming more
sophisticated and harder to detect: companies are demanding "black box" features in their
transactions that are structured to be impenetrable to all but those who designed it As one tax
promoter said recently "You can have the greatest shelter in the world, and clients won't pay for
it if it is too simple. I've rejected a lot of great ideas for that reason." For these reasons, we
believe the traditional ad hoc approach to this problem is no longer tenable.
Our comprehensive strategy for combating abusive corporate tax shelters contains three elements
that are mutually reinforcing
•
First, new regulations to improve disclosure of corporate shelters effective today.
•
Second, administrative reforms within the IRS and strengthened rules governing the practice
of accountants and lawyers before the IRS
•
Third, new legislation to increase penalties for abusive transactions and to codify the
economic substance doctrine.
Deputy Secretary Eizenstat, Commissioner Rossotti, Chief Counsel Brown, Acting Assistant
Secretary Talisman, and m~'self are all committed to pursuing these reforms. And we look
forward to working with Congress, the tax community, the legal profession and others in
achieving these goals
I.
New Regulations to Combat the Proliferation of Shelters.
A central element of our approach in curbing tax shelters is bringing these transactions to light
and taking remedial action where appropriate To this end, Treasury and the IRS are today
issuing three new regulations to bring more corporate shelters into the open. By requiring
companies to disclose any transactions that significantly reduce their liabilities, these guidelines
will enhance disclosure and deter abusive shelters. They will not impose a burden on taxpayers
engaging in legitimate transactions
..,
-'
•
First, taxpayers will be required to attach a statement to their return providing information
on any transactions with multiple characteristics common to tax shelters. These include
situations where there is a significant difference between book and tax income·, where there
are fees of more than $100,000 to a promoter; where there is use of a tax indifferent party to
provide tax benefits; and where there is insurance against benefits that do not materialize.
~
•
Second, promoters must disclose any transaction that has a "significant purpose" of tax
avoidance or evasion, that is offered under conditions of confidentiality, and that has
promoter fees above $100,000.
•
Third, in order to facilitate cross-checking of tax reporting by investors in promoted products
we are requiring promoters of tax shelters to maintain lists of investors and other relevant
information that must be supplied on request to the IRS.
These are temporary and proposed regulations that will have an impact on taxpayers from this
point forward
II.
Administrative Reforms.
As we increase disclosure, we must also increase the capacity of the IRS to act on this crucial
issue and enhance the capacity for self-regulation. Commissioner Rossotti has rightly made
customer service a central priority for the IRS However part of serving the citizenry is ensuring
the fairness of the tax system for all
The reforms comprise two elements internal change at the IRS, and enhancing the incentive and
capacity for self-regulation within the industry
Change allhe IRS
Under the leadership of Commissioner Rossotti, the IRS is undergoing a substantial restructuring
to re-focus the IRS along functional as opposed to geographic lines. One of the benefits of this
will be that officials will acquire the expertise to detect complex tax shelter abuses more easily.
In addition, the IRS is establishing a central office for tax shelter analysis to coordinate and
guide the IRS's efforts in combating abusive shelters The central tax office will be included in
the mid-size businesses division overseen by Larry Langdon, former head of corporate tax affairs
at Hewlett Packard As a result of recent efforts to combat tax shelters, there are already an
increasing number of abusive tax shelter cases in various stages of examination, appeal or
litigation at the IRS
At the same time, we are mindful of the fact that it can sometimes be hard to distinguish zealous
pursuit of duty from over-stepping the boundaries of the law. That is why we are putting in place
proper safeguards to prevent that line from being crossed For example, Treasury and the IRS are
looking at whether to allow taxpayers to pre-file future transactions for IRS approval so that the
new regulations and proposed legislative reforms do not interrupt legitimate economic
4
transactions. The IRS is also exploring the possibility of establishing a fast-track procedure at the
request of taxpayers under investigation
Raising Pn?fessiollal Standards
The IRS cannot be asked to shoulder the entire burden of compliance. If we are serious in our
intention of curbing abusive shelters then we need to place more emphasis on professional
conduct of those who participate in the industry, including accountants, lawyers and other related
professions. The dilemmas of this area have been exemplified by the recent remark ofa tax
practitioner, that "writing tax opinions is a choice between eating and sleeping. I like to eat" We
would prefer that he get some rest.
To enhance self-regulation and compliance within the industry, we are planning within the next
six months to issue an updated version of Circular 230, the professional guidelines on conduct
for those who practice before the IRS This may include sanctions on firms that issue opinions on
tax shelters, limits on contingent fee arrangements and heightened opinion standards. In extreme
cases, we would contemplate suspending individuals or even whole firms from practicing before
the IRS.
I recognize that these issues will require discussion To this end, we expect to organize a series
of meetings with key figures in the legal, accounting, investment banking and wider corporate
community to discuss how we can work together to meet our common obligations.
III.
New Legislative Action
The action we are taking today on disclosure and our efforts to raise standards are important and
necessary steps But they are not sufficient Disclosure only deters if abuse has consequences. It
is right that we require companies to disclose tax shelters in their IRS statements. But companies
also need a good reason to comply with the new guidelines in the first place.
That is why we are also proposing legislation in the FY200 I budget that would give us the
ability to pursue the abusive shelters that are hidden from view. Formally we estimate that these
proposals would save the taxpayer $23 billion over the next decade But in practice are more
likely to reach tens of billions of dollars I also want to thank Congressman Doggett for
advancing similar legislation We look forward to working with him and the tax-writing
committees to advance these changes
FirSl, pellalllesfor lIoll-disclosure
There must be effective disincentives to stop companies from violating reasonable standards of
disclosure These must also be sutTicientl~' tough to confront the underlying problem the spread
of abusive tax shelters The proposals include
•
A penalty of $1 00,000 for each fai lure to disclose a transaction with features common to tax
shelters
5
•
Raising the penalty for substantial understatement from 20 to 40 percent where a taxpayer's
statement does not disclose a corporate tax shelter Also, we would reduce the dollar
thresholds on the understatement penalty for large corporations
Second. pellalties 011 related elltities
The creation of abusive tax shelters is a sophisticated process that encompasses a broad range of
interested parties beyond the companies themselves. These include tax-indifferent entities, such
as foreign corporations, the promoters of shelters, and entities that profit from providing advice.
Our proposals must therefore include measures to deter third parties from involvement in abusive
shelters. These include
•
A 25 percent excise tax on fees received in connection with the promotion and
implementation of corporate tax shelters.
•
The imposition of tax consequences on otherwise tax indifferent entities that enable shelter
deals to go ahead by absorbing otherwise taxable income in exchange for a fee.
Third.
cudtfyin~
the economic substance doctrine.
More fundamental, yet surely more difficult is the need to codify the doctrine of economic
substance so that we can combat abusive shelters There are countless instances where specific
action targeted at one type of tax shelter unintentionally leads to the creation of another As I
mentioned earlier, last year, we shut down LlLOs; yet already we are hearing about "Son of
LILO" transactions The "BOSS" shelters we had to respond to last year were little different to a
structure closed down by several months before And so on
We propose to cut through this problem by codifying the economic substance doctrine into law.
The guiding principle of economic substance is that taxpayers should not be allowed to derive
benefits from transactions that have no meaningful economic purpose - where the tax benefits
from a transaction significantly outweigh any pre-tax profits. The proposal would bring a
number of improvements
•
Codification would combat abusive tax shelters on a universal rather than a case-by-case
basis.
•
It would attack tax shelters before they' arose by requiring taxpayers to apply this doctrine to
transactions to determine whether the tax benefits would be allowable
•
And it would remove much of the need for and burden of tax litigation from the judicial
system
6
IV.
Conclusion.
The specific action we took today; the three new regulations; the ongoing administrative
changes; and the legislation we are proposing, each reflect different aspects of what we believe is
a comprehensive strategy.
I want to emphasize that these elements build on each other. Without progress on each, it will not
be possible to protect the tax system. We are prepared to debate, discuss and to compromise as to
the details. But I am convinced it is a matter of national importance that we implement each of
these changes as rapidly as possible. We look forward to working with all of you towards this
objective Thank you.
-30-
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
February 28, 2000
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
High Rate:
9l-Day Bill
March 02, 2000
June 01, 2000
912795DY4
5.670%
Investment Rate 1/:
5.831%
Price:
98.567
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 24%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Competitive
Noncompetitive
Tendered
$
20,030,362
1,333,313
$
420,000
420,000
21,783,675
9,007,875
4,534,955
4,534,955
Foreign Official Refunded
SUBTOTAL
7,254,562
1,333,313
8,587,875 2/
21,363,675
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Add-On
TOTAL
Accepted
o
o
$
26,318,630
$
13,542,830
Median rate
5.640%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
5.560%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio = 21,363,675 / 8,587,875 = 2.49
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $1,030,315,000
http://www.publicdebt.treas.gov
Ls-422
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
February 28, 2000
CONTACT:
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
182-Day Bill
March 02, 2000
August 31, 2000
912795EY3
High Rate:
5.765%
Investment Rate 1/:
Price:
6.022%
97.085
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 12%. All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
Competitive
Noncompetitive
$
17,270,861
1,063,897
3,000,000
3,000,000
21,334,758
8,003,777
3,845,000
686,000
3,845,000
686,000
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
$
3,939,880
1,063,897
5,003,777 2/
18,334,758
PUBLIC SUBTOTAL
TOTAL
$
25,865,758
$
12,534,777
Median rate
5.750%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
5.660%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
18,334,758 / 5,003,777
=
3.66
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $776,326,000
http://www.publicdebt.treas.gov
L8-423
D EPA R T ;\1 E N T
0 F
THE
T REA SUR Y
~~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1I
......................................
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.- 20220 - (202) 622-2960
EMBARGOED UNTIL 10:30 A.M. EST
Test as Prepared for Delivery
February 29. 20()()
STATEMENT BY TREASURY SECRETARY LAWRENCE H. SUMMERS
SENATE COMMITTEE ON FOREIGN RELATIONS
Mr.Chairman. Ranking Member Biden. members of this Committee. I am pleased to
have this opportunity to discuss the ongoing reform of the international financial
institutions. especially the International Monetary Fund - \\hich I know is of considerable
interest to this committee and other members of Congress.
Let me focus my remarks on tin'? issues. \\ith particular emphasis on the last nvo:
•
First. the current outlook for th~ global economy. including the crisis economies
in which the International Financial Institutions (IFIs) have recently been actively
involved.
•
Second. th~ cas~ for contlllu~d l init~d Stat~s support of the IFIs.
•
Third. the important st~ps that th~ Administration has taken in recent years to
strengthen the international financial archit~ctur~ and the IFIs.
•
Fourth. our new ag~nda for rct(1rI11 at th~ l~lF.
•
Fifth. the new framework that \\~ ha\~ hclp~d to put in place for concessional
support of the poorest countri~s as part 01 th~ ~nhanced debt relief initiative for
the Heavily Indebted Poor Countfl~s - ami th~ urgent need for the United States
to play its part in ensuring that this initiati\~ can move forward.
LS-424
For press releases, speeches. public schedules and. official biographies, call our 24-hour fax line at (202) 622-2040
I.
Global Economic Developments
Looking around. I think that nearly everyone would agree that the global economic
outlook has improved significantly relative to even a year ago. and certainly to the fall of
1998 when Congress was grappling with the issues of IMF funding and reform in the
midst of the Asian financial crisis.
•
The Korean economy. which t\\O years ago was in the depths offinancial crisis. last
year grew by ten percent- and output is now 4 percent higher than it was before the
cnsls.
•
Thailand's economy. \\hich shrank hy more than 10 percent in 199X. gre\\ hy ..,
percent in 1999 and similar grO\\th is expected this year.
•
And in Brazil. \\·hich just one year ago faced the risk of severe tinancial instability
tl1110v;ing a large. unplanned de\·aluation. output is slightly above its pre-crisis len:!.
and inflation this year is expected to remain in single digits.
Private sector analysts are expecting the economies of Asia. excluding Japan. to g.rO\\
by more than 6 percent this year. This remarkable turnaround has important implications
for the grO\vth and financial stability of the United States and the rest of the \vorld
economy. To take just one example. Korean impol1s are expected to grow hy close to 25
percent this year. and import grov,1h is expected to be well into double digits in both
Thailand and Indonesia.
In fact. recent private sector forecasts have predicted that every large economy \\ill
achieve positive growth next year. The US economy continues to show strong. noninflationary growth. There are signs of stronger gnm1h in Europe and some moderate
improvement in Japan.
Despite these flHecasts. it \\ould he a mistake to consider this improving global trend
to be inexorahle. In a numher of emerging market economies. notably Ecuador. tinancial
stabilitv remains elusive. :\nd economic conditions in a number of countries and regions
are still fragile. It will he \·ery important to see stronger growth in Europe and Japan
going forward to reduce the present imbalance in grll\\·th among the G7 economies. And
of course. we in the l inited States must guard against complacency and preserve our
hard-won tiscal disciplinl.:.
It would be an e4ually gra\e error to consider this recoycry to have heen in any vvay
pre-ordained. The crises in Thailand and c1sewhl.:re from mid-1997 onward caused
immense instability and economic pain for the countries worst affected. But there is no
question that these crises would ha\e heen deeper and longer lasting. and the implications
for American workers. husinesses and farmers and the glohal financial system as a whole
that much more severe. had it not been for the International Financial Institutions especially the IMF.
The programs that the IMF and the international community as a whole supported in
Asia and elsev,:here were defined by pragmatism about the nature of the challenge each
country faced and were centered on strong macro-economic and structural measures to
restore contidence. Certainly. reasonable people can debate \".hether all of the aspects
were correct in every instance.
At the same time. there can now be little dispute that where this broad approach \\ as
implemented decisively hy national authorities. and where there was large-scale
conditioned official support tor such an approach. stahility and confidence hy and large
returned. governments were able to relax macro-economic policies relatively quickly and
economic growth quite rapidly resumed. Where there was not such a response. as in
Russia or initially in Indonesia. outcomes \\ere much less favorable.
II.
The Case for Strong United States Support for the International Financial
Institutions
Since the Mexico crisis in 1994 President Clinton has been committed to the project
that has come to be called the reform of the international tinancial architecture - and he
has been committed to change at the IFls as a crucial part of that effort. As we have said
many times. the global economy has changed immeasurably since these institutions \\en~
founded more than tifty years ago at Bretton Woods. and it is both right and urgent that
the IMF and other IFls change along \vith it.
As I will discuss in a fe\\' moments. we han.' made some important progress in this
area - and we are committed to a deeper set of rd<'lrlllS going forward. particularly at the
IMF. But as we work to reform these institutions it is important to recognize the crucial
respects in \vhich they defend. protect and enhance America' s interests.
Americans and the international commlll1ity as a \\hole al\\'ays - and appropriately tend to respond to and tocus on the prohlems that one can locate on a map. in places such
as Kosovo or East Timor. What \\1..' may focus on too little arc the things that might help
prevent such prohlems occurring in the future, That is \\ hy our support t()J' the IFls and
the strong policies that they promote is so important. {}uite simply. they are one of the
most effective - and cost-effective - in\estments \\1..' can make in the forward defense of
America's core interests.
•
Every dollar we contribute to the multilateral de\elopment banks leverages more than
$45 in official lending. to countries \\ here more than three-quarters of the world' s
population lives.
•
With respect to the IMF. appropriations for the liS quota do not result in any net
budgetary outlay. yet they can catal:- ze signiticant international financial resources
when tinancial crises threaten the tinancial stability and prosperity of the global
economy.
.,
.'
These institutions help promote a more stable world. They can help to promote vital
humanitarian objectives. And. let there be no doubt. they promote changes that are
central to our nation' s economic and commercial future.
Through their programs of lending and advice the IFIs promote open and liberalized
markets: transparency and reduced corruption: strengthened property rights and a stable
environment for private investment. The United States has 4.5 percent of the world's
population. 22 percent of its income. In a very real sense. the future grO\vth in our
standard of living will depend a great deal on the growth in our export markets. And that.
in turn. will depend a great deal on whether the kinds of development strategies that the
IFls support are successful.
For all these reasons. the IFls are indispensable. But as we have said many times. that
does not mean we have to be satisfied with them as they now are.
III.
The Reform of the International Financial Architecture and the
International Financial Institutions
As I described to this Committee last November. the ongoing reform of the global
financial architecture has produced some important achievements. including. most
recently. the creation of the G20. This grouping. which met for the first time last
December. will be a permanent informal mechanism for dialogue on key economic and
financial issues among industrial and emerging market economies that collectively will
account for more than 80 percent of global GOP.
In addition:
•
With the creation of the 1i\1f's Supplementary Reserve Facility. we have changed
the terms of the exceptional tinancial support that the international community
provides. working to reduce moral hazard \\ith the application of premium
interest rates.
•
We have catalyzed a major gillhal dlort tll reduce national vulnerabilities to
crises. with concrete steps tll help cnuntries de\e1op stronger national tinancial
systems and imprO\ed international surn:illalH.:e. with increased incentives to
pursue sound policies befnre crisi~ strikes. Illese include the incentives embodied
in the terms of the ne\\ COlltingent l'rl'dit l.ine. \\hid1 has several of the features
of the SRI". but was desigllL'd to en~lhle the 1:\ 1F to protect from contagion
countries that had alread) adnpted ~ound policies.
•
And we have found ne\\ \\:1) s to ill\oln: thl' pri\'<Ite sector in the resolution of
crises - most notahly in the cases of "-orca and Brazil.
More generally. changing the hroad orientation ufthe Iris has been an important
focus of this Administration and many in Congress in recent years. In this context we
have seen important steps forward on a numhn of fronts. including:
A sea change in transparency and accountahility.
This is perhaps most visible in the IMF's new policies on the public release of
documents. For example. since last June. in large part as a result of Administration and
Congressional urging. there is now a presumption that the full set of program documents
considered by the IMF Board - including Letters of Intent - which detail the policy
commitments that countries have undertaken as a condition for IMF support \""ill be
released. Since June 3. 58 arrangements have been discussed by the Board. and program
documents were released in 50 of these cases.
Similarly. all of the multilateral development banks have in place mechanisms for
public information disclosure and increased public participation. Increasingly the
institutions use their Internet websites to post a large volume of project information and
appraisal documents and other information. At the World Bank. disclosure of the Country
Assistance Strategies (CASs). the Bank's key planning document for future lending. is
now routine.
New emphases in program content.
We have advocated substantial changes in the scope and nature of the conditionality
for IMF and other international official support: to place greater emphasis on the
importance of market opening and liberalization of trade: to focus more on the
development of the institutions and policies that will all()\\ markets to operate: to take
better account of the impact on the poor of economic adjustments: to increase national
ownership and participation in ret<'mns: and 1<.)r the Multilateral Development Banks to
place greater weight on environmental. labor and social issues in the design of programs.
For example. as part of its n:cent IMF program. Indonesia abolished import
monopolies for soybeans and wheat: agreed to phase out all non-tariff barriers affecting
imports: dissolved all cartels t<')r plywood. cement and paper: removed restrictions on
foreign investment in the wholesak and resale trades: and allowed foreign banks to buy
domestic ones.
Making good governance a .\YSh'I1Wlic {Jorl o/IFI (I/h'roliom
We have consistently worked to make governann: and effective use of funds a core
part of IFf procedures. Most recently. in light of ollr e:xperience in Russia. we have led
the call from the G7 for authoritati\e and systematic re\'iews by the IMf and the World
Bank to find wavs
. to stren!.!then sati:!.!uards on the lise of their funds in all of their lending
activities.
~
~
More generally. at both the IMF and the World Bank we have worked to strengthen
the link between new lending and borrower performance to insure that the resources go to
the serious reformers. As a result. the institutions now rely on monitorable criteria on
issues including governance. military expenditure review. and anti-corruption efforts to
determining new lending levels. Moreover. all of the MOBs have policies and programs
in place that are designed to improve governance and eliminate opportunities for
corruption - both internally and with borrowing countries.
Progress in areas hiRhliRhted hy the IMF leRis/atio/7
With reference to the IMF in particular. on October 1. 1999. Treasury submitted to
Congress a major report on IMF reform detailing progress in etTorts to increase the IMF's
effectiveness in numerous areas such as increased transparency. strengthening of social
safety nets. implementation of core labor standards. trade liberalization. promoting good
governance. and the environment. This report is available on the Treasury website at:
http:\\\\\' .lrc~I:-'.!...'(1\ nrl'~~ i','il';I:-~'c docsiimhefor.pdf
In addition. with the active support of Treasury and the United States IMF Executive
Director's Office. the IMF cooperated fully in the GAO's preparation of its rep0l1 on the
financial operations of the IMF. which was one of the requirements of the IMF
legislation. This report was completed and transmitted to Congress in September 1999
("International Monetary Fund: Observations on the IMF's Financial Operations").
Since the submission of the October report on li\lF reforms. we have seen further
progress in a number of areas. including:
•
Trade. In its most recent Letter of Intent. published on .January 20. Indonesia has
pledged to "maintain a liberal trade regime. a\'oid introducing any new trade barriers.
and remove remaining distortionary elements in the trade structure" and to eliminate
during the program period "all exemptions to import tariffs (except those which are
part of international agreements). and remme all existing non-tariff barriers (except
those maintained for health and safety reasons)." Indonesia' s government has further
pledged to eliminate its import monopoly on rice.
•
Lahor lind .)·ocia/ \'"tL'l\' .\'('/.\, In Boli"ia. the authorities. in consultation with social
partners and the International Labor Organization (I L<»). intend to introduce a new
labor law this year that will both enhance labor flexibility and bring Bolivian labor
regulations into line "'ith ILO standards. particularly those regarding equality of
treatment among genders ami labor safety. rill' I 'SU)/IMF has emphasized. both in
the context of Bolivia' s program and more broaJI~. the importance of ensuring that
efforts to enhance labor market tlexibility shllulJ include measures to support
workplace represt:ntation and strengthen social s~lkt~ nets
•
Environment. In recent Article IV discussions v·:ith authorities in Laos. the HvlF raised
the issue of sustainable natural resource management for forestry. water. and
agricultural land to prevent over-exploitation. The IMF recommended strengthening
the forestry regulatory framework and enforcement as well as a revie\\' of logging and
export privileges reserved to military-owned enterprises.
In addition. v;e have fully implemented the fiscal year 1997 Military Audit
Legislation. As part of these efforts. follo\\ing consultations wi th the LJ. S. (Jo\ernment
and the IMF. the Government of Nigeria reactivated the role of its Auditor General.
subjected defense spending to the same accountability standards as other ministries. and
committed to consolidate all extra-hudgetary military expenditures into the hudget. In
cases where a country's military audit system does not meet the standards of tile
legislation. the United States Executin? Director has opposed IMF assistance.
In a number of areas we can agree that the IMF has moved some way f<..,mard relative
to a few years ago. In others. there is a great deal more work left to do. In accordance
with this committee' s request and interests. let me now turn to our plans for deeper
reform.
IV.
Building a 21 ,. Century IMF: Our Agenda for Reform
Our plans for reforming the 1M F start from a single framing new reality of the !;dohal
financial system today. that the private sector is the o\erwhelming source of capital for
growth. As we han~ seen in so many areas - ranging Irom mortgage finance in industrial
countries to building bridges and roads in the dew loping world - as pri\'ate capital
markets develop. the role of the puhlic sector increasingly shifts from providing iinance
to providing a framework for strong and sustainable pri\ate sector ilows.
We believe that the IMF must increasingly ret1ect that change. with a greater focus on
promoting tinancial stability \\ ithin countries. a stahle t10w of capital among them. and
rapid recoveries following any tinancial disruptions.
Reforming the If'vlF to ml'et till' c(lnditillllS oj a IlC\\ time \\ill partly he a matter of
policies and procedures. It \\ ill als(I and pcrhaps most crucially he a matter of culture and
orientation. In London last Decemhcr I 1~lId out ti\c core reforms of the IMF's approach
in the emerging economies that \\ c helie\ earl' necc:-.sar!.
These are:
1. A greater/oc/ls ol7/)ro/llotil7,t!. Iii" /10\1 0/ il7/orJIw(illl7 /ro/ll ,t!.Ol'erl7lJ1('l7ts to markets
and investors.
7
In a more integrated global capital market. IMF surveillance needs to shift from a
focus on collecting and sharing information within the cluh of nations - to promoting the
collection and dissemination of information for investors. markets and the public as a
whole. And it needs to pay more attention. not just to the quantity of information
disclosed to markets. but also to its quality.
In the context of countries receiving IMF finance. \ve believe it is appropriate that
independent external audits of central banks and other relevant buovernment entities be
required and regularly puhlished. We are working to forge a broad international
consensus on this point going fonvard. More generally. we believe that substantial
deficiencies in the accuracy and quantity of data that a country discloses should be noted
and highlighted by the IMF in the way that more conventional macro-economic
deficiencies are highlighted.
In this context. I am glad to report that as a result of United States urging. IMF staff
are now working with outside experts to develop nev; tools for strengthening their
safeguards against misuse of IMF funds and to support higher quality auditing and
information practices in member countries.
2. Greater altenrion lojinaJ1ciall'lllnerahilily as Il'el/ as ma(To-('('onomicfzlI1£iumenrals
In the wake of recent events. we believe that the IMF needs to focus much more
attention on financial vulnerabilities such as those that played such a role in causing the
crises in Asia.
This will mean. in particular. a greater focus on the strength of national balance sheets.
In this context we believe the IMF should promote a more fully integrated assessment or
a country's liquidity and balance sheet. To this end. it should work to incorporate more
systematically. in its surveillance. indicators that pn)\'ide a more meaningful guide to the
adequacy of a country's resen'es than simply their size relative to imports. Work is
already under way at the IMF to explore how this can best be achieved.
By the same token. we believe that the IMF should highlight more clearly the risks of
unsustainable exchange rate regimes. The presumption needs to be that countries that are
involved with the world capital market should increasingly avoid the "middle ground" or
pegged exchange rates with discretionary monetary policies. in favor of either more
firmlv. institutionalized fixed rate re!.!imes or tloatin!.!..
~
3. A more siralegic finanCing role
Ihlll
~
is !ocwell (III emergency silllalioJ1.\'.
International financial institutions. no less than private companies. l1l:ed to focus on
core competencies. Going rOn\ ard the 1M F needs to he more tightly jixused in its
financial involvement with countries. lending selectively and on short maturities. It can
and must be on the front line of the intnnational response to financial crises. It should
not be a source of low-cost tinancing for countries with ready access to private capital. or
long-term welfare for countries that cannot break the habit of bad policies.
This suggests a number of core imperatives. Let me just highlight one here: the need
for streamlined facilities. In this context we have supported a thorough review hy the
IMF's members and its management of the mvriad
lendin eoIT facilities that have heen
•
established over time. One encouraging first step occurred last month. when the IMF
Executive Board agreed to eliminate the Butfer Stock Financing Facility and the
contingency element of the Compensatory and Contingency Financing Mechanism. But
this process must go further.
~
We believe that a necessary result of the kind of streamlining would be that the IMF
would come to rely on a very small number of core instruments for the bulk of its
lending. These instruments \"ill also need to be priced appropriately. both relati\"e to each
other and relative to alternative. private sources of finance. For example. in this context
we believe that it would be appropriate to introduce higher charges for borrowing under
standby arrangements, to encourage recourse to alternative sources of funding. The IMF
Executive Board will undertake an initial discussion of the broad issues involved in
streamlining the IMF' s lending tools in March.
-I.
Grealer emphasis on ca/alr=ing markel-hased solulions.
In a world of global integration and rising private capital tlows. the IMF's goal - and
the goal of the international community as a whole - mllst he that a rising number of
countries reach the point where it would be unthinkable that they should need the
financial support of the IMF. just as it is now unthinkable that the UK or Spain would
need it today. By the same token. at times of crisis. in such a world the IMF must have an
increasingly important role as a facilitator of more market-based solutions.
In its response to crises. several basic presumptions should now be guiding the IMF' s
approach with respect to the pri\"ate sector.
•
IMF lending should be a bridge to and from private sector lending not a long-term
substitute.
•
Official lending along with policy changes can he constructin~ in helping to restore
contidence in situations where a countf:- docs ha\e the capacity to repay.
•
Where possible. the official sector through its conditionality should support
approaches - as in Kon:a and. more recentl). Brazil - that enable creditors to
recognize their collecti\"e interest in maintaining positions. despite their individual
interest in withdrawing funds.
•
As we have seen. for example in l q"raine and Pakistan. it will be necessary in some
cases for countries to seek to change the protile and structure of their debts to the
private sector. Such agreements should ha\'e the maximum feasible degree of
voluntarism. but they should not till short-term tinancing gaps in a way that promises
renewed problems down the road.
•
In exceptional cases. the I MF should he prepared to provide finance to countries that
are in arrears to their private creditors: hut only \"here the country has agreed to a
credihle adjustment program. is making a good bith effort to reach a collaborati\'l:
agreement \vith its creditors. and is focused on a realistic plan for addressing its
external financing prohlems that will he \'iahle over the medium and longer term,
The IMF is currently preparing a report for the International Monetary and hnanciai
Committee (t'(mneriy Interim Committee) on the ways in \vhich the broad principles 01
the G-7 framework for pri\'ate sector il1\'olvement in resolving crises haye been
implemented - \,.,ith a vicw to informing further discussion of these issues going fomarcL
More broadly. \\e helieve strongly that the IMF should establish a rVlarket Conditions
Ad\'isory Group to help it have a deeper knowlcdge of the private sector and more
systematic access to market trends and \'iews.
5.
A/oderni=atioJ7 of the /.\IF LIS
Wi
iJ7slillllioll.
We further hclie\'e that if the \\'ork of the IMF is to change. the IMF itsclfmay also
need to change. Specitically. we believe it should move over time toward both a
governing structure that is more representative and a relatiw allocation of memher quotas
that retlects the changes under way in the \\orld economy - so that each country' s
standing and voice are more consistent \\ith its rclati\'c economic and tinancial strength.
We also bclie\'t:~ that the 1i\IF should dec pen the commitment to transparency that is
built into its operations. especially by making the Fund' s o\\n tinancial workings clearer
and more comprehensihle to the public. In that context I am pleased to note that .just last
Fridav we won IMF Board agreement on quarterly publication of the operational budget
- to he renamed the Financial Transactions Plan - with a onc quarter lag.
This would also be consistent \\ith the Iegislatiye mandate that was enactcd in last
year's authorization of IMF orr·market gold sales, Till' tirst such "FTP··. cmering the
period March-May 2000. will be published in August.
V.
Support for Effective Policies in the Poorest Countries
The focus of my remarks has S(l t~lr has been the 11\1 F' s \\-ork in emerging market
economies. Different issues arc posed at the other end of the spectrum. in the poorest
countries. which cannot attract slgniticant prl\atc G.lpilal. ;.Jnd can borrow from the
official sector only on concessional terms. In the past :-ear. international concern about
the deht prohlems of these countries has not only spurred action to pH)\'ide deeper debt
relief - hut has prompted a transformation in the \\ ~I\ in \\hich the World Bank and the
IMF operate in these countries more hroadly.
The nel1jramel1'ork for cOllccssiollU/ (fSSiS/{{IlCC tn the !)()(}rcSI
10
The underlying premise of the new approach is that rapid. enduring growth and
poverty reduction are mutually reinforcing . .lust as poverty reduction is not possibk
without growth. abject poverty and unequal access to economic opportunity can impede
growth. Experience shows that countries that fail to educate their children or vaccinate
them against diseases do not !!row as fast as those that do .
~
~
Under the ne\\ approach. the \Vorld Bank \\ill take the lead and the IMF \\ill han' ~l
more tightly focused role in the poorest countries. As a condition for receiving debt
relief and new concessional loans. countries are now required not only to haw
established a solid track record of reform. but they also must produce a fOIward-lookint2
Powrty Reduction Strategy Paper.
With help from the \Vorld Bank. these strategies \\i11 clearly define national poverty
reduction goals. such as reducing inLmt mortality and malnutrition. and identif\ the
medium term costs associated with achieving these goals. The IMF \vill then work \\ith
the World Bank to ensure that the design of the macroeconomic ti'ame\\ork is consistent
with the poverty reduction program.
To symbolize the change in the IMF' s role in these countries going forward. the IMF
has replaced the Enhanced Structural Adjustment Facility with the Poverty Reduction and
Gro\\th Facility. In designing the PRGF. a strong eHort was made to incorporate
suggestions put forward in past evaluations of the ESAF. many ohvhich echoed concerns
that had been expressed by members of Congress.
The new strategy that is embodied in the PRGF has the following key clements:
•
A much greater emphasis on enduring gro\\th and poverty reduction as the
overarching goal of ofticial support. including concrete targets for the improvement
of basic social indicators such as inj~lIlt mortality and literacy.
•
New mechanisms to ensure that programs ha\e a genuine impact on the allocation 01
resources to core priorities such as hasic health ami education. and that the additional
public funds made available b:- reducing deht result in additional powrty reduction
efforts.
•
Strengthened efforts to enhanCt: go\ernment accountability and transparency.
partic:Iiarly in their fiscal management. ami to encourage civil society participation.
and country ownership of rc!(lI·ms.
•
An enhanced focus on protectll1g thl' poor lrom the potential short-term negative
effects of economic adjustment and re!()J"Jll.
II
Recent Progress in the fmplemel1lalion olHIPC
Given the strong interest of many in Congress in this area let me say a little more
about the early evidence with regard to the critical issue of translating debt relief into
higher social sector spending.
For example:
•
Last year, Uganda saved $45 million in debt service under the original HIPe. As a
result, expenditures on health and education increased by $55 million. This relief
helped the country to double enrollment in primary education in just two years. Under
the enhanced HIPe. going forward Uganda is expected to receive an additional $650
million in debt relief in net present value terms.
•
In 1999 Bolivia saved $77 million in debt service under the original HIPe. and social
sector expenditures increased by more than $100 million. In 2000. Bolivia is
expected to receive $85 million in debt service sayings. leading to even greater
investment in urgently needed services. With the enhanced HIPe. Bolivia's savings
will be $850 million greater in net present yalue terms than they would otherwise
have been.
In this effort we are working hard to ensure reasonable balance between. on the one
hand, the strong humanitarian case /()r pn)\'iding debt relief rapidly and on the other
hand. the economic imperatin: that the right policies are in place so that debt relief is
integrated into meaningful gnmlh and powrty reduction.
The needforjulljzmding ojHfP('
Mr. Chairman. United States leadership \\"as decisiye in last year·s enhancement of the
HIPC program and the broader \\"orld Bank and 11\1 F reforms it has inspired. With last
year's budget agreement. Congress made it possible fix that effort to proceed. But
Congressional leadership is needed again this year to fully meet our commitments.
The steps agreed last year \\i II hel p liS to cowr roughly one-third of the direct costs to
the United States of implementing the enhanced IIIPC. But much work remains to do our
share. notably with respect to the multilateral IIIPC Trust Fund. to which we have yet to
make a contribution. Overall. cwry dollar of our total request will leverage $20 in
international debt relief.
12
The Latin American HIPCs will be especialh affected if we fail to ensure that the
HIPe Trust Fund is adequately funded. To put it bluntly: ihve do not play our part in this
area. debt relief for Bolivia. Guyana. Honduras. and Nicaragua will not happen.
There should be no doubt that any delay in funding for this etTort will have real
consequences. For example:
•
.Just t\\"o \\"eeks ago. Bolivia becamc the second country to qualify for enhanced
HIPC. But it will not see a reduction in its debt payments this year because of the
current financing gap in l-HPC. Based on very rough estimates. Bolivia could
therefore t(m!o as much as $35 million in deht relief this .year. relief that mi!!ht han'
heen invested in more rapid gnn\·th and pmerty rcduction. If the financing gap is not
tilled. it will for!!o an e\t:,n !!ITJter amount of relief next \ ear. of rouuhh. ~ 11 ()
million. or more than 1 percent of Bolivian GDP.
~
~
"-
•
"'
'-
"-
Mozambique has recently been hit hy heavy rains and nooding that has destroyed
crops. left up to one million people homeless and caused at least $70-XO million in
damage to date. 'kith a \ery strong rccord of market reforms. it has already qualitied
for HIPC. and it could qualit\ for enhanced HIPe in a matter of weeks. Linder the
enhanced terms. it would reccive an additional S250 million in relief in present \alul'
terms over the next 20 years. But without full funding for the HIPe Trust Fund this
additional relief could be delayed . .iust \\hen thl' country needs it 1110St.
That is why the President is requesting:
•
A supplemental request for the FY2()OO budget of S21 () million and full authorization
for the HIPe Trust Fund. \\ithout \\ hich qualit\ing countries such as Bolivia will bc
left waiting indefinitely for relief.
•
Congressional authorization for the )i\1I· to make tull use of the earnings on the
profits from off-market gold saILs. I.ast year. ('ongress authorized the usc of a
portion of those earnings: thl' remallling 5 1-+ III those 1100\s needs to be authorized so
that the IMF can meet its commitments to deht rl,lll'l as countries qualify.
•
Appropriations !()!" FY 2()() 1 Ilt S22:, milliul1 tor I II Pc. comprising ~ 15() million for
the HIPe Trust Fund and S75 million to mcet thl' CllSt of reducing our bilall:ral 10<lns.
To underscore our commitment til sl'clng this 11l11l;lti\l' through. the President has also
requested $375 million in ad'ance approprlatiol1s In FY2001 for these t\\iO elements
of I·HPC.
Mr. Chairman. debt n:licf for thc poorest countries is a global moral imperative. It is
also a global economic imperati\c. at a time \\ hcn Ilcarly all of the growth in thc world's
labor forcc and productivity \\ill hc Illthc dc\eloping countries - and thcir success in a
new global economy is going to be important to the sllccess of LIS all.
13
The choice we face is a simple one. We can play our full part in making l-lIPC happen.
Or we can leave this initiative under-funded. and risk delay - and even a reversal - of
economic reform and poverty reduction efforts in countries that are now \vorking to put
their past failures behind them. I hope that Congress will agree with us that the right
choice is clear.
VI.
Concluding Remarks
Mr. Chairman. in recent weeks we have been talking with IMF members and
management with a viev-; to making all of our reform proposals happen. As our global
discussions on these issues continue. it will be important to consider not just the role of
the IMF. but also the roles of the World Bank and other development institutions and
how these institutions relate to each other. We intend to outline our proposals for
reforming this aspect of the international tinancial architecture in the cominl!. weeks in
the lead-up to the Spring Meetings of the IMF and World Bank.
Let me conclude v-;ith one final thought. In line vvith the Committee' s request. I han:
focused today on the international financial institutions. But clearly our most important
global economic objectives today must be economic growth and helping countries to
grow together. And finance is only one important element of achieving that kind of
growth.
Another crucial element of successful development - \\hich can only become more
important as global integration proceeds - will be economic openness and growth in
foreign trade. both for the domestic competition and innovation that it promotes and the
greater interconnectedness of economies and economies that it creates.
In that context. granting Permanent Normal Trading Relations status to China as a
critical part of its entry to the WTO entry. and passing both the African Growth and
Opportunity Act and the Enhanced Caribbean Initiative. will be enormously important in
the weeks and months ahead. for America' s core interests and for global economic
development.
I look forv. ard to \\()rking with this Committee and with others in Congress on these
and other crucial international prIorities going fon\ard. Thank you. 1 would now
welcome any questions that you Illay have.
-.10-
14
NEWS
EMBARGOED UNTIL 1:00 P.M. EST
Text as Prepared for Delivery
February 29, 2000
TREASURY TAX LEGISLATIVE COUNSEL JOSEPH MIKRUT TESTIMONY
BEFORE HOUSE WAYS AND MEANS SUBCOMMITTEE ON OVERSIGHT
Mr. Chairman, Ranking Member Coyne, and distinguished Members of the Subcommittee
I appreciate the opportunity today to discuss with you the repeal of the installment method
of accounting for accrual method taxpayers, which was originally proposed in the Administration's
Fiscal Year 2000 budget and was enacted by section 536 of the Ticket to Work and Work Incentives
Improvement Act of 1999, effective for sales or other dispositions occurring on or after December
17, 1999.
Background
Items of income and loss generally are taken into account by a taxpayer in a taxable year
based on the taxpayer's method of accounting The cash receipts and disbursements method of
accounting (cash method) generally requires an item to be included in income when actually or
constructively received In contrast, an accrual method of accounting items generally requires an item
to be included in income when all events have occurred that fix the right to its receipt and its amount
can be determined with reasonable accuracy Accrual methods of accounting, when compared to the
cash method, generally are acknowledged to better reflect economic income and comport to generally
accepted accounting principles Present law places several restrictions on the use of the cash method
for income tax purposes.
The installment method of accounting provides an exception to these general recognition
principles by allowing a taxpayer to defer recognition of income from the disposition of certain
property until payment is received Under the installment method, a taxpayer recognizes the gain
resulting from the disposition of property proportionately as payments are received on the installment
note. Payments taken into account for this purpose generally include cash, marketable securities, and
evidences of indebtedness that are payable upon demand or are readily tradable
The use of installment reporting was originally permitted by Treasury regulations in 1918 for
dealers and subsequently sanctioned by Congress in 1926 for dealers and nondealers, subject to
L8-426
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
«
°IJ S Government Pflnl,na Office 1998· 619-559
cenain conditions As explained by the Supreme Court in South Texas Lumber Co, 333 US 496
( 1948), the installment method of reporting was enacted to relieve taxpayers who adopted it from
having to pay income tax in the year of sale based on the full amount of anticipated profits when in
fact they had received in cash only a small portion of the sales price. However, beginning with the
Tax Reform Act of 1986 (1986 Act), the availability of the installment method has been restricted and
the benefits derived from its use have been substantially reduced For example, use of the installment
method was denied for revolving credit sales and sales of certain publicly traded propeny by the 1986
Act and for dealer dispositions of real or personal property, with exceptions for farming property,
timeshares and residential lots, by the Revenue Act of 1987 (1987 Act). In addition, the 1987 Act
significantly limited the benefits of using the installment method by imposing interest charges on the
deferred tax liability attributable to certain installment obligations and by treating pledges of certain
installment obligations as payment, thereby triggering the recognition of income.
Administration's Proposal and Subsequent Legislation
The Administration's Fiscal Year 2000 budget proposed to prohibit the use of the installment
method to repon income from an installment sale that would otherwise be reported on an accrual
method of accounting (installment sales provision) The proposal did not change the use of the
installment method by cash method taxpayers or the present-law exceptions regarding the availability
of the installment method for sales of farming property, timeshares or residential lots. The
Administration also proposed to eliminate certain inadequacies in the pledging rules by clarifying that
put rights or other similar arrangements \vill receive the same treatment as pledges The installment
sales provision \vas proposed to be effective for sales or other dispositions occurring on or after the
date of enactment
As indicated in the General Explanations of the Administration's Fiscal Year 2000 Revenue
Proposals, the installment sales provision \\'as proposed because the use of the installment method
is inconsistent with an accrual method of accounting and effectively allows an accrual method
taxpayer to recognize income from the sale of cenain propeny using the cash method. Consequently,
the installment method fails to reflect the economic results of a taxpayer's business during the taxable
year
The policy reason underl~'ing the installment method of accounting is to impose tax when the
taxpayer has the \vherewithal to pay the tax (i e . when the taxpayer has received the cash) It was
difficult to reconcile this policy reason. ho\\ewr. with an accrual method, which requires the payment
of tax on trade or business receivables pnor to the receipt of the related cash Moreover, as a result
of the repeal of the installment method for revoking credit sales, cenain publicly traded property and
dealer dispositions, the law already required taxpayers to include in income amounts that had not been
collected Allov.ing an exception for accrual method taxpayers for the disposition of certain property,
but not for other propeny, created additional inconsistencies in the application of accounting
methods
.
The installment sales provision and the pledge rule clarification were enacted as part of the
TIcket to Work and Work Incentives Improvement Act of 1999 (1999 Act), effective for sales or
other dispositions occurrin!2. on or after December 17 , 1990
~
Effect of the Legislative Change
After the 1999 Act was passed by Congress, small businesses began to express concerns that
the repeal of the installment method for accrual method taxpayers negatively impacted the sales of
small businesses. In particular, small business groups have asserted that the use of the installment
method to report the gain on the sale of the business enabled a seller to get a higher price for its
business and a buyer to purchase a business for which bank financing was not readily available. As
a result of the enactment of the installment sales provision, these small business groups have estimated
that the sales price of some closely held businesses may be reduced by 8 percent or more.
The installment sales provision was made applicable to all accrual method taxpayers, not just
to small businesses. The ability for an accrual method taxpayer to defer a realized gain until the
related cash was received is inconsistent with an accrual method, regardless of the size of the
taxpayer's business The provision applies to both casual sales of property and sales of businesses
that would otherwise be reported on an accrual method However, the extent of the impact of the
provision on the sales of small businesses apparently was unforeseen by policymakers and potentially
affected taxpayers and their advisors during the legislative process.
The repeal of the installment method for accrual method taxpayers decreases the flexibility
of structuring certain business dispositions, but does not totally eliminate the use of the installment
method in such transactions. As indicated in the legislative history to the provision, the sale of stock
of an accrual method business by a cash method taxpayer will continue to qualify for the installment
method Similarly, the sale of an interest in an accrual method partnership by a cash method taxpayer
generally should continue to be eligible for installment reporting. On the other hand, sales of assets
of an accrual method corporation or partnership will no longer qualify for installment reporting These
different tax results add to the tension that already exists between buyers and sellers with respect to
the decision to sell assets or stock Buyers generally want to purchase assets in order to avoid
contingent liabilities associated with the stock and to obtain an asset basis "step-up" to fair market
value. On the other hand, sellers typically want to sell stock in order to avoid two levels of tax, to
obtain favorable capital gain treatment, and to transfer contingent liabilities associated with the stock.
Treasury's Response
Treasury's Oftice of Tax Policy' has met several times with interested industry groups,
including the National Federation oflndependent Businesses, National Association of Manufacturers,
American Institute of Certified Public Accountants, Small Business Legislative Council, and U.S.
Chamber of Commerce, and listened to their concerns about the effect of this recent legislation on
sales of small businesses These groups also requested clarification of the effect of the installment
sales provision on particular transactions For example, they requested that we address the sale by
a cash method individual of an accrual method business conducted as a sole proprietorship; the
continued viability of section 453(h), which allows a shareholder of a liquidating corporation to use
the installment method to report the gain on the exchange of its stock for an installment obligation
of the purchaser of the corporation's assets, and the effect of a section 338 election, under which a
stock sale is deemed an asset sale for tax purposes, on a stock sale of an accrual method corporation
by a cash method seller
.'
We intend to issue guidance in the near future that will address the availability of the
installment method for most common disposition transactions. In addition, we will issue broader
guidance that should alleviate the effect of the legislation on small businesses, regardless of the
~ntity's form, as well as provide additional tax accounting relief. As the installment sales legislation
applies to accrual method taxpayers, a threshold issue arises as to which taxpayers are required to use
an accrual method, an issue that we have been aggressively studying in other contexts As indicated
on the most recent Treasury and IRS Priority Guidance Plan, we intend to issue guidance addressing
the requirements to account for inventories and, as a result, to use an accrual method. Part of this
planned guidance generally will allow a qualified taxpayer with average annual gross receipts of $1
million or less to use the cash method and, thus, the installment method. The details for qualifYing
for this exception and the procedures to automatically change to the cash method will be provided
in guidance that should be published in the near future
While we believe it is important to provide clear and timely guidance to clarifY the effect of
the installment sales provision on particular transactions and certain small businesses, we believe the
law is clear that where an accrual method entity sells assets, or is deemed to sell assets, the installment
method will no longer be available because the method of accounting of the entity controls the
transaction. Consequently, providing relief for such transactions will require legislation.
Overall, we believe the policy underlying the legislation is appropriate. The installment
method is inconsistent with an accrual method of accounting, which generally requires a taxpayer to
pay tax on a realized gain, regardless of whether the taxpayer has received the related cash.
However, we now understand that the legislation has imposed financial burdens on small businesses
that override this basic tax policy concern As such, we are eager to work with Congress to provide
a legislative solution to alleviate this unforeseen impact of the installment sales provision
Any legislative response should be targeted to address the legitimate concerns of affected
taxpayers To address the liquidity problems facing sellers of small businesses (e.g., businesses with
less than $5 million in gross receipts j, use of the installment method could be allowed (perhaps with
an interest charge), regardless of the seller's method of accounting. If there is concern that different
types of flow-through entities are treated diHerently (because sales of partnerships may be structured
to allow the buyer to obtain a stepped-up basis and the seller to use the installment method while sales
of S corporations allow either the buyer to obtain a stepped-up basis or the seller to use the
installment method), special rules could be provided to level the playing field In addition, legislation
also could clarifY the treatment of sole proprietorships and address other issues related to the use of
deferred payments
Finally, any legislatl\e solution should promote simplification and
administrabilitv
This concludes mv prepared remarks We look fOJ\Nard to working with you, Mr Chairman,
~lr CO~'ne, and members of the Subcommittee and full Committee in developing any legislative
proposals deemed appropriate, and \\ e \\ ill keep you informed of our proposed administrative actions.
I would be pleased to respond to your questions
-30-
DEPARTMENT OF THE TREASURY
FEDERAL RESERVE BOARD
FOR IMMEDIATE RELEASE
February 29,2000
Contact:
Bill Buck, Treasury
202-622-2960
David Skidmore,
Federal Reserve
202-452-2955
U.S. EFFORTS TO COMBAT GLOBAL COUNTERFEITING ARE WORKING
il
Efforts to combat international counterfeiting of U.S. currency are working, according to
Treasury Department and Federal Reserve Board report released on Tuesday.
"Our efforts to make the U.S. currency as secure as possible are working," said Treasury
Secretary Lawrence H. Summers. "By combating global counterfeiting we can ensure that our
currency will remain a symbol of our strength and stability."
"The currency of the United States represents the strength and dependability of our
economy and the financial system that supports it. As such, its integrity must be carefully
protected," said Edward W. Kelley, Jr., member of the Board of Governors of the Federal
Reserve System. "This study indicates that the new-design notes have been quite successful in
thwarting counterfeiters. The Federal Reserve Bank of New York has detected a considerably
smaller proportion of counterfeit notes among genuine new-design notes than among olderdesign notes."
The report, The Use and Counterfeiting of United States Currency Abroad, mandated by
Congress as part of the Anti-Terrorism and Effective Death Penalty Act of 1996 and conducted
by the Treasury Department and the Federal Reserve, is a comprehensive review of the
international use and counterfeiting of U.S. currency.
The efforts to protect U.S. currency have been effective. The incidence of counterfeiting
is low both inside and outside the United States but slightly higher outside the United States,
with approximately one note per 10,000 counterfeit worldwide. The U.S. Secret Service is
working closely with overseas banks and law enforcement agencies to help suppress
counterfeiting activities.
LS-428
The report highlighted important steps the US. Government is currently taking to combat
global counterfeiting:
•
•
•
A pilot Secret Service website allows law enforcement agencies and currency
handlers worldwide to report instances of counterfeiting.
Through its extended custodial inventory program, the Federal Reserve Bank of New
York has established overseas cash depots at foreign banks. By lowering
transportation costs, these facilities allow overseas dollar users to more efficiently
obtain new US. currency and return worn and old-design US. currency.
US. enforcement agencies are working with their overseas counterparts to target
cities and countries that first receive counterfeit notes in the wholesale distribution
chain.
The study concluded that between $250 billion and $350 billion of the $500 billion of
US. currency in circulation was held overseas at the end of 1998.
According to the report, technology will continue to require new and innovative
responses to maintain the security of US. currency. These efforts will include: further security
enhancements to our currency design, enhanced cooperation with international law enforcement
agencies and additional training of foreign law enforcement and financial officials in counterfeit
detection.
The report is available through the Treasury Office of Public Affairs at (202) 622-2960 or
the Federal Reserve Office of Public Affairs at (202) 452-2955 or via the Internet at
www.treas.gov/press
-30-
NEWS
~8~9. . . . . . . . . . . . . ._
. . . . . ._ _ _ _ _ _. .
OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C .• 20220 - (202) 622-2960
u.s. Internat.onal Reserve Poslt.on
February 29, 2000
The Treasury Department today released L'.S. reserve assets data for the week ending February 25, 2000.
_\s indicated In this table, l'.S. reserve assets totaled 569,318 million as of February 25, 2000, down from S6<),6-1-3
million as of February 18, 2000.
.
in US millions)
. Official U.S. Reserve Assets
February 18. 2000
69,643
TOTAL
I. Foreign Currency Reserves
a. Securities
Of
.··~!ch.
I
1
Euro
February 25. 2000
69,318
4.959
Yen
5,789
TOTAL
10,748
0
Euro
4,932
8,536
11.206
19,743
0
0
8,466
Issuer headquartered In the U.S
Yen
5.784
TOTAL
10.716
0
b. Tota deposits with:
b.i. O:ner central banks and SIS
b.il. Banks headquartered in the U.S.
D.ii. Of which, banks located abroad
b.iii. Sanks headquartered outside the U.S.
b.iii. Of WhiCh, banks located in the U.S.
Z, IMF Reserve Position
2
!, Special Drawing Rights (SDRs)
l, Gold Stock
2
3
;. Other Reserve Assets
11,196
19,662
0
0
0
0
0
0
17,743
17,609
10,361
10,282
11,048
11,048
0
0
1/ Includes holdings ::f the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at c~pent market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
depOSits reflect carrying values.
21 SDR holdings and the reserve position in tre IMF are based on IMF data and revalued In dollar terms at the official SDRldoliar exchange
rate. ConSistent with current reporting practlce~ IMF data for February 18. 2000 are final Data for SDR holdings and the reserve position In
the IMF shown as of February 25, 2000 (In ItaliCS) reflect preliminary adlustments by the Treasury to the February 18, 2000 IMF data.
31 Gold stock is valued monthly at $42.2222 per fine troy ounce
was $11,048 million.
Values shown are as of January 31,2000. The December 31, 1999 value
L8-429
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
5
·U.S Government Prtntlng Otftce .19S1.8· 619·559
D EPA R T 1\1 E N T
0 F
THE
+~\
lREASURY frWJ
({"
T REA SUR Y
NEWS
1789
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
u.s. Internat.onal Reserve Poslt.on
February 29, 2000
The Treasun' Department toda\' released C.S. resen-e assets data for the week ending February 25, 2000.
_\5 IOrucated 10 this table, C.S. resen-e assets totaled 569,318 million as of Februan' 25,2000, down from 569.6-1-3
million as of February 18, 2000.
in US millions)
TOTAL
I. Foreign Currency Reserves
a. Securities
I
1
February 25, 2000
69,318
February 18. 2000
69,643
. Official U.S. Reserve Assets
Euro
Yen
TOTAL
Euro
Yen
TOTAL
4.959
5)89
10)48
0
4,932
5.784
10.716
0
8.536
11.206
19.743
0
0
0
0
8,466
11,196
19,662
0
0
0
0
Of ..·"·ch. Issuer headquartered In the U. S.
b. Tot<! deposits with:
b.i. Omer central banks and SIS
b.iI. Banks headquartered in the U.S.
o.ii. Of WhiCh, banks located abroad
b.iii. Sanks headquartered outside the U.S.
b.iii. Of which. banks located In the U.S.
1. IMF Reserve Position
2
I. Special Drawing Rights (SDRs)
I. Gold Stock
2
3
i. Other Reserve Assets
17,743
17,609
10.361
10.282
11.048
11.048
0
0
11 Includes holdln9S :f the Treasury's Exchange Stabilization Fund (ESF) and the Federal Reserve's System Open Market Account
(SOMA), valued at cu:'ent market exchange rates. Foreign currency holdings listed as securities reflect marked-to-market values, and
depOSits reflect carrying values.
21 SDR holdings and the reserve position in ,re> IMF are based on IMF data and revalued In dollar terms at the offiCial SDRldoliar exchange
rate. Consistent with current reporting practlceo IMF data for February 18, 2000 are final Data for SDR holdings and the reserve position In
the IMF shown as of February 25. 2000 (In italiCS) reflect preliminary adjustments by the Treasury to the February 18, 2000 IMF data.
31 Gold stock is valued monthly at $42,2222 per fine troy ounce
was $11.048 million.
Values shown are as of January 31, 2000. The December 31,1999 value
L8-429
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
)
<
·IJ So (;OVF~rnment Print Ina Ottlce 1998· 619·559
u.s. International Reserve Position (cont'd)
II. Predetermined Short-Term Drains on Foreign Currency Assets
February 25, 2000
February 18. 2000
1. Foreign currency loans and securities
12. Aggregate short and long positions in forwards and
futures in foreign currencies vis-a-vis the U.S. dollar:
2.8. Short positions
2b. Long positions
3. Other
0
0
0
0
0
0
0
0
III. Contingent Short-Term Net Drains on Foreign Currency Assets
February 25, 2000
February 18, 2000
1. Contingent liabilities in foreign currency
La. Collateral guarantees on debt due within 1 year
1.b. Other contingent liabilities
b. Foreign currency securities with embedded options
3. Undrawn. unconditional credit lines
38. With other central banks
3b. With banks and other financial institutions
headquartered in the U. s.
3c. With banks and other financial institutions
o
o
o
o
o
o
o
o
headquartered outside the U. S.
~. Aggregate short and long positions of options in foreign
currencies vis-a-vis the U.S. dollar
4.8. Short positions
4.a.1 Bought puts
4.a.2. Written calls
4.b. Long positions
4.b.1. Bought calls
4.b.2. Written puts
-
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
February 29, 2000
Office of Financing
202-691-3550
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
364-Day Bill
March 02, 2000
March 01, 2001
912795FV8
Term:
Issue Date:
Maturity Date:
CUSIP Number:
5.840%
High Rate:
Investment Rate 1/:
6.197%
Price:
94.095
All noncompetitive and successful competitive bidders were awarded
securities at the high rate. Tenders at the high discount rate were
allotted 68%.
All tenders at lower rates were accepted in full.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Accepted
Tendered
Tender Type
$
Competitive
Noncompetitive
$
Foreign Official Refunded
SUBTOTAL
Federal Reserve
Foreign Official Add-On
$
7,320,299
1,082,552
8,402,851 '.2/
22,588,451
PUBLIC SUBTOTAL
TOTAL
21, 505, 899
1,082,552
1,612,000
1,612,000
24,200,451
10,014,851
4,805,000
792,000
4,805,000
792,000
29,797,451
$
15,611,851
Median rate
5.830%: 50% of the amount of accepted competitive tenders
was tendered at or below that rate.
Low rate
5.790%:
5% of the amount
of accepted competitive tenders was tendered at or below that rate.
Bid-to-Cover Ratio
=
22,588,451 / 8,402,851
=
2.69
1/ Equivalent coupon-issue yield.
2/ Awards to TREASURY DIRECT = $757,015,000
http://www.publicdebt.treas.gov
L8-430
BIGHLIGH'I'S OP TREASURY OFFERING
OF 13 -DAY CASB lQlQGEMEN'l' BILL
February 29, 2000
Offering Amount ••••••••••••....••.•• $25,000 million
Description of Offering:
'1'exm ana type of security ............
COSIP number ••••••••••••••••••••••••
Auction date ••••••••.•••••••••••••••
Issue date •••.••••••••••••••••••.•••
Maturity date •••••••••••••••••••••••
Original issue date •••••••••••••••••
CUrrently outstanding •••••••••••••••
~n~ bid amount and multiples ••••
13-day Cas h Mana.gement
81.·11
912795 DH 0
March 2, 2000
Karch 3" 2000
Karch 16 , 2000
September 16, 1999
$24,132 million
$1,000
SUbmission of Bids:
Noncompetitive bids ••••••••• ACcepted in full up to $l,OOO,DOO at
the highest accepted discount rate.
Competitive bids •••••••• (l) MUst be expressed as a discount rate with
two dec~ls, e.g., 7.10%.
(2) Ret long positioD 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) !let long position must be determined as
of one half-hour prior to the closing
time for receipt of competitive tenders.
Max~um
Recognized Bid
at a Single Rate ••••••••••• 35% of public offering
Max~
Award ••••••••••••••••• 35% of public offering
Receipt of Tenders:
Noncompetitive tenders .••••• prior to l2:00 noon Eastern Standard time
on auction day
Competitive tenders •.••••••• Prior to 1:00 p.m. Eastern St~d8rd t~e
on auction day
Payment T~ •••.•.••..••••••• By charge to a funds account at a Federal
Reserve Bank on issue date, or payment of
full par amount with tender.
@FedFRASER